Wipro: Growth lag with peers to continue Valuation upsides limited as growth differentials unlikely to narrow: Nomura Research

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Action: Growth surprise unlikely; maintain Neutral

We see less growth upside potential at WPRO vs. HCLT, CTSH and TCS

given: 1) the weaker positioning of Wipro in developed markets; 2) the strong

entrenched competition in key growth segments such as BFSI/IMS/BPO; and

3) Wipro’s relatively high exposure to energy and utilities (~16% of revenues

vs. less than 10% at peers), which has been its second-fastest growing

segment but will be under pressure in the near term due to spending cuts by

clients. We think WPRO’s valuation discount of ~20% to TCS on FY17F P/E is

justified as we think WPRO is likely to grow materially slower at 10% USD

revenue CAGR (vs 13-18% for CTSH, HCLT and TCS) over FY15-17F. We

maintain Neutral and prefer HCLT/TCS/CTSH in Tier 1 IT.

Catalyst: Positive revenue growth surprises

4QF: Flattish revenue growth/margins; 1QF guidance of 0-2% likely

For 4QF, we expect USD revenue growth of 0.2% q-q (constant currency

growth of 2.4%) and 30bps q-q decline in EBIT margin (IT) to 21.5%. We

expect WPRO to guide for 0-2% revenue growth in 1QF. 1QF has been a

seasonally weak quarter for WPRO and better performance vs. the past is key

to achieving double-digit revenue growth (our estimate is for ~8% for FY16F)

and for a valuation re-rating, in our view. Management commentary on

developed markets growth, energy segment outlook, margins and expectation

of returns from recent management changes is likely to be keenly watched.

EPS estimates largely unchanged; TP rises to INR595

We lower our revenue estimates marginally to account for cross currency

impact in 4QF; however, FY16/17F EPS estimates are largely unchanged. We

look for 10% CAGR in USD revenue and in EPS over FY15-17F. Our TP rises

to INR595 (vs. 580 earlier) on roll-forward, based on 14x FY17F EPS of

INR42.5.