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Wipro Ltd>
  • CMP : 407.5 Chg : -0.20 (-0.05%)
  • Target : 420.0 (9.09%)
  • Target Period : 12-18 Month

29 Apr 2023

Recovery looks distant

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%
Q4FY23 Results:

Wipro reported weak Q4 results on the revenue front.

  • IT services revenue declined 0.6% QoQ in CC terms and increased 0.7% QoQ in dollar terms
  • IT services EBIT margins flat QoQ at 16.3%
  • Reported TCV of US$4.1 billion (bn), up 29% YoY
What should Investors do?

Wipro’s share price has grown by ~1.9x over the past five years (from ~₹ 207 in April 2018 to ~₹ 385 levels in April 2023).

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

We value Wipro at ₹ 420 i.e. 16x P/E on FY25E EPS.

Key Triggers for future price performance
  • TCV in Q4FY23 was at US$4.1 bn. Conversion of TCV to revenue will be key for revenue growth in 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 in 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 ₹ 3,720

Key Financial Summary

Particulars FY20 FY21 FY22 FY23 5 year CAGR (FY18-23) FY24E FY25E 2 year CAGR (FY23-25E)
Net Sales 61,340.1 62,234.4 79,747.5 90,934.8 10.7 95,833.5 105,512.5 7.7
EBITDA 12,658.9 15,062.5 17,119.7 17,300.8 10.4 19,000.4 22,231.2 13.4
EBITDA Margins (%) 20.6 24.2 21.5 19.0 - 19.8 21.1 -
Net Profit 9,721.8 10,786.5 12,219.1 11,350.0 7.2 12,190.1 14,492.6 13.0
EPS (|) 16.6 19.1 22.3 20.7 - 22.2 26.4 -
P/E 23.2 20.2 17.3 18.6 - 17.3 14.6 -
RoNW (%) 17.4 19.5 18.6 14.5 - 13.6 14.0 -
RoCE (%) 19.3 21.2 18.1 15.8 - 14.5 15.2 -
Source: Company, ICICI Direct Research

Key takeaways of recent quarter & conference call highlights

  • In constant currency, IT services business reported revenue decline of 0.6% QoQ to US$2823 million (mn) while dollar growth was at 0.7%. Rupee revenues were flattish QoQ at | 23,044 crore. The company indicated that the revenue growth was impacted by uncertainty in markets, lower discretionary spending & delayed decision making. IT products business revenue reported a sharp decline of 34.3% QoQ to | 113.1 crore
  • Vertical wise, in CC terms, Health & Energy reported growth of 2% & 5.9% QoQ, respectively, while BFSI, Communication, Consumer, Technology & Manufacturing reported decline of 2.4%, 4.4%, 0.9%, 2.7% & 0.3%, respectively
  • Geography wise, in CC terms, all geographies except APMEA reported revenue decline. APMEA grew 0.7% QoQ while America 1, America 2 & Europe declined 1.5%, 0.3% & 0.6% QoQ, respectively
  • IT services EBIT margin was flat sequentially at 16.3% due to lower SG&A spends during the quarter
  • For FY23, the company reported IT services revenue of US$11,159.7 mn, up 7.8% while in CC terms growth was 11.5%. In rupee terms, Wipro reported IT services revenue of | 89,747.8 crore, up 14.5%. The company for FY23 reported IT services EBIT margin of 15.7% compared to EBIT margin of 17.7% in FY22
  • The company indicated that the macro environment has deteriorated from Q3 to Q4, which had an impact on Q4 revenues. Wipro indicated that there has been a consistent rise in its bookings but macros are playing out differently in different sectors. The company is seeing headwinds in the banking and insurance industry where it is seeing slower decision making as well as cut down in discretionary spending. The company clarified that it has not seen any upright cancellation but delay in decision making is visible. The company mentioned that it is of the opinion that macros are reasonable and not worst as expected. They are hoping for a recovery in the next few quarters. The company indicated that there is always a lag between clients communicating about the pause of the program and revenue reduction, which is typically 15-20 days. The company mentioned that since they received few intimations in March, weak revenue guidance of Q1 is a reflection of the same. The company also indicated that discretionary spending cut are generally seen as a short-term blip as these cycles are not long cycles. Wipro also indicated that it is seeing interest rate cycle in the US is at peak or nearly at peak. Whenever there is a turnaround, spending is likely return from clients
  • The company indicated that it continues to see healthy pipeline and booking in the last few quarters but revenue conversion is not happening due to i) there being a re-prioritisation of discretionary spending from clients, which is very common in the IT industry as per management ii) though consulting business has been growing beyond their expectation in the recent past, they are facing some headwinds. The management indicated that consulting business is the first one to receive pushbacks in the weak macros scenario as far as tech spend is concerned but also mentioned that growth is equally faster whenever cycle turns. The company also mentioned that it is not confident about the decline bottoming out in Q1 itself but it mentioned that slowdown can sustain for a few more quarters. The company indicated that the Europe market is doing well for them wherein except BFSI, all sectors are driving growth
  • The company indicated that some of their client conversation suggests that clients are looking to continue their investments in new technologies such as AI, data & analytics, cloud, etc, there could be temporary pause on cloud transformation wherein clients are now looking at cost optimisation as a priority where also the company is providing solutions. The company further said that clients want their employee addition cycle to come back compared to layoff now in the medium term, which reflects their intent to continue spending in these areas
  • The company indicated that it will follow the Q2 wage hike cycle in FY24 and also indicated that wage hikes would be lower compared to what it rolled out in FY23. Wipro indicated that utilisation has come down in the last three quarters as they step up fresher hiring (the company added 22,000 freshers in FY23). The company indicated that since lot of these freshers are being deployed into projects, utilisation is likely to see an upward trend in the coming quarters. Wipro also indicated that total bookings in this quarter have come down on a sequential basis. This is a reflection of a pause in a few programs and subsequently a reduction of the same from overall bookings. The company also indicated that whenever demand comes back, it will prioritise internal people for fulfilment of the same. Wipro also indicated that it expects Q1 margins to be flat QoQ. This is also a reflection of weak growth in that quarter and as an when growth comes back, margins are likely to see an upward trajectory
  • The company mentioned that from Q1FY24 the India State Run Enterprise (ISRE) segment will be merged with IT services
  • The company’s net employees during the quarter declined by 1800 bringing the total employee strength to 256,921 employees. LTM attrition declined by 200 bps QoQ to 19.2% while on a quarterly annualised basis it declined 330 bps QoQ to 14.1%. Utilisation excluding trainees improved 200 bps QoQ to 81.7%
  • The company’s booking remains strong despite uncertain environment. Wipro during the quarter won 15 large deals with TCV of US$1.1 bn and reported a total TCV of US$4.1 bn, up 29% YoY
  • Wipro for Q1FY24 has guided for revenue decline of -3% to -1% QoQ in CC terms with a revenue guidance in the range of US$2,753-2,811 mn
  • The company during the quarter announced a buyback of 26,96,62,921 equity shares representing 4.91% of total paid up equity shares of the company at buyback price of | 445 per share for a total buyback amount of | 12,000 crore. The company indicated that buyback announcement is to aligned to their stated policy of 40-45% payout over a block of three years. Wipro also indicated that it believes that this is the right price and is also looking at inorganic opportunities with whatever cash is left after buyback. The company also indicated that its cash generation is very healthy i.e. US$300-350 mn every quarter



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