Analyst Meet Note: Wipro Ltd

The Company remains firmly on track to achieve its targeted differentiation on the front-end and standardisation at the back-end.

January 01, 1970 5:30 IST | India Infoline News Service
CMP Rs400, Target Rs471, Upside 17.8%

At the Analyst Day hosted by Wipro Ltd. on Monday (June 11), the top management shared their views on the company’s strategy and current trends in the demand environment. The Company remains firmly on track to achieve its targeted differentiation on the front-end and standardisation at the back-end. While the management agreed on short-term challenges in decision making cycles (due to ongoing macro weakness), they continue to expect stable long-term growth on the back of its revamped business model.  Maintain our positive stance on Wipro.


Structural trends in clients’ IT buying behaviour... 

Management alluded to the fact that client decision making for buying IT services, which was earlier concentrated with the CIO’s office, has now changed with more budgets expended by key business leaders (within the organisation). The decision making is more ROI based with Time-to-Market playing an important role.  IT vendors will now have to innovate through effective solutioning to deliver real business outcomes more often (60% of time as compared to 10% pre-recession).

...Wipro’s strategy to address the same

Wipro’s re-organisation in the last one year effectively addresses these changing trends. Increased differentiation at the front-end is addressed through comprehensive CEM structure (composed of separate engagement manager, delivery manager and domain specialist), deep industry focus and dedicated country models. Also, as opposed to the erstwhile approach of separate selling efforts for separate service lines, the company now focuses on a wholesome portfolio approach and solutioning, to differentiate against competition. Investments in specialising in micro verticals within the momentum verticals of BFSI, Healthcare, Energy and Utilities and Retail are expected to continue as a part of the differentiation strategy.

BFSI demand to remain sluggish

The BFSI vertical head maintained that the spending in the vertical remained under pressure with overall budgets being flat to negative. Within the vertical, demand from Investment Banks was expected to be weak with spends restricted to cost takeout initiatives and regulatory compliance.  Retail banking and non-life insurance sub-verticals remain relatively stronger in terms of demand.

Additional BFSI Commentary
Commentary Details
Change in mix of budget CTB and regulatory spending proportion is expected to increase from 30% of total budget to 60% going ahead
Demand trends Spending around simplification of systems, Regulation, Digital channels and Analytics
Regulatory spending Spending in US has slowed down but it continuous to be strong in Europe around BASEL III, Solvency II and other regulations
Source: Company

Healthcare and Lifesciences IT spending sanguine

Management commentary on HC and Lifesciences vertical remains positive. Structural changes in Lifesciences clients viz. Patent cliff, declining R&D productivity and Emerging market growth  has led to  IT spending in terms of cost efficiency (ERP simplification, IMS, BPO etc), Big data  and digital marketing.  Among clients in medical devices space, IT spending is driven by value engineering and ‘concept to market’ among other services.

Valuations remain attractive; Maintain positive stance

Wipro remains on track to achieve the targeted strategy of differentiation in the front-end and standardisation in the back-end. In the short-term though, slower decision making due to sustained global uncertainty may lead to slower growth as per the management (we estimate a conservative 12% CAGR over FY12-14E). We believe that the company should be able to leverage on the strategic reorganisation once demand improves. Maintain BUY. 

Financial summary
Y/e 31 Mar (Rs m) FY11 FY12E FY13E FY14E
Revenues 310,542 375,866 445,245 503,088
yoy growth (%) 14.2 21.0 19.7 13.0
Operating profit 65,434 74,143 91,275 103,133
OPM (%) 21.1 19.7 20.5 20.5
Reported PAT 53,625 55,655 69,731 78,062
yoy growth (%) 16.8 3.8 24.4 11.9
EPS (Rs) 21.9 22.8 28.4 31.8
P/E (x) 18.3 17.5 14.1 12.6
Price/Book (x) 4.1 3.5 3.0 2.5
EV/EBITDA (x) 14.1 12.4 9.7 8.2
RoE (%) 24.6 21.6 23.0 21.8
RoCE (%) 22.7 22.5 24.2 23.4
Source: Company, India Infoline Research

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