Firm likely to gain from strong momentum in digital foundation deals; valuations inexpensive; ‘Add’ retained
Employees work at desks at the Wipro Ltd. headquarters in Bangalore, India, on Thursday, April 14, 2016. Wipro, scheduled to release fourth-quarter earnings on April 20, last week said it would buy back its shares. Photographer: Namas Bhojani/Bloomberg
Wipro announced a mega-deal with Metro that provides visibility of at least $700 mn of revenues over a period of five years. Few highlights—(i) this is an apps+infra deal that involves rebadging of 1,300 employees in Germany (300), Romania (400) and India; (ii) this is a consolidation deal involving displacement of other vendors and buyout of captive centre; and (iii) Wipro will pay EUR40 mn for the captive centre.
The deal requires regulatory approvals and will close by end-April 2021. Wipro has been silently participating in and winning large deals. We are impressed. ADD
Wipro announces mega-deal with Metro: The deal with Metro provides minimum revenue commitment of $700 mn over five years and minimum $1 bn in case the deal gets extended by another four years. The deal encompasses cloud, data centre services, workplace and network services, along with application development and operations to provide an integrated, flexible and robust digital infrastructure. Key highlights of the deal are:
Metro is a new client for Wipro. It has won the deal by displacing existing vendor, shift of Metro’s in-house resources and buying out of captive centre. Revenues of the business proposed to be taken over from Metro was EUR120.1 mn in FY2020 (September fiscal-year ends) or 1.5% of Wipro’s current revenue run-rate.
Silently winning large deals, joins the mega-deal club: Wipro has announced quite a few deals in the current fiscal year in cloud infrastructure, applications and engineering services, with several in Europe. The announced deals include Marelli, E.ON and John Lewis. Their ramp-up underpinned strong revenue growth guidance of 1.5-3.5% for December 2020 quarter. Wipro is well-positioned to benefit from strong momentum in digital foundation deals as clients rush towards cloud shift.
The Metro deal reinforces Wipro’s credentials and lends comfort that the historical gap in growth rate with peers will compress even as it may not be fully bridged. That in itself will suffice to sustain the current inexpensive multiple. We forecast c/c revenue growth of 7.7% in FY2022e for Wipro, which has scope for upsides.