Accumulate Wipro; target of Rs 794: KR Choksey

KR Choksey's research report on Wipro

Wipro Ltd (WPRO) Q2FY22 performance was slightly higher than with our estimate. Dollar Revenue was up 6.8% QoQ and in CC term grew by 8.1% QoQ to USD 2,580mn including Capco and Ampion (KRChoksey est. USD 2,569Mn). Rupee revenue grew by 2.9% QoQ to INR 1,96,674Mn (KRChoksey est. INR 1,90,281Mn). Reported operating margin witnessed an uptick of 54bps to 17.7% QoQ backed by healthy deal wins & topline which was partially offset by M&A impact and two months of wage increase for senior executives and rising attrition. Reported Net profit grew by 18.9% YoY to INR 29,306Mn (KRChoksey est. INR 27,591Mn) with margin of 14.9% led by higher net operating income. Wipro reported a TCV of USD580m in 2QFY22, down 19% QoQ. Deal TCV is up 19% YoY in 1HFY22. The ongoing talent crunch will keep margins under check in the near term, offset by higher offshoring, utilization and operating leverage. Growth was broad based across the US and Europe and mainly driven by BFSI (+12.5% QoQ), Communications (+8.9% QoQ), Consumer (+7.7% QoQ) and Health (+5.5% QoQ). The deal pipeline remains robust with a good mix of large deals and has revived it’s growth engine & aligned its organic growth inline with large peers. Our target price of INR 794 is based on 26x Mar-24E EPS with EPS CAGR of 14.6% over FY22-24E.

Outlook

Wipro is currently trading at a valuation with a P/E multiple of 25.5x/23.2x on FY23E/FY24E earnings. We expect strong deal momentum across verticals, growth focused and clients centric approach and new management strategy will aid growth over the medium to long term in future and hence we are assigning a P/E multiple of 26x to the FY24 estimated EPS of INR 30.5 to arrive at a target price of INR 794 per share (earlier target of INR 693 ), an upside of 12% over the CMP. Accordingly, we upgrade our rating to an “ACCUMULATE” from “HOLD” rating to the stock.

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