Wipro. Institutional Equities. 4QFY18 Result Update ACCUMULATE. FY19 Likely To Be Yet Another Year Of Growth Underperformance

Transcription

1 4QFY18 Result Update Institutional Equities Wipro 26 April 2018 Reuters: WIPR.BO; Bloomberg: WPRO IN FY19 Likely To Be Yet Another Year Of Growth Underperformance Wipro s 4QFY18 IT services revenues grew 1.1% QoQ in CC terms, at the lower end of its 1%-3% guidance and below our estimate of 2%. The weak growth was on account of: (1) Continued decline in HPS business because of unfavourable regulatory situation surrounding the Affordable Care Act (ACA) in the US, leading to clients exiting the platform. (2) Sub-optimal performance in the communication space. EBIT margin of 14.4% was below our estimate by 290bps on account of: (1) Bankruptcy of two of its clients who had ~US$50mn in annualised revenues. (2) Impairment of an acquisition. (3) Adverse currency movement which had a 50bps impact. (4) Lower profitability in India and Middle East businesses. Ex-one offs too the margin was a tad lower than our estimate. This was in spite of having its: (1) Fixed-price mix at an all-time high of ~58.7%, (2) Higher employee utilisation, (3) Improved client mining.(4) Increase in revenue per employee by ~6% on YoY basis. (5) Higher offshore component in its delivery mix. 1QFY19 revenue guidance was a weaker-than-expected -2%-0% on account of: (1) Client bankruptcies which can lead to revenue loss of ~US$50mn on an annualised rate. (2) Annual productivity discounts committed to its top BFSI customers on run-the-business projects. (3) Continuous drop in HPS business (fell from a peak of ~US$70mn per quarter to the current ~US$30mn). 1QFY19 is expected to show a depressed margin on account of headwinds from: (1) Declining revenues. (2) Lower profitability from India and Middle East regions. (3) Impact of salary hike which comes into effect from 1June 2018 (one month of 1QFY18). Margins are expected to improve from 2QFY19 on account of: (1) Revenue growth pickup. (2) Operational efficiency because of automation. (3) Better profitability of its Indian and Middle East businesses. (4) Divestment of its margin-dilutive data centre business. Growth in revenues will start showing from 2QFY19 on account of strong order booking in FY18, especially in 4QFY18, mainly on the digital side. Wipro, however, reserved its comment on delivering industry matching growth in FY19. Post 4QFY18, we have retained our Accumulate rating on Wipro with a target price of Rs303 (using 14.3x target P/E on FY20E EPS). 14.3x P/E is at a 30% discount to the target P/E assigned to TCS. We believe our target P/E multiple is justified on the basis of lack of turnaround in business metrics and the fact that Wipro possibly has the worst RoIC in the industry because of poor organic growth and returns-dilutive acquisitions. Organically we believe TCS and HCLT will outperform Infosys, Wipro and Tech Mahindra in terms of revenue growth in FY19. Divestment is positive for margins: Wipro has decided to divest its data centre business to Ensono, a hybrid IT services provider, for US$405mn. Wipro will transition eight data centres and over 900 employees to Ensono. Wipro and Ensono have signed a long-term partnership agreement to jointly address the requirements of Wipro s new and existing enterprise customers. Wipro will make a strategic investment of US$55mn in the combined entity. Wipro stated that the data centre business will be better served through this partnership as the services could be made available at reduced price points because of scale. According to Wipro, it generated roughly US$200m in annual revenues at margins below company average. The divestment is expected to be EPS-positive and is likely to be completed by the end of 1QFY19. Unlikely to achieve industry-level growth even in FY19: Since many years now Wipro has lagged industry growth, despite adding inorganic elements. In recent times this has happened because of Wiprospecific problems (restructuring in India and Middle East businesses), cyclical problems (macro-related problems such as uncertainty in Saudi Arabia & over Affordable Care Act or ACA in the US) and clientspecific problems (insolvency of one of its large clients in ENU vertical and Telecom). ACCUMULATE Sector: Information Technology CMP: Rs287 Target Price: Rs303 Upside: 5% Girish Pai Head of Research girish.pai@nirmalbang.com Key Data Current Shares O/S (mn) 4,523.9 Mkt Cap (Rsbn/US$bn) 1,299/ Wk H / L (Rs) 335/244 Daily Vol. (3M NSE Avg.) 3,615,620 Price Performance (%) 1 M 6 M 1 Yr Wipro 0.9 (3.9) 16.2 Nifty Index Source: Bloomberg Y/E March (Rsmn) 4QFY17 3QFY18 4QFY18 YoY (%) QoQ (%) 4QFY18E Dev (%) IT Services Revenue (USD mn) 1,955 2,013 2, ,077 (0.7) Net Sales 139, , ,686 (1.6) ,721 (2.2) Employee costs 100,771 95,976 97,794 (3.0) ,390 (0.6) % of Sales Other Expenditure 19,103 21,064 21, , % of Sales Forex Gain / (Loss) Other Operating Income 4, EBIT 24,828 19,775 19,385 (21.9) (2.0) 24,375 (20.5) EBIT Margin (%) Other Income 4,583 4,939 3,236 (29.4) (34.5) 3,533 (8.4) PBT 29,411 24,714 22,621 (23.1) (8.5) 27,907 (18.9) Provision for Tax 6,742 5,355 4,615 (31.5) (13.8) 6,419 (28.1) Effective Tax Rate (%) Minority share in Profit / Loss (58) (137.9) PAT (Reported) 22,611 19,371 18,028 (20.3) (6.9) 21,501 (16.2) NPM (%)

