Wipro share price target: The resignation of Wipro CEO Thierry Delaporte may not surprise many. Marketmen tracking the company said it was widely anticipated in media that Thierry, who was an external candidate, would be forced to resign, given the perception that he had lost the confidence of promoters (Premjis) not only due to the underperformance vis-à-vis the Tier-1 Indian peer set, but also due to the loss of senior Wipro talent to other companies.
What it hints at?
Thierry had indicated multiple times that he enjoyed the trust of the promoter family and the board. Also, he was of the view that decisions like acquiring Capco and Rizing will play out eventually when spending returns. Both are consulting firms, which did very well when discretionary spending was high during the pandemic years, but whose revenues likely declined at rates faster than the company during the subsequent slowdown, Nirmal Bang noted
"Thierry probably sees another weak year ahead: We believe he threw in the towel as he probably foresaw another year of weak growth (despite talking of green shoots in consulting during 3QFY24 analyst call) and did not want to take the pressure of possibly a dissatisfied board/media/investor. Also, one should remember that he was the highest paid CEO amongst the India listed IT services players in FY24," Nirmal Bang said.
Wipro's big exits
Nirmal Bang said Wipro has had both internal and external candidates as CEOs over the last 25 years and has seen greater M&A activity than other Tier-1 Indian peers. But as things stand today, Wipro Global IT services US$ revenue (FY24E) is 42 per cent lower than that of Infosys with lower EBIT margins, whereas in FY2000 Wipro global IT services revenue was 15 per cent larger.
Besides, a string of SBU heads and other senior folks quit over the last 2 years and joined in senior roles in other firms. For example, Angan Guha – Head of Americas 2 (30 per cent of revenue) which housed the critical BFSI unit joined as CEO of Birlasoft in December 2022.Rajan Kohli – the Digital business head joined as CEO of Citius Tech in April 2023. Also, Jatin Dalal – the CFO, joined Cognizant in December 2023.
Wipro share price target
Nirmal Bang maintained a 'SELL' on Wipro with target price of Rs 441, which is based on target PE multiple of 16.6 times (30 per cent discount to TCS) on FY26E EPS. The high discount of 30 per cent is due to Wipro's significantly below peer group revenue performance in the recent quarters and the significantly lower ROIC due to its inability to squeeze out enough value from its M&A moves.
New CEO & growth trajectory
Thierry has been replaced by Srini Pallia who is a 32-year veteran of Wipro and last served as CEO of the Americas 1 unit, a role he took on in January 2021.
"We believe the new CEO needs to execute before we can think of changing our target PE multiple," Nirmal Bang said.
Americas 1 unit includes Consumer Goods & Lifesciences, Retail, Transportation & Services, Healthcare & Medical Devices, Communication, Media & Info services, Tech Products & Platforms and Latin America.
Nirmal Bang said the external demand conditions will dictate the growth trajectory of Wipro in the near term and the consulting unit may act as a drag. The test for Srini Pallia would be how Wipro measures up against its peers when demand normalises, he said.
"He needs to put in place the blocks now, to see that Wipro starts running fast as soon as the demand picks up. We think both investors and promoters would give him three years to deliver though his tenure has been set at 5 years," Nirmal Bang said.