Wipro - Company Update - Change in sales strategy delivering credibly: Centrum

Rating: Buy; Target Price: Rs620; CMP: Rs522; Upside: 19%



Change in sales strategy delivering credibly



We maintain Buy on Wipro with a revised TP of Rs620 (earlier Rs600).
Wipro’s non-top-10 client growth sluggishness, the key reason for its
revenue underperformance vis-à-vis TCS, could change for the better.
The account mining strategy through assigning client engagement
managers to Mega and Gamma accounts has delivered good results within
the Top-10 and hold substantive potential for the non-top 10 accounts
as well. We also anticipate improved new account traction led by BFSI
and Europe. In a recent meeting with the company, we felt that it is
upbeat on encouraging revenue traction next year compared to FY14. We
revise our estimates marginally and they remain higher than consensus.

$ Wipro has lagged TCS in non-top-10 growth, but matches Top-10
growth: Wipro has come close to matching TCS’ growth for the
Top-client and the Top 6-10 clients while exceeding TCS’ growth rate
for the Top 2-5 (see table in attached report). While the sales engine
seems to be smooth, with new account relationships accounting for over
3% of revenue by every Q4 over FY11-FY13 (vs. 2.6-3.5% for TCS), it
has lagged TCS substantially in non-Top-10 client growth. We note that
the same trend holds for both a 5-year and 2-year period. The key
account strategy at Wipro seems to have delivered results helping it
narrow the growth gap with TCS, at least for Top-10 clients.

$ New sales leadership for BFSI and Europe to help improve traction
with non-top-10: We expect Wipro to increase sales efforts in BFSI as
it now has two senior leaders with P&L responsibilities for BFSI (one
who was earlier with Infosys and the other was earlier Group CTO at a
large UK retail bank). With an internal structure that provides
incentives to collaborate, we expect BFSI traction to improve given
the new senior leadership. Europe has also got thrust with a key
senior hire in Ulrich Meister (formerly head of the Global System
Integration business at T-Systems). While he does not hold a direct
P&L responsibility, he still has revenue targets and will manage key
client relationships.

$ Double counting revenue for internal credit to provide incentives to
collaborate: With two leaders for BFSI, there is potential for
conflict and turf-wars. But Wipro has a process-based approach to
smoothen the kinks by allowing double-counting of revenue for internal
recognition. While this structure has been in place earlier, the new
emphasis on results will encourage proactive collaborative efforts
across both P&L units and shadow P&L units (such as Continental
Europe, Growth Markets etc).

$ Increasing revenue and margin estimates; maintain Buy: Wipro is
currently trading at 14.4x Oct’13-Sep’14 EPS and at a steep discount
of 19% to Infosys in P/E terms. We modify our revenue estimates by
reducing them slightly for FY14E (to account for furloughs which we
had earlier anticipated to be curtailed), while increasing them for
FY15E and FY16E for IT Svcs. We have also adjusted for the
discontinuation of Wipro branded hardware - overall revenue impact of
(1.1)% and (0.1)% impact on EPS. We maintain Buy and increase our TP
to Rs620 (14x 1-Year Fwd EPS).



Thanks & Regards

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