2 Exhibit 1: Key financials Y/E March (Rsbn) FY17 FY18 FY19E FY20E FY21E Revenue (Rsbn) YoY Growth (%) 7.0 (1.0) EBIT (Rsbn) EBIT (%) Adj. PAT (Rsbn) YoY Growth (%) (4.6) (5.7) FDEPS (Rs) RoE (%) RoCE (%) RoIC (%) P/E (x) P/BV (x) Exhibit 2: Change in our estimates New Old Change (%) Change in estimates FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E INR/USD IT Services USD Revenue (USDmn) 8,451 8,968 8,603 8,512 8,891 8,613 (0.7) 0.9 (0.1) Revenue (Rsbn) (0.8) 0.7 (0.2) EBIT (Rsbn) (3.3) (0.8) (0.3) EBIT Margin (%) PAT (Rsbn) (2.8) 0.0 (0.1) FDEPS (Rs) (2.6) View on the sector: We recently turned tactically positive on Indian IT services sector for the next 12 months after having been negative on it for close to three years (see the report here). This change in stance has been driven by: (1) A modest growth pick-up because of a peaking developed market economic cycle in 2018 that has also been boosted by US tax reforms. (2) Large underweight institutional positioning in the sector. (3) Continued strong domestic equity flows. (4) Near-term negative news flow on financials (a large overweight sector for institutions). (5) Better relative valuation (which is no longer as compelling as it was three to four months ago). Around 80% of the upward revision in our coverage universe s expected market capitalisation has been from P/E multiple expansion and only 20% has come from a revision in earnings. The P/E multiple expansion has been/will be driven by paucity of investment options because of continued strong inflow of domestic money into equities, expensive valuation of popular themes (private financials, consumer staples, consumer discretionary, etc) and near-term challenges faced by financials from higher interest rates and higher stressed asset provisioning. Having said that, structurally, we believe that earnings growth of Tier-1 companies will be in mid-high single-digit at best over FY18-FY20E, and also believe the sector is still not an attractive bet for long-term investors looking for fast earnings compounders. Structural pressures that we have been harping on for the past three years will continue to constrain growth. These include value compression and cannibalisation from automation (which is reaching enterprise scale, in our view, countering the upside from digital projects which are also scaling up) and movement to cloud, and a weaker but improving competitive position in new areas, insourcing, etc. These pressures have led to growth pick-up being pushed back to the last stage of this economic upcycle. The street is anticipating a uniform pickup in growth over FY18-FY20E across Tier-1 companies. We disagree and believe that growth will be dispersed in FY19. In our coverage universe, we believe TCS and HCL Technologies will outperform their Tier-1 peers in organic revenue growth. Contrary to consensus expectations, we expect Infosys to disappoint on the growth front in FY19. For Wipro and Tech Mahindra, organic growth, in our view, will remain muted. We prefer large-caps over mid-caps at current valuations. Mid-caps may witness faster growth pick-up on a low base in FY19 (and from bombed-out margins in some cases), but would advise investors to focus on sustainability and not overpay for a riskier business model. Current valuations of mid-cap stocks factor in strong growth over a two to three-year time frame - which we believe is unlikely. Support will be provided by aggressive capital return policies of many companies in the medium term. 2 Wipro

