Wipro has shown a lacklustre topline growth and is on a long journey to return to industry-like growth, said Moshe Katri, MD of CRT Sterne Agee.
In an interview to CNBC-TV18, Katri said it is going to take some time before the company regains a higher topline growth.
Discussing other largecap tech stocks, he said Infosys and TCS have been faring well in the IT space.He is of the view that Infosys has so far done an incredible job in reclaiming the lost market share and it must articulate on ways of transition of its legacy business into digital. The stock, Katri adds, can see upside if the company shows better than 13 percent growth rate, going forward.
Below is the verbatim transcript of Moshe Katri's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Latha: We could read your note and it said that you have maintained an underperform rating. What exactly displeased you about Wipro results?
A: Wipro has been on a very long journey, it's been a multiyear journey to return to industry like growth and the issue here is that we have seen the company winning quite a large amount of deals in the past few years but these are yet to translate into topline growth and the bigger issue is that they are not unique here. We are seeing some other legacy players are going through transformation where big chunk of legacy business is either going on the cloud or either getting reprised or going through a different pricing model and we are definitely seeing cannibalisation there. So 50-60-70 percent revenue basis going through that process - that explains disconnect between that coming on board and lacklustre topline growth. I think this is a slow messy transition and every single large vendor is going through that right now.
In the case of Wipro, I think it is going to take some time before we get there, but we have to wait and see.
Sonia: What is the sense you are getting about the stock itself because the 52 week low for Wipro was around Rs 500. It has recovered quite a bit from there because the numbers are disappointing this time, do you see a bigger downside for the stock over the next six months?
A: On a relative basis if we compare Wipro with the other names that we cover and a lot of those names trade as American depository receipts (ADRs) or some of them are trading in the Nasdaq, this is not a cheap name and that is how we have it as an underperform and at this point it seems that there is a disconnect between the multiple versus the actual growth rate. Year-to-date it has been a spectacular performer and the company is doing exactly whatever needs to do to get to that growth, the industry like growth rate, they are not there yet and you still have many believers out there that it can do that. So we have to wait and see.
Latha: We have to look at the comparatives as well. How would you rate Infosys and Tata Consultancy Services (TCS)? Are you happy with their numbers and their multiples? Do you see Infosys taking over TCS' multiple?
A: Infosys has doing an incredible job in terms of reclaiming some of the share that they have lost in the past few years and you have seen a gradual improvement in Infosys and FY2015 on an average they were booking about USD 400 million a quarter that went to about USD 700 million a quarter in FY2016 and they are getting close to about a billion a quarter in 2017. So they are definitely doing a great job in doing that. On the flip side of it you are seeing price realisation under pressure but they are able to offset that because they have multiple levels to get there. So it seems that what you are seeing is real in terms of revenue reacceleration. My biggest focus here is that we need to see that company articulate how they transition and a lot of that legacy business into digital and I always like the Accenture as a comparison because at this point we believe that Infosys and TCS and many others in the group are able to benefit from the fact that you have a record amount of contract renewal in 2016 and a lot of these renewals are getting way from the legacy and there is like IBM and HP and these are being won by the likes of Infosys and TCS. I think that is a positive trend that will help sustain growth for the industry but again a lot of these contracts are not on the digital side of the business and this is where you have to focus on. So we are waiting to hear Infosys articulate that strategy.
Sonia: Do you see more upside in Infosys in the near term?
A: If they are able to show better than 13 percent growth rate yes; again this is a largecap name that is going through a revaluation because you are getting there. Accenture went through the same thing; guiding for 5-7 percent growth, now roughly at about 8-10 percent. We are assuming they can do 10-12 percent this fiscal year and for Infosys it is about showing accelerating topline growth and we believe investors are paying for that in this market.
Latha: What are you price targets for Infosys, TCS?
A: We do not cover TCS but we do cover Infosys. Our price target for Infosys in US dollar is roughly USD 22 right now.
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