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Expecting 20 bps decline in Wipro EBIT, eyes on share buyback: Urmil Shah, IDBI Capital

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Given that they have done a lot of restructuring in the India and Middle East business, we expect them to guide for a similar growth as they did for Q4, which is 0-2%, said Urmil Shah, research analyst and vice-president, IDBI Capital, in an interview with ETNOW.

Edited excerpts:

What will you be watching out for when it comes Wipro?

We would basically watch out for three important things. One, we are expecting them to deliver at the top end of their guidance for IT services revenue growth. We are pencilling in a 1.5% CC growth versus their guidance of 0% to 2%. We expect them to maintain EBIT margin at high level. We are just expecting 20 bps decline after a strong uptick in Q3.

The second thing which we would watch out for is what is the guidance they gave for Q1 which traditionally has been a week quarter for them. Given that they have done a lot of restructuring in the India and Middle East business, we expect them to guide for a similar growth as they did for Q4, which is 0-2%. Last but not the least, we would watch out for the kind of share buyback announcement which they do.

We expect them to do buyback at the same quantum as they had done last time. It is Rs 11,000 crore, but would really watch out for the price they offer because at the current price, it is trading at 17 times on FY20 earnings and 16 times on FY21 earnings.

Wipro is really at the bottom rung of the IT preferred list. Do you think the buyback excitement would at best be a very short-term relief for the stock?

I would not say that it would be a very short-term relief because we have to keep in mind that if that buyback actually comes in at Rs 11,000 crore and if they do it at even 10% premium to the current price, it would be a buyback of almost 6% of their shares outstanding which is a reasonably high size kind of buyback.

So, yes, while the benefit of the buyback on the stock price would fizzle out if it is not complemented with a pick up in the revenue and earnings growth, given the quantum, it would not be very short-term uptick. A trade could be possible.

There is a lingering fear that the rupee appreciation is going to drag the margins and the forex gain might be lower this time around, dragging growth. Do you think that that is going to be a niggling worry for Wipro?

Yes EBIT margin will have a headwind from the rupee appreciation but we have to keep in mind that in FY19, there were multiple rounds of impact on EBIT margin because of client specific issues including insolvenRead More – Source

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