3 Exhibit 3: Vertical-based USD QoQ and YoY revenue growth in 4QFY18 Verticals Contribution to revenues (%) USD growth-qoq (%) USD growth-yoy (%) Communications 5.8 (7.2) (11.3) Finance Solutions Manufacturing and Technology Healthcare, Life sciences and Services (4.8) Consumer Business Unit 15.6 (0.1) 4.2 Energy. Natural Resources & Utilities Total Exhibit 4: Practice-based USD QoQ and YoY revenue growth in 4QFY18 Practices Contribution to revenues (%) USD growth-qoq (%) USD growth-yoy(%) Global Infrastructure services Analytics & Information Management Business Application Services BPO 12.1 (1.6) 3.8 Product Engineering and Mobility Total Exhibit 5: Geography-based USD QoQ and YoY revenue growth in 4QFY18 Geographies Contribution to revenues (%) USD growth-qoq (%) USD growth-yoy(%) Americas Europe India & Middle East 9.4 (3.7) (8.2) APAC and Other Emerging Markets Total Exhibit 6: Vertical-based CC QoQ and YoY revenue growth in 4QFY18 Geographies Contribution to revenues (%) CC growth-qoq (%) CC growth-yoy(%) Communications 5.8 (8.1) (14.4) Finance Solutions Manufacturing and Technology Healthcare, Life Sciences & Services (6.3) Consumer Business Unit 15.6 (1.0) 2.2 Energy, Natural Resources & Utilities (3.1) Total Exhibit 7: Geography-based CC QoQ and YoY revenue growth in 4QFY18 Geographies Contribution to revenues (%) CC growth-qoq (%) CC growth-yoy(%) Americas Europe India & Middle East 9.4 (2.9) (0.2) APAC and Other Emerging Markets 10.8 (1.2) 4.2 Total Wipro

4 4QFY18 result highlights and conference-call takeaways FY19 revenue outlook looks unlikely to hit industry level: The management stated that loss of momentum in revenues witnessed in 4QFY18 will continue in 1QFY19 on account of: (1) Client bankruptcies which will lead to revenue loss of ~US$50mn on an annualised basis. (2) 1Q being a seasonally weak quarter as annuity or productivity discounts are committed to top customers in the BFSI sector, especially on run-the-business type of work. (3) Continuous drop in HPS business (historically ~US$70mn per quarter business which is now ~US$30mn). For 1QFY19, the management gave revenue guidance of US$2,015mn-US$2,065mn (-2%-0% growth in CC terms). However, revenue guidance is not adjusted for divestment of its data centre business and will be adjusted as and when the divestment nears its completion. The management believes that the growth in revenues will start showing from 2QFY19 on account of strong order inflow that Wipro witnessed in 4QFY18, mainly on the digital side. The management, however, reserved its comment on maintaining headline industry growth guidance for Wipro in FY19. The management stated that Wipro is showing good traction in its non-linear business (like Wipro Holmes) and its other IP-led businesses. The management also stated that Wipro is witnessing good growth in its core services where it has been able to display better client mining by providing clients the services of modernising the core through hyper automation, etc. Margin improvement expected to take off from 2QFY19: On the margins front, 1QFY19 is believed to show a depressed margin on account of headwinds from: (1) Declining revenues. (2) Lower profitability from India and Middle East markets. (3) Impact of salary hike (the quantum is not yet decided) which comes into effect from 1 June 2018 (causing one-month impact on margins in 1QFY19). However, the management stated that margins will start improving from 2QFY19 on account of: (1) Operational efficiency because of automation and revenue productivity. (2) Better profitability of its Indian and Middle East businesses. (3) Divestment of margin-dilutive data centre business. (4) Faster growth in digital business. BFSI has seen robust growth unlike in its large peer set: Wipro indicated that it has witnessed growth in two aspects in the BFSI space - digital transformation and modernisation of the core. Business has largely been driven by Tier 2 banks in the US, and global banks in Europe and elsewhere. Communication business: The management stated that it will still take a couple of quarters more for Wipro s communication business to play out. The management indicated that this was not playing out well because of: (1) This market being dominated by customers from India, Middle East and Africa where profitability is lower. (2) The industry in a consolidation phase. Strategically, Wipro is concentrating on: (1) Network modernisation capabilities. (2) Network along with IT work. (3) Using analytics as its service offering to capture growth from this space. BPS and product engineering services: The management stated that Wipro s BPS service was made up of two parts: (1) Core services. (2) Platform services to HPS customers. Following slack demand from HPS customers, BPS service as an offering appears to be under pressure. However, the management indicated good growth momentum in core BPS services. The management stated that Wipro had always been a strong player in the product engineering division. This division has been affected because of a change in the nature of services being offered like a change in product design service for healthcare and life sciences sectors. However, the management indicated strong momentum uptick in automation and managing third party IP service space. Retail: On the retail front, the management stated that Wipro was witnessing pockets of strength from digital and hyper automation. It is witnessing stability and investments by clients in both front-end as well as back-end capabilities. Lack of clarity on HPS: The management did not provide clarity as to whether a bottom has been found in HPS. We believe this will continue to be a problem in the coming quarters as well until there is legislative clarity in the US on the Affordable Care Act. Internal risk management system is robust, states Wipro: While Wipro was surprised by two bankruptcies in its ~1,200 strong customer base in a span of just one quarter, the company stated that its internal risk management system is robust. Wipro stated that during the last 10 years after the global financial crisis, its risk management system helped it to withdraw proactively from two to three accounts. 4 Wipro

