Hold Wipro; target of Rs 565: Emkay Global Financial

Emkay Global Financial recommended hold rating on Wipro with a target price of Rs 565 in its research report dated July 16, 2021.

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Emkay Global Financial’s report on Wipro

Wipro’s IT services revenue grew 12.2% QoQ (12% CC; 4.9% organic) to USD2.4bn in Q1FY22, beating our estimates. IT services EBITM declined 320bps QoQ to 17.8% due to the wage hike, Capco integration and investments in senior leadership hiring. Wipro guided IT services revenue to be in the range of USD2,535-2,583mn in Q2, implying 5-7% QoQ growth. Management remains fairly confident of delivering double-digit organic revenue growth in FY22. It reiterated EBITM guidance of 17-17.5% for FY22. Wipro signed 8 large deals with a combined TCV of USD715mn in Q1. Management indicated that the deal pipeline remains robust across markets with a good mix of small and large deals, offering good revenue visibility. We raise FY22E/FY23E/FY24E EPS by 4.3%/3.1%/2.7%, factoring in Q1 performance and higher growth assumptions.

Outlook

Wipro delivered a strong revenue performance in Q1; however, the valuation remains rich (low single-digit valuation discount to Infosys despite ~5% lower earnings CAGR expectations over FY21-24E and ~10% lower ROE). Retain Hold with a revised TP of Rs565 (earlier Rs550).

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