Wipro Rating ‘Add’; A good performance in second quarter

Executing on these priorities will entail a set of modifications that can be identified over the approaching months.

Wipro reported a good, but in-line quarter. Revenue progress steering for the December 2020 quarter stunned us positively to the extent of 1.5%. The new CEO outlined a set of priorities that appeared affordable. Executing on these priorities will entail a set of modifications that can be identified over the approaching months. After a powerful and partly buyback-fuelled rally in the stock worth, upsides can be modest. We bake in sturdy demand and lower-than-expected pricing stress and lift FY2021-23e EPS by 6-11% and FV to Rs 380 (17X December 2022e earnings).

Steady quarterly performance; BPO registers sturdy progress
Revenue progress of two% q-o-q in c/c (~1.7% natural) and decline of three.4% y-o-y was in line with our estimate. Revenue progress was led by BPO that grew 8.1% q-o-q. All verticals grew at wholesome clip besides power & utilities and expertise. The retail vertical bounced again well and grew 4.5% q-o-q in c/c. Ebit margin improve of 20 bps was in step with our estimate and aided by decrease unhealthy debt provision and operational enhancements, offset by foreign money headwind of 60 bps. Net revenue of Rs 24.7 bn missed our estimate as a consequence of decrease different earnings.

Strong 1.5-3.5% sequential progress steering for December 2020 quarter
The steering was much better than our estimated 0-2% progress and powered by—(i) full quarter profit of enormous offers that began ramp-up in the September 2020 quarter. These embrace EON, John Lewis and Marelli offers; and (ii) 0.5% contribution from acquisitions. The administration indicated that progress can be broad-based in the December 2020 quarter.

New CEO outlines strategic priorities
The CEO outlined new strategic route of Wipro that features absolute progress focus, prioritise investments in areas of competence and scale, have choices that tackle a wider spectrum of choice makers, increase expertise pool and simplification of working mannequin. Executing these priorities would require modifications in folks, course of, go-to-market and organisation construction. More particulars can be accessible on these modifications later.

Sharp rise in stock worth, partly fuelled by buyback expectations
We incorporate sturdy December quarter steering, basic demand power in enterprise and lower-than-expected pricing stress in our estimates. These end result in 6-11% improve in our FY2021-23e EPS. Our progress estimates stand at average 7.7% and 6.2% for FY2022e and FY2023e in c/c. We aren’t baking in significant turnaround-driven profit in our estimates. We worth Wipro at 17X December 2022e earnings ensuing in a FV of Rs 380/share. At our goal a number of, the stock trades at ~33% low cost to sector leaders. After a powerful rally in the stock worth, upsides can be muted from right here.

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