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Our recent conversation with Wipro coupled with the decent
business traction has brought back confidence in the company.
Focused client engagement and simplified decision making, a
hallmark of the new structure post re-organisation, are
beginning to bear fruit. Deal pipeline, recent wins and top
clients’ performance further bear testimony to the improving
fundamentals. Margin expectations too remain sanguine with
multiple levers in place. Improved business traction and its
sustenance should lead to reduced valuation discount vis-à-vis
peers. Though we believe further proof of improving traction is
desirable, risk-reward is decidedly favourable. Upgrade to BUY.
Encouraging business traction and management commentary
Wipro, has shown decent traction in last few quarters. There has been
a continued improvement in deal pipeline, the mega/gamma clients
have shown robust growth and deal wins especially in APAC region
have been decent. A notable increase in client satisfaction index over
last six months was also seen. Management commentary maintains
status quo with no incremental negative seen on the micro level. A
lower services exposure to discretionary spends adds to the comfort.
Margin improvement to follow revenue traction; Employee
pyramid a key lever
Flat pricing, wage inflation and most notably lack of volumes had led
to a subdued margin performance at Wipro in the past year.
Management suggests sustained and predictable volume traction to be
a pre-requisite for any material improvement in margin going ahead.
Target to improve the fresher hiring ratio is expected to be a major
lever along with more efficient Fixed Price project execution. With
strong volumes seen in Q2 FY12 and improving business traction, we
expect margin performance to improve in the medium term.
Back to normalcy, valuations to improve
As the company performance veered off from its comparable peers’
performance in CY11, its valuations have fallen by 25% YTD and is
now trading at a ~20% discount to its five year average valuation.
Wipro’s discount to TCS is also large (20%). Post the restructuring
there has been an decent improvement in business traction (volume
growth in last four quarters almost at par with Infosys). While we
continue to watch for further improvement, we believe valuations
should relatively improve hereon. We upgrade the company to BUY.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Our recent conversation with Wipro coupled with the decent
business traction has brought back confidence in the company.
Focused client engagement and simplified decision making, a
hallmark of the new structure post re-organisation, are
beginning to bear fruit. Deal pipeline, recent wins and top
clients’ performance further bear testimony to the improving
fundamentals. Margin expectations too remain sanguine with
multiple levers in place. Improved business traction and its
sustenance should lead to reduced valuation discount vis-à-vis
peers. Though we believe further proof of improving traction is
desirable, risk-reward is decidedly favourable. Upgrade to BUY.
Encouraging business traction and management commentary
Wipro, has shown decent traction in last few quarters. There has been
a continued improvement in deal pipeline, the mega/gamma clients
have shown robust growth and deal wins especially in APAC region
have been decent. A notable increase in client satisfaction index over
last six months was also seen. Management commentary maintains
status quo with no incremental negative seen on the micro level. A
lower services exposure to discretionary spends adds to the comfort.
Margin improvement to follow revenue traction; Employee
pyramid a key lever
Flat pricing, wage inflation and most notably lack of volumes had led
to a subdued margin performance at Wipro in the past year.
Management suggests sustained and predictable volume traction to be
a pre-requisite for any material improvement in margin going ahead.
Target to improve the fresher hiring ratio is expected to be a major
lever along with more efficient Fixed Price project execution. With
strong volumes seen in Q2 FY12 and improving business traction, we
expect margin performance to improve in the medium term.
Back to normalcy, valuations to improve
As the company performance veered off from its comparable peers’
performance in CY11, its valuations have fallen by 25% YTD and is
now trading at a ~20% discount to its five year average valuation.
Wipro’s discount to TCS is also large (20%). Post the restructuring
there has been an decent improvement in business traction (volume
growth in last four quarters almost at par with Infosys). While we
continue to watch for further improvement, we believe valuations
should relatively improve hereon. We upgrade the company to BUY.
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