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Wipro Ltd. ------------------------------------------------------------------- Upgrade to OUTPERFORM
Low expectations provide an opportunity
● Wipro has been the only underperformer (versus the index)
among the large cap Indian IT over the past 12 months. This
underperformance has come in last one month and was largely
triggered by the change in CEO, in our view.
● Undoubtedly, Wipro’s fundamentals also have not been as strong
as other large vendors. Wipro’s revenue growth in 9M FY3/11 has
been 18% (IT business only) versus 25%+ for peers. However, we
believe that these concerns are in the price with the stock trading
at a 20% discount to Infosys FY3/12E P/E.
● Lacking details on the new CEO’s strategy, it could be early to call
a return of growth momentum for the company. However, with the
new CEO mandate of improving growth, we expect near-term (i.e.,
either June or Sept quarter) revenues to surprise on the upside. In
our view, this should lead to 1) consensus EPS upgrades and 2)
narrowing of P/E gap between Infosys and Wipro.
● We reflect our views in numbers, thereby taking FY3/13 EPS up
by 5%. Our target price is raised to Rs575 from R515 (DCF
based) and we upgrade the stock to OUTPERFORM from Neutral
Wipro has significantly underperformed
Wipro has been the only underperformer among the large cap Indian
IT stocks over the past 12 months. This underperformance has largely
been triggered by the recent change in CEO.
Growth has lagged peers leading to low expectations
Wipro has returned a revenue growth of 18% in 9M FY3/11 versus
25%+ for other large Indian IT companies. Due to this weak
performance, consensus continues to build 12% EPS growth in
FY3/12 and 15% in FY3/13 for the company, lowest among the large
cap
New CEO would focus on growth
Wipro’s new CEO, Mr Kurien has stated on several forums that growth
would be his first priority. Thus, we expect near-term (i.e., either June
or Sept qtr) revenues to surprise on upside.
Shares should OUTPERFORM
We still believe that it is early days to believe that secular growth
momentum would return to the company. However, a positive surprise
on near term could lead to 1) improvement in current low consensus
EPS estimates and 2) reduction in P/E discount to Infosys. This
should lead the shares to OUTPERFORM over next 12 months, in our
view
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Wipro Ltd. ------------------------------------------------------------------- Upgrade to OUTPERFORM
Low expectations provide an opportunity
● Wipro has been the only underperformer (versus the index)
among the large cap Indian IT over the past 12 months. This
underperformance has come in last one month and was largely
triggered by the change in CEO, in our view.
● Undoubtedly, Wipro’s fundamentals also have not been as strong
as other large vendors. Wipro’s revenue growth in 9M FY3/11 has
been 18% (IT business only) versus 25%+ for peers. However, we
believe that these concerns are in the price with the stock trading
at a 20% discount to Infosys FY3/12E P/E.
● Lacking details on the new CEO’s strategy, it could be early to call
a return of growth momentum for the company. However, with the
new CEO mandate of improving growth, we expect near-term (i.e.,
either June or Sept quarter) revenues to surprise on the upside. In
our view, this should lead to 1) consensus EPS upgrades and 2)
narrowing of P/E gap between Infosys and Wipro.
● We reflect our views in numbers, thereby taking FY3/13 EPS up
by 5%. Our target price is raised to Rs575 from R515 (DCF
based) and we upgrade the stock to OUTPERFORM from Neutral
Wipro has significantly underperformed
Wipro has been the only underperformer among the large cap Indian
IT stocks over the past 12 months. This underperformance has largely
been triggered by the recent change in CEO.
Growth has lagged peers leading to low expectations
Wipro has returned a revenue growth of 18% in 9M FY3/11 versus
25%+ for other large Indian IT companies. Due to this weak
performance, consensus continues to build 12% EPS growth in
FY3/12 and 15% in FY3/13 for the company, lowest among the large
cap
New CEO would focus on growth
Wipro’s new CEO, Mr Kurien has stated on several forums that growth
would be his first priority. Thus, we expect near-term (i.e., either June
or Sept qtr) revenues to surprise on upside.
Shares should OUTPERFORM
We still believe that it is early days to believe that secular growth
momentum would return to the company. However, a positive surprise
on near term could lead to 1) improvement in current low consensus
EPS estimates and 2) reduction in P/E discount to Infosys. This
should lead the shares to OUTPERFORM over next 12 months, in our
view
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