Company Update

March 12, 2015

Rating matrix
Rating
Target
Target Period
Potential Upside

:
:
:
:

Wipro Ltd (Wipro)

Buy
| 720
12 months
10%

Simplifying itself

Whats Changed?
Target
EPS FY15E
EPS FY16E
EPS FY17E
Rating

Changed from | 650 to | 720

Changed from | 34.9 to | 34.5
Changed from | 38.8 to | 37
Introduced at | 43
Unchanged

Key Financials
| Crore
Net Sales
EBITDA
Net Profit
EPS (|)

FY14
43,763
10,046
7,797
31.7

FY15E
47,108
10,806
8,510
34.5

FY16E
49,761
11,631
9,137
37.0

FY17E
55,710
13,219
10,628
43.0

FY14
20.7
22.7
14.4
4.7
24.9
28.0

FY15E
19.0
20.9
13.4
4.0
22.8
24.7

FY16E
17.7
19.5
12.4
3.5
21.0
23.0

FY17E
15.2
16.7
10.9
3.0
21.1
23.0

Valuation summary
P/E
Target P/E
EV / EBITDA
P/BV
RoNW (%)
RoCE (%)

Stock data
Particular
Market Capitalization (| Crore)
Total Debt (Dec-14) (| Crore)
Cash and Investments (Dec-14) (| Crore)
EV (| Crore)
52 week H/L
Equity capital
Face value

Amount
160,983.7
6,960.6
23,538.8
144,405.5
678 / 475
491.6
|2

Price performance (%)

TCS
Infosys
Wipro
HCL Tech

| 655

1M

3M

6M

12M

6.5
(2.9)
2.6
5.0

4.4
13.0
18.7
30.5

0.5
18.8
13.5
23.8

18.7
16.8
11.4
39.6

Research Analysts
Abhishek Shindadkar
abhishek.shindadkar@icicisecurities.com
Hardik Varma
hardik.varma@icicisecurities.com

ICICI Securities Ltd | Retail Equity Research

We attended Wipros analyst day yesterday. Similar to other IT

companies, Wipro laid the future roadmap and plans to focus on 1) run
the business: core business that addresses clients operational excellence
agenda, and 2) change the business: helps customers in reimagining their
business. Aware of missing a couple of trends in the past, which cost
dearly, the company is keen to invest in newer technologies. This, along
with IMS, large deal wins could drive growth momentum while solid
internal execution targets could drive operational efficiency.
Laying the big road map
Wipro laid the roadmap, which though similar to other IT companies, is
backed by execution targets. The company plans to execute its run
(turbocharging the core) strategy through 1) driving scale in core
markets, 2) hyper-automation, 3) building IP assets. Its change (securing
the future) strategy hinges on 1) servicing the new buyer with distinct
agenda, 2) accelerating the digital agenda, and 3) reimagining business
with artificial intelligence (AI) and open source.
Driving scale in core markets
Wipro plans to drive market leadership in the US, UK, Middle East and
India geography even as it invests in building scale in Continental Europe,
Canada, Australia and South Africa. Wipro plans to reboot Japan and is
open to JV, partnerships similar to TCS, and/or acquisition. However,
Wipro believes that export oriented Japanese companies could be a large
enterprise implementation opportunity.
Driving quality, productivity with hyper automation
Wipro had a team of 200 employees working for the past two years on
building automation, AI and IP tools, which could be rolled out in 2015.
Noticeably, the company has set a roadmap to drive hyper-automation in
each of its accounts over the next year. Further, it plans to shift 80% of
basic process resolution to predictive, proactive vs. current reactive
leading to 90% reduction in mean processing time, 73% reduction in
headcount for similar scope of work and 90% error reduction. Finally,
audacious targets of 35% employee reduction for same work scope, if
achieved, could drive significant productivity gains.
Bringing in cultural change in sales to drive mining initiatives
Wipro is driving cultural change in its sales organisation (primarily
farmers) to improve client mining. Though improved hunting efficiency
led to 12x improvement in its pipeline over two years, farmers, it believes,
need cultural change as account size grows. To achieve the same, the
company has 1) changed its incentive plan from portfolio size to
incremental growth, 2) set cross-selling targets for account managers
(selling at least three service lines of its portfolio). Noticeably, the same,
overtime could apply to delivery teams and implies that promotion policy
could be driven by value generation along with skill set.
Maintain BUY given undemanding valuations
We expect rupee revenues, PAT to grow 8%, 9% (7%, 11% earlier) in
FY15E and 6%, 7% (9%, 11%) in FY16E, respectively. We also introduce
FY17 estimates and expect revenue, PAT to grow 12%, 16%. This
translates to revenue, EPS CAGR of 8%, 11%, respectively, in FY14-17E.
We continue to value the shares at 16.7x our FY17E EPS estimate of | 43
to arrive at our | 720 target price. We maintain the target multiple despite
shifting to FY17E given the scope for improvement in revenue, earning
trajectory and undemanding valuation.

