Wipro – Q4FY21 first cut

Wipro reported a heathy set of Q4FY21 numbers. While IT service revenues were in line with our estimates, EBIT margins were above our estimates. IT services revenues increased 3.0% QoQ in constant currency (CC) terms in line with our estimate of 3.0% growth in CC terms. The growth in revenues was led by BFSI (up 2.7% QoQ), Technology (up 9.9% QoQ) and Consumer Business Unit (up 6.9% QoQ) partially offset by a decline in Manufacturing (down 1.1% QoQ) and Health Business Unit (down 2.9% QoQ). The IT service EBIT margin declined 64 bps QoQ to 21.0% (above our estimate of 20.2%) mainly led by wage hike. On an overall basis, the EBIT margin declined 55 bps QoQ to 21.0%. Wipro guided that its Q4FY21E IT services revenues would be in the range of US$2,195 -2,238 million, which translates into 2.0-4.0% QoQ growth. The guidance does not include announced acquisitions of Capco and Ampion.

Key highlights of the quarter were 1) The company has won 12 deals resulting in TCV booked of over US$1.4 billion (up 16.7% QoQ), 2) Customer count in >US$100 million account moved from 10 to 11, > US$75 million moved from 24 to 27 and > US$50Mn account moved from 38 to 40 in Q4FY21, 3) The company has not declared a dividend, 4) Net addition of 7,404 employees, which includes on boarding of more than 2,850 freshers, 5) The company’s offshore percentage increased by 180 bps to 54.5%, 6) Attrition increased 1.1% to 12.1%.

Q4FY21 Earnings Summary

• In constant currency, global IT services revenues grew 3.0% sequentially, in line with our estimate of 3.0% growth. US$ revenues grew 3.9% QoQ to $2,152.4 million (vs. our estimate of US$2,152 million)
• Consolidated revenues grew by 3.7% QoQ to | 16,245 crore. IT services revenues grew 3.6% sequentially to | 15,891 crore while volatile IT products division increased by 36.4% QoQ to | 211.7 crore
• IT services EBIT margin declined 64 bps QoQ to 21.0% and was above our estimate of 20.2%. We believe the margin decline was due to wage hikes. On the overall basis the company’s EBIT margin decreased by 55 bps QoQ
• Reported PAT came in above our estimate at | 2,972 crore (vs. our estimate of | 2,862 crore) mainly due to lower than expected tax expenses
• Wipro guided that its Q1FY22E IT services revenues would be in the range of US$2,195-2,238 million, which translates into 2.0-4.0% QoQ growth. The guidance does not include announced acquisitions of Capco and Ampion

Healthy quarter, improving margins and healthy revenue guidance prompt us to be positive on the stock. We would be revisiting our estimates and target price post the conference call. ICICI Direct Research

Wipro results
Wipro Limited today announced financial results under International Financial Reporting Standards (IFRS) for the Quarter and Year ended March 31, 2021.

Highlights of the Results
Results for the Quarter ended March 31, 2021:

• Gross Revenue was ₹162.5 billion ($2.2 billion), an increase of 3.4% YoY
• IT Services Segment Revenue was at $2,152.4 million, an increase of 3.9% QoQ and 3.8% YoY
• Non-GAAP constant currency IT Services Segment Revenue increased by 3.0% QoQ and 0.5% YoY
• IT Services Operating Margin3 for the quarter was at 21.0%, an expansion of 344 bps YoY
• Net Income for the quarter was ₹29.7 billion ($406.4 million), an increase of 27.8% YoY
• Earnings Per Share for the quarter was at ₹5.39 ($0.07), an increase of 31.8% YoY

Results for the Year ended March 31, 2021:

• Gross Revenue was ₹619.4 billion ($8.5 billion), an increase of 1.5% YoY
• IT Services Segment Revenue was at $8,136.5 million, a decrease of 1.4% YoY
• Non-GAAP constant currency IT Services Segment Revenue decreased by 2.3% YoY
• IT Services Operating Margin for the year was at 20.3%, an expansion of 218 bps YoY
• Net Income for the year was ₹107.9 billion ($1,475.9 million), an increase of 11.0% YoY
• Earnings Per Share for the year was at ₹19.11 ($0.26), an increase of 14.6% YoY
• Operating Cash Flow was at ₹147.6 billion ($2,017.4 million), an increase of 46.6% YoY, which is 136.7% of Net Income

Performance for the quarter and year ended March 31, 2021
Thierry Delaporte, CEO and Managing Director said, “I am delighted with the way we have finished the financial year. We delivered a third consistent quarter of strong revenue growth, deal wins and operating margins. We also announced our largest ever acquisition of Capco that will bolster our global financial services sector. We are excited with this wave of business momentum that we are witnessing. All key markets are now growing on YoY basis and this provides us a solid foundation to build on next year growth rates.”

