Wipro: Trying Hard To Get Back In Growth Trajectory----

Q2FY16 result was largely in line with street estimates 

But guidance was below market expectations (muted Q3 !!)

Q2 PAT at Rs.2240 cr, up by 7% -YOY; (estimate at 2232; QOQ-2203; YOY- 2098)
Q2 EPS at 9.08 (consensus at 9.09; QOQ-8.89; YOY-8.45)
(All consolidated figures)

CMP: 575

Buy either on sustained breakout above 585 or in dips around 565-550

TGT:585-605-625-671 (1-12M)

TGT: 750-850 (24M)

TSL<540

Note: Consecutive closing below 540 for any reason, Wipro can fall up to 528-501 & 485-471 zone, where it may be again accumulated for better investment buying average.

Some key takeaways & rationale:

Wipro reported somewhat tepid Q2FY16 result, although largely in line with analysts median expectations. But the management guided only 1.5% sequential growth in Q3  against street expectations of around 3% on an average (in constant currency).

The company gave a tepid forecast in sales growth for Q3 owing to temporary shut down at clients in US/EU during the Dec holiday season there (Christmas & New Year).

As one of the top client (ENU client ??) of Wipro is in some type of stress, it expects growth to pick up in Q1FY17 onwards

As Business Today puts in, for the last few years, Wipro is still middling along with its growth at single digit and its very important for the company to focus on long term growth strategy rather than short term quarterly focus.

No doubt, Wipro is a big IT player and this FY, its expected to cross the milestone of Rs.50000 cr revenue with plus 20% margins. But going by the trends, its look very difficult for the company to achieve the promised double digit growth.

Historically, Wipro's strength was in telecom & outsourced R&D. But both these verticals were badly affected in US/EU after 2008 financial crisis.

Wipro has also built one of the largest vertical in Oil & Gas (ENU), but with collapse of energy prices, it was more affected than its peers because of relatively high exposoure.

But, BFSI, health care & life sciences are recent success story for Wipro with revenue of around $1 bln. Also IMS services are growing at decent momentum.

The present CEO (T.K.Kurien) has done a great job for the last five years to drive the company in the right direction. But the management seems to be not so aggressive like his peers and lacks some vision in the recent emergence of new digital automation technology like AI, Cloud etc. 

Wipro has been little slower than its peers to adapt new technology, start ups & related acquisitions than its peers and that is getting reflected in its growth. Also, it does not has the balance sheet strength like Infy (zero debt and huge cash).   

But Wipro is changing fast and bought a TCS veteran (AAN-A.A. Neemuchiwala) in its top management.This may be an indication that Azim Premji (Founder of Wipro)  is shifting to top gear to accelerate growth.  

Another factor was that Wipro is unable to win more contracts from its existing clients, may be because of legacy issues of  conservative pricing. But, recently Wipro has won a large 5 years IT contract in a Norway retailer.

Wipro is taking various measures under AAN to revive growth and hopefully, some result will be visible by FY-16.

The company is very optimistic about growth in ENU as energy prices began to bottoming out in the coming quarters and oil majors should expand their budget. 

In Q2, some top clients of Wipro had cut their IT budget amid global slow down. Its OPM also affected by 0.3% to 20.7% because of wage hikes for its employees.

As par reports, all the IT companies are preparing for next wave of digital technology and also restructuring the back up reserve bench with heavy spending on external tech consultants and Wipro is one of them. The company is planning to train 10000 individuals on digital technologies over the next few months. TCS is also planning to train 100000 personnel for this with a fresh hiring target of 75000 by FY-16 !! As par various analysts, we may see the result of such huge investment in next two-three years.

Wipro is also digitizing personal experience of its EaaS service (digital economy) with Oracle's cloud based platforms. Wipro has also strengthened its digital presence by its recent acquisition of "Designit" and it another division is engaged in 12 digital projects (Cognitive Intelligence-CI Platform).

Wipro is certainly trying its best to adapt itself with the fast changing digital technology "By Applying Thought" & management's cautious warning about tepid growth in the short term might be an opportunity for a good entry in the stock, which is among the top five IT companies in India right now.

Looking ahead, Wipro has better order books (deals) for the next few quarters and the management is confident on improving margins driven by automation and efficiency benefits. 

For Wipro, nearly 78% of revenue comes from US/EU, 11% from India and 11% from other EM(s).

Apart from "Digital & Make In India" theme & overall economic recovery with expected 7.5% GDP growth, there may be immense opportunity in India for all major IT companies including Wipro.

It can be also safely presumed that worst is over for the US/EU economy and we may also see revival in growth and investments amid continuous QQE (easy monetary policy) and all IT majors including Wipro may be beneficiary of that.

After the Q2 result of Wipro, various domestic brokerage houses revised target price of Wipro in the range of  610-680, while Barclays downgraded it with TP of 585 ( as Wipro management expects pricing pressure to continue). Thus consensus valuation by FA metrics comes around 620. 

Technically, Wipro need to sustain above 585 (CMP: 570) for target of 605-625 in the near term and 564-544 is a strong support/Demand zone.

As par BG metrics & current market parameters:

Present median valuation of Wipro may be around: 645 (FY:15/TTM)

Projected fair valuations might be around: 700-755-820 (FY:16/EST)

SCRIP	EPS(TTM)	BV(Act)	P/E(AVG)	Low	High	Median	200-DEMA	10-DEMA
WIPRO	36.06	150.2	20	643.07	644.98	644.03	573.41	576.81

WIPRO

42.05

178.05

20

694.43

696.49

695.46

573.41

576.81

WIPRO

49.25

211.25

20

751.54

753.76

752.65

573.41

576.81

WIPRO

57.5

250.35

20

812.05

814.45

813.25

573.41

576.81

Analytical Charts: