Wipro Share price: On annual investor day 2020, management highlights higher adoption of next gen tech | Sharekhan says buy

Sharekhan maintains Buy rating on Wipro with an unchanged price target of Rs 450 as demand is improving across its large verticals. The management aims to transform the company into a more externally focused and decentralized organization to accelerate growth as compared to its earlier internal and operational centric approach. 

Company would invest on:

(1)    Go-to-market
(2)    Business solutions
(3)    Partnerships
(4)    Strategic M&A to accelerate growth

The management expects that margin can be sustainable at this level (19.1% in H1FY2021) on the back of structural changes, pricing power, operational excellence and lower travel and administrative expenses.

On its annual investor day 2020, management of Wipro Limited highlighted on higher adoption of next gen technologies, new strategic priorities (including leaner organization structure), implementation of a proactive performance management culture, hiring of top talents for key roles, investment priorities, levers for sustainable margin and continued capital allocation policy. The management aims to transform the company into external focused market orientation and decentralized organization. This structure will accelerate growth as compared to its earlier internal and operational centric approach.
The key focus area for the company will be to prioritize markets and sectors, de-prioritize sectors and markets (expect impact of around 2%), mining large accounts, winning large transformational deals, building talents at scale, high performance culture, strengthening partnerships, M&A activities to fill the gap in capabilities and build a leaner organization structure will be going ahead. Digital technology is expected to grow at 15-20% CAGR over next 5 years, while next generation technologies (5G, robotics, blockchain and among others) are expected to grow at a CAGR of 35-45% over the same period.

The CEO has outlined new strategies that have five elements:

(1) Accelerated growth
(2) Strengthen clients and partnerships
(3) Lead with business solutions
(4) Build talents at scale
(5) Simplified operating model

To execute strategic priorities, the company will focus on:

(1)    Scaling strategic clients though effective sales and quality of execution
(2)    Wining large transformational deals by focusing on industry domain relevant to the deal
(3)    Leveraging strategic partnership with greater reach to clients and creating large deals with partners.

Valuation – Maintain Buy with a price target of Rs 450:

The CEO stated that a leaner organization structure would reduce P&L to 4 units versus 25 units earlier, which would enable the company to take better decisions on a go to market strategy and optimize costs. Sharekhan believes the new CEO is taking more accelerated decisions in making strategic changes across the organization compared to earlier CEO, which is reasonable.
Wipro would focus on mining large accounts, winning large transformational deals, hiring top talents for key roles, leveraging partnerships and strategic M&A to drive growth acceleration. Given the acceleration in spending on cloud and cloud related technologies, Sharekhan believes the growth trajectory of Wipro would improve from its historical levels. At CMP, the stock is trading at 19x/17x of its FY2022/FY2023 earnings estimates, at a significant discount to its large peers. Hence, they maintain our Buy rating on Wipro with an unchanged price target of Rs 450.

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Key Risks:

1) Rupee appreciation and/or adverse cross-currency movements
2) Longer duration of pandemic
3) Constraint in local talent supply in the US
4) A stringent visa regime to adversely impact earnings.