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Motilal Oswal
Wipro (Neutral)
CMP: ₹295.75
Target: ₹300
Wipro announced the divestment of its hosted data centre services business to Ensono for $405 million. As part of the deal, it will transition eight data centres and more than 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 Wipro’s customers. As part of this agreement, it will make a strategic investment of $55 million in the combined entity.
Our earnings estimates for Wipro are largely unchanged following the transaction, as the revenue impact is mostly offset by higher other income and share of profit. At around 16/14x FY19/20E earnings, Wipro’s gradual revenue growth alignment (y-o-y) is captured in our view, despite consistent headwinds from various pockets of problems. We believe that revival in its IT Services EBIT margins, which have fallen around 300 bps from 20.1 per cent in 4QFY16, is key to further upside in the stock.
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