Betting big on Digital

Having missed a couple of broader trends in the past, Wipro is keen to
bet big on Digital and expects it to be a net new top-3 service line
contributor in the next three years. It highlighted that it is focusing on the
technology stack in the ecosystem and also illustrated how a travel
management enterprise app, which will be rolled out internally could help
reduce travel function related back office strength to 20 vs. 700 earlier.
IMS continues to be growth driver
The IMS market continues to be encouraging and Wipros IMS practice
($2.1 billion size) continues to grow above company average (could end
FY15E with 19% YoY growth vs. 7% for company) driven by Europe.
Overall, infrastructure outsourcing is a large opportunity given
infrastructure services had a market share of ~44% in the total IT services
market of $980 billion. Total rebid market opportunity could be $92 billion
in 2015 while India heritage player export revenues could reach $11
billion in FY15E vs. $9 billion in FY14E. Noticeably, automation adoption
within IMS is better than other service lines given the service line
contributes ~one-third to the overall revenues despite lower (1/5th)
employee contribution. Interestingly, Wipro highlighted that clients are
averse to capex spending leading to a rise in open source components
(where costs are a third of regular stack) and pay per use models. That
said, the deal momentum continues to be strong while delivery cost
reduction (up to 25-30% for some of its clients) through automation, next
generation managed services platforms could help sustain the current
momentum.
New battleground - Product engineering services!
Rising frequency of product launches with incremental changes could
drive significant opportunities for Wipro in the product engineering space.
The company, however, has its preference for product extension
outsourcing deals vis--vis end-to-end product lifecycle management that
involves transfer of resources (people). Wipro expects the rebid market to
be 33% of the size of the IMS market.
Other key highlights from Q4FY15E perspective

ICICI Securities Ltd | Retail Equity Research

Cross currency (CC) impact could range from 200-250 bps on the
earlier guided range of 1-3%. This implies reported dollar growth
could be -1.25% to 0.75% assuming the mid-point of the CC
impact range
Margins could be volatile in the near term. However, over the
long term, they could rise driven by utilisation and productivity
Capex and discretionary spends in the oil & gas vertical are
challenged and could impact growth in Q1FY16E as well
A large deal pipeline continues to be encouraging as does the
demand environment in the US

Page 2

Financial summary
Profit and loss statement

| Crore

Cash flow statement

FY14

FY15E

FY16E

FY17E

43,763

47,108

49,761

55,710

16.9

7.6

5.6

12.0

Total Operating Expenditure

33,717

36,303

38,130

EBITDA

Total Revenues
Growth (%)

| Crore
FY14

FY15E

FY16E

FY17E

PAT before minority int.

