August 2020

WIPRO LTD. Company details

BSE Code 507685
CMP: Rs. 280 NSE Code WIPRO
TARGET: Rs. 323 Bloomberg Code WPRO IN
ISIN INE075A01022
RATING: BUY/ HOLD Market Cap (Rs. Cr) 160350
Outstanding shares (Cr) 571.4
52-wk Hi/Lo (Rs.) 286.8 / 159.4
Avg. daily volume (1yr. on NSE) 6,13,90,900
Face Value (Rs.) 2
Book Value 100.8

Wipro is a leading information technology, consulting and business process services company. The company had a
dedicated work force of over 180,000 serving clients across 6 continents.

Q1FY21 Result Analysis: Wipro Ltd. managed to beat the modest earnings expectations. Wipro Ltd.’s quarterly
profit rose even as the Covid-19 pandemic continued to take a toll on business. Net profit rose 2.8% over the
previous quarter to Rs 2,411 crore in Q1FY21 supported by other income and good operating performance. Total
revenue fell 5.3% over the previous quarter to Rs 14,922 crore—higher than the estimated Rs 14,414 crore. EBIT
grew by 3.3% to Rs 2,782.2 crore and margin rose 146 bps QoQ to 19.06% during Q1FY21 led by operational
efficiency (+100bps) and FX (+100bps), partially off-set by provisions (-50bps). BFSI performance remained
subdued primarily due to lower discretionary spending by the banks, especially in the US. In Health Business unit
(HBU), volume drops & furloughs in payment provider segment led to revenue declines. CBU and Technology
underperformed as well. In terms of geography mix Revenue from America contributes 59% to total revenues,
followed by Europe 23.7% and the rest of the world at 17.3%. Revenue from America was down 7% QoQ in CC
terms thus performing better versus Europe (down 9.7%) and rest of the world (down 6.1%).

More steam left on margins: The positive in this quarter was strong growth in margins. Group EBIT margin
expanded while IT services operating margin improved to 19.0% (vs. 17.6% in Q4FY20 and 18.4% in Q1FY20).
The healthy expansion in margins was led by improving operational efficiencies and tightening of expenses
(+100bps) along with favorable FX movements (+100bps), partially Wipro also focused on lowering sub-contracting
costs, heavy reduction in variable payments & gross utilization was by 160bps QoQ as lower leaves taken by
employees. Management has indicated that it will continue to rationalize any incremental expenditures and will be
able to sustain the margin in Q2FY21. However, the company expects that certain costs like travel will increase
once the activities come back to the normal levels.

Acquisition to strengthen position: Wipro will acquire Ivia Servicos De Informatica Ltda (IVIA), a specialized IT
services provider in Brazil, for US$22.4mn in cash. Management believes that the acquisition gives the company an
access to the new set of customers in the Financial Services, Retail and Manufacturing sectors in Brazil where
Wipro’s presence is limited. lVlA’s local talent and long-standing relationships combined with Wipro’s global
expertise will help expand their geographical footprint in Brazil.

Key Con-call Highlights

Outlook: Management believes that the demand environment going forward will be driven by cloud, cyber security
and digital transformation. During the latter part of the Q1FY21, deal momentum picked up and the order book saw
a YoY improvement

No formal quarterly guidance: Wipro avoided providing a formal quarterly revenue guidance for the Sep’20
quarter. It suspended formal outlook last quarter due to the uncertainty in demand environment, akin to peers.
 August 2020

Verticals: Wipro indicated that it is seeing some stability in in Consumer, Technology and Communication verticals
(34% of Revenue) and expects demand to pick up in the coming quarters. . Medical & Life sciences is also impacted
by low volumes. Pipeline is strong in new deals and new logos. Wipro is keenly watching US elections as it has
implications on its ACA business.

New CEO commentary: In June’20, Wipro appoints Thierry Delaporte as CEO & MD (based in Paris). Mr
Delaporte was COO and member of Executive Committee at Capgemini group and has in past has headed its BFSI
vertical (CY13-17). . He highlighted that the focus will be on profitable growth with necessary investment as and
when required. He also highlighted that cloud and other digital tech is expected to accelerate in future and will be
key focus of the company.

Key Risks

 Rupee appreciation and/or adverse cross-currency movements.

 Strong regulatory action against outsourcing in Wipro’s key geographical markets.
 Further Deterioration of demand environment.

Valuation

In the current environment, we see the IT Services sector as an attractive investment destination, because of WFH
and INR limiting the Covid impact in FY21 and strong recovery in FY22 on pent-up demand. Wipro’s major
positive in Q1FY21 is surge in margin. Wipro hasn’t given guidance for the next quarter, but company expects the
September quarter to be one of stabilization. As per the company, demand has bottomed in the consumer (e-
commerce & new age Media), communications and technology verticals, which contributes 34% of revenues, is
positive for the company. New opportunity will emerge with increased cloud adoption, Automation and workplace
modernisation.