Hold Wipro; target of Rs 340: JM Financial

JM Financial's research report on Wipro

Wipro (WPRO) reported 2QFY19 that was a tad above expectations; the 0-2% QoQ USD revenue growth guidance (JMFe, adjusted for incremental revenues in the USD 1.5bn/10-years Alight Solutions deal) was on expected lines. Organic digital revenues grew 11% QoQ (30% YoY), on our estimates; management indicated a strong demand for cloud migration services. However, the presence of multiple moving parts – divestment of data center business, Alight acquisition and the planned carving out of domestic public sector business – lower the visibility of the internal construct. Further, the outlook for Healthcare vertical (13% of revenues) remains uncertain. Thus, we stay neutral. That said, we believe the stock’s modest valuation (13.5x FY20F EPS; 12/13% discount/premium to INFO/HCLT) and attractive FCF yield (5%+) could spark a short-term play.

Outlook

Our INR 340 PT (unchanged) is at 14x target PER.