Jatin Dalal, Chief Financial Officer said, “We delivered a 340 bps expansion YoY in operating margins for the quarter after absorbing the impact of wage hike. On a full year basis we increased margins by 220 bps with a consistent improvement in operating metrics. Led by disciplined execution, we generated strong operating cash flows at 136.7% of our net income for the full year. We successfully completed the share buyback program returning $1.3Bn to our shareholders.”

Outlook for the quarter ending June 30, 2021
We expect Revenue from our IT Services business to be in the range of $2,195 million to $2,238 million. This translates to a sequential growth of 2.0% to 4.0%. This does not include revenue from our recently announced acquisitions of Capco and Ampion

Outlook is based on the following exchange rates: GBP/USD at 1.39, Euro/USD at 1.20, AUD/USD at 0.78, USD/INR at 72.76 and CAD/USD at 0.78

Capital Allocation

• In the quarter ended March 31, 2021, the Company has concluded the buyback of 237.5 million equity shares as approved earlier by the Board of Directors at their meeting held on October 13, 2020 for an aggregate amount of ₹95 billion ($1.3 billion), excluding buyback tax
• The interim dividend of ₹1 declared by the Board at its meeting held on January 13, 2021 shall be considered as the final dividend for the financial year 2020-21.

IT Services
Wipro continued its momentum in winning large deals with our customers as described below:

• Wipro has won a multi-million-dollar integrated engagement from a leading US-based industrial manufacturing company to transform and modernize its business functions and enable it to become a digital enterprise via transformation in applications, infrastructure, cyber security and service delivery.
• Wipro has won a multi-year strategic contract from a US-based digital transformation and consulting agency to provide Infrastructure Managed Services for its Data Center, and Network and Tools landscape. Wipro will leverage AI Ops tool stack to automate the client’s infrastructure to reduce turnaround time across requests and incidents, improve operational efficiency, and deliver a superior user experience for its end customer, a leading US-based Federal agency.

Digital Services Highlights
We continue to see increasing traction in digital oriented and other strategic deals as illustrated below:

• A leading Indian e-commerce and technology company has selected Wipro to enhance customer experience, leveraging its expertise in digital operations and new-age solutions.
• A leading technology provider has awarded Wipro a contract to consolidate its enterprise digital assets on cloud and on-premise to a centralized content repository to enable robust management of its marketing content needs.
• A global communications and networking giant has extended their decade-long partnership with Wipro Designit to research, prototype, and design their major product family, as well as associated services and experience.
• Wipro has won a multi-year engagement with a US-based utilities company to provide System Integrator services for a large business and IT transformation program in the areas of Supply Chain and Enterprise Work and Asset Management. Wipro will leverage its strong domain expertise and capabilities in Digital, Applications, and Data and Analytics to implement leading practices and business processes across the enterprise.
• A multinational professional services company has engaged Wipro Designit to design next generation, usercentric experience for its employees. Designit will apply research, service design blueprinting and experience design to transform the workplace and the computing experience for the client’s global workforce.

Analyst Recognition

• Wipro was positioned as a Leader in Gartner Magic Quadrant for Managed Workplace Services, North America, Daniel Barros, Mark Ray, Stephanie Stoudt-Hansen, Tobi Bet, 24 Feb 2021
• Wipro was positioned as a Leader in Gartner Magic Quadrant for Managed Workplace Services, Europe, David Groombridge, Claudio Da Rold, Alexandra Chavez, Daniel Barros, Katja Ruud, 24 Feb 2021
• Wipro was positioned as a Leader in Gartner Magic Quadrant for Customer Service BPO, Deborah Alvord, Kim Dans, Philip Jenkins, John Quaglietta, TJ Singh, 9 Feb 2021
• Wipro ranks among the Top Service Providers in Customer Satisfaction Category in Whitelane / Quint Netherlands IT Outsourcing Study 2021
• Wipro ranks among the Top Service Providers in Customer Satisfaction Category in Whitelane & PA Consulting IT Outsourcing Study 2021 in Nordics Region
• Wipro was positioned as a Leader in Everest Group’s Pharmacovigilance and Complaint Management Operations Services PEAK Matrix Assessment 2021
• Wipro was recognized as a Leader in Everest Group’s Intelligent Process Automation (IPA) Solutions PEAK Matrix Assessment 2021
• Wipro was recognized as a Leader in Everest Group’s Semiconductor Engineering Services PEAK Matrix Assessment 2021
• Wipro was rated as a Leader in ISG Provider Lens Salesforce Ecosystem Partners 2021 – US
• Wipro was rated as a Leader in ISG Provider Lens Next-gen Application Development & Maintenance (ADM) Services 2020 – US and UK

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