Wipro Ltd
IT - Software Services
Wipro Ltd
IT - Software Services
Stock Info
Shareholding Pattern
Price performance
Indexed Stock Performance
Huge beneficiary of structural changes in IT industry
Company Profile
Incorporated in 1945, Wipro is one of the leading global IT, consulting and business
process services companies. It is the fourth largest Indian player in the global
IT services industry, in terms of revenue. Wipro was as Western India Vegetables
Product limited and was majorly a consumer care product manufacturer till 1980 after
which it diversified into the IT services business. The company demerged its consumer
care division into a separate company called Wipro Enterprises Limited (WEL) in
April 2013, to enhance its focus and allow both businesses to pursue their individual
growth strategies. The company’s operations can be broadly classified into
IT Services, IT Products and India state run enterprise and it derived 96.8% of
its revenue from the IT Services segment in FY20. IT services include digital strategy
advisory, customer-centric design, technology consulting, IT consulting, custom
application design, development, re-engineering and maintenance, systems integration,
package implementation, cloud infrastructure services, analytics services, business
process services, research and development and hardware and software design.
Consolidated Financial Statements
| Rs in Crores | Revenue | EBITDA | EBITDA% | PAT | EPS | ROE% |
|---|---|---|---|---|---|---|
| FY18 | 54487.00 | 10376.00 | 19.00% | 8002.00 | 13.00 | 17.00% |
| FY19 | 59019.00 | 11617.00 | 20.00% | 9022.00 | 15.00 | 16.00% |
| FY20 | 61138.00 | 12342.00 | 20.00% | 9769.00 | 17.00 | 18.00% |
| FY21 | 61935.00 | 14772.00 | 24.00% | 10855.00 | 20.00 | 20.00% |
| FY22E | 73021.00 | 16038.00 | 22.00% | 11427.00 | 21.00 | 17.00% |
| FY23E | 85289.00 | 18572.00 | 22.00% | 13382.00 | 24.00 | 19.00% |
Rationale for Investment
Continous deal wins shall bolster growth
The company has managed to win large deals in the past two quarters and the demand
environment is currently robust coupled with overall deal pipeline remaining healthy.
The company’s focus continues to remain on midsized deals especially in areas
like cybersecurity, application modernization and customer experience to drive growth
in the medium term. The company closed 12 large deals resulting in a TCVs of $1.4
billion during Q4FY21, out of which the company’s mega deal in American market
is expected to lead to revenues over $1 billion of the deal duration. The company’s
focus is on account mining of existing clients, which will be done by empowering
global account executives for faster decision-making. The company is witnessing
strong deal wins and strengthening of market presence through acquisitions.
Inorganic expansion to provide impetus to growth
Recently, the company announced the Capco acquisition for a cash consideration of
$ 1.45 billion. Capco is a global technology and management consultancy specialising
in driving digital transformation in the financial services industry. The acquisition
will strengthen Wipro’s position as a consulting and IT services provider
(more comprehensive end-to-end solutions and offerings) in the BFSI space and shall
provide following benefits such as: i) widening customer reach in BFSI segment,
which was hard for the company to penetrate in the past (Capco’s 80% of revenues
is generated from the top 30 customers, thus the company intends to increase its
wallet share in these accounts by cross-selling IT services) and ii) strengthening
its capability to participate in large transformation deals using Capco’s
consulting solutions. The company emphasized that they have received encouraging
response up till now and their major focus will be on driving growth through joint
go-to-market efforts. Capco will continue to function as a separate brand and hence
the company expects limited cost synergies from the acquisition.
New organizational structure showing early signs of success
The company adopted a new organizational structure designed to simplify its go-to-market
execution and ensure sector focus and growth in non-US markets. The previous structure
of multiple delivery units has been replaced by a simplified model designed to bring
the best of the company closer to its customers. This model consists of four strategic
market units (“SMUs”) and two global business lines (“GBLs”).
The four SMUs are Americas 1, Americas 2, Europe, and Asia Pacific Middle East Africa
(“APMEA”). This new model reduces the total number of P&L
units from 20+ to 4, aligns the company geographically to be closer to the customer
and eliminates red tape to facilitate faster decision-making. In the previous vertical
structure, business heads were primarily based in the US, whereas in the new structure
leadership teams are closer to customers. Further, the company is not focused across
all verticals in a particular geography, and instead focus is on select verticals
in select markets depending on the company’s strength and relative size. This
shall aid in increasing focus on priority investments and free up resources.
