Buy Wipro; target of Rs 490: Motilal Oswal

Motilal Oswal is bullish on Wipro and has recommended buy rating on the stock with a target of Rs 490 in its April 25, 2012research report.

“Wipro 4QFY12 USD revenue growth at 1.3% CC was at the lower end of the guided band, dragged down by BFSI and Telecom. Moreover, impressive margin performance was eclipsed by: [1] Weak 1Q guidance (-1% to +0.9% QoQ ) driven by weakness in India business and delays in deal closures, [2] Ramp-downs in top client, (quarterly aberration) and [3] concern areas like Investment Bank and Telecom OEM segments.”

“Volume growth of 0.8% QoQ (v/s estimate of 0.7%) and revenue at USD1,536m (+2% QoQ) were inline. IT Services EBIT margin at 20.7%, -10bp QoQ (v/s estimate of 19.5%) was above estimate on higher utilization, 1.1% CC QoQ offshore pricing increase and 50bp QoQ offshore revenue mix shift. PAT was INR14.8b, beat our estimate of INR14b, on higher other income (INR1.9b v/s est. of INR1.2b) and better OPM. 4.55% CQGR over 2Q-4Q would imply 11% growth in FY13 (lower end of NASSCOM's guidance, assuming Wipro grows at the mid-point of the guided band in 1QFY13). This is a tough ask, given continued sluggishness in Capital Market and Telecom OEM segments. We draw comfort from Wipro's impressive show in momentum verticals ex-BFSI, greater TCV of deals QoQ and expect the company to post healthy growth on 1Q base that would have absorbed client specific issues and headwinds in the Indian geography. Levers like low gross utilization, offshore mix, and high subcontracting costs, apart from management-stated focus areas of productivity gains and non-linearity keep us sanguine on Wipro's profitability v/s peers.”

“Valuations may be tested further on overhangs from: [1] little comfort in commentary around troubled segments and [2] a high ask rate to meet NASSCOM's guidance. 15x FY13E earnings imply a price of ~INR390, which we see as bottom for the stock. Multiple levers to maintain/grow margins keep Wipro in better stead on the profitability front, but growth in revenues will be imperative for the same to materialize. Our revised target price of INR490 discounts FY14E earnings by 16x, lesser to TCS' 17x. Buy,” says Motilal Oswal research report.  

Institutional holding more than 40% in Indian cos  

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