7,840

8,560

9,192

10,688

Depreciation

1,111

1,319

1,368

1,504

42,491

(inc)/dec in Current Assets

(2,358)

(2,802)

(799)

(3,322)

(inc)/dec in current Liabilities

1,330

626

297

965

Taxes paid

(2,177)

(2,514)

(2,746)

(3,192)
7,669

10,046

10,806

11,631

13,219

Growth (%)

22.0

7.6

7.6

13.7

Depreciation

1,111

1,319

1,368

1,504

CF from operations

6,789

6,116

8,383

Other Income

1,454

1,945

2,035

2,470

Other Investments

505

1,945

2,035

2,470

Exchange difference

347

394

200

170

(Purchase)/Sale of Fixed Assets

(782)

(1,800)

(1,900)

(2,000)

F.income

(289)

(358)

(360)

(305)

CF from investing Activities

(277)

145

135

470

Inc / (Dec) in Equity Capital

Pft. from associates

PBT
Growth (%)

10,100

11,073

11,938

13,880

Inc / (Dec) in sec.loan Funds

(1,077)

1,100

(1,000)

(1,000)

28.5

9.6

7.8

16.3

Dividend & Divendend tax

(2,421)

(2,969)

(3,116)

(3,497)

Tax

2,260

2,514

2,746

3,192

CF from Financial Activities

(3,497)

(1,869)

(4,116)

(4,497)

PAT before Minority int,

7,840

8,560

9,192

10,688

Exchange rate differences

44

50

55

60

Minority int.
PAT

Opening cash balance

7,797

8,510

9,137

10,628

Growth (%)

27.1

9.1

7.4

16.3

EPS

31.7

34.5

37.0

43.0

EPS (Growth %)

26.9

8.8

7.4

16.3

FY14

FY15E

FY16E

FY17E

(Year-end March)

493

493

493

493

Per share data (|)

Source: Company, ICICIdirect.com Research

Balance sheet
Equity

| Crore

Closing cash

(7)

8,412

11,420

15,811

20,213

11,420

15,811

20,213

23,856

FY14

FY15E

FY16E

FY17E
43.0

Source: Company, ICICIdirect.com Research

Key ratios

Reserves & Surplus

33,857

39,755

46,136

53,572

EPS

31.7

34.5

37.0

Networth

34,350

40,248

46,629

54,065

Cash EPS

46.5

64.3

82.2

97.1

139

189

244

304

139.8

163.8

189.7

220.0

8.0

9.0

9.5

11.0

Minority Interest
Non-current liabilities

BV

2,096

2,096

2,096

2,096

Current liabilities & provisions

13,646

15,371

14,668

14,633

Operating Ratios (%)

Source of funds

50,230

57,905

63,637

71,098

EBIT Margin

20.4

20.1

20.6

21.0

6,342

6,568

6,568

6,568

PBT / Total Operating income

23.1

23.5

24.0

24.9

194

208

245

280

PAT Margin

17.8

18.1

18.4

19.1

PPE

5,145

5,385

5,880

6,341

Debtor days

68

69

69

69

O.non current assets

2,814

2,814

2,814

2,814

Creditor days

42

42

42

42

268

268

268

268

Goodwill
Intangible Assets

Investments
Debtors

DPS

Return Ratios (%)

8,539

9,272

9,542

11,521

RoE

24.9

22.8

21.0

21.1

Cash & Cash equivalents

11,420

15,811

20,213

23,856

RoCE

28.0

24.7

23.0

23.0

O.current assets

15,509

17,579

18,107

19,450

RoIC

39.9

39.6

39.6

39.4

Application of funds

50,230

57,905

63,637

71,098

Valuation Ratios (x)

P/E

20.7

19.0

17.7

15.2

EV / EBITDA

14.4

13.4

12.4

10.9

EV / Net Sales

3.3

3.1

2.9

2.6

Market Cap / Sales

3.7

3.4

3.2

2.9

Price to Book Value

4.7

4.0

3.5

3.0

Debt/EBITDA

0.7

0.9

0.6

0.4

Debt / Equity

0.1

0.2

0.1

0.1

Current Ratio

2.6

2.8

3.3

3.7

Quick Ratio

2.6

2.8

3.3

3.7

Solvency Ratios

Source: Company, ICICIdirect.com Research

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 3

ICICIdirect.com coverage universe (IT)