5 Strategic direction given by the CEO Mr. Abidali Neemuchwala, CEO of Wipro, provided the outcome of its detailed six-theme strategy. Key highlights are as follows: 1. Digital Wipro continues to win deals in this segment because of its full range of digital services and DesignIT acquisition. It was indicated that digital is reaching scale and contributed 27.6% to revenues vs. 25.1% in 3QFY18 and grew 9% QoQ. Order booking in digital was indicated to be very strong with about 70 deals won, each of them being more than US$5mn in size in FY18. Consulting revenues grew 26% YoY. 2. Client mining Top 10 clients grew 5.5%/14.8% on QoQ and YoY basis, respectively, in 4QFY18.During the quarter it added two new clients in its >US$75mn bracket, taking the total number of clients to 20. It added one client to >US$250mn club, taking the total count to two clients. 3. Geography-focused expansion The management highlighted that with increased local hiring in the US to reduce the dependence on visas, Wipro s local employee strength is now >55%. It also indicated that Wipro s local employee strength in Latin America and Europe is greater than 95%/75%, respectively. 4. Non-linearity The management highlighted that Wipro Holmes is now being recognised by its clients and it has won several new deals. It has developed 400 new patents so far in FY18, taking the total number of patents to 2,000. IP-related revenues topped US$100mn in revenues in FY Hyper-automation Wipro indicated saving ~8,000 Level 2 FTE worth of efforts with the help of hyper-automation in FY18. This has helped in improving productivity per employee by almost 6%. Wipro indicated deployment of 92 Wipro Holmes bots across 320 customers in FY18. These bots are being used in run-the-business projects across IT services, IMS and BPS. 6. Leveraging partner ecosystem Wipro stated that it was able to win 18 new Go-To-Market deals with the help of Wipro Venture investee companies in 4QFY18, taking the total to 68 deals in FY18. Miscellaneous Net employee utilisation rate (including trainees) increased from 80.0% to 82.4% on QoQ basis. The voluntary quarterly annualised attrition rate increased 130bps to 17.5% in 4QFY18 from 16.2% in 3QFY18. Capital allocation policy: The management stated that it will distribute 45%-50% of net income to shareholders as a part of its capital allocation policy. There was no mention of a follow-on share buyback. 5 Wipro

