Tag - high attrition

Expect 30% YoY constant currency revenue growth in 3QFY22 – WIPRO

Update on the Indian Equity Market:

On Monday, NIFTY50 rose for the seventh consecutive session to close at 18,477 (+0.8%), led by PSU BANK (+4.0%), METAL (+3.9%), and IT (+1.6%). The sectoral losers were PHARMA (-0.9%), and MEDIA (-0.7%). Among the stocks, HINDALCO (+5.2%), INFY (+4.8%), and TECHM (+3.7%) led the gainers while M&M (-2.2%), HCLTECH (-2.1%), and DRREDDY (-1.8%) led the laggards.

Wipro recently declared earnings for the quarter ended 30th September 2021, which beat street estimates. Mr. Thierry Delaporte, CEO, Wipro discussed the quarter gone by and his plans for the upcoming quarters with The Economic Times on 18th October 2021:

  • Mr. Delaporte took charge as the CEO of the company during the Covid pandemic. During that time, the company moved into execution mode and it has been fast at defining the people who are going to drive the organisation forward.
  • During the last year, the company has taken bold steps and changed about 30% of the top 200 leaders. It has been an unprecedented change and a lot of talent has also been brought in from outside. Wipro made its biggest acquisition, Capco which is delivering great results.
  • The CEO’s responsibility was to ensure the company remains driven by a sense of purpose and pays attention to the world around it.
  • What needed to change was assertiveness about strategy, running operations, making decisions, and sticking to it. The second thing he wanted to change was raising the bar in terms of ambition, and the third is a ruthless focus on accountability and outcome.
  • Wipro will deliver ~30% year-on-year constant currency revenue growth in 3QFY22E. He expects the growth to continue in FY23E as well, as the company is firing on all cylinders. Wipro will continue to do more acquisitions and possibly a big one.
  • The best performing company in the IT industry is the one with the best talent in terms of quality – people who understand the business and how technology can be leveraged to transform. These are the people Wipro is hiring. The talent is also in terms of quantity because of the increased demand and higher attrition levels.
  • Wipro plans to integrate a lot more freshers. In FY22E, Wipro plans to hire about 16,000-17,000 and 25,000-30,000 in FY23E.
  • He expects higher attrition to continue for the next 3-4 quarters. In 2QFY22, Wipro’s attrition was 20.5% and he expects it to worsen. There’s always seasonality, in the last quarter of the year and people tend to stick around, according to Mr. Delaporte.
  • Wipro would be investing more in 5G and artificial intelligence than in quantum computing right now. He is betting big on engineering services.

 Asset Multiplier Comments

  • The IT sector has been a beneficiary of the increased investment in technologies due to shifting to work from anywhere post the pandemic. While revenue growth is expected for the quarters to come, the sector was also a beneficiary of lower operating costs.
  • As people return to the office for work, some of these costs are expected to come back. The increased pace of vaccinations around the world will likely increase people traveling for work. The talent war has already led to companies rolling out 2-3 wage hikes in a year. With the costs increasing, Wipro like all other IT companies may face margin pressures in the near term.

Consensus Estimate: (Source: market screener website)

  • The closing price of WIPRO was ₹ 711/- as of 18-October-2021. It traded at 32x/ 28x/ 25x the consensus earnings estimate of ₹ 22/ 25/ 28 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 676/- implies a PE multiple of 24x on FY24E EPS of ₹ 28/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Combined proposition with CAPCO is a game changer – WIPRO

Update on the Indian Equity Market:

On Monday, NIFTY closed 1.1% down at 15,752. Top gainers in NIFTY50 were NTPC (+2.0%), BPCL(+1.6%), and DIVISLAB (+1.0%). The top losers were HDFCBANK (-3.3%), INDUSINDBK (-2.8%), and HDFCLIFE (-2.7%). The only sectors to gain wereREALTY (+0.4%), and PHARMA (+0.2%) while the top sectoral losers were PRIVATE BANK(-2.0%), FINANCIAL SERVICES (-1.9%), and BANK (-1.9%).

Combined proposition with CAPCO is a game changer – WIPRO

Excerpts of an interview with the Management (CEO, CFO, and Chief Human Resources Officer) of Wipro, aired on CNBC TV18 dated 16th July 2021:

  • WIPRO has guided to an annual revenue run rate of US$ 10 bn.
  • Management said they will focus on driving consistent progression for growth and take a quarterly view. For 2QFY22, management has guided to a sequential growth of 5%-7%.
  • WIPRO has taken some steps in the last 12 months in terms of a simpler operating model, greater focus on growth, more focused strategy, focus on talent acquisition and development. The company has executed on these streams and customers and partner ecosystems have started responding to these improvements.
  • Management has created a buzz by saying that they would make a significant announcement in relation to their Cloud business over the next few weeks. Without giving any further details, the management has only said that the announcement would set their ambition in the cloud space more clearly.
  • WIPRO saw margin pressure in 1QFY22. Management has reiterated that capturing the growth momentum remains their priority, so they will continue to undertake investments.
  • Management had earlier guided for the margins to be in the band of 17% to 17.5%. 1QFY22 margins were well ahead of that at 18.8%.
  • 2QFY22 will also have some margin headwinds as the company will continue making investments to recapture demand, focus on talent retention by way of salary increase, and full quarter integration impact of CAPCO deal. However, the management remains optimistic regarding the quality of operating leverage that company can create in the growth phase going ahead.
  • WIPRO’s attrition in 1QFY22 was higher than industry levels. The management is confident that the supply chain processes have been finetuned to ensure demand servicing so they won’t face any issues.
  • Management is tackling the high attrition issue by focusing on fresher intake, salary hikes, quality of work, rescaling, and engagement. As a result of all these interventions, attrition will come to a much more manageable number moving forward.
  • As an update on the CAPCOdeal, management said that while these are still early days of the integration, the partnership is moving in the right direction. The way the two teams are connecting and complementing each other is good. Management has identified severalclients where they are offering the combined proposition. The level of response from clients is also very good and the teams have had several deal wins together.

 

Asset Multiplier comments:

  • Companies across the IT industry have been facing a talent supply crunch. While this is a good sign as the supply is chasing the higher demand, it is not without its drawbacks.
  • Lower talent availability leads to higher demand, better opportunities, and hence higher attrition. Attrition beyond control may put a roadblock in deal ramp-ups as there is a time lag that goes into new hire training. In addition, talent retention begins to cost more, thus limiting the operating margins.

 

Consensus Estimate: (Source: market screener website)

 

  • The closing price of WIPRO was ₹ 575/- as of 18-July-2021.  It traded at 26x/ 23x/ 21x the consensus earnings estimate of ₹ 22.0/ 24.5/ 27.2for FY22E/23E/24E respectively.
  • The consensus price target is ₹ 545/- which trades at 20x the earnings estimate for FY24E of ₹ 27.2/-

 

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”