Wipro: 3rd quarter will be better than both quarter 1 and 2

Update on the Indian Equity Market:

On Friday, Equity market traded higher for 6^th straight session as the Nifty moved 0.7% higher to close at 11,661. This market movement is correlated with the incoming flows from the Foreign Institutional Investors (FIIs) in the Indian equities. The FIIs have turned net buyers into the markets for the past five days. Among the sectors, all but one sector was in red i.e. the Media (-1.0%). All other sectors traded higher with Realty (1.9%), Metals (1.9%) and PSU banks (1.5%) led the gains. Within the stocks, Yes Bank (8.2%), Coal India (3.3%) and Adani Ports (3.2%) led the gains whereas Zee (-5.6%), Tata Motors (-2.1%) and Cipla (-1.4%) dragged the index lower.

3rd quarter will be better than both quarter 1 and 2: Wipro

Key takeaways from the interview of Mr Abidali Neemuchwala, MD & CEO, Mr Jatin Dalal, CFO, Mr Bhanu Murthy, President & COO, and Mr Saurabh Govil, President & Chief Human Resources Officer, Wipro Ltd. (Wipro): dated 16^th October 2019 with ETNOW:

• Mr Neemuchwala mentioned that the guidance given to its investors during the September result reflect the optimism of the company that 3^rd quarter will be better than both the 1^st and 2^nd quarters.
• The trade agreements impacted industries that have big global supply chains like manufacturing, auto industry, etc. While the pipeline for the company looks good, in the first quarter, the company had secured a couple of large deal wins but the clients did they did not get signed. The customers told the company that the company has won the deal but it took three months to sign it in 2^nd quarter. This is the reason the company is confident about the 3^rd quarter.
• Talking about the margins, Mr Dalal said that he does not have particular range for operating margins for the company. He mentioned that the company has remained resilient and focussed on delivering a good outcome on margins every quarter over the last six quarters. The company will remain focussed on that going forward too.
• Mr Murthy said that all the business units delivered positive year on year growth for company. Three of them delivered better than the Wipro average growth rates. On the Banking, Financial Services and Insurance (BFSI) side, the company has heavily invested in the digital transformation of the BFSI customers. There is an uncertainty overhang there right now.
• According to Mr Dalal, the attrition story has played out over the past few quarters and it has been well thought through thing of investing on employees. As a result, currently there is some traction in terms of investments in salaries, bonuses, rolls, hiring and the various things that the company has done across the globe. All that has now resulted in seeing that workforce, especially the junior workforce, being much more engaged and that is what is delivering results for the company.
• About the sub-contracting expenses, Mr Dalal mentioned that the expenses have come down but he called it as the first step towards being more self-reliant on supply chain. According to him, sometimes it is more pragmatic to use subcontracting to capture demand and then subsequently build it through its own supply chain. The company will remain very practical and pragmatic around the way it uses subcontractors all over the world.

Consensus Estimate (Source: market screener website)

• The closing price of Wipro was ₹ 249/- as of 18-October-19. It traded at 15x/ 14x/ 13x the consensus EPS for FY 20E/ FY 21E/ FY 22E of ₹ 16.7/ 17.5/ 18.6 respectively.
• Consensus target price of ₹ 252/- implies a PE multiple of 14x on FY22E EPS of ₹ 18.6/-.