Wipro

13 Jan

EBIT margin of 17-17.5% sustainable – Wipro

 

 

 

 

 

 

 

 

 

 

 

Update on the Indian Equity Market:

On Thursday, after a volatile session the benchmark index NIFTY50 ended at 18,258 (+0.3%). Among the sectoral indices, METAL (+3.5%), PHARMA (+1.6%), and PSU BANK (+0.6%) led the gainers while REALTY (-0.7%), BANK (-0.7%), and PRIVATE BANK (-0.6%) led the laggards.

Among the NIFTY50 components, TATASTEEL (+6.3%), JSWSTEEL (+4.3%), and SUNPHARMA (+3.6%) led the gainers. WIPRO (-6.0%), ASIANPAINT (-2.4%), and HCLTECH (-1.9%) were the top losers.

Wipro recently announced 3QFY22 earnings, which were lower than street estimates. But the fourth-quarter guidance seems to provide some relief to investors.

The top management, MD & CEO Mr. Thierry Delaporte, CFO Mr. Jatin Dalal, and President and CHRO, Mr. Saurabh Govil discussed the highlights of 3QFY22 and their outlook for the upcoming quarters with CNBC-TV 18 on 13th January 2021. Following are the excerpts:

  • Wipro had guided for 2-4% sequential revenue growth in constant currency term for 3Q. The company delivered 3% QoQ revenue growth. There weren’t any one-offs or client loss or massive delivery issues. This is the normal volume of business.
  • The 3% sequential revenue growth is 28% YoY growth. The 3QFY22 revenue growth is the continuation of the growth seen over the last 5 quarters.
  • The CEO does not expect a significant contribution to revenues from the recently concluded acquisitions of Edgile and LeanSwift.
  • The reported EBIT margin was 17.6%, ahead of the guidance of 17-17.5%. The margin delivery has been despite 2 months of salary increment to 80% of its employees. The utilisation is such that there is some headroom for subsequent quarters.
  • The EBIT margin band of 17-17.5% is sustainable for the company in the long term.
  • The attrition for LTM was 22.7% in 3QFY22 and remains a concern industry-wide. It has taken certain measures to cope with higher levels of attrition. First, the company onboarded 10,000 plus employees every quarter and continues to onboard new people. Wipro has increased campus hiring by 70% in FY22. The company is looking at 30,000plus hiring in FY23E. Second, the company continues to laterally hire all skill sets across the globe based on demand. Some of the high-demand areas are cyber security, data, cloud, and newer areas like Salesforce. The company believes the attrition has peaked and expects to see moderate attrition going forward.
  • The company closed the biggest quarter in terms of bookings in 3QFY22. It reflects Wipro’s ability to win in the market. It has the biggest pipeline it ever had as it begins 4QFY22. It has a better win rate compared to previous quarters.
  • The CEO believes the clients’ budgets across industries will continue to increase. The win rate has improved by 300bps over the previous two years.
  • Improvement in price realisation is seen due to the move to high-value services such as cyber security, cloud, and digital. Wipro had made investments in certain skill sets and improved visibility, for which clients are willing to invest.

Asset Multiplier Comments

  • We believe revenue growth will be driven by strong demand, strong pipeline, and order book. The company’s order pipeline has a mix of small, medium, and large deals with the company seeing expansion in mid-sized deals.
  • There is a massive opportunity in the cloud business over the next five years. The Company has been making investments in cloud technology. Cloud opportunity, higher offshoring, and synergies from acquired business are expected to drive profitability for Wipro in the near term.

Consensus Estimate: (Source: market screener website)

  • The closing price of Wipro was ₹ 650/- as of 13-January-2022. It traded at 30x/ 25x/ 22x the consensus earnings estimates of ₹ 22/ 26/ 29/- for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 703/- implies a P/E Multiple of 24x on FY24E EPS estimate of ₹ 29/-.

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.”

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18 Oct

Expect 30% YoY constant currency revenue growth in 3QFY22 – WIPRO

Update on the Indian Equity Market:

On Monday, NIFTY50 rose for the seventh consecutive session to close at 18,477 (+0.8%), led by PSU BANK (+4.0%), METAL (+3.9%), and IT (+1.6%). The sectoral losers were PHARMA (-0.9%), and MEDIA (-0.7%). Among the stocks, HINDALCO (+5.2%), INFY (+4.8%), and TECHM (+3.7%) led the gainers while M&M (-2.2%), HCLTECH (-2.1%), and DRREDDY (-1.8%) led the laggards.

