IT services major Wipro is at a crossroads once again– new CEO, new expectations, new hopes. However, Nuvama Institutional Equities said, there are two big differences this time: 1) its portfolio with higher exposure to discretionary spends is favourably placed to ride the macro recovery; and 2) the CEO this time is an internal lifer, looking to take the old guard along on the path of achieving growth on a par with peers. The current combination of a favourable portfolio, new CEO and inexpensive valuations, the report added, make for an attractive risk-reward profile. “We maintain our estimates and raise (and roll forward) target valuation to 25x FY27E PE (from 20x Sep-26 PE) on sharper growth recovery,” it added.
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A favourable portfolio mix
Wipro, along with companies such as Infosys, LTIMindtree, and Mphasis, has relatively high exposure to discretionary spends, which is around 60-65 per cent of revenue. Wipro had to bear the brunt of cut or hold on discretionary spends over the last few quarters, which led to a decline in top line in FY24. However, per the report, what once was its bane could now become the boon. Following the interest rate cut by the Fed in Sep-24 and improving macro dynamics in the US, discretionary spends is expected to revive, thereby benefitting Wipro.
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Besides discretionary spends, Wipro’s portfolio has segments that should see a strong recovery in coming quarters. According to the Nuvama report, the IT major’s consulting arm (primarily Capco) has been growing for the last two quarters. Accenture’s recent commentary and guidance for growth in Consulting in FY25 too validates a recovery in the Consulting business. “We expect the Capco business to lead Wipro’s growth recovery over the next few quarters. Capco is at the intersection of BFSI and consulting business—both segments are showing signs of recovery as per commentaries from multiple management and consultants,” the report said.
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