6 2QFY14 1QFY14 3QFY14 2QFY14 4QFY14 3QFY14 1QFY15 4QFY14 2QFY15 1QFY15 2QFY15 3QFY15 3QFY15 4QFY15 4QFY15 1QFY16 1QFY16 2QFY16 2QFY16 3QFY16 3QFY16 4QFY16 4QFY16 1QFY17 1QFY17 2QFY17 2QFY17 3QFY17 1QFY14 3QFY17 4QFY17 2QFY14 4QFY17 1QFY18 3QFY14 1QFY18 2QFY18 2QFY18 4QFY14 3QFY18 3QFY18 1QFY15 4QFY18 4QFY18 2QFY15 3QFY15 4QFY15 1QFY14 2QFY14 2QFY14 1QFY16 3QFY14 3QFY14 2QFY16 4QFY14 4QFY14 1QFY15 3QFY16 1QFY15 Institutional Equities 2QFY15 4QFY16 2QFY15 3QFY15 3QFY15 1QFY17 4QFY15 4QFY15 2QFY17 1QFY16 1QFY16 3QFY17 2QFY16 2QFY16 3QFY16 4QFY17 3QFY16 4QFY16 4QFY16 1QFY18 1QFY17 1QFY17 2QFY18 2QFY17 2QFY17 3QFY18 3QFY17 3QFY17 4QFY17 4QFY18 4QFY17 1QFY18 1QFY18 2QFY18 2QFY18 3QFY18 3QFY18 4QFY18 4QFY18 Exhibit 8: USD revenue growth (QoQ) picture (%) (0.5) (1.0) (1.5) (1.2) (0.8) 2.7 (0.7) (0.0) US$ revenue growth (QoQ) Exhibit 9: YoY growth in IMS revenue (USD terms) has recovered (%) Exhibit 10: YoY Europe revenue growth (USD terms) has picked up, but sustainability is key (%) (5) (10) (15) (9.6) (0.3) (10.8) (6.3) 3.2 (8.0) 6.8 (0.4) (1.5) (2.7) 9.9 (1.0) IMS growth (YoY) Exhibit 11: Healthcare & Life Sciences vertical (USD terms) has declined on a QoQ basis (%) (0.6) (1.4) (2.5) (6.4) 2.6 (6.1) 0.6 Europe YoY revenue growth Exhibit 12: ENU vertical s growth (USD terms) has improved on a QoQ basis with good pick up in its energy business whereas utility business is still under pressure (%) (5) (10) (2.0) (6.4) 1.2 (3.1)(2.7) (0.3) 1.7 (7.6) Wipro

7 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 1QFY14 2QFY17 3QFY17 2QFY14 4QFY17 3QFY14 1QFY18 4QFY14 2QFY18 3QFY18 1QFY15 4QFY18 2QFY15 3QFY15 4QFY15 1QFY14 1QFY16 2QFY14 3QFY14 2QFY16 4QFY14 3QFY16 1QFY15 Institutional Equities 4QFY16 2QFY15 3QFY15 1QFY17 4QFY15 2QFY17 1QFY16 3QFY17 2QFY16 3QFY16 4QFY17 4QFY16 1QFY18 1QFY17 2QFY17 2QFY18 3QFY17 3QFY18 4QFY17 4QFY18 1QFY18 2QFY18 3QFY18 4QFY18 Exhibit 13: SG&A expenses declined on a QoQ basis and EBIT margin declined due to insolvency of a large client (%) Exhibit 14: Staff utilisation (ex-trainees) at close to peak (%) Gross margin SG&A as % of sales EBIT margin Utilization (excluding trainees) Fixed Price Projects (%) Exhibit 15: Higher fixed-price engagements share of revenues (%) Wipro

8 Exhibit 16: Quarterly snapshot Year to 31 March (Rsmn) 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 INR/USD USD Revenue IT Services (USDmn) 1,882 1,931 1,916 1,903 1,955 1,972 2,014 2,013 2,062 INR Revenue- IT Services 127, , , , , , , , ,746 INR Revenue- IT Products 9,604 5,930 7,666 5,713 6,613 6,343 2,988 5,076 4,940 Total Revenue- (Services+Products) 137, , , , , , , , ,686 Direct costs 95,843 96,389 97,808 96, ,771 97,111 94,694 95,976 97,794 Gross Margin 41,574 39,603 39,849 40,302 39,104 39,150 39,540 40,714 39,892 SGA 16,738 17,740 18,159 17,836 19,103 17,410 16,952 21,064 21,064 Forex gain/(loss) , Other operating Income , EBIT- IT Services 25,665 23,269 23,269 24,155 25,269 21,916 22,784 19,590 19,323 EBIT- IT Products (290) (368) (368) (586) (428) Total EBIT 24,836 22,847 22,971 23,233 24,828 22,093 23,041 19,650 18,828 Other income (net) 4,333 3,864 3,677 4,353 4,583 4,725 5,280 4,939 3,236 PBT 29,169 26,711 26,648 27,586 29,411 26,818 28,321 24,589 22,064 Tax 6,626 6,122 5,909 6,440 6,742 5,994 6,426 5,355 4,615 Minority Interest (193) (71) (67) (52) (58) (59) PAT 22,350 20,518 20,672 21,094 22,611 20,765 21,917 19,246 17,471 YoY Growth (%) USD Revenue IT Services INR Revenue (2.5) (0.1) (1.6) Gross Profit (5.9) (1.1) (0.8) EBIT (3.1) (2.7) - (3.3) 0.3 (15.4) (24.2) Net Profit (1.6) (0.3) (5.5) (5.6) (8.8) (22.7) QoQ Growth (%) USD Revenue - IT Services (1.0) (1.0) INR Revenue 6.1 (1.0) 1.2 (0.6) 2.2 (2.6) (1.5) EBIT 4.0 (8.0) (11.0) 4.3 (14.7) (4.2) Net Profit - (8.2) (8.2) 5.5 (12.2) (9.2) Margins (%) Gross Margin SGA EBIT Margin- IT Services EBIT Margin- IT Products (3.0) (6.2) (4.8) (10.3) (6.5) Total EBIT Margin PAT Wipro

