Wipro
Cluster: Apple
Green Recommendation: Buy Price target:
Rs552 Current market price: Rs418
Rekindling old
flame
Key points
Wipro is witnessing strong traction
in its existing information technology (IT) service
business. In addition to this, the incremental growth
from the recent inorganic initiatives has considerably
improved the visibility of growth in its global
software service business.
The margins are also sustainable at
the current level, given the positive pricing
environment and the other operating levers (like a
higher offshore contribution and utilisation rate)
that are likely to cushion any adverse impact of wage
inflation on the company's profitability.
The company has effectively
addressed the two key concerns of a slow-down in its
business process outsourcing (BPO) operations and a
lack of focus on large outsourcing deals over the past
few quarters.
Consequently, we expect Wipro's
earnings to grow at a compounded annual growth rate
(CAGR) of 27% over the two-year period of FY2006-08E.
The stock's valuations are quite
compelling with its premium to the Sensex close to a
two-year low. We are re-initiating coverage on Wipro
with a Buy recommendation and one-year target price of
Rs552 (24x its FY2008 estimated earnings of Rs23 per
share).
