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Wipro Ltd>
  • CMP : 399.8 Chg : -1.90 (-0.47%)
  • Target : 455.0 (15.78%)
  • Target Period : 12-18 Month

14 Jan 2023

TCV provides visibility for FY24; revenue conversion to be key

About The Stock

Wipro is an IT, consulting & BPO player catering to BFSI, health, consumer, energy & utility, technology and communication.

  • With over 230000 employees, it serves clients across six continents


  • Consistent payout (~70%), healthy OCF to EBITDA ratio of ~89%
Q3FY23 Results:

Wipro reported weak Q3 results on the revenue front.

  • IT services grew 0.6% QoQ in CC terms and 0.2% QoQ in dollar terms
  • IT services EBIT margins improved 120 bps QoQ to 16.3%
  • Reported TCV of US$4.3 billion (bn), up 26% YoY
What should Investors do?

Wipro’s share price has grown by ~1.6x over the past five years (from ~₹ 245 in January 2018 to ~₹ 393 levels in January 2023).

  • We change our rating on the stock from HOLD to BUY
Target Price and Valuation

We value Wipro at ₹ 455 i.e., 16x P/E on FY25E EPS

Key Triggers for future price performance
  • TCV for the quarter was at US$4.3 bn. Sustainability of the same in the subsequent quarters will likely provide revenue visibility for FY24


  • The company announced key leadership changes in focus areas of America 2, Middle East, Japan & Australia and will likely provide a fillip to revenue growth in the regions


  • Higher penetration in Europe, client mining, acquisition of new logos and traction digital revenues to further boost revenue growth
Alternate Stock Idea:

Besides Wipro, in our IT coverage we also like TCS.

Strong organic growth, consistent financials, industry leading margins and healthy capital allocation policy prompt us to be positive on the stock with a BUY rating and a target price of ₹ 3,780

Key Financial Summary

Particulars FY20 FY21 FY22 5 Year CAGR(FY17-FY22) FY23E FY24E FY25E 3 Year CAGR (FY22-FY25E)
Net Sales 61,340.1 62,234.4 79,753.0 7.7 90,572.1 96,861.6 102,635.8 8.8
EBITDA 12,658.9 15,062.5 17,774.1 9.2 17,808.1 19,983.4 21,363.4 6.3
EBITDA Margins (%) 20.6 24.2 22.3 - 19.7 20.6 20.8 -
Net Profit 9,721.8 10,786.5 12,873.5 8.7 12,803.5 14,487.2 15,589.3 6.6
EPS (|) 16.6 19.1 22.3 - 23.3 26.4 28.4 -
P/E 23.6 20.6 16.8 - 16.8 14.9 13.8 -
RoNW (%) 17.4 19.5 19.6 - 18.7 20.3 21.0 -
RoCE (%) 19.3 21.2 18.8 - 18.9 20.5 21.0 -
Source: Company, ICICI Direct Research

Key takeaways of recent quarter & conference call highlights

  • In constant currency, IT services business reported revenue growth of 0.2% QoQ to US$2803.5 million (mn) while CC growth was at 0.6%. Rupee revenues grew 3.1% QoQ to | 23,056 crore. IT products business reported revenue of | 172 crore for the quarter, up 37.8% QoQ. The company indicated that revenue growth in this quarter was impacted by higher furloughs and lower discretionary spend
  • Vertical wise, in CC terms, health (12% of mix), energy (11% of mix), consumer (19% of mix) & manufacturing (7% of mix) reported growth of 4.7%, 2.8%, 0.6% & 0.6%, respectively, while BSFI (35% of mix), Communications (5% of mix) & Technology (11% of mix) declined 0.2%, 2.6% & 1.3%, respectively
  • Geography wise, in CC terms Europe (29% of mix) reported growth of 2.4% QoQ while America 1 (29% of mix), America 2 (31% of mix) and APMEA (11% of mix) reported growth of 1.3%, -0.9% & -1.2%, respectively. The growth in Europe was contributed by the markets of UK, Ireland, Germany & Nordics region while America1 growth was led by Communication, which grew over 14% YoY
  • The company also acknowledged that deals to revenue conversion may not be happening quickly due to i) there being a structural change of demand scenario today compared to a year ago, which they also talked about in their Q2 earnings call, ii) there is a potential slowdown on spending on discretionary spends by clients while iii) there has also been some slowdown in decision making by the clients and, hence, programs are taking some time to be executed as well as some programs that did not start as per scheduled timeline. The company indicated they have to go as per client comfort on both these fronts. Hence, revenue conversion is not happening as per expectations
  • The company also mentioned that the market is seeing a lot of vendor consolidation and there is a time lag when deals shift from vendor 1 to vendor 2. As far as deals are concerned, the company indicated that it is seeing a healthy mix of new as well as renewal deals but incrementally the deals are largely skewed towards cost take out deals. Wipro also indicated that there is a healthy mix of new as well as renewal in the total TCV number disclosed by them. The company also mentioned that deal to revenue has future timing component while also adding that large component of TCV is generally in cloud and infra space, which are typically spread over four to five years. The delay in conversion means they have a quality backlog and on the basis of this it is confident of strong revenue growth in FY24
  • The company indicated that Europe remain a key focus area for them as far as growth is concerned. The company also mentioned that they have been building talent in this region for quite some time and have promoted high performance employees there. Wipro now has a strong team there and it would like to leverage it for growth in the medium term. The company also indicated it has a portfolio of some sticky clients there. It continues to gain market share in the region
  • The company also mentioned that Middle East also continues to be one of the key focus markets for it. Hence, it recently launched technology consulting to financial services firms in this region through Capco to enable their digital transformation, business consolidation initiatives. The company also welcomed new leader Nain Alame in the region who has joined them from Accenture Middle East. The company is seeing healthy growth in tech spending in the consulting space in the region and is looking to capture growth opportunities



