Wipro Share price: Sharekhan maintains Buy rating with a revised price target of Rs 510

Wipro delivered a second consecutive quarter of strong revenue growth, margin expansion, acceleration in order bookings and solid cash conversion. Wipro reported slightly better than expected revenues, while EBIT margin beat Sharekhan’s estimates. is trading at 22x/21x of its FY2022/FY2023 earnings estimates, at a significant discount to its large peers. Given the company’s keen focus on growth acceleration with stable margins, Sharekhan maintains Buy rating on Wipro with a revised price target of Rs 510.

Wipro reported constant currency (CC) revenue growth of 3.4% qoq (upper-end of guidance), broadly in line with our expectations, led by a strong growth in consumer, healthcare, technology, energy & utilities and manufacturing verticals. Reported US Dollar revenue came in at $ 2071 mn, up 3.9% qoq. EBIT margin for IT services improved by 246 bps qoq at 21.7%, exceeding estimates, led by higher offshoring, operational efficiencies, lower sub-contracting expenses and improvement in quality of revenues.

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Net profit of Rs 2966.7 cr (up 20.3% qoq and 20.8% yoy) exceeded our estimates, led by higher-than-expected profitability. Five out of seven verticals reported above-average growth rate as clients embraced digital transformation initiatives. Wipro provided marginally better-than-expected revenue growth guidance of 1.5- 3.5% qoq for Q4 FY21. It closed 12 deals with $30 million+ TCVs in Q3FY2021, taking total TCVs to over $1.2 bn.

Sharekhan expects Wipro’s revenue growth trajectory to significantly exceed historical levels in FY2022E and FY2023E, because of strong deal wins, robust deal pipeline, higher adoption of cloud and cloud-related technologies, improving demand outlook in certain large verticals, strong digital competencies and full service model. Sharekhan believes EBIT margin could be sustainable in the medium-term despite investments on sales and marketing, domain specialists and building digital capabilities, led by revenue improvement, lower travel and administrative expenses, higher offshoring revenue and WFH efficiencies.

Key positives:

Strong deal wins TCVs of $1.2 bn
Cash conversion remained strong; free-cash-flow to EBITDA ratio stood at 96%

Key negatives:

The company lost four clients in its $100 million revenue bracket on a yoy basis

Key risks:

Rupee appreciation and/or adverse cross-currency movements
longer duration of pandemic
constraint in local talent supply in the US
stringent visa regime to adversely impact earnings