Hold Wipro; target of Rs 510: ICICI Direct

IT services US$ revenues declined 0.7% QoQ to $1,902.8 million, below our 0.4% increase and $1,923.7 million estimate. In constant currency (CC), revenues grew 0.6% sequentially vs. 0-2% guidance. Consolidated revenues declined 0.9% QoQ to Rs 13764.5 crore led by sharp de-growth of 25.4% in IT products business to Rs 571 crore, which is lumpy in nature. In IT services, revenues grew 0.45% sequentially to Rs 13,196.1 crore.

OutlookAt the current CMP, Wipro is trading at an attractive valuation of 13x FY18E EPS. However, due to its muted revenue growth and guidance we expect Wipro’s earnings to remain under pressure for the next few quarters. On the margins front, in IT services, operational efficiency surpassed all headwinds during the quarter. However, going ahead, sustenance at current levels of 18.3% would be monitorable. We expect Wipro to report slower rupee revenue CAGR of 7.9% in FY16-18E with average EBIT margins at 16.5%. We have a HOLD recommendation on the stock with revised target price of Rs 510/share (14x FY18E).