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Published on 6/04/2021 11:45:36 AM | Source: Emkay Global Financial Services Ltd

Hold Wipro Ltd For Target Rs.450 - Emkay Global

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Ampion acquisition to strengthen presence in ANZ market

* Wipro has agreed to acquire 100% stake in Australia-based Ampion Holdings Pty Ltd (Ampion), a cyber-security, DevOps and quality engineering services provider, for a cash consideration of USD117mn (~1.4x EV/Sales on Y/E June 30,2020 sales).

* Deal rationale: The acquisition is in line with Wipro’s growth strategies under the new operating model emphasizing investments in focus geographies. The acquisition will strengthen Wipro’s presence in ANZ markets, widen client reach and drive localization. The Australian market is undergoing significant disruption through the adoption of cloud, DevOps, analytics and resilience-related digital capabilities across enterprises and public sector entities. Wipro and Ampion’s combined offerings, powered by engineering transformation, DevOps and security consulting services, will bring scale and market agility to respond to the growing demands of customers.

* Deal timeline: The transaction is subject to customary closing conditions and regulatory approvals (Australian Foreign Investment Review Board) and is expected to close in Q1FY22.

* Brief profile of Ampion: Incorporated in 2018, Ampion is a provider of cyber-security, DevOps and quality engineering services in Australia. The company’s business was formed after the merger of IT services providers Revolution IT and Shelde in 2019. Revolution IT was an IT services company in Australia founded in 2004 and Shelde was a digital IT security company founded in 2010. The merged entity Ampion is headquartered in Melbourne with offices in Sydney, Brisbane, and a zone-3 facility in Canberra. It has a local team of more than 500 consulting and technology specialists and is a trusted delivery partner for over 150 clients in Australia comprising enterprises and public sector entities. It has reported revenues of USD85.5mn for FY20 (Y/E June 30), of which ~12% related to product sales.

* Wipro’s presence in Australia: Wipro has over 2,000 employees in Australia, serving over 60 clients across diverse industry segments, with at least a third listed in the Top-100 ASX. Wipro currently operates through five sales offices (Sydney, Melbourne, Canberra, Brisbane and Perth) and six development centers (across Melbourne, Parramatta, Taylors Beach, Perth and Macquarie Park) in Australia. It has also opened Digital labs in Sydney and Melbourne.

* Our view: The acquisition is in line with Wipro’s growth strategies under the new operating model emphasizing investments in focus geographies. The acquisition will strengthen Wipro’s presence in ANZ markets, widen client reach and drive localization. Wipro derives ~5% of its revenues in AUD and its localization in Australia stood at 40% in FY20. The addition of 500 local employees through Ampion will give a boost to Wipro’s localization efforts in Australia. Given the size of the acquisition (~1% of Wipro’s revenue), we do not expect any meaningful revision in our earnings estimates. We have a Hold rating on Wipro with a TP of Rs450 at 20x FY23E EPS

 

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