Hold Wipro; target of Rs 560: ICICI Direct

After reporting 2.6% sequential growth in $ terms and 2.0% in constant  currency, Wipro guided for revenues of $1,931-1,950 million which  translates to muted growth of flattish to 1%QoQ growth as the  management is restructuring India and Middle East business.  Furthermore, Wipro’s revenues from the top client continue to remain under pressure. Revenues from top, to p 5 & 10 client declined 5%, 3.9% & 0.8% sequentially in Q1FY17. Going ahead, we anticipate $ revenues to grow 6.6%/8.8% in FY17E /FY18E respectively.   

At current CMP, Wipro is trading at modest valuation of 14.1x FY18E EPS. However, due to its dismal revenue growth coupled with margin pressure, we anticipate Wipro’s earnings to remain under pressure, going forward. Even, key operating metrics such as top accounts and energy vertical (15% of revenues) continue to remain soft. Consequently, we  cut our earnings estimates by 10-11% in FY17E/18E respectively and  estimate it to report slower rupee revenue and PAT CAGR of 8.1% and 2.3% during FY16-18E (vs. 11% each  reported in FY11-16), respectively. Hence, we recommend Hold on the stock with revised price target of  Rs 560/share (15x FY18E).For all recommendations, click hereDisclaimer: 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.