  • Wipro’s IT services EBIT margin improved 120 bps QoQ to 16.3%. Employee costs were flat during the quarter on a sequential basis despite some wage hike, promotions in the company during the quarter and which led to strong margin improvement QoQ. The company mentioned the following reasons for margin improvement during the quarter: i) Wipro indicated that it has improved the way it manages the supply chain, ii) attrition has been coming down. Hence, impact of increase in costs pertains to premium that it has to pay for lateral hiring has been eased, iii) shift of some resources from fixed pricing to TTM for better management of costs has been helping in margins
  • The company also indicated that there was a one-time restructuring cost
    (| 130 crore), which it incurred in H1 (pertains to some layoffs that it did and subsequent severance pay) was sitting in IT services costs earlier. This cost item has been moved from IT services to consolidated financials (that includes some other businesses like products, etc apart from IT) also helped in margin improvement. The company also indicated it is now the new base of margins and margins are likely to see an upward trajectory, going forward. Wipro also indicated it is aspiring to be in the high teen margin band in the medium term (that it achieved historically) but also mentioned that it is difficult to pinpoint, which quarter or year it would be able to achieve the same
  • The company’s net employees during the quarter declined by 435 taking the total employee strength to 258,744 employees. Wipro indicated that the supply side challenges are easing while LTM attrition also continues to decline. The LTM attrition during the quarter declined 180 bps QoQ to 21.2% while the quarterly annualised attrition declined 360 bps to 17.5%. The company expects attrition to moderate further, which would be one of the levers for margin improvement. Net utilisation excluding trainees declined 10 bps QoQ to 79.7%
  • Wipro for the first time reported total TCV of US$4.3 bn for the quarter, which was up 26% YoY in CC terms. The company’s large deal TCV wins also remains strong with wins of 11 large deals of US$1 bn. Wipro indicated that the deal wins are healthy mix of new wins & renewals
  • The company indicated that order bookings remain strong across geographies with America2 & Europe reporting YoY growth of 40% & 25%, respectively
  • The company for FY23 has guided for revenue from IT services in the range of 11.5-12% in CC terms
  • The company declared dividend of |1 per share
Variance Analysis
   Q3FY23   Q3FY23E   Q3FY22   YoY (%)   Q2FY23   QoQ (%)  Comments
Revenue 23,229 23,294 20,319 14.3 22,540 3.1 IT services revenue grew 0.6% QoQ in terms while dollar revenue grew 0.2% QoQ. The company indicated that revenue was impacted by furloughs & lower discretionary spend
Employee expenses 16,328 16,743 14,278 14.4 16,384 -0.3 Employee cost flat on account of lower attrition & pyramid optimisation
Gross Margin 6,901 6,550 6,041 14.2 6,156 12.1  
Gross margin (%) 29.7 28.1 29.7 -2 bps 27.3 240 bps  
Selling & marketing costs 1,775 1,695 1,399 26.9 1,514 17.3  
G&A expenses 1,542 1,507 1,204 28.1 1,500 2.8  
EBITDA 4,646 4,278 4,304 7.9 4,044 14.9  
EBITDA Margin (%) 20.0 18.4 21.2 -118 bps 17.9 206 bps  
Depreciation 923 820 746 23.7 797 15.8  
EBIT 3,723 3,458 3,558 4.6 3,248 14.6  
EBIT Margin (%) 16.0 14.8 17.5 -149 bps 14.4 162 bps IT services EBIT margin improved 120 bps QoQ to 16.3% on account of lower attrition, automation led efficiency & shift of some expenses to TTM from fixed pricing mechanism
Other income 209 141 218 -3.9 177 18.1  
PBT 3,932 3,599 3,776 4.1 3,425 14.8  
Tax paid 910 800 806 12.9 771 18.1  
PAT 3,053 2,790 2,969 2.8 2,639 15.7  



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