Streamlined its business to facilitate faster decision-making
The company has consolidated its delivery organization into two global service lines
(instead of 15 delivery hubs earlier) constituting i) iCORE: which includes service
lines cloud infrastructure, digital operations, risk & enterprise cyber security
services (43% of revenue) and ii) iDEAS: integrated digital, engineering & application
services (57%). Due to changes in service line structure, now each market has its
own delivery engine and this enables geographic heads to invest in creating its
own talent pool and simplify the delivery organization. The company is going to
follow global account executive (GAE) model whereby they intend to appoint a GAE
from among the senior leaders who will be supported by a dedicated team of tech
specialists and industry experts, delivery teams and decide on investments to grow
these client accounts. The company has raised the role of account executives to
be closer to the CEO and decrease hindrance around decision-making. The company
is also setting-up a large deal team which includes a team of industry veterans
to improve participation.
Structural changes in the IT industry
We believe that to navigate businesses through the current crisis, digitization
and use of technology will be of prime importance. There is high demand for services
like i) digital transformation, ii) cyber security, iii) cloud. It is evident that
companies that have previously digitized their operations have been more resilient.
The pandemic has positively impacted the IT industry, with more and more organizations
globally having realized the importance of technology and increased their spending
on digital transformation. Consequently, in the medium to long term, it is
very likely that businesses will continue to spend on technology related initiatives
with a greater focus on automation, remote working, cloud-based applications, optimization
of legacy technology costs, etc. Several sectors are also seeking technology-based
solutions immediately to tackle the health and economic crises – notably in
healthcare, life sciences, banking, telecommunications and essential retail.
Peer Comparison:
In comparison to its peers like TCS & Infosys which is trading at PE of 26x/25x
on FY23E basis, Wipro currently trades at 21.1x FY23E EPS which looks attractive.
The company is well positioned to decrease the gap in growth rate with large peers
in FY22E.
Outlook & valuation
We believe the company has multiple growth drivers such as i) healthy deal pipeline largely driven by mid-sized deals ii) early success visible from its change to a new organization structure iii) ramping up investments in senior hires in key focus markets, iv) focus on higher client mining v) beefing up capabilities in consulting through the Capco acquisition and lastly investing in setting up a large deal team. We believe strong demand for cloud infrastructure services, higher usage of specialised software and increase in online adoption across verticals should augur well for the company. The stock currently trades at 21.1x FY23E EPS and we initiate our coverage on “Wipro ltd” with a Buy rating.
Financial Statement
