MOSL: WIPRO (Neutral)-Largely in-line performance; stable outlook
(WPRO IN, Mkt Cap USD20.7b, CMP INR257, TP INR250, 3% Downside, Neutral)
Decent growth momentum in some segments unlikely to sustain
** Decent growth in 3QFY20 was driven by e-commerce within Consumer and HPS within Health BU. However, given volatility and seasonality in these segments, this growth momentum is unlikely to sustain, in our view. Also, we expect vertical-specific headwinds in key verticals like BFSI given the waning impact of tax reforms and the policy uncertainty due to impending elections in the US. Thus, we do not see scope for growth acceleration.
** We make marginal revisions to our estimates to rebase our exchange rate assumptions. Maintain Neutral.
Growth behind and margin ahead of expectations in IT services
** Revenue grew 2.4% YoY to USD2,095m (our estimate: +3%), while EBIT declined 4.5% YoY (v/s flattish expectation). PAT was down 3.2% YoY to ~INR25b (our estimate: -2.4% YoY).
** Growth in key verticals like BFSI (+0.4% QoQ CC) and ENU (1.2% QoQ CC) was soft during the quarter. However, verticals like Consumer (+7% QoQ CC), Health (+3.4% QoQ CC) and Manufacturing (+4.4% QoQ, CC) delivered strong growth on the back of the good performance in some sub-segments.
** Growth in both the key geographies (US - 1.5% and Europe - 1%, QoQ CC) was lower than company growth. ROW (+4.1% QoQ, CC) has driven growth due to ramp up of one large project.
** On an adjusted basis (for provision reversal), the EBIT margin in IT services expanded ~10bp QoQ to 18.2%. This was 40bp ahead of our estimate. However, consol. EBIT margin was ~50bp behind our estimate due to sharp margin contraction in both ISRE and products business.
** Attrition moderated from 16% to 12.5% (quarterly annualized).
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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