Ms. Aditi Patil - Research Associate at Prabhudas Lilladher.
- Revenue growth guidance between 1-3% QoQ CC for Q1FY23 (vs 2-4% QoQ for past 2 quarters) is weaker than consensus expectations.
- IT services margins likely to decline below 17-17.5% for next 2-3 quarters.
Wipro's Q1FY23 revenue growth guidance of 1-3% QoQ CC (vs 2-4% QoQ for past 2 quarters) is weaker than consensus expectations. Management mentioned about robust order book ACV (up 30% YoY in FY22 and 38% YoY in Q4FY22) and deal pipeline, then further guided for double digit growth in FY23. Though growth in ACV is strong, TCV of $400mn (-33% QoQ) in Q4FY22 is soft. Wipro's new strategy and investments are progressing well - 1) 60 synergy deals with Capco, 2) 16% more senior leaders closer to clients and 3) 30% YoY growth in cloud ecosystem in FY22. However, material large/mega deal wins or increase in organic revenue guidance from 2QFY23 will be key triggers for the stock going forward.
We cut EPS estimates by ~7.5% for FY23/24 led by cut in EBIT margin by ~120bps/110bps for FY23/24, due to margin pressures from higher manpower costs and investments in sales & technology capabilities. We arrive at DCF based TP of Rs. 616 (earlier 735) with implied target multiple of 23x P/E on FY24 EPS (earlier 25x). Wipro is currently trading at attractive valuations of 21x/19x on FY23/24E earnings of Rs. 24/27 respectively with Revenue/EPS CAGR of 11%/12% for FY22-24. Maintain Buy.
Shares of Wipro Limited was last trading in BSE at Rs. 509.00 as compared to the previous close of Rs. 522.55. The total number of shares traded during the day was 522735 in over 16637 trades.
The stock hit an intraday high of Rs. 530.00 and intraday low of 507.25. The net turnover during the day was Rs. 268743367.00.