9 Exhibit 17: Key metrics Key Metrics 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 Revenue (USD mn) 1,882 1,931 1,916 1,903 1,955 1,972 2,014 2,013 2,062 P and L (Rsmn) Revenue 137, , , , , , , , ,686 EBITDA 28,498 27,512 27,820 28,645 27,016 26,223 27,320 23,905 23,715 PAT 22,350 20,518 20,672 21,094 22,611 20,765 21,917 19,371 18,028 Vertical Mix (%) BFSI HLS RCTG ENU MFG GMT Horizontal Mix (%) Practices (IT Services + BPO sales) Technology Infrastructure Services Advanced Technologies & Solutions Testing services Package Implementation Analytics and Information Management Business Application Services BPO Product Engineering and Mobility ADM R&D Consulting Geographic Mix (%) US Europe India & Middle East APAC and Other Emerging Markets Project Type T&M Fixed Price Utilization (%) (gross) Revenue mix-onsite (%) Revenue mix-offshore (%) Clients Concentration (%) Top client Top 5 clients Top 10 clients Number of Clients > USD 100 mn > USD 75 mn > USD 50 mn > USD 20 mn > USD 10 mn > USD 5 mn > USD 3 mn > USD 1 mn Employees 172, , , , , , , , ,042 Attrition (%) Wipro

