The Indian IT sector benefited from three secular tailwinds during the pandemic – outsourcing, offshoring and digitization on the back of accelerated cloud migration. Given the ensuing macro slowdown (not bearish), Goldman Sachs believes that the Indian IT sector USD revenue growth will start to slow down materially from here, weighing on the secular tailwind mentioned above.
Global Brokerage Upgraded Indian IT Stocks Wipro’s rating buy from sell is largely due to attractive valuations, where it believes weak organic earnings growth outweighs the price-in at current valuations.
Goldman Sachs View the recent pick-up in your order book and strong sequential headcount growth during 1Q FY23 as two key demand indicators that point to a positive direction for near-term growth.
“Also our EPS cut for Wipro is quite modest at 1-3% as compared to FY22-24E, as we were already creating weak growth for Wipro in FY23E-26E. The potential share buyback announcement over the next 6-12 months could be another positive catalyst for our buy thesis on Wipro. Our modified 12-meter TP is 381/$4.87 for local shares/ADRs,” the note said, assuming that given Wipro’s current valuation, potentially weak EPS growth is already being factored in.
Goldman believes Wipro’s sequential CC dollar revenue growth in the second quarter will outperform 1Q partly due to business seasonality and partly due to better order book growth and sequential headcount growth during 1QFY23.
“EBIT margin to witness gradual improvement during the balance of FY 2013E and touch 14.3% from a low of 14.3% by 1QFY23) Any potential share buyback announced by Wipro in the next few quarters ( The previous one ended in January 2021 when the stock was up 14% from the date of announcement to the date of closing),” it added.
Wipro plans to return 45-50% of its net income to shareholders, mainly in the form of buybacks and dividends. This has been the strategy of the company for the last 3 years. By 1QFY23, they will be in a position to decide on another share buyback program, Goldman’s note said.
The views and recommendations given above are those of individual analysts or broking companies and not of Mint.
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