Add Wipro, target price Rs 220: Centrum

Centrum has given an add rating to Wipro with a target price of Rs 220. Wipro’s Q4FY20 results were a modest miss on revenues. However, margins were a steeper disappointment which led to PAT miss our estimates by 7% for 4QFY20. Wipro’s USD revenues grew by 1.7% in FY20 (3.1% constant currency growth). Organic USD revenue growth would be 1.2% for FY20 and rest from ICICI deal, ITI acquisition and full impact of Alight deal revenues.

Owing to Covid -19, the brokerage had already built in steep weakness in the first half of FY21 and modeled recovery in revenue growth from the second half of FT20 onwards. It has already downgraded the estimates in the preview report. Post the fourth quarter results, the brokerage has retained an expectation of 6% decline in dollar revenues for Wipro in FY21E. However, it has built in recovery in FY22E and model 3% USD revenue growth in FY22E. Owing to tepid margin execution in the fourth quarter, it has further trimmed margin assumptions for FY21/FY22E which leads to 6.5/5% EPS cut for FY21/FY22E respectively.