Buy Wipro; target of Rs 480: Prabhudas Lilladher

Prabhudas Lilladher is bullish on Wipro and has recommended accumulate rating on the stock with a target price of Rs 480 in its January 18, 2013 research report.

"Wipro's Q3FY13 results were touch ahead of PLe/Consensus expectation. However,, uncertain external environment pushed for a weaker-than-expected guidance for Q4FY13. The management has worked towards improving business and client composition, which is resulting in a bumpy ride. We see improving outlook on overall growth prospect of the company in FY14.

Wipro reported another quarter of a weak revenue growth of 2.4% QoQ (TCS: 3.3%, INFO: 4.2%, HCLT: 3.6%), led by realization improvement 3.8% QoQ (Onsite: 3.6%, Offshore: 3.4%). However, volume decline by 1% QoQ is weaker by ~2pp compared to peers. Moreover, the company guided for 0.5% to 3% QoQ growth which accounts for fiscal uncertainity and possible delay in ramp-up. We see high likelihood of Wipro delivering quarter towards the upper end of guidance.

Wipro has gone through organizational restructuring over the last eight quarters. The restruturing has been a bumpy ride where it has seen changes at the senior management levels, organizational structure (Service verticalization), S&M investment and tail-trimming of clients. The company is now reaching the end of restructuring process.

Management indicated 1.7x stronger deal pipeline in Q3FY13 (v/s Q3FY12). Also, the deal wins have improved on QoQ basis. The company has reduced its nonproductive tail of 80 clients to 20 with 181 new clients' addition since Q4FY12. We expect improved client composition (due to strong clients' addition and tail trimming) to result in improved business momentum in FY14.

Management's cautious tone for Q4FY13 was largely attributed to the uncertain environment. We expect improved deal funnel, client composition and steady deal win to drive volume growth in FY14. We reiterate "BUY" rating, with a revise target price of Rs 480, 16x FY14E earnings estimate (5% discount to TCS)," says Prabhudas Lilladher research report.

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