Profit & Loss statement
| Yr End March (Rs Cr) | 2018 | 2019 | 2020 | 2021 | 2022E | 2023E |
|---|---|---|---|---|---|---|
| Net Sales | 54487.00 | 59019.00 | 61138.00 | 61935.00 | 73021.00 | 85289.00 |
| Growth % | -2.00% | 8.00% | 4.00% | 1.00% | 18.00% | 17.00% |
| Material Cost | 1843.00 | 1407.00 | 936.00 | 696.00 | 986.00 | 1194.00 |
| Employee Cost | 27222.00 | 29977.00 | 32657.00 | 33237.00 | 39787.00 | 46503.00 |
| Other Expenses | 15045.00 | 16017.00 | 15202.00 | 13231.00 | 16211.00 | 19019.00 |
| EBITDA | 10376.00 | 11617.00 | 12342.00 | 14772.00 | 16038.00 | 18572.00 |
| Growth % | -8.00% | 12.00% | 6.00% | 20.00% | 9.00% | 16.00% |
| EBITDA Margin | 19.00% | 20.00% | 20.00% | 24.00% | 22.00% | 22.00% |
| Depreciation & Amortization | 2112.00 | 1947.00 | 2086.00 | 2763.00 | 3285.00 | 3728.00 |
| EBIT | 8265.00 | 9670.00 | 10257.00 | 12008.00 | 12753.00 | 14844.00 |
| Other Income | 2559.00 | 2614.00 | 2725.00 | 2391.00 | 2439.00 | 2835.00 |
| Interest & Finance Charges | 583.00 | 738.00 | 733.00 | 509.00 | 447.00 | 413.00 |
| Profit Before Tax - Before Exceptional | 10241.00 | 11547.00 | 12249.00 | 13890.00 | 14745.00 | 17267.00 |
| Profit Before Tax | 10241.00 | 11547.00 | 12249.00 | 13890.00 | 14745.00 | 17267.00 |
| Tax Expense | 2239.00 | 2524.00 | 2480.00 | 3035.00 | 3318.00 | 3885.00 |
| Effective Tax rate | 22.00% | 22.00% | 20.00% | 22.00% | 23.00% | 23.00% |
| Net Profit | 8002.00 | 9022.00 | 9769.00 | 10855.00 | 11427.00 | 13382.00 |
| Growth % | -6.00% | 13.00% | 8.00% | 11.00% | 5.00% | 17.00% |
| Net Profit Margin | 15.00% | 15.00% | 16.00% | 18.00% | 16.00% | 16.00% |
Balance Sheet
| Yr End March (Rs Cr) | 2018 | 2019 | 2020 | 2021 | 2022E | 2023E |
|---|---|---|---|---|---|---|
| Share Capital | 905.00 | 1207.00 | 1143.00 | 1096.00 | 1096.00 | 1096.00 |
| Total Reserves | 46844.00 | 54954.00 | 54024.00 | 53650.00 | 64278.00 | 76723.00 |
| Shareholders' Funds | 48167.00 | 56686.00 | 55509.00 | 55051.00 | 65678.00 | 78123.00 |
| Minority Interest | 241.00 | 264.00 | 188.00 | 150.00 | 150.00 | 150.00 |
| Long Term Burrowing | 4527.00 | 2837.00 | 484.00 | 746.00 | 582.00 | 332.00 |
| Deferred Tax Assets / Liabilities | -388.00 | -222.00 | -321.00 | 294.00 | 294.00 | 294.00 |
| Long Term Provisions | 1101.00 | 1311.00 | 1697.00 | 1413.00 | 1413.00 | 1413.00 |
| Short Term Borrowings | 7960.00 | 6809.00 | 5402.00 | 6036.00 | 5400.00 | 5150.00 |
| Trade Payables | 5120.00 | 6266.00 | 5840.00 | 5417.00 | 6101.00 | 7373.00 |
| Other Current Liabilities | 6359.00 | 6301.00 | 7888.00 | 8271.00 | 8271.00 | 8271.00 |
| Short Term Provisions | 1912.00 | 2060.00 | 2509.00 | 3280.00 | 3280.00 | 3280.00 |
| Total Equity & Liabilities | 75003.00 | 82364.00 | 80678.00 | 82566.00 | 93077.00 | 106294.00 |
| Assets | ||||||
| Net Block | 18127.00 | 17465.00 | 22062.00 | 23040.00 | 24755.00 | 26027.00 |
| Non Current Investments | 887.00 | 815.00 | 1069.00 | 1204.00 | 1204.00 | 1204.00 |
| Long Term Loans & Advances | 3010.00 | 2854.00 | 2138.00 | 2646.00 | 2646.00 | 2646.00 |
| Current Assets | ||||||
| Currents Investments | 24909.00 | 22072.00 | 18964.00 | 17571.00 | 17571.00 | 17571.00 |
