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Wipro (CMP: INR 269 / TP: INR 280/Upside:)

“Wipro, announced 1QFY2018 a good set of numbers. The IT services sales came in at US$1,971.7mn V/s US$1,950mn expected, a QoQ growth of 0.9% QoQ, while constant currency (CC) QoQ growth of 0.3%.In Rupee terms, INR 13,630cr V/s INR 12,610cr expected a QoQ dip of 2.6%. For 2QFY2018, the company expects revenues from its IT Services business to be in the range of $1,962mn to $2,001mn.  In terms of verticals it was BFSI, which drove the growth during the quarter, posting a CC QoQ growth 3.2%, while Energy, Natural Resources and utilizes posted a CC QoQ growth of 2.2%. In geography terms, APAC & other emerging markets posted a CC QoQ 2.6%, while India and Middle East market posted a QoQ growth of QoQ CC 5.1%.
On operating front, the EBIT margins came in at 16.2% V/s 14.3% in 4QFY2017, mainly driven by the better than expected growth and internal efficiencies. This was against the expectations of 13.0%. The utilizations levels of the company were 72.0% in 1QFY2018 V/s 71.5% in 4QFY2017. Attrition during the quarter was around 16.1% Vs 16.3% in 4QFY2017. Client addition during the quarter was poor, with company adding only 2 clients in the US$50mn+ category and major of rest added in the US$1mn+ category. The net profit during the quarter was INR 2,082cr V/s INR 1,659cr expected a QoQ dip of 8.1%.        
On the positive side, the Board of Directors approved a buyback proposal, subject to the approval of shareholders through postal ballot, for purchase by the company of up to 343.75mn equity shares of INR 2 each (representing 7.06% of total equity capital) from the shareholders of the company on a proportionate basis by way of a tender offer. The buyback price will be INR 320 ($4.95)1 per equity share payable in cash for an aggregate amount not exceeding INR 110,000 million ($1.7 billion) in accordance with the provisions of Companies Act, 2013 and the SEBI (Buy Back of Securities) Regulations, 1998 (Buyback Regulations).
Thus to sum it up the quarter, was better than expected on all fronts, mainly driven by better than expected volume growth during the quarter, however the company expects the growth to come by only in 4QFY2018, while 2QFY2018 is again expected to be weak with a almost a flattish quarter. However, unless the company’s client addition becomes strong the company is unlikely to witness sustained growth which most of the large cap IT companies deliver. The buy back is a good amount and is been done at a good price and will see a stock price rise in the immediate future. However, at the given price the stock is more than fairly priced for near term and hence investors can tender their shares. We maintain our NEUTRAL rating on the stock.”

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