Retain ‘reduce’ on Wipro, target Rs 590

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Updated: December 25, 2015 12:34:13 AM

Retain ‘reduce’ rating on Wipro with a target price of R590 per share, valuing the stock at 15x FY17 earnings. At 13.7x FY17e earnings, the Wipro stock seems inexpensive but it is also fully priced in view of the likely continuance of underperformance versus industry.

Retain ‘reduce’ rating on Wipro with a target price of R590 per share, valuing the stock at 15x FY17 earnings. At 13.7x FY17e earnings, the Wipro stock seems inexpensive but it is also fully priced in view of the likely continuance of underperformance versus industry. Wipro will struggle to be a core portfolio bet given the lack of a decisive push that can pull the company out of a prolonged phase of loss of market share and underperformance. We tweak our estimates and build this acquisition.

Wipro has acquired Viteos group, a US-based BPaaS provider to the alternative investment management industry for a consideration of $130 million, valuing it at 4.9x FY15 revenues. Viteos’ business process platform for buy-side complements Wipro’s business process capabilities on the sell-side, strengthening its positioning in the capital markets domain. Stock valuations are undemanding, but low confidence on a turnaround, underpins our cautious stance.

Viteos’ BPaaS platform provides a full suite of shadow-accounting, middle office and accounting solutions across asset class, currency, structure and geographies. Its shadow-accounting and middle office offerings have received recognition in the hedge fund industry. The company has 400-plus employees spanning US (3 offices), India (2 offices), Europe (1 office) and Singapore (1 office). Its revenues have grown at 35% CAGR over FY2013-15 to $26.5 million at margins higher than that of Wipro. This acquisition will strengthen Wipro’s positioning in the capital markets domain.

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