Hold Wipro; target of Rs 378: KRChoksey

KRChoksey has recommended hold rating on Wipro with a target of Rs 378 in its November 5, 2012 research report.

“Wipro’s IT Services’ revenue increased by 1.3% QoQ in constant currency supported by improvement in blended billing rate by 1.2% QoQ (onsite billing rate and offshore billing rate increased by 1.9% QoQ and 1.4% QoQ respectively, in Q2 FY13); whereas volume registered dismal growth of 0.2% QoQ. The company continues to trail peer sets in terms of volume growth for instance Infosys, TCS and HCL Technologies reported volume growth of 3.8%, 5.0% and 2.5%, respectively, QoQ in Q2 FY13.”

“The company has registered pickup in deal pipeline; however unlike the peer sets (for instance TCS signed 11 large deals- the highest deals signed by it in a quarter since post financial crisis) the deal signing activity remaining lackluster. It indicates lower win ratio or client specific issues being faced by the company. We believe the same is reflected in modest IT services revenue growth guidance of around 1.2% to 3.2% QoQ (in USD terms) in Q3 FY13 and unless the company is able to change its image from specialty player (especially in product engineering, data centre management and testing services) to a leader in end-to-end IT service offering, it would not be able to make its mark in case of renewal contracts and in-turn expand its market share.”

“Considering lack of momentum in deal signing activity and modest revenue guidance; we believe the company will continue to grow at slower rate than industry’s average in FY13E. However, we believe the same is already reflected in valuation. Hence, we maintain our ‘hold’ recommendation on the stock with a price target of Rs. 378 by assigning multiple of 14.5 times (i.e. around 20% discount to TCS’s target P/E multiple) to its FY14E EPS of Rs. 26.1,” says KRChoksey research report.

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