Wipro - Good All-Round Growth; Early Signs of Revival; Result Update Q3FY15 :: Edelweiss, report

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Wipro’s Q3FY15 IT services revenue growth of 1.3% QoQ (3.7% in constant currency) surpassed ours and Street’s 0.8% estimate. This is the highest growth among the top-3 IT players for Q3FY15. For Q4FY15, the company has guided for USD revenue growth of 1.0-3.0% QoQ. Management highlighted uptick in demand environment led by strong recovery in US and robust deal pipeline (similar commentary by peers). Further, its robust growth in retail vertical and Europe where peers lagged, too enthused us. Based on this, we maintain our FY16 revenue estimate of 13% and forecast 12% for FY17. We also expect margin levers to play out as growth trajectory improves. The stock is currently trading at 12.6x FY17E EPS and provides ~19% upside from current levels, based on our revised TP of INR660 (15x FY17E EPS, INR590 earlier).

Results surpass estimates; green shoots of growth visible

Q3FY15 results surpassed estimates both on revenue and margin front. Further, Wipro’s commentary on demand uptick riding robust deal pipeline, order book, US recovery and digital spend resonated commentary by peers. As growth picks up in ensuing quarters, improvement in operational metrics will drive margin performance. We have built in EBIT margin of 19.9%/19.6% for FY16E/FY17E.

Broad-based growth across key segments

Contrary to growth in specific pockets in past few quarters, Q3FY15 saw broad based growth across key verticals and geographies. America grew 2.0% while Europe grew 0.6% (decline seen by Top 2 IT players). All verticals grew sequentially led by healthcare and life science (HCLS) and retail, which grew 6.1% and 2.7%, respectively. HCLS has seen uptick and Wipro with higher contribution versus peers stands to gain from the trend. Also, heartening is the uptick in retail where peers have lagged

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https://www.edelweiss.in/research/Wipro--Good-All-Round-Growth;-Early-Signs-of-Revival;-Result-Update-Q3FY15/28053.html