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Wipro - 2QFY22 Result Update
All-round Beat on Revenue Growth and EBIT Margin
Wipro’s (WPRO) 2QFY22 IT services revenue grew by 6.9% QoQ to US$2.58bn, 0.7% ahead of our estimate of US$2.56bn. Sequential growth came in at 8.1% in CC terms (organic 4.5%), ahead of our estimate of 6.6%, driven by a solid broad-based organic growth and higher-than-expected contribution from acquisitions (Capco and Ampion). EBIT margin of IT services business is at 17.7%, above our estimate of 17.3%, driven by a higher-than-expected operating leverage. Net income stood at Rs29.3bn, 2.8% ahead of our expectation of Rs28.5bn, led by the higher revenue growth and better margins. Large deal TCV (deals of more than USS$30mn) came in at US$580mn, which was slightly softer. The company remained optimistic on the demand environment, which was encouraging. Management guided 3QFY22 revenue from IT Services business will be at US$2.63-2.68bn. This translates to a sequential growth of 2-4%, which was ahead of our estimate of 1.5-3.5%. We expect the recent restructuring efforts, which include a simplified operating structure, step-up in capability upgrade and talent management to bode well for WPRO in the medium term. We raise FY22E-FY24E EPS estimates by 12.7-15.6%, driven by an improved revenue growth visibility and margin profile.
Attrition to Inch Up Higher in Coming Quarters
1. Among verticals, growth was led by, financial services and insurance (12.5% QoQ), communication (8.9% QoQ) and consumer (7.7% QoQ)
2. Among geographies, growth was particularly strong in Europe (9.2% QoQ) and APMEA (9.6% QoQ).
3. Voluntary TTM attrition in IT services stood at 20.5%, compared to 15.5% in 1QFY22. Management expects attrition to rise in the next couple of quarters and then ease out
4. During 2QFY22, the company added a net work force of ~12k employees. 5) US$100mn+ client bucket and US$50mn+ client bucket grew by 2 each to 15 and 44, respectively.
Execution Remained Better Than Expected
EBIT margin of IT services business came in at 17.7%, above estimate of 17.3%, driven by a higher-than-expected operating leverage and lower-than-expected integration cost of recent acquisitions. During the quarter, WPRO also accounted the salary increment for 80% of employees. expect a limited margin upside for FY22 due to the higher SG&A cost (higher attrition and resumption of offices), rising attrtion levels and accelerated hiring over the next two quarters. estimate an EBIT margin of 18.2-19% over FY22E-FY24E.
Industry Leading Growth Deserves Multiple Rerating
At CMP, WPRO trades at 26.5x/23x FY23E/FY24E EPS, which is at 6% discount to the larger peers (TCS and Infosys). Restructuring efforts, which include a simplified operating structure, step-up in capability upgrade and talent management bode well for WPRO in the medium term. expect WIPRO’s revenue to clock 15.9% (including acquisitions) CAGR over FY21-FY24E vs. 4% CAGR over FY17-FY20, driven by the recent large deal wins and focused efforts on prioritized sectors/geographies.
Share price (%) 1 mth 3 mth 12 mth
Absolute performance (0.1) 19.8 92.0
Relative to Nifty (4.6) 4.9 40.3
Change of Estimates
(% change) FY22E FY23E FY24E
Net revenues 8.8 8.4 9.9
EBIT 11.3 8.9 9.9
Net Profit 10.7 8.0 9.0
EPS (Rs) 15.6 12.7 14.0
Key Financials
Y/E Mar (Rs mn) FY20 FY21 FY22E FY23E FY24E
Net Sales 6,10,232 6,19,430 7,86,327 8,79,018 9,77,976
EBIT 1,05,031 1,23,053 1,42,828 1,63,208 1,85,692
PAT 96,985 1,08,532 1,23,129 1,39,752 1,60,635
Diluted EPS (Rs) 16.5 19.3 22.5 25.4 29.2
P/E (x) 40.7 34.8 29.9 26.5 23.0
EV / EBITDA (x) 32.4 26.5 21.7 19.6 18.0
RoE (%) 17.5 18.1 17.4 17.0 18.2
Dividend Yield (%) 0.1 0.3 0.6 0.9 1.2
Conference Call – Key Takeaways
2QFY22 revenue growth was ahead of the top end of company guidance of 7%.
Excluding the two recent acquisitions, Capco and Ampion, WPRO grew over 4.5%
in constant currency terms. This marks the second consecutive quarter of 4.5% plus
growth. It signals the underlying demand and execution momentum that the company
has generated, and majority of the growth was volume-led. The company experienced
a secular growth across all markets, all sectors and global business lines.
Demand environment continues to be very strong. The current deal pipeline is among
the highest in recent quarters. WPRO has a good mix of large and medium-sized deals.
There are in fact many mid-size deals and slightly smaller-size transformation deals
in the market right now. Order book in terms of the annual contract value has jumped
28% YoY in 1HFY22, while in terms of TCV, the order book is up 19% YoY.
There was significant traction across all end markets. Americas and Europe, the top two
markets, grew at 15% and 29% YoY respectively, even without the recent acquisitions.
Under the new operating structure, WPRO has worked on two key aspects of leadership
overall: 1) Building a contemporary and diverse senior leadership, including client facing
global account executives; and 2) Moving the leadership closer to clients. Hence, the
company has reconstructed leadership with a good mix of internally promoted talent
and lateral hires. Currently, 58% of the leadership is in the regional markets, with
increased proximity to customers.
Voluntary TTM attrition in IT services stood at 20.5%, compared to 15.5% in 1QFY22.
Management expects attrition to rise in the next couple of quarters and then ease out.
During 2QFY22, WPRO added a net work force of ~12k employees. During the quarter,
it provided a wage hike to 80% of the total work force
Key Risks
Substantial cut in technology spend by large US banks
Lower-than-expected large deal wins
Lower-than-desired payout from restructuring efforts
Stricter immigration laws may delay project ramp-up and completion
Higher attrition at top and middle management level
Unfavourable currency movement
