Accumulate Wipro; target of Rs 460: PLilladher

“We attended the “Analyst Meet” of Wipro on June 11, 2012. The management spoke about the ongoing restructuring process and strategy to address the changing needs of customers. However, the growth continues to look elusive. The company wants to increase their focus on 138 accounts, which is expected to derive growth for them. We continue to remain cautious on the elusive growth and a long wait for overhaul in Wipro. We reiterate our “Accumulate” rating with a target price of Rs460.”

“According Mr. Azim Premji, the IT industry would deliver growth of ~13% for FY13. However for Wipro, the sales cycle is now slower than what they witnessed in April (earlier the management indicated acceleration in decision making in April-12 after a slow start for CY12). The growth is likely to be anaemic for Q2FY13. The company didn’t indicate any improvement in the demand environment. There is pricing pressure in some verticals. The deal closure continues to remain a moving target since January. The management indicated restructuring process as work in progress. The organizational alignment is completely done. However, aligning capabilities is nearly 50% done, whereas, filling the differentiation gap is only 30% complete. Nevertheless, the early taste of success of restructuring is already felt by the company in the form of improved customer satisfaction, increased employee satisfaction and better gross margin for the projects. The commentary in BFS was inline with peers. The company sees weakness in capital market, steady growth in insurance and a good pipe-line in retail banking domain. The management sees slow ramp-up in regulation (Dodd-Frank) related work in the US, but good traction (for Basel-III, Solvency-II, FATCA etc) in Europe.”

“We continue to see higher consensus expectation despite cautious guidance as the risk. We expect Q2FY13 guidance to be only marginally better than Q1FY13. We reiterate our “Accumulate” rating with a target price of Rs460, 17x FY13E earnings estimates,” says Prabhudas Lilladher research report.     

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