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We believe risk-reward balance is favourable at 14-15x PE for FY12/13F, due to: 1)
the 30% stock correction ytd; 2) ongoing restructuring starting to yield some
benefits (our checks indicate large deal activities have improved materially); and
3) the Street's low earnings expectation. We upgrade to Buy
Ongoing restructuring to position Wipro better with diversified revenue base
Our channel checks indicate that Wipro’s ongoing management and sales restructuring
(begun in 4QFY11) has started yielding benefits, including increasing large deal activity. We
expect Wipro to regain its lost competitive edge in the medium to long term, with the
restructuring resulting in coordinated efforts to mine large accounts. While revenue growth is
likely to lag peers in the near term, we believe Wipro’s well-diversified business (across
verticals/services/geographies) should minimise revenue-growth risks in the near to medium
term and could even present positive surprises over the medium-to-long term, in our view.
Wipro not losing sight of margin discipline
Our checks indicate that while trying to regain its lost competitive edge, Wipro is not losing
sight of margin discipline. In our view, company-specific risks to margins are lower in FY13
given the restructuring, which is likely to improve its client mining capability, is nearing
completion. In the near term, we expect low margins given a wage hike effective June 2011,
and additional investment in sales and marketing. Wipro now expects sub-20% attrition in IT
services in 2Q12 versus 22.6% (voluntary TTM) in 1Q12.
Current valuation offers favourable risk-reward; upgrade to Buy
Given stronger macro headwinds, we cut our estimates for US dollar IT Services revenue by
2%/8%/7% and Indian rupee EPS by 2%/6%/7% for FY12/FY13/FY14. We believe the riskreward
balance is favourable at 14-15x PE for FY12/13F due to: 1) the 30% stock correction
ytd; 2) the ongoing restructuring starting to yield some benefits; and 3) the Street's low
earnings expectations. Hence, we upgrade to Buy. Our revised target price of Rs400 (down
from Rs438) implies FY13F PE of 16x, which is a 10% discount (down from 15% earlier to
factor in decreasing earnings risk) to our sector benchmark, Infosys. Even at current
valuations, Wipro already trades below the -1x standard deviation of its five to six years’
mean one-year forward PE and PB multiples, thus suggesting a good entry point, in our view
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We believe risk-reward balance is favourable at 14-15x PE for FY12/13F, due to: 1)
the 30% stock correction ytd; 2) ongoing restructuring starting to yield some
benefits (our checks indicate large deal activities have improved materially); and
3) the Street's low earnings expectation. We upgrade to Buy
Ongoing restructuring to position Wipro better with diversified revenue base
Our channel checks indicate that Wipro’s ongoing management and sales restructuring
(begun in 4QFY11) has started yielding benefits, including increasing large deal activity. We
expect Wipro to regain its lost competitive edge in the medium to long term, with the
restructuring resulting in coordinated efforts to mine large accounts. While revenue growth is
likely to lag peers in the near term, we believe Wipro’s well-diversified business (across
verticals/services/geographies) should minimise revenue-growth risks in the near to medium
term and could even present positive surprises over the medium-to-long term, in our view.
Wipro not losing sight of margin discipline
Our checks indicate that while trying to regain its lost competitive edge, Wipro is not losing
sight of margin discipline. In our view, company-specific risks to margins are lower in FY13
given the restructuring, which is likely to improve its client mining capability, is nearing
completion. In the near term, we expect low margins given a wage hike effective June 2011,
and additional investment in sales and marketing. Wipro now expects sub-20% attrition in IT
services in 2Q12 versus 22.6% (voluntary TTM) in 1Q12.
Current valuation offers favourable risk-reward; upgrade to Buy
Given stronger macro headwinds, we cut our estimates for US dollar IT Services revenue by
2%/8%/7% and Indian rupee EPS by 2%/6%/7% for FY12/FY13/FY14. We believe the riskreward
balance is favourable at 14-15x PE for FY12/13F due to: 1) the 30% stock correction
ytd; 2) the ongoing restructuring starting to yield some benefits; and 3) the Street's low
earnings expectations. Hence, we upgrade to Buy. Our revised target price of Rs400 (down
from Rs438) implies FY13F PE of 16x, which is a 10% discount (down from 15% earlier to
factor in decreasing earnings risk) to our sector benchmark, Infosys. Even at current
valuations, Wipro already trades below the -1x standard deviation of its five to six years’
mean one-year forward PE and PB multiples, thus suggesting a good entry point, in our view
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