Wipro: Aggressive deal wins, internal changes boost investor sentiment

Topics Wipro | Markets | IT stocks

The company has also made several behind-the scene changes which has turned analysts hopeful of Wipro reducing the gap with peers
Shares of Wipro rallied nearly 6 per cent on Wednesday after the information technology (IT) major announced the signing of a $700-million deal to provide IT services to German food wholesaler Metro AG for five years.

Announced late on Tuesday, the deal -- which is originally for five years -- can be extended by another four years, and that will enhance the minimum revenue commitment to $1 billion. Wipro has been aggressive in winning large deals since the management change, say analysts. “Aggression in deal wins has continued even in the third quarter, which is seasonally a weak quarter, with Wipro winning five deals, including Olympus, Thoughtspot, and Fortum & Verifone, apart from the Metro deal in Q3. This gives us confidence about the superior execution of new management at Wipro,” said analysts at Prabhudas Lilladher in a recent report.

The ramp-up in large deals and a healthy order pipeline are seen driving revenue growth in the second half of the ongoing financial year, as well as next year. With the Metro deal equivalent to 1.5 per cent of Wipro's annual revenue, analysts estimate the company's topline to grow 8 per cent in 2021-22, the highest growth since 2015-16.

The billion-dollar deals announced by Wipro and Infosys on Tuesday, however, saw varied investor response, as Infosys’ (up 2.6 per cent) deal with Daimler was known to be in the works, whereas Wipro surprised the Street; its stock is also cheaper than Infosys.

Wipro has also made several behind-the-scene changes in recent times, which turned analysts hopeful of the company reducing the gap with peers. “The changes are aimed at reducing internal friction, increasing client centricity, sharpening focus on select markets, and cultivating performance-driven culture to facilitate growth acceleration at stable margins,” said Kawaljeet Saluja, executive director & head of research of Kotak Institutional Equities. The company has made a beginning, a solid and surefooted step in a long journey ahead. "We believe the gap in growth rate will reduce when compared to peers, though we still don’t have the confidence to call for a complete bridging of the gap in growth rate." 

Also, as part of the agreement, Wipro plans to take over two Metro IT units for ^40 million and will absorb close to 1,300 Metro employees. Wipro’s acquisition of these units is in line with its strategy of focusing on Europe region, a geography where they have lagged in the past, say analysts.

The firm announced that its share buyback programme will begin next week. Last month, shareholders approved Wipro’s buyback plan for the purchase of up to 237.5 million equity shares at Rs 400 per share — a 4 per cent premium to its closing price on Wednesday, aggregating to Rs 9,500 crore.

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