MOSL: WIPRO (Neutral)-To sell hosted datacenter services business-Cutting out ~3% of revenue with negligible EPS impact
Wipro: To sell hosted datacenter services business; Cutting out ~3% of revenue with negligible EPS impact
(WPRO IN, Mkt Cap USD20.5b, CMP INR293, TP INR300, 2% Upside, Neutral)
Divesting datacenter business
- WPRO announced the divestment of its hosted datacenter services business to Ensono for USD405m. As part of the deal, it will transition eight data centers and >900 employees to Ensono over a two-year period starting in 1QFY19.
- It has also signed a long-term agreement with Ensono to jointly address the hybrid IT requirements of WPRO's customers. As part of this agreement, it will make a strategic investment of USD55m in the combined entity.
Unlocking value while still addressing client needs
- The deal would help WPRO unlock value by shifting out its datacenter operations to a larger entity, which would be able to drive operational efficiencies out of increased scale.
- Ensono, post the deal, will double in size with annualized revenue of USD550m, have a wider client reach, and manage over 30k hosted servers.
- However, WPRO would continue addressing client needs in this area through its partnership with Ensono, thereby not trimming its gamut of offerings.
3% revenue decline; little EPS impact
- WPRO's hosted datacenter services business was a part of its Infocrossing acquisition. While it is divesting this piece, the other two businesses (Medicare & Medicaid services and ERP implementation) remain a well-integrated part of the rest of the company.
- The transaction is resulting in a 1.5% decrease in our revenue estimates for each of FY19 and FY20, assuming the business is gradually stemmed down over a two-year period.
- However, because of higher other income, led by a net cash inflow of USD350m and an addition of profit from its 10% share of the combined entity, the EPS impact is limited to 0.6/0.7% for FY19/20.
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.
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