Hold Wipro; target of Rs 522: KR Choksey

KR Choksey's research report on Wipro

Wipro reported an rupee revenue of INR 137.6 Bn, which was up 1.2% qoq and 2.6% below our estimates. Although operating margins at 16.7% were in-line with our estimates, they fell 188 bps yoy and fail to show any upside potential. Management stated that although wage hikes impacted Q2 margins, automation led productivity, off-shoring and higher utilization helped maintain the margins. Q3 revenue growth guidance, slower projects ramp ups and limited profitability raise severe concerns about Wipro’s turnaround prospects.

We remain skeptical of Wipro’s ability to turnaround operations as revenue and profitability continue to disappoint for 2 straight consecutive quarters. Management commentary on automation-led-productivity, digital outlay and slow integration of acquisitions limit our re-rating capacities. However, we will continue to monitor performance and integration of acquisitions as well as ability to generate additional business from existing clients going ahead. We will continue to monitor the post Brexit environment, US elections and the industry structure for any stress. We have a “HOLD” rating on the stock as we assign a multiple of 13.5x to its FY18E EPS of INR 38.7 to arrive at a price target of INR 522.