Stock at Stake: Strong Fundamentals to Aid Wipro

In the news
Wipro stated in its recent quarterly results the buyback of Rs 12,000 crore. Which is 4.9% of paid-up equity capital. After the shareholder’s approval of plan, 16th June 2023 is fixed as the record date for buyback. Wipro is trading at around 403 and its buyback price is Rs 445 per share. So let’s deep dive into company.

External Environment
IT Sector was the darling of employees and investors alike. However, recently it has witnessed a downward trend. Employees are being laid off, macro headwinds impacting the business and traditional manufacturing companies started making in-house IT teams that increased competition. Although from a long-term point of view, the sector is poised to grow as companies across the world are adopting digitization and moving towards Industry 4.0. Even governments are looking to adhere to digitization to smoothen the workings, increase transparency and reduce corruption. Statista reported the global IT services market to become $1,570.00bn by 2027 growing at a CAGR of 6.86% between 2023-2027.

Company’s Business
Wipro is one of the leading IT service companies of the country. It has 1,441 active global clients and more than 2,50,000 employees. Its business can be categorized in 3 ways
a) Sector Mix (Share in business)
– BFSI (34.2%)
– Consumer (18.8%)
– Health (12.2%)
– ENU (12.3%)
– Technology (11.0%)
– Manufacturing (7.0%)
– Communication (4.5%)

b) Global Business Line Mix (Share in business)
– iDEAS: Integrated Digital, Engineering & Application Services (61.4%)
– iCORE: Infra Cloud, Digital Operations, Risk & Cyber-security services (38.6%)

c) Strategic Market Unit Mix (Share in business)
– Americas 1 (28.8%)
Latin America (LATAM) and the following industry sectors in the U.S: healthcare and medical devices, consumer goods and life sciences, retail, transportation and services, communications, media and information services, technology products and platforms

– Americas 2 (30.7%)
Entire business of Canada and the following industry sectors in the U.S.: banking, financial services and insurance, manufacturing, hi-tech, energy and utilities

– Europe (29.3%)
United Kingdom and Ireland, Switzerland, Germany, Benelux, the Nordics and Southern Europe

– APMEA (11.2%)
Australia and New Zealand, India, the Middle East, South East Asia, Japan and Africa.

Shareholding Pattern (As of 31 March 2023) 

Source: Trendlyne

Growth Triggers
1) Strong order book at more than $4.1Bn
2) Transition of companies across the world towards Industry 4.0
3) Government’s extensive focus on digitization

Competitive Advantage
1) Culture of nurturing innovation and upskilling employees.
2) Expertise in integrated business solutions like cloud service, cyber security, AI, engineering and R&D
3) Industry-specific expertise helps in providing business solutions to different industries be it financial sector, Oil and Gas or Telcos.
4) Economies of learning by having different industry expertise, technological support and capabilities to solve complex IT problems of companies belonging to different sectors efficiently
5) Focus on innovation and attaining Intellectual Properties in products, platforms, solutions, frameworks etc. This differentiates the company and helps customers in achieving efficiency.
6) Years of experience in developing all these expertise has created a knowledge of a firm and it would be difficult for new entrants to develop all this easily. So that creates an advantage for incumbent firms like Wipro.

Risk
1) Macro uncertainty in US and Europe which accounts for a major chunk of the company’s business
2) Execution has reportedly remained sluggish despite deal wins.
2) High concentration in the banking sector which is going through a tough time in America
3) Creation of in-house IT teams by traditional manufacturing firms
4) High attrition rate due to intense competition.
5) Unable to asses rapid change in IT industry

Financials

Valuation Ratios

Target Price