Hold Wipro; target of Rs 605: Religare

Religare's research report on WiproWPRO’s Q4FY16 IT services revenues grew 2.4% QoQ to US$ 1.88bn with CC growth of 2.7% QoQ. IT services margins came in at 20.1%, in line with RCMLe. The Q1 US$ revenue growth guidance of 1-3% QoQ is weak as it includes 2-month revenues from the HealthPlan Services (HPS) acquisition. While the buyback of Rs 25bn will lend price support, this has come at the cost of dividends. We see limited room for earnings upgrades and stock re-rating. We maintain estimates with a HOLD and a Mar’17 TP of Rs 605.Overall, Q4FY16 was a weak quarter for WPRO with a revenue miss and a soft Q1 organic guidance. While the company has a new management team, we think the goal of doubling revenues by 2020 with 23% margins is very ambitious, and would warrant an aggressive inorganic plan and sizeable investments in new areas. Besides, to attain industry-leading growth, WPRO would need (pricing-led) market share gains in traditional services as these still contribute 50%+ of overall revenues. We would like to see more consistent execution before turning constructive on the stock. Maintain HOLD.

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