CMP
M Cap
Sector / Company
(|)
TP(|) Rating
(| Cr) FY14
541 550 Hold
6,079 23.8
Cyient (INFENT)
1,539 1,122
Sell
4,669 82.8
Eclerx (ECLSER)
32
50
Buy
2,104
2.8
Firstsource (FIRSOU)
2,055 2,000
Buy 144,409 90.1
HCL Tech* (HCLTEC)
2,215 2,650
Buy 254,392 93.2
Infosys (INFTEC)
214 250
Buy
4,217 13.0
KPIT Tech (KPISYS)
1,410 1,150
Sell 11,801 53.9
Mindtree (MINCON)
42
45 Hold
699
1.1
NIIT Ltd. (NIIT)
425 350 Hold
2,592 37.8
NIIT Technologies (NIITEC)
822 750
Sell
6,578 31.2
Persistent (PSYS)
2,618 3,000
Buy 512,834 97.6
TCS (TCS)
2,854 3,250
Buy 68,530 139.4
Tech Mahindra (TECMAH)
655 720
Buy 161,744 31.7
Wipro (WIPRO)
* June year end, Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

EPS (|)
FY15E
31.3
80.0
3.5
108.0
110.0
13.0
65.9
2.6
31.2
37.5
108.0
131.5
34.5

FY16E
39.1
102.0
4.6
119.0
120.0
17.7
76.4
4.7
42.5
46.5
121.0
175.5
37.0

P/E (x)
FY14 FY15E FY16E
22.7 17.3 13.8
18.6 19.2 15.1
11.2
9.1
6.9
22.8 19.0 17.3
23.8 20.1 18.5
16.6 16.4 12.1
26.2 21.4 18.4
39.3 16.3
9.1
11.2 13.6 10.0
26.4 21.9 17.7
26.8 24.2 21.6
20.5 21.7 16.3
20.7 19.0 17.7

EV/EBITDA (x)
FY14 FY15E FY16E
13.0 12.3
9.3
12.0 12.7 10.6
7.7
7.2
6.1
15.5 14.5 13.1
16.4 14.4 13.4
10.3 10.5
7.9
17.9 15.1 13.0
14.5
8.9
7.4
6.6
6.4
5.5
13.4 13.8 10.7
19.4 17.9 15.9
15.4 15.1 11.6
14.5 13.4 12.5

RoCE (%)
FY14 FY15E FY16E
27.4 24.5 27.8
61.8 44.5 45.6
10.5 11.2 13.6
40.2 34.9 31.4
27.6 27.6 25.9
24.0 18.3 23.8
35.5 34.4 33.7
NM
1.6
4.3
23.3 18.2 21.3
29.3 23.9 26.6
49.9 46.3 41.9
43.1 34.5 36.4
24.7 23.0 23.0

RoE (%)
FY14 FY15E FY16E
18.3 20.5 21.8
43.3 35.5 37.0
10.1 10.9 12.7
32.6 30.4 26.9
24.4 24.5 23.2
21.5 18.8 21.4
30.5 30.6 30.0
2.6
6.3 10.5
19.1 13.7 16.8
22.3 22.3 23.0
38.9 37.1 33.3
37.8 28.2 29.8
22.8 21.0 21.1

Page 4

RATING RATIONALE

ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns

ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional
target price is defined as the analysts' valuation for a stock.
Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;

Pankaj Pandey

Head Research

pankaj.pandey@icicisecurities.com

ICICIdirect.com Research Desk,

ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai 400 093
research@icicidirect.com

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ANALYST CERTIFICATION
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