Edelweiss: Wipro - course correction to address higher growth mandate; visit note; Hold

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Wipro (WPRO IN, INR 455, Hold)

Wipro along with Q3FY11 results in January 2011, had also announced the resignation of its joint CEOs and appointment of Mr. T K Kurien as the new CEO. The latter announcement had overshadowed the quarterly financial performance and raised doubts about the restructuring in top management. We met with Mr. Manish Dugar, CFO, Wipro Technologies, to understand the key changes and reasons behind them. In a nutshell, according to the management, the recent restructuring is aimed at improving customer centricity, enabling swift decision making and single point accountability.

n  ‘One Wipro’ positioning among key desirables from restructuring

With customer feedback on Wipro coming across as a fragmented organisation, the company recognizes that taking an integrated view and then mining into an account to cross-sell and up-sell more services is the key. Thus, it is putting in place single-point accountability for ‘One Wipro’ positioning. 

n  Cutting layers of approval to simplify and quick turnaround

Among recent changes, the geography head structure has been eliminated (barring geo heads for emerging markets with a goal to make them large) and global programme teams (GPT) have also been dismantled and absorbed in various business units (BU). This is aimed to reduce overlaps and internal friction, and lead to quick response to client needs.

n  Account management to improve with independent p/l responsibility

Now, BU heads carry independent p/l responsibility for their respective verticals (earlier shared by geo head). Further, the client engagement manager (CEM) who reports to the BU head is responsible for p/l of the assigned client. With clear assigned resource pool, responsibility and concerted efforts, the effectiveness of CEM will improve, aiding better account management/ mining.  

n  Outlook and valuations: Chasing growth: maintain ‘HOLD’     

Wipro has set high expectations by committing to deliver results of recent restructuring in the next two-three quarters. We, however, believe it may take longer for benefits to flow, as changing client perception and mindset change (within company) are long drawn processes. Thus, despite Wipro’s valuation discount of ~17% to Infosys we maintain ‘HOLD/Sector Underperformer’recommendation/rating on the stock.