IT major Wipro Ltd delivered a solid 47 per cent return in the past one year, beating all of its listed peers including Tech Mahindra Ltd (45.72 per cent), HCL Technologies Ltd (43.85 per cent), Infosys Ltd (33.46 per cent) and Tata Consultancy Services Ltd (24.81 per cent). The current combination of a favourable portfolio, new CEO (Srini Pallia) and inexpensive valuations make for an attractive risk-reward profile for Wipro, said Nuvama Institutional Equities.
The brokerage has maintained its earnings estimates for the IT major but raised its target valuation to 25 times estimated FY27 EPS from 20 times on sharper growth recovery. The brokerage now rates Wipro as ‘Buy’ from ‘Hold with a target price of Rs 700 from Rs 520 earlier.
"Wipro is at THAT crossroads again — new CEO, new expectations, new hopes. But there are two big differences this time: i) its portfolio with higher exposure to discretionary spends is favourably placed to ride the macro recovery; and ii) 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," Nuvama said.
Along with companies such as Infosys Ltd, LTIMindtree Ltd and Mphasis Ltd, Wipro has relatively high exposure to discretionary spends (60–65 per cent of revenue). As discretionary spends were cut or put on hold over the last few quarters, Wipro had to bear the brunt—leading to a decline in top line in FY24, Nuvama said.
"However, what was once its bane could become the boon now. Following the interest rate cut by the Fed in September 2024 and improving macro dynamics in US, we expect discretionary spends to revive—in turn benefitting Wipro," Nuvama said.
Besides, Nuvama said Wipro’s portfolio has segments that should see a strong recovery in coming quarters. Its consulting arm (primarily Capco) has been growing for the last two quarters.
It said Accenture’s recent commentary and guidance for growth in Consulting in FY25 too validates a recovery in the Consulting business.
"It also has higher exposure to BFSI (34 per cent of revenue), which has been hurt by cut in tech spends by financial institutions globally. Commentary of peers such as Accenture, TCS and Infosys, not to mention those of large US banks (JP Morgan, Citi) on incremental tech spends, allude to a recovery in BFSI—which should again benefit Wipro more than peers," Nuvama said.
In April 2024, Wipro appointed Pallia as the new CEO, choosing an internal candidate after 14 years of experiments with external ones.
Nuvama said its channel checks suggest Pallia appears to have ushered in a new era of positivity in Wipro. Having been in the system for 32 years, Pallia knows how to work carrying along the organisation and scores of senior employees.
"He has promoted many internal candidates to roles filled by Delaporte by external ones. He has reinvigorated the workforce into believing in themselves and working towards two common goals: i) margin retention above 16 per cent; and ii) level up to industry growth quickly. We believe the last throw of the dice by the Wipro board (an internal CEO) might just work," Nuvama said.
Wipro has stayed a high free cash flow company (112 per cent of net income over last four years) with a highly efficient capital allocation policy, Nuvama said.
With the stock trading at a relatively attractive 23 times FY26 PE, at a discount to almost all peers, and yielding a dividend of 3 per cent, it finds the risk-reward highly attractive.