Goldman Sachs values Wipro on a target P/E multiple of 14.3X (12-yr avg. P/E). Goldman Sachs 12 month target price of Rs 277 implies 23% potential downside vs. the sector coverage average of 4% upside. Hence we resume at Sell Rating on Wipro. Goldman Sachs estimates are 9%/12% below Bloomberg consensus estimate for FY22E/23E EBIT and see limited scope for margin expansion at Wipro given our anemic top line growth expectation and negative operating leverage.

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New CEO Thierry Delaporte joined Wipro in July 2020, and Goldman Sachs says that the new strategy rolled out with particular focus and importance given to Global Account Executives/ Sales Captains responsible for driving strong organic growth among strategic accounts. However, this is not an entirely new strategy and is in line with peers. Goldman Sachs believes execution around the strategy will be key to success, signs of which are yet to be seen. Tangible benefits to Wipro in terms of large deal wins, strong order book and margin improvements, in their view, will be the litmus tests amidst the new strategy. Goldman Sachs note earlier management strategies did not produce results and think that success for the new CEO may require a culture change along with more aggression in implementing the newly launched strategy.

Continued market share loss by Wipro versus its peers on the back of weak project execution and lack of aggression in sales likely reflecting in limited increase in Sales & Marketing executives, lack of large deal win announcements, weakness in its key verticals like Healthcare (due to uncertainty around the Affordable Care Act in the US), Energy & Utility (stable to weak crude oil prices) and BFSI (lack of any large new deal wins); conclusion of share buyback.

Key risks:

Successful execution by Wipro of new strategies rolls out leading to pick up in growth.
Cyclical uptick in discretionary IT spending driven by higher than expected global growth
Revival of growth in Financial Services driven by large deal win announcements or improving profitability of large banks globally driven by higher interest rates
Pick-up in the Healthcare vertical with any clarity emerging in the US around the Affordable Care Act (aka “Obamacare”)
INR depreciation vs. USD, continued margin improvement driven by either further cut in SG&A or higher prices for digital capabilities and successful M&A

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What could make us more positive on Wipro stock:

1. Large deal wins on the back of the new strategy roll-out where Global Account Executives/ Sales Captains are able to stitch together large deals spanning across geographies for their large global customers.
2. A pick-up in the company’s most important vertical, BFSI, as those clients look for digital transformation or cost take outs and Wipro, through its renewed focus on key service lines, is able to provide them with the right solutions.
3. Consistent improvement in Wipro EBIT margins without hurting the required investments around service lines, geographies and digital technologies.