Wipro recently declared earnings for the quarter ended 30th September 2021, which beat street estimates. Mr. Thierry Delaporte, CEO, Wipro discussed the quarter gone by and his plans for the upcoming quarters with The Economic Times on 18th October 2021:

  • Mr. Delaporte took charge as the CEO of the company during the Covid pandemic. During that time, the company moved into execution mode and it has been fast at defining the people who are going to drive the organisation forward.
  • During the last year, the company has taken bold steps and changed about 30% of the top 200 leaders. It has been an unprecedented change and a lot of talent has also been brought in from outside. Wipro made its biggest acquisition, Capco which is delivering great results.
  • The CEO’s responsibility was to ensure the company remains driven by a sense of purpose and pays attention to the world around it.
  • What needed to change was assertiveness about strategy, running operations, making decisions, and sticking to it. The second thing he wanted to change was raising the bar in terms of ambition, and the third is a ruthless focus on accountability and outcome.
  • Wipro will deliver ~30% year-on-year constant currency revenue growth in 3QFY22E. He expects the growth to continue in FY23E as well, as the company is firing on all cylinders. Wipro will continue to do more acquisitions and possibly a big one.
  • The best performing company in the IT industry is the one with the best talent in terms of quality – people who understand the business and how technology can be leveraged to transform. These are the people Wipro is hiring. The talent is also in terms of quantity because of the increased demand and higher attrition levels.
  • Wipro plans to integrate a lot more freshers. In FY22E, Wipro plans to hire about 16,000-17,000 and 25,000-30,000 in FY23E.
  • He expects higher attrition to continue for the next 3-4 quarters. In 2QFY22, Wipro’s attrition was 20.5% and he expects it to worsen. There’s always seasonality, in the last quarter of the year and people tend to stick around, according to Mr. Delaporte.
  • Wipro would be investing more in 5G and artificial intelligence than in quantum computing right now. He is betting big on engineering services.

 Asset Multiplier Comments

  • The IT sector has been a beneficiary of the increased investment in technologies due to shifting to work from anywhere post the pandemic. While revenue growth is expected for the quarters to come, the sector was also a beneficiary of lower operating costs.
  • As people return to the office for work, some of these costs are expected to come back. The increased pace of vaccinations around the world will likely increase people traveling for work. The talent war has already led to companies rolling out 2-3 wage hikes in a year. With the costs increasing, Wipro like all other IT companies may face margin pressures in the near term.

Consensus Estimate: (Source: market screener website)

  • The closing price of WIPRO was ₹ 711/- as of 18-October-2021. It traded at 32x/ 28x/ 25x the consensus earnings estimate of ₹ 22/ 25/ 28 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 676/- implies a PE multiple of 24x on FY24E EPS of ₹ 28/-.

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.”

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19 Jul

Combined proposition with CAPCO is a game changer – WIPRO

Update on the Indian Equity Market:

On Monday, NIFTY closed 1.1% down at 15,752. Top gainers in NIFTY50 were NTPC (+2.0%), BPCL(+1.6%), and DIVISLAB (+1.0%). The top losers were HDFCBANK (-3.3%), INDUSINDBK (-2.8%), and HDFCLIFE (-2.7%). The only sectors to gain wereREALTY (+0.4%), and PHARMA (+0.2%) while the top sectoral losers were PRIVATE BANK(-2.0%), FINANCIAL SERVICES (-1.9%), and BANK (-1.9%).

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 16th 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.”

 

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14 Jan

Greater need for technology across enterprises led to growth – Wipro

Update on the Indian Equity Market:
On Thursday, after another volatile session, Nifty 50 ended at 14,596 (+0.2%). Among the sectoral gainers, PHARMA (+0.8%), FMCG (+0.8%), and AUTO (+0.3%) led the gainers, while METAL (-1.0%), MEDIA (-0.2%), and BANK (-0.2%) led the losers. UPL (+3.7%), BPCL (+3.2%), INDUSINDBK (+3.0%) led the index higher while HCLTECH (-2.4%), GRASIM (-1.8%), and JSWSTEEL (-1.7%) led the laggards.

