Combined proposition with CAPCO is a game changer – WIPRO

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Combined proposition with CAPCO is a game changer – WIPRO

Excerpts of an interview with the Management (CEO, CFO, and Chief Human Resources Officer) of Wipro, aired on CNBC TV18 dated 16^th July 2021:

• WIPRO has guided to an annual revenue run rate of US$ 10 bn.
• Management said they will focus on driving consistent progression for growth and take a quarterly view. For 2QFY22, management has guided to a sequential growth of 5%-7%.
• WIPRO has taken some steps in the last 12 months in terms of a simpler operating model, greater focus on growth, more focused strategy, focus on talent acquisition and development. The company has executed on these streams and customers and partner ecosystems have started responding to these improvements.
• Management has created a buzz by saying that they would make a significant announcement in relation to their Cloud business over the next few weeks. Without giving any further details, the management has only said that the announcement would set their ambition in the cloud space more clearly.
• WIPRO saw margin pressure in 1QFY22. Management has reiterated that capturing the growth momentum remains their priority, so they will continue to undertake investments.
• Management had earlier guided for the margins to be in the band of 17% to 17.5%. 1QFY22 margins were well ahead of that at 18.8%.
• 2QFY22 will also have some margin headwinds as the company will continue making investments to recapture demand, focus on talent retention by way of salary increase, and full quarter integration impact of CAPCO deal. However, the management remains optimistic regarding the quality of operating leverage that company can create in the growth phase going ahead.
• WIPRO’s attrition in 1QFY22 was higher than industry levels. The management is confident that the supply chain processes have been finetuned to ensure demand servicing so they won’t face any issues.
• Management is tackling the high attrition issue by focusing on fresher intake, salary hikes, quality of work, rescaling, and engagement. As a result of all these interventions, attrition will come to a much more manageable number moving forward.
• As an update on the CAPCOdeal, management said that while these are still early days of the integration, the partnership is moving in the right direction. The way the two teams are connecting and complementing each other is good. Management has identified severalclients where they are offering the combined proposition. The level of response from clients is also very good and the teams have had several deal wins together.

Asset Multiplier comments:

• Companies across the IT industry have been facing a talent supply crunch. While this is a good sign as the supply is chasing the higher demand, it is not without its drawbacks.
• Lower talent availability leads to higher demand, better opportunities, and hence higher attrition. Attrition beyond control may put a roadblock in deal ramp-ups as there is a time lag that goes into new hire training. In addition, talent retention begins to cost more, thus limiting the operating margins.

Consensus Estimate: (Source: market screener website)

• The closing price of WIPRO was ₹ 575/- as of 18-July-2021.  It traded at 26x/ 23x/ 21x the consensus earnings estimate of ₹ 22.0/ 24.5/ 27.2for FY22E/23E/24E respectively.
• The consensus price target is ₹ 545/- which trades at 20x the earnings estimate for FY24E of ₹ 27.2/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”