10 Exhibit 18: QoQ and YoY growth of various parameters 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 QoQ Growth (%) Horizontal Service Lines Technology Infrastructure Services (0.5) (1.0) 0.3 (1.0) (0.7) 4.6 Analytics & Information Management (1.5) (1.0) (0.4) 5.4 (2.1) (4.8) (1.4) 2.4 Business Application Services 80.3 (1.0) (0.1) (2.6) (0.7) 1.2 (2.8) (0.5) 1.3 BPO 2.2 (3.4) 4.7 (2.2) (1.4) (5.0) (1.6) (1.6) Product Engineering and Mobility (3.1) (8.9) 2.0 (2.0) 1.3 (0.5) 0.7 (0.0) 8.4 R&D Business (1.9) (0.6) Consulting (8.0) 1.8 (3.7) (6.4) (4.5) 14.1 (15.5) (10.4) Vertical Wise Communications 4.1 (1.0) 0.6 (3.3) (1.1) (40.5) (2.1) (2.0) (4.2) (0.6) (2.4) (1.6) (7.2) Finance Solutions 0.8 (0.9) (1.5) (0.7) 3.4 (1.2) (0.7) Manufacturing and Technology (1.2) (1.3) (1.2) (1.1) 5.0 (0.5) 3.5 (0.5) 3.8 Healthcare, Life sciences & Services (1.2) (3.2) (0.7) (1.1) (3.1) (5.5) Consumer (2.3) (1.4) (0.1) (0.1) Energy. Natural Resources & Utilities (0.1) 6.9 (1.1) (6.6) (0.9) (1.2) (1.7) (0.5) (3.3) (3.0) (8.2) 3.3 Geography-wise Americas (0.6) (0.0) (1.0) 1.7 Europe (0.2) (4.4) 0.6 (5.8) (1.6) 0.5 (1.2) (6.2) (2.3) India & Middle East (3.0) (0.8) (4.5) 10.9 (2.9) (2.8) 1.0 (3.7) APAC and Other Emerging Markets (3.7) (2.0) (2.1) (3.5) 0.6 Non Americas Total 1.6 (0.6) 0.5 (1.8) (0.6) (3.5) (2.2) 6.2 (0.2) Customer Concentration Top customer 1.8 (4.1) (11.3) (5.7) 5.7 (13.4) (8.1) Top 5 (1.9) (2.4) (2.7) 0.3 (1.1) (3.8) 0.6 (1.9) (7.1) (2.6) Top 10 (1.8) (0.0) (3.5) (0.8) (0.4) (1.1) (0.2) (3.3) (4.0) (1.3) (0.8) YoY Growth (%) Horizontal Service Lines Technology Infrastructure Services Analytics & Information Management (2.1) (0.5) (2.0) Business Application Services (3.6) (2.0) (1.8) (2.1) (1.6) BPO (1.2) (5.0) (5.1) Product Engineering and Mobility (0.8) (3.4) (6.8) (7.8) 0.7 (0.7) R&D Business 2.0 (0.6) Consulting (12.3) (13.1) (15.3) (15.6) (12.4) (1.8) (13.8) (17.5) Vertical Wise (New from Q1FY11) Communications (4.8) (0.3) (0.6) 2.9 (38.0) (41.5) (42.8) (45.3) (8.6) (8.9) (8.5) (11.3) Finance Solutions (0.1) Manufacturing and Technology Healthcare, Life sciences & Services (1.2) (10.0) (7.4) (4.8) Consumer Energy. Natural Resources & Utilities (1.3) (2.1) (9.5) (10.1) (4.2) (6.5) (8.2) (6.6) (2.8) Geography-wise Americas Europe (0.3) (9.6) (10.8) (6.3) (8.0) (0.4) (1.5) (1.0) (2.7) India & Middle East (5.9) (8.2) APAC and Other Emerging Markets (3.5) (1.0) Non Americas Total (0.4) (2.5) (0.8) (0.6) (2.4) 0.6 (0.1) Customer Concentration Top customer 8.6 (1.5) (7.8) (9.3) (10.7) (23.5) (20.8) (13.2) (9.1) Top (0.7) (7.7) (6.6) (5.9) (7.1) (4.0) (6.0) (11.7) (10.6) (9.7) (7.2) Top (5.8) (6.0) (4.7) (5.7) (2.5) (4.9) (8.4) (8.5) (9.1) (5.2) Source: Nirmal Bang Institutional Equities Research 10 Wipro

11 Mar-08 Jul-08 Oct-08 Feb-09 Jun-09 Oct-09 Feb-10 May-10 Sep-10 Jan-11 May-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 Mar-13 Jul-13 Nov-13 Mar-14 Jun-14 Oct-14 Feb-15 Jun-15 Oct-15 Jan-16 May-16 Sep-16 Jan-17 Apr-17 Aug-17 Dec-17 Apr-18 Mar-08 Jul-08 Dec-08 Apr-09 Sep-09 Jan-10 Jun-10 Oct-10 Mar-11 Jul-11 Dec-11 Apr-12 Aug-12 Jan-13 May-13 Oct-13 Feb-14 Jul-14 Nov-14 Apr-15 Aug-15 Jan-16 May-16 Oct-16 Feb-17 Jul-17 Nov-17 Apr-18 Mar-08 Jul-08 Oct-08 Feb-09 Jun-09 Oct-09 Feb-10 May-10 Sep-10 Jan-11 May-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 Mar-13 Jul-13 Nov-13 Mar-14 Jun-14 Oct-14 Feb-15 Jun-15 Oct-15 Jan-16 May-16 Sep-16 Jan-17 Apr-17 Aug-17 Dec-17 Apr-18 Institutional Equities Exhibit 19: P/E charts (Rs) (x) Price Source: Bloomberg, Nirmal Bang Institutional Equities Research PE Mean 1sd -1sd Exhibit 20: Wipro s P/E premium/(discount) to TCS (x) (10) (20) (30) (40) Source: Bloomberg, Nirmal Bang Institutional Equities Research Wipro's 1-Yr fwd P/E discount to TCS Wipro

