Buy Wipro; target of Rs 650: Edelweiss

Edelweiss's research report on WiproWipro’s Q3FY16 IT services’ revenue grew 0.3% QoQ to USD1,838mn (up 1.4% cc), below Street’s 1.7% estimate. EBIT margin (excluding forex gain), down 110bps, at 17.9% too was below the 18.8% estimate. The CEO-designate Mr. Abid-Ali Neemuchwala has identified sales effectiveness as a key focus area to drive effective client mining. Though we maintain our view that Wipro will continue to be a laggard on the growth front in the large-cap space (primary reason for our downgrade in October 2013 (CMP INR515)), correction in the stock in 27 months since our downgrade implies that significant de-rating has already happened. Moreover, as decline in Energy, Natural Resources & Utilities (E&U) vertical is already behind, we maintain our 15x target multiple. Further, valuations at 12.6x FY18E are reasonable. Hence, we upgrade to ‘BUY’ with INR650 target price based on 15x FY18E earnings. We had downgraded Wipro to ‘HOLD’ in October 2013 (refer our note dated October 22, 2013), at CMP of INR515, on expensive valuations. The stock has corrected since then and is trading at attractive valuation of 12.6x and 13.5x FY17E and FY18E EPS, respectively—17.4% discount to TCS and 15.7% discount to Infosys. We upgrade our recommendation to ‘BUY’ from ‘HOLD’ as we revise our target price to INR650 (15x FY18E EPS) from INR600 as we rollover to FY18E EPS (refer page 2 for upgrade rationale). We maintain ‘Sector Performer’ rating. For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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