What's Behind the Rally in Wipro Shares? - Views on News from Equitymaster

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What's Behind the Rally in Wipro Shares?

May 31, 2021

Shares of IT companies are in focus since the past two weeks.

Stocks from the S&P BSE IT index including Wipro, Birlasoft, Coforge, Firstsource Solutions, Mindtree, Persistent Systems, and Sonata Software scaled record highs last week.

Among the prominent names, Wipro is talk of the town. Shares of the company have outperformed its major peers in the past few months.

Wipro Share Price Comparison with Peers

Company % Change over 6 months % Change over a Year
Wipro 53% 171%
Infosys 24% 99%
TCS 15% 57%
HCL Tech 13% 74%
Tech Mahindra 13% 94%
Mphasis 48% 129%
Info Edge 6% 73%
Source: Equitymaster

The benchmark NSE Nifty hit record highs last week after more than three months.

An important point investor must note that Wipro is the top gainer among IT stocks from Nifty during the same period.

It has rallied 60% from 16 February, when the index had hit a record high.

Are Wipro Shares Rallying Due to Change in Management?

Earlier, under CEOs Abidali Neemuchwala and TK Kuries, Wipro faced muted growth as their bets on energy and healthcare sectors were amiss due to macroeconomic conditions and change in policies in the US.

Nearly a year after Thierry Delaporte took over as the new CEO of the company, Wipro has shown signs of turnaround.

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Shares of the company have rallied 127% since Delaporte came on board.

The company won its largest deal ever from German retailer Metro and has built a healthy pipeline of digital deals.

Wipro has also made large acquisitions of Ampiomn and Capco, which have both boosted the company's digital capabilities.

Wipro's Revenue Growth Forecast

While declaring March quarter results, Wipro raised its revenue growth forecast for the ongoing quarter to 8-10% from the previously projected 2-4%, after the firm completed the acquisition of British IT consulting firm Capco.

Wipro is now expecting revenue of US$2.32-2.37 bn for the April-June quarter, compared with the guidance of US$2.19 bn to $2.23 bn given during the quarterly results announcement earlier in April.

Wipro had reported its best quarterly performance in nearly a decade in the March quarter. Profit jumped 27% and revenue grew 3.4%

This was due to higher deal wins with global clients signing up to transform their technology and shift to digital.

Investors are betting on the IT major due to the raised growth forecast as large deals will contribute to higher revenues.

Wipro Surpasses Cognizant

Earlier this month, Wipro went past Cognizant in market capitalisation and is now the fourth most valuable IT company globally after Accenture, TCS and Infosys.

On 19 May, Wipro's ADR rose 2.4%, giving the company a market cap of US$38.1 bn. Cognizant has a market cap of US$37.7 bn.

At present, Wipro's ADR has a market cap of US$40.2 bn while Cognizant had a market cap of US$37.8 bn.

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Entire Stake in Ensono Sold for US$76.2 m

Last week, Wipro informed that it has sold its entire stake in IT services provider Ensono for US$76.2 m as part of the Illinois-based company's acquisition by private equity giant KKR which was announced in April.

In March 2018, Wipro had made a strategic investment of US$55 m for 10.2% stake in Ensono Holdings, LLC, the parent company of Ensono. This after the company acquired its hosted data centre business for US$405 m.

Wipro and Ensono had also entered into a long term partnership agreement to jointly address the hybrid IT requirements of Wipro's enterprise customers.

As part of the 2018 deal, Wipro sold eight data centres and shifted more than 900 employees to Ensono.

Why are brokerages positive on IT stocks?

Investor sentiment is positive on IT stocks.

Barring a few companies, IT companies have reported healthy quarterly earnings in financial year ending March 2021.

The second wave has triggered some supply-side disruptions for IT companies, but they are managing through diversifying delivery to nearshore and offshore centres outside India.

Over the past year, the IT index's re-rating (16 times to 23 times) and performance has been supported by the increase in consensus earnings estimate of 20% and 30% for tier-1 and mid-tier companies.

Many brokerage houses are bullish on IT stocks opining reasons as strong demand environment, improving visibility, sustained margins, and improving free cash flow.

Consecutive quarters of record hiring also indicates strong optimism in demand. Brokerages expect strong hiring trend to continue in the coming year.

Also, despite the Covid cases slowing down, FII trend seems to be muted as they are not ready to take any risk in the current scenario.

Brokerages are advising to invest in large-cap IT stocks because they believe the IT sector will outperform other sectors in long-term.

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Equitymaster's View on Investing in the IT Sector Right Now

We reached out to Richa Agarwal, senior research analyst and editor of the smallcap stock recommendation service, Hidden Treasure, for her view on the IT sector.

Here's what she has to say about investing in companies in the IT sector right now -

  • Post pandemic, amid liquidity in the global markets and broad-based growth momentum, the IT sector and the stocks listed in it have had a dream run.

    While picking stocks in the industry, one should be mindful of relative growth and valuation of companies in the sector.

How Wipro Shares are Performing Today

Wipro share price opened the day on a flat note today at Rs 539.45, up 0.1%.

Presently, Wipro shares are trading down by 0.5%.

Shares of Wipro have a 52-week high quote of Rs 545 touched last week on 27 May. They have a 52-week low quote of Rs 196 touched on 29 May last year.

Note that Wipro shares have outperformed its peers TCS and Infosys over the past one year as can be seen from the chart below.

At the current price of Rs 534, Wipro commands a market cap of Rs 2,924 bn.

Wipro shares are trading at a PE of 23.9 and price to book value of 4.4.

About Wipro

Wipro is one of the leading global IT, consulting and business process services companies.

It's the third largest Indian player in the global IT services industry, in terms of revenue, after Tata Consultancy Services (TCS), and Infosys (Infosys).

Wipro was incorporated in 1945 as Western India Vegetables Product Limited. It was a consumer care product manufacturer till 1980 after which it diversified into the IT services business.

With effect from 1 April 2012, the company demerged its other divisions (consumer care and lighting, medical equipment, and infrastructure engineering) into a separate company called Wipro Enterprises Limited (WEL), to enhance its focus and allow both businesses to pursue their individual growth strategies.

Wipro's operations can be broadly classified into IT Services, IT Products, and India State Run Enterprise.

Wipro derives most of its revenue from the IT Services segment (96.8% in financial year 2020) under which it provides IT and IT enabled services to leading enterprises worldwide.

For more details about the company, you can have a look at Wipro Company fact sheet and Wipro quarterly results on our website.

For a sector overview, you can read our IT sector report.

You can also compare Wipro with its peers on our website:

Wipro vs TCS

Wipro vs Infosys

Wipro vs Tech Mahindra

Wipro vs HCL Tech

Wipro vs Mindtree

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

Equitymaster requests your view! Post a comment on "What's Behind the Rally in Wipro Shares?". Click here!

1 Responses to "What's Behind the Rally in Wipro Shares?"

R.Krishnakumar

May 31, 2021

Very well researched and explained clearly.

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Equitymaster requests your view! Post a comment on "What's Behind the Rally in Wipro Shares?". Click here!

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