Wipro - Applying Thought: Overweight or not? - Motilal Oswal

Wipro (WPRO IN; Mkt Cap USD23.4b, CMP Rs437, Neutral)

Applying Thought: Overweight or not?

No. Sub-optimal exposure and execution issues persist

We believe the new management's job is cut out and catching up with peers on performance is likely to be an uphill task due to the following factors:

1) Wipro has had low exposure to higher growth verticals like BFSI (25% against an av of 38% for peers) and high exposure to lower growth verticals like Telecom.

2) Wipro's execution in growth verticals lagged its peers, compounding the issue of sub-optimal exposure.

3) Even HCL Tech has had sub-optimal exposure to better growth verticals, but it posted better growth than Infosys and TCS in each vertical.

This out-performance was driven by a willingness to invest in the early stages of recovery from the downturn, at the expense of margins.

Consequently, any catching up for Wipro may have to come with a compromise on short term margins.

After the recent correction in its stock price, Wipro trades at a P/E of 18.1, which is a 11.3% discount to Infosys, against a historical median discount of 7.9%. While we believe that the current valuation discounts concerns about Wipro, we would however wait to see execution improve under the new CEO, before getting more bullish. We see Infosys as a much cleaner story with more predictable growth and margins and a higher probability of earnings upgrades.

Source : Equity Bulls

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