Buy Wipro; target of Rs 586: Equity99

Equity99's research report on Wipro

In Q2-2021, the company experienced a -ve 0.1% y-o-y growth in revenue to Rs. 15,114.50 Cr. However, notably the growth was led entirely by rupee depreciation of 3.8% y-o-y. The sales decline has been at around 3.7% y-o-y, dollar revenue basis. The reason for the fall in dollar revenue was decline in the revenue of all the verticals’ revenue except healthcare. Communication and technology verticals experienced the sharpest revenue decline y-o-y in Q2-2021 followed by energy, BFSI and consumer. The revenue decline was also driven by decline in revenue of Americas and Europe (major segments) while rest of the world showed increase y-o-y. As per the following, it shows that the constant dollar revenue growth is still negative for Wipro on a y-o-y basis. So, the recovery is not still evident to the pre-COVID levels.

Outlook

The company is trading at 22x TTM PE (as of Q2-2021) against an industry average TTM PE of 27x. The company generates ROE of 16.9% against industry peers generating average ROE of 26%. As a result, we believe the company is steeply undervalued at the current PE levels. On a forward PE basis, we value the company at 28x its estimated FY2022 EPS of Rs. 21 and at 23x its estimated FY2023 EPS of Rs. 26. On a TTM PE basis, we value Wipro shares at 34x TTM PE (as of Q2-2021) and assign it a target value at Rs. 586 a share over medium term. We believe the PE as of Q2-2021 will expand up-to 34x over a period of time to catch up with the fair valuation on a DCF basis we arrive at as follows.

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