1. ‘Reduce’ on Wipro, target price Rs 585

‘Reduce’ on Wipro, target price Rs 585

Wipro’s headline numbers were in line with our estimates.

By: | Updated: January 21, 2016 12:27 AM

Wipro’s headline numbers were in line with our estimates.

Composition continues to disappoint with further deterioration in client progression metrics and weak growth in core markets and core areas of competence. Organic revenue growth guidance for 4QFY16 is in line for a seasonally strong period for Wipro.

It is plausible to make a case of 10% trade on the back of inexpensive valuations and potential capture of low-hanging fruits by the new CEO. However, there is little for now to suggest that Wipro will reverse its industry growth underperformance. Reduce stays.

Wipro reported 1.4% growth in c/c, 80 bps ahead of our estimates. The company mitigated substantial part of Chennai floods impact on revenues through business continuity planning (which entailed additional working days for employees over weekends). However, EBIT margin suffered due to Chennai floods (~40 bps impact in our view) and declined 50 bps qoq to 20.2%.

Additionally, a 340 bps decline in utilization rate also impacted EBIT margin. The quality of performance was patchy. Revenues from top-10 accounts declined 2.2% qoq.

The number of US$100 mn accounts declined further, which the company attributed to currency movements and decline in size of E&U clients. Growth was led by businesses in India and West Asia (+21% yoy in c/c) and APAC markets (+12.3% yoy in c/c), while core US (+6.8% yoy) and Europe (-2.3% yoy) languished. Net profit of Rs 22.3 bn was broadly in line with our estimate.

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