| Inventories | 337.00 | 395.00 | 187.00 | 106.00 | 277.00 | 325.00 |
| Sundry Debtors | 10099.00 | 10049.00 | 10447.00 | 9429.00 | 10538.00 | 12578.00 |
| Cash and Bank | 4493.00 | 15853.00 | 14450.00 | 16966.00 | 24483.00 | 34340.00 |
| Short Term Loans and Advances | 6627.00 | 6784.00 | 6250.00 | 6250.00 | 6250.00 | 6250.00 |
| Total Assets | 75003.00 | 82364.00 | 80678.00 | 82566.00 | 93077.00 | 106294.00 |
Cash Flow Statement
| Yr End March (Rs Cr) | 2018 | 2019 | 2020 | 2021 | 2022E | 2023E |
|---|---|---|---|---|---|---|
| Profit After Tax | 8002.00 | 9022.00 | 9769.00 | 10855.00 | 11427.00 | 13382.00 |
| Depreciation | 2112.00 | 1947.00 | 2086.00 | 2763.00 | 3285.00 | 3728.00 |
| Others | 219.00 | 1579.00 | -1770.00 | 0.00 | 0.00 | 0.00 |
| Changes in Working Capital | -88.00 | 2717.00 | -2386.00 | 676.00 | -596.00 | -816.00 |
| Cash From Operating Activities | 8423.00 | 11632.00 | 10064.00 | 14755.00 | 14116.00 | 16294.00 |
| Purchase of Fixed Assets | -2187.00 | -2278.00 | -2350.00 | -3741.00 | -5000.00 | -5000.00 |
| Free Cash Flows | 6236.00 | 9354.00 | 7715.00 | 11014.00 | 9116.00 | 11294.00 |
| Others | 5628.00 | 7097.00 | 5624.00 | 4515.00 | 0.00 | 0.00 |
| Cash Flow from Investing Activities | 3558.00 | 5013.00 | 3401.00 | 774.00 | -5000.00 | -5000.00 |
| Increase / (Decrease) in Loan Funds | -1098.00 | -3888.00 | -2604.00 | -1022.00 | -800.00 | -500.00 |
| Equity Dividend Paid | -450.00 | -450.00 | -569.00 | -760.00 | -800.00 | -937.00 |
| Others | -11358.00 | -506.00 | -11810.00 | -11102.00 | 0.00 | 0.00 |
| Cash from Financing Activities | -12998.00 | -4937.00 | -15100.00 | -12884.00 | -1600.00 | -1437.00 |
| Net Cash Inflow / Outflow | -1017.00 | 11707.00 | -1634.00 | 2645.00 | 7516.00 | 9857.00 |
| Opening Cash & Cash Equivalents | 5072.00 | 4093.00 | 15853.00 | 14410.00 | 16966.00 | 24483.00 |
| Closing Cash & Cash Equivalent | 4093.00 | 15853.00 | 14410.00 | 16966.00 | 24483.00 | 34340.00 |
Key Ratios
| Yr End March | 2018 | 2019 | 2020 | 2021 | 2022E | 2023E |
|---|---|---|---|---|---|---|
| Basic EPS | 13.00 | 15.00 | 17.00 | 20.00 | 21.00 | 24.00 |
| Diluted EPS | 13.00 | 15.00 | 17.00 | 20.00 | 21.00 | 24.00 |
| Cash EPS (Rs) | 17.00 | 18.00 | 21.00 | 25.00 | 27.00 | 31.00 |
| DPS | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 | 2.00 |
| Book value (Rs/share) | 80.00 | 94.00 | 97.00 | 100.00 | 120.00 | 143.00 |
| ROCE (%) Post Tax | 13.00% | 15.00% | 16.00% | 18.00% | 18.00% | 18.00% |
| ROE (%) | 17.00% | 16.00% | 18.00% | 20.00% | 17.00% | 19.00% |
| Inventory Days | 2.00 | 2.00 | 2.00 | 1.00 | 1.00 | 1.00 |
| Receivable Days | 66.00 | 62.00 | 61.00 | 59.00 | 50.00 | 49.00 |
| Payable Days | 33.00 | 35.00 | 36.00 | 33.00 | 29.00 | 29.00 |
| PE | 16.00 | 17.00 | 12.00 | 26.00 | 25.00 | 21.00 |
| P/BV | 3.00 | 3.00 | 2.00 | 5.00 | 4.00 | 4.00 |
| EV/EBITDA | 11.00 | 11.00 | 7.00 | 18.00 | 16.00 | 13.00 |
| Dividend Yield (%) | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| P/Sales | 2.00 | 3.00 | 2.00 | 5.00 | 4.00 | 3.00 |
| Net debt/Equity | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Net Debt/ EBITDA | -1.00 | -2.00 | -2.00 | -1.00 | -1.00 | -2.00 |
| Sales/Net FA (x) | 3.00 | 3.00 | 3.00 | 3.00 | 3.00 | 3.00 |