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Neutral Wipro; target of Rs 540: Motilal Oswal

Motilal Oswal recommended Neutral rating on Wipro with a target price of Rs 540 in its research report dated April 30, 2022.

May 03, 2022 / 12:09 PM IST
 
 
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Motilal Oswal's research report on Wipro


Wipro (WPRO) reported 4QFY22 IT Services revenue of USD2.72b (+3.1% QoQ) in constant currency (CC), missing our estimate of +3.5% QoQ CC. Manufacturing and consumer verticals did well while communication declined. 4QFY22 EBIT margin of IT Services contracted 60bp QoQ to 17%, 50bp below our estimate. WPRO guided for 1QFY23 revenue growth of 1-3% QoQ and FY23 EBIT margin to be below its medium-term guidance band of 17.0-17.5% due to elevated investments. We see the muted topline growth guidance for 1QFY23 as disappointing, since the expectation was that WPRO’s 1Q seasonality is a thing of past and it should gain from the strong demand for consulting-led IT services. Moreover, while the company’s commentary on demand environment remains robust, there is a visible absence of any large deal over the past few quarters. We expect WPRO to report FY23 organic CC USD revenue growth towards the lower end of our Tier 1 IT services universe (MOSLe of 12.4%). Moreover, the management plans for elevated investments in FY23E will result in IT services’ EBIT margin dipping below the lower end of guidance (MOSLe of 16.8%). This should further compress the earnings growth next year. Our estimates suggest FY23 INR PAT growth of 7.0%, one of the lowest in our IT services coverage. Finally, WPRO has given muted payout in FY22 (27% v/s 93% in FY21) due to elevated investments (USD1.45b in Capco and USD540mn in Rizing). We project this to continue in FY23 as well, and again miss investor expectations.



Outlook


We lower our FY23E/24E EPS by 1.3%/1.6% to factor in the miss on the growth guidance and lower margin. We maintain our Neutral rating as we view the current valuation as fair. Our TP implies 20x FY24E EPS.


For all recommendations report, click here


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first published: May 3, 2022 12:09 pm