Analyst Note| Julie Bhusal Sharma |
Narrow-moat Wipro reported standout first-quarter results, as the company brought in top- and bottom-line results significantly above our expectations--due to organic and inorganic outperformance. The quarter marked the first full one since the Capco acquisition, which was the largest deal in Wipro’s history, at $1.45 billion. Coupled with the nice results was revenue guidance for the next quarter that surpassed our expectations. We are increasing our fair value estimate for Wipro to INR 350 ($4.60 for the U.S. ADRs) from INR 270 ($3.50) per share. With shares trading near INR 576 ($8.12) after results, we continue to view Wipro as significantly overvalued. As a reminder, we view other Indian IT services names Tata Consultancy and Infosys as significantly overvalued, as well. IT services stocks have skyrocketed, with Wipro’s stock having doubled in the last year alone. We think the pandemic has brought significant tailwinds to the industry, like accelerated digital demand, but that has come with headwinds, such as scarce labor. Also, we believe a significant portion of the IT services market growing includes managed infrastructure from new workloads enabled by the cloud--which we think will favor cloud-service providers like Amazon and Microsoft.