Aggressive deal wins, internal changes boost investor sentiment

Shares of Wipro rallied more than 5 per cent intraday on Wednesday after the information technology (IT) major announced the signing of a $700 million deal to provide IT services to German food wholesaler Metro AG for five years.

The deal, announced late on Tuesday, is initially for a period of five years, but can be extended by another four years. The company said that the deal would entail a minimum revenue commitment of $1 billion. Wipro has been aggressive in winning large deals since the management change, say analysts. “Aggression in deal wins has continued even in the third quarter, which is a seasonally weak quarter, with Wipro winning 5 deals including Olympus, Thoughtspot, Fortum & Verifone apart from the Metro deal in Q3. This gives us confidence about superior execution of new management at Wipro,” said analysts at Prabhudas Lilladher in a report. The rising number of large deals and a healthy order pipeline are expected to drive revenue growth in the second half of the ongoing fiscal as well as the next year. Analysts estimate the company’s revenue to grow 8 per cent in 2021-22, the highest since 2015-16.

The company has also made several behind-the scene changes which has turned analysts hopeful of Wipro reducing the gap with peers. “The changes are aimed at reducing internal friction, increasing client centricity, sharpening focus on select markets and cultivating performance-driven culture to facilitate growth acceleration at stable margins,” said Kawaljeet Saluja, executive director & head of research of Kotak Institutional Equities. “The company has made a beginning, a solid and surefooted step in a long journey ahead. We believe that the gap in growth rate will reduce when compared to peers though we still don’t have the confidence to call for a complete bridging of the gap in growth rate,” he added.

Also, as part of the agreement, Wipro plans to take over two Metro IT units for 40 million euros and will absorb close to 1,300 Metro employees. Wipro’s acquisition of these units is in line with the company’s strategy of focusing on Europe, a geography where they have lagged in the past, say analysts.

The company also announced that its share buyback programme will begin next week. Last month, shareholders approved Wipro’s buyback plan for the purchase of up to 237.5 million equity shares at Rs 400 per share – a 10 per cent premium to its closing price on Tuesday, totalling Rs 9,500 crore. Business Standard