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Consulting exposure and muted expectation offer potential recovery play

Maintain Neutral as we await macro visibility

Wipro’s (WPRO) business performance has been lackluster over the last six quarters, following a robust FY22 performance after Thierry Delaporte assumed the role of CEO in Jul-20. The demand softness in key verticals (BFSI and Consumer) and high exposure to discretionary Consulting vertical (especially Capco) have weighed on WPRO’s operational performance, despite significant internal changes to improve decision making and refresh business leadership. Improvement in large deal wins and quarterly deal TCV (USD 1b+) indicate that these strategies are proving to be effective despite challenging macroeconomic conditions. While there is limited clarity on the timeline for macro recovery in key markets, easing inflation and lower interest rates might encourage the release of discretionary spends. Given the high consulting exposure (c15% of revenues), WPRO should be among the early names to benefit from a demand revival. This can act as an upside surprise for a stock with low expectations and large valuation gap with peers (16%/23% discount to large cap/overall peer median FY25 P/E).

We continue to see weak near-term performance (revenue decline of 4.4% CC in FY24E), followed by a recovery of 7.3% CC in FY25E, but keep a close watch on macro recovery and discretionary spend revival. We maintain NEUTRAL with a TP of INR 460 (premised on 20x FY25E EPS).

Macro recovery to fuel consulting service growth

? WPRO’s inorganic investments in building consulting capabilities have been instrumental in stimulating growth from key Business Units (BUs) before the macro headwinds impaired its growth in 2HFY23. Wipro clocked ~4% CQGR between 1QFY21 and 2QFY23

? The company’s notable acquisitions (on consulting) strengthen crossfunctional capabilities on both horizontal (Rizing on SAP) and vertical fronts (Capco on BFSI). The discretionary nature of spend has impacted its key verticals, BFSI and Consumer (~50% of revenue) and consulting service lines (~15% of revenue). However, these segments are expected to regain their earlier growth trajectory once macroeconomic recovery takes place.

? WPRO has demonstrated robust performance in its BFSI and Consumer verticals, achieving a ~10% CAGR each between FY18 and FY23. This growth notably surpasses its Consol revenue CAGR of 6.1% over the same period.

? Additionally, the client-facing account executives with individual P&L responsibilities are enabling deeper client mining and gaining higher wallet share. WPRO’s investments in overhauling leadership team and restructuring management hierarchy are incentivizing in terms of improving deal TCVs (quarterly run-rate still remains elevated at USD1b+).

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