Motilal Oswal's research report on Wipro
Wipro (WPRO) reported 4QFY22 IT Services revenue of USD2.72b (+3.1% QoQ) in constant currency (CC), missing our estimate of +3.5% QoQ CC. Manufacturing and consumer verticals did well while communication declined. 4QFY22 EBIT margin of IT Services contracted 60bp QoQ to 17%, 50bp below our estimate. WPRO guided for 1QFY23 revenue growth of 1-3% QoQ and FY23 EBIT margin to be below its medium-term guidance band of 17.0-17.5% due to elevated investments. We see the muted topline growth guidance for 1QFY23 as disappointing, since the expectation was that WPRO’s 1Q seasonality is a thing of past and it should gain from the strong demand for consulting-led IT services. Moreover, while the company’s commentary on demand environment remains robust, there is a visible absence of any large deal over the past few quarters. We expect WPRO to report FY23 organic CC USD revenue growth towards the lower end of our Tier 1 IT services universe (MOSLe of 12.4%). Moreover, the management plans for elevated investments in FY23E will result in IT services’ EBIT margin dipping below the lower end of guidance (MOSLe of 16.8%). This should further compress the earnings growth next year. Our estimates suggest FY23 INR PAT growth of 7.0%, one of the lowest in our IT services coverage. Finally, WPRO has given muted payout in FY22 (27% v/s 93% in FY21) due to elevated investments (USD1.45b in Capco and USD540mn in Rizing). We project this to continue in FY23 as well, and again miss investor expectations.
Outlook
We lower our FY23E/24E EPS by 1.3%/1.6% to factor in the miss on the growth guidance and lower margin. We maintain our Neutral rating as we view the current valuation as fair. Our TP implies 20x FY24E EPS.
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