Neutral Wipro Ltd For Target Rs.290 by Motilal Oswal Financial Services Ltd
Steady with little surprises
Strong margin execution, but 4Q guidance unexciting
* Wipro (WPRO) reported 3QFY25 IT Services revenue of USD2.6b (0.1% QoQ) in constant currency (CC), above our estimate of a 1.0% QoQ decline. It posted an order intake of USD3.5b (down 1.3% QoQ), with a large deal TCV of USD0.96b (down 35% QoQ). EBIT margin of IT Services was 17.5% (est. 16.4%). EBITDA rose 4.0% QoQ/12.5% YoY to INR47b (est. INR45b). PAT stood at INR33.6b (+4.7% QoQ/+24.7% YoY), above our est. of INR30b. For 9MFY25, revenue declined 1.4%, whereas EBIT/PAT grew 11.4%/16.7% vs. 9MFY24. We expect revenues/EBIT/PAT to grow by 1.0%/11.1%/11.2% YoY in 4QFY25. We reiterate our Neutral rating as we view the current valuation as fair. Our TP of INR290 implies 22x FY27E EPS.
Our view: Robust quarter; no major overhang on 4Q margin
* WPRO delivered a steady performance in 3QFY25, driven by a strategic focus on key client segments (7 out of top 10 clients grew YoY CC) and growth in the Healthcare vertical. TCV reached USD3.5b in 3Q, with large deals contributing USD0.96b. A notable uptick in smaller- and medium-sized deals in 3Q aligns with peers’ commentary, highlighting the growing momentum of short-cycle deals and signaling a recovery in discretionary spending.
* Growth was particularly strong in the US BFSI and Healthcare verticals, driven by a gradual recovery in discretionary spending. The company’s focus on client mining and expanding its consulting business has further strengthened its deal pipeline, especially in the Americas.
* However, challenges remain in certain verticals and geographies. Its 4Q guidance is muted (-1.0% to 1.0% in CC), reflecting regional softness, particularly in Europe and APMEA. Manufacturing and E&U verticals continue to face client-specific headwinds, with no immediate signs of recovery expected.
* Guidance: Revenue from the IT Services segment is expected to grow in the range of -1.0% to 1.0% QoQ in CC terms.
* Margins: EBIT margins improved by 70bp to 17.5% in 3QFY25, driven by higher offshoring, increased utilization, and growth in fixed-price contracts. WPRO expects margins to remain stable in the range of 17-17.5% in 4Q with no major headwinds anticipated.
Beat on revenue and margins
* IT Services revenue at USD2.6b grew 0.1% QoQ in CC (reported USD revenue was down 1.2% QoQ), beating our estimate of a 1.0% QoQ decline.
* 4QFY25 revenue guidance is -1.0% to 1.0% in CC terms.
* Growth was driven by Healthcare (+6.7% QoQ CC), while BFSI/Consumer declined 1.9%/0.9% QoQ CC.
* IT Services EBIT margin was 17.5% (up 70bp QoQ), above our estimate of 16.4%.
* Americas 1 grew 3.9% QoQ CC, while Europe and APMEA declined by 2.7%/2.1% QoQ CC.
* 3Q TCV of USD3.5b was down 1.3% QoQ/7.3% YoY, while large TCV of USD0.96b was down 35% QoQ/up 6% YoY.
* Net utilization (excl. trainees) declined to 83.5% (vs. 86.4% in 2Q). Attrition (LTM) was up 80bp QoQ at 15.3%.
* Net profit rose 4.7% QoQ/24.7% YoY to INR33.6b (est. INR30b)
Key highlights from the management commentary
* While cost optimization remains a priority, the company is witnessing growing investments in AI. Demand is steadily increasing in the Americas.
* The consulting business is expanding, with improving demand environments in BFSI and Healthcare.
* Discretionary spending in BFSI and Capco has seen good traction in smaller deals.
* The top 25 clients, particularly in BFSI and Healthcare, are showing growth. The company plans to mine these accounts further through enhanced account management and delivery.
* 4Q guidance: -1% to 1% in CC.
* 3Q TCV was USD3.5b, including large deals worth USD0.96b, with strong traction across geographies. There has been an improvement in small- and mediumsized deals this quarter, with ACV conversion. The deal tenure has shortened.
* Europe performance remained soft. The company has established a new leadership team for deal conversions.
* Healthcare maintained growth momentum and is seeing expansion in client budgets, albeit slower than last year.
* The company plans to ramp up hiring in the coming quarters.
* WPRO has revised its capital allocation strategy, committing to returning over 70% of net income to shareholders over a three-year block, starting in FY26.
Valuations and view
* We expect the company to deliver FY24-27E IT Services revenue CAGR of ~3.1%. We expect WPRO to clock ~17% operating margin in FY25, which should translate into a 7.5% CAGR in INR PAT over FY24-27E.
* We have raised our FY25E EPS by ~5% to factor in the margin beat and kept FY26E/FY27E EPS broadly unchanged after its 3Q print. We reiterate our Neutral rating as we view the current valuation as fair. Our TP of INR290 implies 22x FY27E EPS.
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