Accumulate Wipro; target of Rs 471: KR Choksey

KR Choksey's research report on Wipro

Wipro Ltd (WPRO) Q1FY23 performance was lower than our estimate. Dollar Revenue was marginally up 0.5% QoQ in CC term to USD 2,736mn (KRChoksey est. USD 2,769Mn). Rupee revenue grew by 3.2%QoQ to INR 215,286Mn (KRChoksey est. INR 213,752Mn). Reported operating margin was down to 14.3% QoQ as the several initiatives were taken by the company to turn around the operations. Company reported a net profit of INR 25,636Mn with margin of 11.9%. Operational efficiencies (several levers such as utilization, fresher intake, pricing, sub-contracting, attrition & employee pyramid) in the next quarter will offset the impact of wage hikes but remains a higher chance of margin dilution due to Rizing integration. Increase in employee costs (including Products & ISRE business), rising procurement cost of hardware/software, increase in doubtful debt provisioning, higher travel/marketing expenses and increase in facility expenses are likely to keep margins under check in the near term. Our target price of INR 471 is based on 18x Mar-24E EPS with EPS CAGR of ~10.2% over FY22-24E.

Outlook

Hence we are assigning a P/E multiple of 18.5x to the FY24 estimated EPS of INR ~26.2 to arrive at a target price of INR 471 (Earlier Target price INR 602) per share, an upside of 14.1% over the CMP. Accordingly, we reduce our view to “ACCUMULATE” rating for the stock.