Buy Wipro; target of Rs 650: PLilladher

Prabhudas Lilladher`s research report on Wipro“Wipro reported weaker than expected performance for Q2FY15, with revenue and margin missing the expectation. Moreover, the guidance was softer than PLe/Consensus expectation. Management is still confident of improving growth momentum in H2FY15 on the back of large deal wins. Moreover, return of discretionary spend in the US and Outsourcing penetration in Continental Europe makes demand outlook healthier. Retain “BUY”.” “Wipro reported Q2FY15 results below expectation. IT Services (USD) revenue grew by 1.8% QoQ (3% @cc, PLe/Cons.: 3%) to US$1,772m (PLe: US$1,792m, Cons: US$1,795m). Overall revenue grew by 4.9% QoQ to Rs116.8bn (PLe: Rs115.8bn, Cons.: Rs116.8bn). Operating margins eroded by 175bps to 18.6% (PLe: 20.0%, Cons: 20.5%), due to wage hike and cross currency movement. EPS declined by 1% QoQ to Rs8.47 (PLe: Rs8.90, Cons: Rs8.61). H2FY15 likely to be stronger, but client specific issues drags near term: Management continues to assert for stronger H2FY15 than H1FY15. However, the weakness in Q3FY15 guidance was attributed to ramp‐down in selected clients in Commodity related sector due to weakness in price. However, there is no loss in wallet‐share with clients. The management sees improvement in deal pipeline along with improved win rate. We expect revenue growth to accelerate in Q4FY15 yielding stronger FY15 exit rate. Wipro total headcount grew by 4.6% QoQ, the strongest since Q3FY10. The company continues with their JIT hiring along with equal mix of fresher and lateral. We see strong employee addition as an early indication of planned ramp‐ups ahead. Moreover, the management sees uptick in utilization from the current level.” “We see improvement in the win rate to drive revenue momentum in CY15, along with available margin levers that would accelerate earnings momentum. However, we see near term weakness in stock due to weaker than expected guidance. We retain “BUY” rating, with a revise TP of Rs650, 16x FY16E earnings estimate,” says Prabhudas Lilladher research report.

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