12 Exhibit 21: Comparative valuation TCS Infosys Wipro HCL Tech TechMahindra Mindtree Persistent Year Ending March March March March March March March 4/25/2018 3, , , , Currency INR INR INR INR INR INR INR Market Value (Rsbn) 6,679 2,522 1,418 1, (US$mn) 103,548 39,097 21,984 23,067 9,303 2, March 2019 Target Price 3,176 1, , Upside/(downside) -8.5% -0.3% 5.4% -2.0% -11.4% -44.2% -6.6% Recommendation Accumulate Accumulate Accumulate Accumulate Accumulate Sell Accumulate FDEPS (Rs) FY FY FY18E FY19E FY20E PE (x) FY FY FY18E FY19E FY20E EV/EBITDA (x) FY FY FY18E FY19E FY20E EV/Sales (x) FY FY FY18E FY19E FY20E RoIC (%) FY FY FY18E FY19E FY20E Source: Bloomberg, Nirmal Bang Institutional Equities Research 12 Wipro

13 Financials Exhibit 22: Income statement Y/E March (Rsbn) FY17 FY18 FY19E FY20E FY21E Average INR/USD Net Sales - IT Services (USDmn) 7,704 8,060 8,451 8,968 8,603 -Growth (%) (4.1) Net Sales - Overall Growth (%) 7.0 (1.0) Cost of Sales & Services % of sales Gross profit % of sales SG& A % of sales EBIT % of sales Interest expenses Other income (net) PBT PBT margin (%) Provision for tax Effective tax rate (%) Minority Interest (0.1) (0.1) (0.1) Net profit Growth (%) (4.6) (5.7) Net profit margin (%) Exhibit 24: Balance sheet Y/E March (Rsbn) FY17 FY18 FY19E FY20E FY21E Equity capital Reserves & surplus Net worth Deferred tax liability, net 4 (4) (4) (4) (4) Other liabilities Total loans Total liabilities Goodwill Other intangible assets Net block Investments Other non-current assets Unbilled revenue Inventories Other current assets Debtors Cash & bank balance Total current assets Total current liabilities Net current assets Total assets Exhibit 23: Cash flow Y/E March (Rsbn) FY17 FY18 FY19E FY20E FY21E EBIT (Inc.)/dec. in working capital 4 (17) (7) (5) 5 Cash flow from operations Other income Depreciation & amortisation Financial expenses (5) (6) (6) (6) (6) Tax paid (25) (22) (25) (27) (28) Dividends paid (30) (5) (4) (43) (50) Net cash from operations Capital expenditure (12) 24 (8) (8) (8) Net cash after capex Inc./(dec.) in debt 17 (4) (Inc.)/dec. in investments (90) Equity issue/(buyback) (0) (110) Cash from financial activities (73) (72) Others (37) (34) Opening cash Closing cash Change in cash (46) (8) Exhibit 25: Key ratios Y/E March FY17 FY18 FY19E FY20E FY21E Per Share (Rs) EPS FDEPS Dividend Per Share Dividend Yield (%) Book Value Dividend Payout Ratio Return ratios (%) RoE RoCE ROIC Tunover Ratios Asset Turnover Ratio Debtor Days (incl. unbilled Rev) Working Capital Cycle Days Valuation ratios (x) PER P/BV EV/EBTDA EV/Sales M-cap/Sales Wipro

14 Apr-15 May-15 Jun-15 Jul-15 Sep-15 Oct-15 Nov-15 Jan-16 Feb-16 Mar-16 May-16 Jun-16 Jul-16 Sep-16 Oct-16 Nov-16 Dec-16 Feb-17 Mar-17 Apr-17 Jun-17 Jul-17 Aug-17 Oct-17 Nov-17 Dec-17 Feb-18 Mar-18 Apr-18 Institutional Equities Rating track Date Rating Market price (Rs) Target price (Rs) 13 April 2015 Sell April 2015 Sell July 2015 Sell September 2015 Sell October 2015 Sell January 2016 Under Review January 2016 Under Review March 2016 Sell April 2016 Sell July 2016 Sell October 2016 Sell January 2017 Sell January 2017 Sell February 2017 Sell April 2017 Sell June 2017* Sell July 2017 Sell September 2017 Sell October 2017 Sell December 2017 Under Review January 2018 Under Review March 2018 Accumulate April 2018 Accumulate * Post 1:1 bonus share issue Rating track graph Not Covered Covered 14 Wipro

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