Maintain ‘buy’ on Wipro with a target price of R660 per share valuing the stock at 15.5x FY17e EPS versus 16.5x earlier. Wipro remains one of our preferred picks in Tier-1 IT stocks but at the lower end of the pecking order. We believe Wipro will need to deliver 2.4% CQGR, which is realistic, if the company needs to achieve US dollar revenue growth of 5.3% for FY16. With FY16 likely to be the fourth consecutive year of tepid growth, Wipro’s stock could trade at P/E multiples of 12.5-13.5x over the next 3-6 months. We trim our EPS estimates by 1.3 and 2.5% for FY16 and FY17e with lower revenue growth assumptions partially negated by upward revision in margins.
The company announced strong new deal wins in FY15 but revenue growth momentum remains way below industry average which is a reason to worry. Revenues at $1.77 billion were down by 1.2% q-o-q for Q4FY15. However, growth in constant currency stood at 1.2% q-o-q which is near the lower end of its guidance (1-3% q-o-q growth). This is in sharp contrast to Q3FY15 when Wipro delivered revenues near its upper end of guidance.
Wipro guided for Q1FY16 revenues at $1.765-1.793 billion which indicates a decline of 0.5% q-o-q at the lower end to a growth of 1% q-o-q at the upper end. Steady ebit margin in IT services business at 22% for the quarter and up 20 bps q-o-q, higher other income and lower depreciation led reported PAT beat our estimates marginally.