Company Overview

Wipro Limited (NYSE: WIT) is a multinational information technology (IT), consulting, and business process services firm headquartered in India. IT Services, IT Products, and India State Run Enterprise are the three segments in which the company works (ISRE). The IT Services segment offers a variety of IT and IT-enabled services, such as e-business strategy, customer-centric design, technology consulting, IT consulting, custom application design, development, re-engineering, and maintenance, systems integration and package implementation, and global infrastructure services. Them Products offers a variety of third-party IT products, allowing it to provide IT system integration services. IT services offered to enterprises owned or controlled by the Government of India and/or Indian state governments make up the ISRE segment.

WIT Details

Key financial takeaways from year ending 31^st March 2022

• Sequential Revenue Growth: The gross revenue for FY22 was USD 10.36 billion, up 27.7% YoY from USD 8.14 billion in FY21 due to existing contracts and new contract acquisitions and their renewal.
• Y-o-Y Growth in Net Income: The company's net income in FY22 was USD 1.61 billion, up 13.2% from FY21, resulting in a 17% rise in EPS to 22.35 in FY22. Furthermore, the Effective tax rate improved from 22.5% a year ago to 22% for the last quarter ended 31^st March 2022.
• Operational Strength: In FY22, the number of customers with accounts worth more than USD 100 million increased from 11 to 19, while the number of customers with accounts worth more than USD 50 million raised from 40 to 50.

Recent Developments

• Extension of Strategic Collaboration: WIPRO announced on May 10, 2022, that it had extended its strategic collaboration with Crédit Agricole CIB to support the bank's next expansion phase. It would give the bank a larger team of Wipro specialists to manage a stable and secure infrastructure.
• Partnership with VMware to Expand Customer’s Digital Transformation: On May 4, 2022, VMware, Inc., and Wipro announced an enhanced partnership that would enable clients to attain the cloud independence they demand. To assist global corporations and cut costs.
• Acquisition of Rizing: On April 26, 2022, WIPRO announced that it had entered a formal deal to acquire Rizing Intermediate Holdings, Inc, a worldwide SAP consulting firm, greatly increasing its range of skills in assisting organizations in their transformation into intelligent enterprises.

Other key highlights from Q4 FY22 Financial results

• Company declared an interim dividend of USD 0.07 by the meeting held by the board, which shall be paid on April 26, 2022, to the shareholders on record as of April 06, 2022.
• Wipro got a good forex realization at INR 75.11 at the end of the quarter and had a USD 3.3 billion of forex hedges.

Balance Sheet & Liquidity Position

• As of March 31, 2022, the cash and cash equivalents and Investments were USD 4.55 billion, while loans amounting to USD 1.26 billion, meaning a healthy net cash position.
• The Company’s operating Cash Flow was USD 1.46 billion, representing 90.7% of Net Income and posted a 21.1% of EBITDA margin in FY22, higher than the industry median.

Top 10 shareholders

Wipro has a very diluted share holding with the top 10 shareholders together form around 1.11% of the total shareholding, while the top 4 constitute the half of it.  The Vanguard Group, Inc and State Street Global Advisors hold the maximum stake in the company at 0.23% and 0.19%, respectively, as also highlighted in the chart below: 

Top 10 Shareholders; Source: REFINITIV, Analysis by Kalkine Group

Key Risks

• Foreign exchange risk: Wipro got a good forex realization at INR 75.11 at the end of the quarter because of the appreciation of the USD in the previous quarter because of the current macroeconomic instability going around. To mitigate the FX risk, Wipro has USD 3.3 billion of forex hedges, signifying the importance of FX risk management for the firm.
• Technological Innovation Risk: Revenue is tied to IT services and is dependent on networking technology advancement as well as other product engineering services that encourage more utilization. As a result, Wipro runs the danger of its technology becoming obsolete in an ever-increasingly competitive environment, resulting in financial losses.

Q1 FY23 Outlook

Wipro expects revenue growth for the upcoming quarter of 2% to 4%, which will translate into year-on-year growth of 27% to 30% in constant currency. The company expects revenue from its IT services business in the range of USD 2.75 billion to USD 2.8 billion, which translates into a sequential growth of 1% to 3% quarter on quarter. This whole outlook is based on fixed exchange rates throughout the countries of operations.

Valuation Methodology: Price to Cash Flow Per Share-based Relative Valuation

1 USD = 77.58 INR (Source: Analysis by Kalkine Group)

*% Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation:

WIT’s stock price has fallen 33.18% in the past nine months and is leaning towards the lower of its 52-week range of USD 9.96 to USD 5.68. We have valued the stock using the Price to Cash Flow per Share-based relative valuation methodology and arrived at a target price of USD 7.57. We believe that the company is trading at a premium from its peer's average because of strong fundamentals, a positive outlook, and a good cash position give bullish estimates for the upcoming near future. We have taken peers like Tata Consultancy Services ltd., Infosys ltd., Mindtree ltd. and others for the evaluation of the intrinsic value.

Considering the following quarter's outlook, revenue increase, bottom-line growth, steady performance, associated risks, and current valuation, we recommend a "Buy" rating on the stock at the closing market price of USD 6.10 as of May 27, 2022.

WIT’s 1 Year Technical Price Chart (as of May 27, 2022). Source: REFINITIV, Analysis by Kalkine Group

Technical Summary Analysis

*Closing price as of May 27, 2022

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors' appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above. 

Note 3: The report publishing date is as per the Pacific Time Zone.

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