Wipro recently declared strong 3QFY21 numbers. Mr. Jatin Dalal, President and Chief Financial Officer (CFO) explained that a greater need for technology by clients across enterprises led to growth. The interview was published in Business Standard on 14th January 2021:

• A greater need for technologies like cloud, cybersecurity, and data analytics contributed to a strong set of numbers. With most business models becoming virtual has meant that greater investment in technology is taking places across Wipro’s customer base.
• Of Wipro’s seven business units, five delivered over 4 % sequential growth which suggests broad based growth.
• Over 92 percent staff is still working from home, which is not going to change in 4QFY21. About 2.5 percent staff is working from office, and about 5 percent staff is working from customer locations.
• Depending on the situation in April vis-à-vis Covid, they will think about the eventual model for employees working from home or office.
• There was double digit growth in order bookings in 3QFY21 and Wipro is entering the March quarter with a good set of pursuits.
• There is a significant momentum in clients’ spend, driven by cloud transformation, digital transformation, and investment in cybersecurity. Overall, there is an increase in IT spend.
• 3,000 freshers were added in 3Q and Wipro will continue to add more in 4QFY21.
• They do not foresee any adverse outcomes of Brexit on their European business. They expect more decision making around the future architecture and future scheme of things that customers will have post-Brexit.
• The sector-specific initiatives by the new Biden administration in US needs to be watched out.

Consensus Estimate: (Source: market screener website)
• The closing price of Wipro was ₹ 453/- as of 14-January-2021. It traded at 24x/ 23x/ 21x the consensus earnings estimate of ₹ 18.8/ 19.4/ 21.2 per share for FY21E/FY22E/FY23E respectively.
• The consensus target price of ₹ 459 implies a PE multiple of 22x on FY23E EPS of ₹ 21.2/-.

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.”

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16 Oct

5 focus areas to reinvigorate the company – Wipro

Update on the Indian Equity Market:

On Thursday, Nifty closed 2.4% lower at 11,680. Within NIFTY50, ASIANPAINT (+0.4%), JSWSTEEL (+0.2%), and COALINDIA (+0.1%) were the only gainers, while BAJFINANCE (-5.0%), TECHM (-4.4%), and ICICIBANK (-4.1%) were the top losing stocks. All the sectoral indices closed with losses led by BANK (-3.4%), PVT BANK (-3.3%), and FINANCIAL SERVICES (-2.9%).

5 focus areas to reinvigorate the company – Wipro

Excerpts of an interview with Mr. Thierry Delaporte, MD & CEO, Wipro, published in the Business Standard on 14th October 2020:
● Out of the impacted sectors, Wipro is now seeing a good volume of deals in the BFSI, retail, and consumer sectors. The manufacturing sector is still impacted by the pandemic. However, the need for transformation will lead to growth coming back in the next couple of quarters. The aerospace and automobile sectors are still under pressure.
● Clients have intent on reducing expenses. But in reality, spending on technology actually increases. Spending on technology is a business requirement now. Not just the CIO but also the chief marketing officer, chief of the supply chain, chief digital officer are all asking for technology. The reduction will be in terms of spending on legacy processes.
● Wipro is focusing on five main areas. They are-
1. Focus on large clients and large deals as opposed to going after new clients
2. Focus on more markets and sectors where Wipro can claim leadership
3. Refine offerings by creating more vertical differentiation
4. Invest in talent to acquire the best domain and technology expertise
5. Refine the operating model to drive simplicity and nimbleness
● In order to chase and win large deals, Wipro plans to enhance and reinforce the global client partners’ power so they can have a bigger impact on clients.
● Due to the pandemic, Wipro has now learned that employees can work from home productively. On the other hand, they also need to connect with the rest of the organization for the culture and sense of belonging. Mr. Delaporte is of the view that going forward there will be a hybrid model where employees will have more flexibility without any judgment on where they choose to work from.
Consensus Estimate (Source: market screener website)
● The closing price of WIPRO was ₹ 342/- as of 15-October-2020. It traded at 20.3x/ 19.0x/ 17.9x the consensus EPS estimate of ₹ 16.8/18.0/19.1 for FY21E/ FY22E/ FY23E respectively.
● The consensus target price of ₹ 283/- implies a PE multiple of 14.8x on FY23E EPS of ₹19.1/-.

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.”

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