News Analysis

Wipro Q4FY21: Good overall performance augurs well

Hari Viswanath BL Research Bureau | Updated on April 16, 2021

With the stock already having seen a re-rating it its valuation vs historical multiples, few more quarters of performance need to be observed before considering further re-rating.

Wipro reported a sanguine March quarter with revenue of ₹16,250 crore and EPS of ₹5.39 — approximately 2 per cent and 5 per cent above Bloomberg consensus estimates respectively. Revenue growth for the quarter in constant currency (CC) terms was at 3 per cent vs guidance mid-point of 2.5 per cent. The company closed FY21 with CC revenue growth for its IT services business (97 per cent of total revenue) at negative 2.3 per cent (vs TCS at negative 1 per cent and Infosys at +5 per cent). While its performance at the headline level is weaker vs peers, it has done well to bridge the gap with better execution in FY21 and hence overall performance can be viewed positively. Wipro has also improved its operating margins to 20.3 per cent vs 18 per cent in FY20.

Operating performance across verticals and geographies is good with 4 out of 7 verticals and 3 out of 4 geographic segments showing good sequential growth in CC terms. Deal momentum was also good with large deal sign ups at $1.4 billion in March quarter vs $1.2 billion in December quarter. Management sounded confident continuing with improved execution witnessed in last year.

Stock view

We had recommended a hold on the Wipro stock published in our Portfolio edition dated March 21, highlighting that Wipro had been changing tracks with a bolder business strategy. There were initiatives to make the company more competitive after it lagged industry performance in the previous decade. The current quarter results indicate the company continues to make progress. Wipro currently trades at 21 times its FY22 EPS (Bloomberg estimates) vs Infosys’ 26 times and TCS’ 31 times. The progress of the turnaround for Wipro seems to be factored into the current valuation. With the stock already having seen a re-rating it its valuation vs historical multiples, few more quarters of performance need to be observed before considering further re-rating.

Outlook

The next year or two might turn out be a very interesting phase for the sector. Historically, at least in the previous decade, there was never a phase where all big 4 IT companies (TCS, Infosys, Wipro, HCL) performed well over a certain period of time. Over the last year, all four companies have reported robust operating and financial performance in the midst of the pandemic and so far all have expressed optimism for the future. How the trend will play out into FY22 needs to be watched.

Published on April 15, 2021

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