Goldman Sachs, Wipro: Continues to lag peers in 2011; maintain Neutral

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Wipro (WIPR.BO): Continues to lag peers in 2011; maintain Neutral
What’s changed
 We raise our 12-month target price for Wipro to Rs512 (from Rs420)
on the back of improved macro outlook and tech spending
environment and weakness in INR. However, we retain our Neutral
rating on the stock as we believe that Wipro will continue to lag
Infosys and TCS in terms of revenue growth and that valuations
post the recent stock rally leave limited room for upside.

 Continue to underperform peers: In 1HFY11, Wipro has been a
laggard in terms of volume growth mainly due to lower hiring and
higher attrition (annualized 23% in 2QFY11). We expect growth to be
driven by the retail and transportation vertical. In terms of services,
we expect a strong showing in product engineering given the
cyclical upswing in the semi-conductor space.
 Raise revenue and earnings estimates: We revise our revenue and
EPS estimates by 1.4%-12.9% and 4.6%-15.5% over FY11E-FY13E to
reflect the improved growth and stable margin outlook. We forecast
Wipro to post revenue CAGR of 19% over FY10-FY13E, well below
the 23%/23% for INFY/TCS.

Valuation
 We raise our Director’s Cut based 12-month target price to Rs512
(from Rs420), implying 7% potential upside. Our TP implies a P/E of
21.1X on FY2012E EPS of Rs24.31, a 8% discount to our large cap
Indian IT services coverage.
 We believe that the current valuation reflects the growth prospects
for Wipro and hence retain our Neutral rating. While Wipro’s
standalone performance has been promising (16% revenue growth
in FY11E), it has not been as good as leaders Infosys and TCS (25%
each). We expect Wipro to continue to trade at a discount to the
large cap sector due to its lower revenue growth profile.
 We maintain our Sell rating on Wipro ADR (WIT) with the new 12-
month Director’s Cut-based target price of US$11.40 (from US$9.10),
implying 26% potential downside.
Key risks
 Upside: Significant INR depreciation; Downside: Slower-thanexpected
economic recovery, INR appreciation