Report on Wipro

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Recent underperformance to peers to be bridged; upgrading estimates
Wipro's underperformance to its top-tier peers in the recent quarters may be behind.
The management has expressed confidence to match the growth of its peers, and
continue to grow in FY12 at a rate similar/better than FY11 US$ revenue growth.
Highlights
 The management is confident of growing at 5-6% QoQ for the next 2-3 quarters. It
intends to bridge its underperformance to peers, which resulted due to supply
unpreparedness for a sudden pick-up in demand and willingness to walk away
from low value/margin service areas during the downturn.
 Wipro expects budgets to be flattish in CY11. However, within the budgets, it
expects the share of services to go up. Combined with continued trend towards
outsourcing/offshoring and the likelihood of more discretionary spend, the company
expects growth in FY12 to match that in FY11, if not better.
 The company expressed confidence in bagging a couple of large deals in the near
term, while the deal pipeline continues to remain strong.
 Currency remains the primary headwind on margins, as the company aims to
recover profitability on following levers: (a) bulge-mix improvement, (b) productivityled
gains in realizations, (c) thrust on non-linear model (currently, 11% of total
revenues; target to increase this to 14-16% over the next few quarters).
In line with the improved outlook and takeaways from discussions with the
management, we have revised our US$ revenue growth estimates upwards to 19.1%
(up 1.1%) for FY11 and to 22.6% (up 3.3%) for FY12. Our revised EPS estimates are
Rs21.8 (up 1.4%) for FY11 and Rs25.2 (up 5%) for FY12. Our revised target price is
Rs479 (19x FY12E EPS). Maintain Neutral.


BFSI/Retail the best growing verticals; Product Engineering continues to
see good traction, Europe to grow faster than US
 Deal pipeline remains very strong, with BFSI, Retail and Energy & Utilities seeing the
highest traction. Wipro is seeing large deal activity returning on the discretionary side.
 Product Engineering (PE) business is picking up, aided further by Wipro having expanded
its PE presence across verticals like Aerospace, Autos, Retail, and Energy and Utilities.
 APAC/ROW/Middle East will continue to grow faster than other geographies.
However, strength in Europe is likely to continue into 3QFY11, with Europe expected
to grow faster than the US. Within Europe, Germany and France are doing better than
economies like UK and Ireland.
Possibility of 5-6% QoQ volume growth over the next three quarters; FY12
growth may not lag FY11 despite flattish budgets; stable pricing estimate
 Wipro expressed its confidence in being able to bridge the recent underperformance
to peers, which was driven by supply unpreparedness for a sudden pick-up in demand
and willingness to walk away from low value/margin business during the downturn.
However, its peers benefited, as the lower value work was followed by higher value/
margin engagements as those clients came out of the downturn.
 With the supply issue now seemingly addressed, Wipro's expectation is for 5-6% QoQ
growth in volumes over the next three quarters, with potential upside risks in the form
of higher discretionary spends.