Published on 19/11/2020 12:51:21 PM | Source: Emkay Global Financial Services Ltd

Hold Wipro Ltd For Target Rs.360 - Emkay Global

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Well-crafted strategy; execution remains key

* At its analyst meet, Wipro articulated its strategy underpinned by focus on five strategic priorities to accelerate revenue growth. Management remained confident that simplified operating model and shift from inward and operational-centric approach to external and client-centric approach will yield the desired results.

* The new simplified operating model will be effective from Jan 1, 2021, under which the number of P&Ls will be reduced to 4 from over 25 at present. It will help in faster decision making, more effective go-to-market approach and better performance accountability.

* Wipro expects margins to sustain at current levels on the back of benefits accruing from simplified operating structure, pricing power with better business mix and focus on operational excellence, although it plans to invest in go-to-market and domain capabilities.

* We prefer to wait to see any signs of sustainable operating performance improvement before taking any constructive view on the stock, particularly as in the past, the company went through multiple restructurings but failed to solve client mining and revenue leakage issues. We maintain Hold on the stock with a TP of Rs360 at 18x Sept’22E earnings.


Growth strategy in place; execution key in driving desired results:

Thierry Delaporte has articulated his five strategic priorities to accelerate revenue growth: 1) focus and scale – prioritize sectors/markets and attain leadership in chosen areas; 2) strengthen clients and partnerships – invest in strategic accounts, large deals, leverage partnerships with AWS, Microsoft, Salesforce, etc; 3) expand service offerings – expand presence beyond IT office by leveraging industry/technology expertise; 4) talent development – subject matter experts, goto-market leaders, and drive performance-driven culture; and 5) simplifying operating model. We find overall strategy coherent; however, the results would depend on execution.


Simplified structure to drive better efficiencies but it may lead to leadership churn:

Wipro has announced a major restructuring to simplify its operating model which will be effective Jan 1, 2021. The company will have four strategic market units (2 in Americas, 1 each in Europe and APMEA) and two global business lines (iDEAS and iCORE) in place of the current structure of multiple strategic business units, service lines and geographies. The SMUs are organized by markets and GBLs by capabilities. While the SMUs will own the P&Ls, delivery and practices will be aligned with GBLs. Under the new structure, Americas will be organized by sectors, while Europe and APMEA will be structured by countries. The new simplified structure will provide respective leaders more flexibility and drive better synergies and also bring more performance accountability. It may lead to some churn at the leadership level, although management suggested that ~98% of the organization will not be impacted.


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