1. Retain hold on Wipro, lower target to Rs 650: HSBC

Retain hold on Wipro, lower target to Rs 650: HSBC

With Abid Neemuchwala from TCS as the COO, Wipro has built a strong management team now.

By: | Updated: July 30, 2015 9:36 AM
wipro

Wipro provided Q2 growth guidance of 1.5-3.5% q-o-q. (Reuters)

With Abid Neemuchwala from TCS as the COO, Wipro has built a strong management team now. Most of the business heads are well known industry veterans from Wipro or competing companies like Infosys. However, the company has still not been able to manage the ‘mining’ versus ‘hunting’ balance. In ‘normal’ demand and growth environment – client mining (revenue/client) and hunting (clients acquisition) equally contribute to the revenue growth. This is where Wipro has not been able to manage the balance.

The company reported IT services revenues of $1,794 million, up 1.1% q-o-q (in constant currency revenues were flat at +0.2% q-o-q). Growth was led by North America (up 2.6 q-o-q in constant currency) and Europe declined 5.3% q-o-q in constant currency due to high exposure to the energy vertical. Operating margin of IT services division were 21%, down 100 bps sequentially versus our expectation of a flat margin, factoring in one month of wage increase of 7% in offshore. Management reiterated its endeavour to maintain margins, but not at the cost of growth investments.

Wipro provided Q2 growth guidance of 1.5-3.5% q-o-q. This looks modest as the company expects top client to recover (declined 12% q-o-q in Q1), expects healthcare to recover and Energy to bottom out as well. Maintain a ‘hold’ rating with a lower fair value based target price of R650 (from R670) in-line with earnings revision.

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