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WIPRO LIMITED
Some improvement, but still risky
Wipro continues its organisational revamp focused on improving its account mining
process. Steps have been taken to simplify reporting structures, standardise back-end
processing and external consultants have been asked to bring the best practices. We
find confidence returning to management that the company will be able to match
peers’ growth going forward despite the uncertainty in the demand environment.
However, we believe that the turnaround could take more time and that the execution
risks are not correctly priced. The stock is trading at a P/E of 15.7x for FY13 (7%
discount to Infosys) and, hence, is not inexpensive. We maintain our 3-UW rating.
Simplifying organisational structure: Reporting lines have been restructured so that
sales and delivery primarily report to vertical heads. Senior level hires are being made to
improve processes in both sales and delivery.
End-demand improvement in specific pockets: Wipro has seen end-demand stability
since the beginning of the calendar year with traction in BPO and IT Infrastructure. Oil &
Gas, BFSI, Retail and Healthcare are the key focus areas and likely growth drivers.
Acquisition-led strategy to continue: According to management, Wipro’s acquisitions
through the decade have had 2.2ppts accretion on the revenue CAGR with an IRR of 22%.
With 20% of the current FY revenues from acquisitions, the company is unlikely to relent
on its strategy and could continue to focus on smaller acquisitions.
Execution risk makes us cautious: The strong focus on top-line growth could imply a
reduced margin focus near term. Given volatile environment and the changing
organisational structure, there remains risk to earnings growth, in our opinion. Valuations
at a P/E of 15.7x also do not provide much support. We retain 3-UW with PT of Rs360.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
WIPRO LIMITED
Some improvement, but still risky
Wipro continues its organisational revamp focused on improving its account mining
process. Steps have been taken to simplify reporting structures, standardise back-end
processing and external consultants have been asked to bring the best practices. We
find confidence returning to management that the company will be able to match
peers’ growth going forward despite the uncertainty in the demand environment.
However, we believe that the turnaround could take more time and that the execution
risks are not correctly priced. The stock is trading at a P/E of 15.7x for FY13 (7%
discount to Infosys) and, hence, is not inexpensive. We maintain our 3-UW rating.
Simplifying organisational structure: Reporting lines have been restructured so that
sales and delivery primarily report to vertical heads. Senior level hires are being made to
improve processes in both sales and delivery.
End-demand improvement in specific pockets: Wipro has seen end-demand stability
since the beginning of the calendar year with traction in BPO and IT Infrastructure. Oil &
Gas, BFSI, Retail and Healthcare are the key focus areas and likely growth drivers.
Acquisition-led strategy to continue: According to management, Wipro’s acquisitions
through the decade have had 2.2ppts accretion on the revenue CAGR with an IRR of 22%.
With 20% of the current FY revenues from acquisitions, the company is unlikely to relent
on its strategy and could continue to focus on smaller acquisitions.
Execution risk makes us cautious: The strong focus on top-line growth could imply a
reduced margin focus near term. Given volatile environment and the changing
organisational structure, there remains risk to earnings growth, in our opinion. Valuations
at a P/E of 15.7x also do not provide much support. We retain 3-UW with PT of Rs360.
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