Wipro Q2 improved, but still a work in progress: Cowen

Despite an improved performance by Wipro in the second quarter, the information technology (IT) major’s performance still needs to better, says Moshe Katri, MD, Cowen and Co. He adds that the company still needs to reach industry average growth rates. Only then, a rerating on the stock is possible, he tells CNBC-TV18.

Also read: Wipro Q2 beats estimate: Analysts to upgrade their outlook?

Below is the edited transcript of his interview to CNBC-TV18.

Q: What did you make of Wipro’s results? Was it tempting enough for you to add to your positions in the stock?

A: We are definitely seeing improved execution after a couple of years of restructuring. There has been a very impressive set of new client additions during the quarter. We sense sequential growth that was very spectacular at 3.2 percent constant currency growth in dollars. The guidance was reasonable. But, the work is still in progress.

Q: In terms of margin performance, it has been quite strong for Wipro. Do you see this margin performance sustain for the next couple of quarters?

A: Margins were helped by forex. It seems that we are not going to have any major moves on the currency side. Margins will remain stable.

Q: Wipro’s revenue and margin is not to the level that HCL Technologies is. HCL Tech trades at a bit of a discount to Wipro. Is there is a case for a switch that HCL Tech should be preferred over Wipro?

A: For the entire space, valuation seems to be overstretched and factoring more growth and a growth extending into next year. So, I do not think any name in this space right now look appealing from valuation perspective. But, if you are looking for the best names in the sector, you would want to take at Cognizant or Tata Consultancy Services (TCS).

Q: Is there no case for a rerating on Wipro? Will valuations not improve from here on?

A: Rerating will take place as soon as we see the company performing as per the industry rate growth. It is in mid-teens this year. I don’t think we are there yet. It may be in the next year, but it is going to be gradual.