Neutral Wipro Ltd For Target Rs. 446 - Yes Securities
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Mixed operating performance; near term business environment has potential risks
Result Synopsis
Wipro(WPRO) reported mixed financial performance for the quarter. While, the revenue growth was inline, EBIT margin came in below estimates. The sequential growth was broadbased across all verticals with cc growth at 4.1% QoQ. The INR reported growth was supported by depreciation of INR by 3.4% QoQ vs USD. There was sequential decline in EBIT margin(down 38bps QoQ) led by wage hike in the quarter and other supply side constraints. There was slight moderation in employee attrition as LTM attrition was down 30 bps QoQ to 23%.
We believe that the multiyear tech adoption cycle broadly remains intact. However, the clients have become cautious regarding the evolving macroeconomic situation especially in the US and Europe and consequently, we expect moderation in growth in near term. Employee attrition has started moderating and should support operating margin going ahead We estimate revenue CAGR of 12.0% over FY22?24E with average EBIT margin of 15.6%. We change our rating on the stock from ADD to NEUTRAL with revised target price of Rs 446/share at 18.0x on FY24E EPS. We have slightly reduced our target multiple from 18.5x to 18.0x to account for risks from evolving macroeconomic situation. The stock trades at PER of 19.5x/16.5x on FY23E/FY24E EPS.
Result Highlights
* Wipro reported revenue of Rs 225.4bn, ( up 4.7% QoQ in INR terms, up 2.3% QoQ in USD terms for IT services). The cc growth was 4.1% QoQ. The growth was broadbased across all verticals.
* EBIT margin declined by 38 bps QoQ to 14%, led by impact of wage hike in the quarter.
* Order bookings remained strong as it grew by 23.8% YoY.
* Employee addition has moderated as it added around 600 employees in the quarter to close at 259,179 employees. LTM attrition decreased by 30 bps QoQ to 23%. Net utilization (excluding trainees ) was down 400 bps QoQ to 79.8%.
* Total number of active clients increased by 38 QoQ to 1471 active clients. Offshore revenue mix grew by 20 bps QoQ to 58.9%
* Has guided for 0.5%-2% QoQ revenue growth in USD terms for Q3FY23.
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