In Q4FY22, Wipro’s IT services revenue grew 3.1% q-o-q (in cc), lower than our/Street’s estimate of 4.3%/3.4%. IT services Ebit margin at 17% also undershot our/Street’s estimate of 17.1%/17.4%. Mgmt highlighted that demand environment remains strong, which is reflected in its pipeline and order book. Meanwhile, they continue to pursue strategic acquisitions aggressively to drive growth and market share. Management is focussing on closing large transformational deals, but also seeing rapid expansion in small and mid-sized deals. We are changing our EPS estimates by -4.1%/2.5% for FY23E/FY24E and rolling over the valuation to Q2FY24E while maintaining the TP at Rs 851 (30x Q2FY24E). Maintain ‘Buy’.
Broad-based growth across key markets and service offerings
Revenue growth (in cc) was led by Manufacturing, which grew 7.4% q-o-q, followed by Consumer/ Technology/ BFSI/Energy Natural Resources and Utilities/ Health/ Communications growing 4.2%/3.6%/3.4%/ 1.8%/0.3% / -1.2 q-o-q. Ebit margin stood at 17%, down 60bp from last quarter. Headcount addition remains strong with 11,455 net hires, taking the total employee count to 243,128. Wipro plans to double freshers’ intake in FY23. Attrition on LTM basis inched up further to 23.8%, from 22.7% in the last quarter. The firm would undertake promotion cycle quarterly for 70% of junior employees.
Wipro continues to expand its partnerships with hyperscalers. It is working closely with Microsoft to market solutions. It is prioritising BFSI, Retail, Energy & Utilities where it has sharper focus. In Q4FY22, 40% of its order book was cloud-related. Revenue from Cloud ecosystems grew by 31% y-o-y in FY22. Wipro expects revenue from IT Services to be $2,748–2,803 mn, which translates to q-o-q growth of 1–3%. It also expects double-digit growth in FY23 while margins could be lower than its target band of 17–17.5% for the next two–three quarters. It recently announced acquisition with CAS Group and Rizing.
Outlook: Pipeline is solid
We believe lower guidance for the next quarter is just a blip in the overall strong growth trajectory; we expect growth to bounce back quickly. We maintain ‘BUY/SN’ while maintaining the TP of Rs 851 (30x Q2FY24E) based on strong demand outlook (EPS changed by -4.1%/2.5% for FY23E/FY24E) and a rollover to Q2FY24E.