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Wipro
Outlook
High attrition and organisation restructuring have weighed on Wipro’s performance in the recent past. While the company is likely to take another two quarters to get back to above-industry-average growth, we believe this could be prolonged if we entered a recession in 1HCY12E. However, at the current valuation of 13xFY13E (20% discount to sector leader TCS), we believe most of these concerns are priced in. We expect the company to deliver a 16% earnings CAGR over FY12-14. Based on attractive valuations, we rate the shares a Buy.
Valuation
We value Indian IT services firms on a PE basis relative to their historical trading range, compared with peers as well as growth rates. Our 12-month target price is based on 15x FY13E PE and reflects a 16% discount to Infosys' target PE multiple. Though Wipro is likely to report an earnings CAGR of 16% over FY12-14E, similar to that of Infosys’, we value Wipro at a discount to Infosys given its significantly muted near-term growth. In our view, the reduced discount takes into account the better earnings prospects for Wipro over FY12-14E. Also, while Wipro has historically traded at a premium or at par to Infosys given lower liquidity (~25% free float for Wipro vs. ~81% for Infosys), we believe on a fundamental basis that it should trade at a marginal discount given that its EBITDA margin is ~800bps lower than Infosys’ due to its other businesses (non-IT services) and recent acquisitions. We believe our target PE is well supported by earnings CAGR of 16% over FY12-14E.
Risks
We identify four industry-level risks: (1) rupee appreciation, (2) a protracted global economic slowdown, (3) aggressive steps by global vendors to adopt the offshore model leading to competition for clients as well as for employees and (4) increasing wage inflation with supply side (employees) issues. For Wipro, the key risks remain that of beefing up its enterprise IT (especially BFSI) portfolio, executing well on the turnaround of the BPO business and integrating its various acquisitions.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Wipro
Outlook
High attrition and organisation restructuring have weighed on Wipro’s performance in the recent past. While the company is likely to take another two quarters to get back to above-industry-average growth, we believe this could be prolonged if we entered a recession in 1HCY12E. However, at the current valuation of 13xFY13E (20% discount to sector leader TCS), we believe most of these concerns are priced in. We expect the company to deliver a 16% earnings CAGR over FY12-14. Based on attractive valuations, we rate the shares a Buy.
Valuation
We value Indian IT services firms on a PE basis relative to their historical trading range, compared with peers as well as growth rates. Our 12-month target price is based on 15x FY13E PE and reflects a 16% discount to Infosys' target PE multiple. Though Wipro is likely to report an earnings CAGR of 16% over FY12-14E, similar to that of Infosys’, we value Wipro at a discount to Infosys given its significantly muted near-term growth. In our view, the reduced discount takes into account the better earnings prospects for Wipro over FY12-14E. Also, while Wipro has historically traded at a premium or at par to Infosys given lower liquidity (~25% free float for Wipro vs. ~81% for Infosys), we believe on a fundamental basis that it should trade at a marginal discount given that its EBITDA margin is ~800bps lower than Infosys’ due to its other businesses (non-IT services) and recent acquisitions. We believe our target PE is well supported by earnings CAGR of 16% over FY12-14E.
Risks
We identify four industry-level risks: (1) rupee appreciation, (2) a protracted global economic slowdown, (3) aggressive steps by global vendors to adopt the offshore model leading to competition for clients as well as for employees and (4) increasing wage inflation with supply side (employees) issues. For Wipro, the key risks remain that of beefing up its enterprise IT (especially BFSI) portfolio, executing well on the turnaround of the BPO business and integrating its various acquisitions.
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