MOSL: WIPRO (Neutral)-Asymmetrical growth dynamics… continue restricting broad-based revival
​​Wipro: Asymmetrical growth dynamics… continue restricting broad-based revival
(WPRO IN, Mkt Cap USD21.8b, CMP INR290, TP INR280, 3% Downside, Neutral)
- Revenue growth below expectations: 2QFY18 CC revenue growth of 0.3% QoQ was below our estimate of 1% QoQ and at the lower end of WPRO’s guidance of -0.5% to +1.5% QoQ. Barring Communications (-4.4% QoQ CC) and Healthcare (-5.9%), performance across verticals was impressive, mainly in BFSI (+3.3%). Though WPRO expects bottoming out of these problem areas, the guidance tells a different story.
- 3Q guidance not signifying revival: For 3Q, WPRO expects revenue of USD2,014-2,054m, implying CC growth of 0-2%. On YoY CC basis, this implies growth of 2.3-4.4% for 3Q, which at its midpoint is not materially higher than +2.9% YoY CC in 2Q. Given that the two problem verticals alone pulled overall growth down by 180bp QoQ, a revival there is necessary to translate into broad-based performance; portfolio issues and lopsided growth are a familiar story in the case of WPRO.
- Profitability beat across businesses: IT Services EBIT margin at 17.3% (+50bp QoQ) beat our estimate by 110bp. Margin expansion, despite wage hike impact, was commendable, driven by improved operational efficiency (also reflected in steady 80%+ utilization and headcount reduction). Products business saw sharp profitability improvement as WPRO consolidated its operations (business is half the size of previous quarter). This aided overall EBIT margin of 16.8% (130bp beat). Apart from this, higher other income led to PAT of INR21.9b (+5.5% QoQ, est. of -5.9% QoQ).
Wipro is an information technology group based in India. Co. is engaged in the provision of information technology services. Co. is active as a global IT services company that provides a range of IT services, software solutions, IT consulting, business process outsourcing, or BPO, services and research and development services in the areas of hardware and software design to companies worldwide. Co. also provides outsourced research and development, infrastructure outsourcing and business consulting services. Co.operations are organized along two business segments: IT Services and IT Products.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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