>WIPRO LIMITED: Some improvement, but still risky

Wipro continues its organisational revamp focused on improving its account mining process. Steps have been taken to simplify reporting structures, standardise back-end processing and external consultants have been asked to bring the best practices. We find confidence returning to management that the company will be able to match peers’ growth going forward despite the uncertainty in the demand environment. However, we believe that the turnaround could take more time and that the execution risks are not correctly priced. The stock is trading at a P/E of 15.7x for FY13 (7% discount to Infosys) and, hence, is not inexpensive. We maintain our 3-UW rating. 


Simplifying organisational structure: Reporting lines have been restructured so that sales and delivery primarily report to vertical heads. Senior level hires are being made to improve processes in both sales and delivery.


End-demand improvement in specific pockets: Wipro has seen end-demand stability since the beginning of the calendar year with traction in BPO and IT Infrastructure. Oil & Gas, BFSI, Retail and Healthcare are the key focus areas and likely growth drivers. 


Acquisition-led strategy to continue: According to management, Wipro’s acquisitions through the decade have had 2.2ppts accretion on the revenue CAGR with an IRR of 22%. With 20% of the current FY revenues from acquisitions, the company is unlikely to relent on its strategy and could continue to focus on smaller acquisitions.


Execution risk makes us cautious: The strong focus on top-line growth could imply a reduced margin focus near term. Given volatile environment and the changing organisational structure, there remains risk to earnings growth, in our opinion. Valuations at a P/E of 15.7x also do not provide much support. We retain 3-UW with PT of Rs360.


RISH TRADER