Buy Wipro; target of Rs 452: Angel Broking

Angel Broking is bullish on Wipro and has recommended buy rating on the stock with a target of Rs 452 in its June 12, 2012 research report.

“We recently attended Wipro’s analyst meet. The meet focused on the company’s strategy to build differentiation in selected segments in various industry verticals and service lines. The company maintained that investments to develop domain capabilities are going on to help drive medium-term growth. The senior management team indicated that the demand scenario remains volatile due to uncertainty across the globe but outsourcing/offshoring as a means of driving productivity as well as cost benefits remains crucial to clients.”

“Wipro has chosen its growth strategy to revolve around focusing on selected few segments in terms of industry verticals and services. The company has identified four momentum industry verticals: 1) BFSI, 2) energy and utilities, 3) retail and 4) lifesciences and healthcare. These verticals all-together account for 65% of the company's revenue. Wipro has higher exposure (as a proportion of revenue) as compared to its peers in three out of the above-mentioned four momentum verticals. Wipro has operating margin levers such as improving utilization level and increasing offshore revenue. Wipro’s utilization level is currently at 67.4%, which is at a historic low level since FY2008. The company has headroom to improve its utilization by ~300bp even if management does not want to run a tight ship. In addition, Wipro’s share of offshore revenue declined to 45.6% due to SAIC’s acquisition from 49% earlier (peers have offshore revenue above 50%). Increasing offshoring of revenue is on Wipro’s cards right now and could offer a cushion to its margins.”

“Wipro emphasized its focus on profitable growth and aspirations to close the gap in profitability with peers. Early signs of restructuring yielding results are visible in terms of improvement in the deal pipeline, growth seen in the company’s focus industry verticals and increasing revenue from the company’s top clients. We expect Wipro’s revenue to post a CAGR of 13.7% over FY2012-14E, with EBITDA margin moving from 19.8% in FY2012 to 20.5% in FY2014. Over FY2012-14E, Wipro’s net profit is expected to post a CAGR of 15.2%, which is industry leading. We upgrade the stock to Buy with a target price of `452, valuing it at 15x FY2014E EPS of `30.1,” says Angel Broking research report.

FIIs holding more than 30% in Indian cos

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

To read the full report click on the attachment

Read More