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Focus on accelerating growth with sustained margins

We attended the virtual analyst meet of Wipro. The company, like other IT companies, expects robust acceleration in digital technologies. Geographically, Wipro expects faster growth from Europe & APMEA region while vertically it expects growth from BFSI, retail & consumer, energy & utilities and manufacturing. The new CEO also highlighted his strategy of: 1) simplify operating model, 2) build talent at scale, 3) accelerate growth, 4) strengthen clients & partnership and 5) lead with business solution. For accelerating growth, the CEO’s focus is on large deals, client mining, strategic partnership and M&A. Wipro is aiming at growth with sustainable margins leading to better cash flow and optimal capital allocation.

New CEO outlines growth strategy

The new CEO’s strategy to drive growth is by prioritising countries & sectors in which Wipro is strong and that are high growth areas. Also, the company plans to de-prioritise countries & sectors in which it has low growth & weak standing. This will help in better resource allocation and drive targeted growth. In prioritisation terms, Wipro aims to focus on few verticals in Europe, Middle East to accelerate growth with America & UK as the anchor.

In addition, the company aims to achieve growth acceleration by focusing on four anchors: 1) client mining, 2) winning large deals, 3) strategic partnership with large technology companies AWS, Microsoft, etc, 4) building capability via M&A. In terms of achieving client mining Wipro will have a global account executive (GAE) in each large customer (that accounts for 70% of its revenues). These GAEs will be senior leaders and will be fully responsible for that account and empowered with decision making on how to grow the account. The company aims to scale GAEs to 25% (from current ~3%) of the top 200 leaders either internally or externally. For improving large deals, Wipro has set up a large deal team that will be responsible for origination and winning large deals. Further, the company will also appoint a chief growth officer who will be responsible for execution of GAEs, large deals and scaling of partnership. Finally, Wipro will also grow via M&A and has set up a team for post-merger synergies (key strategy continued below).

Valuation & Outlook

Wipro, under the new CEO, is addressing some of the past challenges of the company of lower focus on geographies outside US and large deals. In addition, the company’s focus on improving sales and higher investment to drive growth bodes well for revenue growth. Wipro aims to accelerate growth without compromising margins. This, coupled with healthy capital allocation policy, improving tech spends in digital, prompt us to be positive on the company. Hence, we maintain BUY on the stock with a target price of | 435/share (19x FY23E EPS). Key risk is 1) over centralisation, 2) margin sustainability and 3) exodus of talent impacting growth.

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