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Wipro's past curbs analysts' enthusiasm for its future

 

Cogencis, Friday, Nov 20, 2020

By Nikita Periwal

MUMBAI - Wipro Ltd's revamped strategy of accelerating growth without letting go of profitability appears promising, but concerns around execution are keeping analysts from immediately turning constructive on the technology major.

In his first interaction with analysts, Chief Executive Officer and Managing Director Thierry Delaporte not only addressed several key issues faced by the company but also said that the strategy aims to inculcate an "obsession for growth".

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Even with the focus in the right direction, years of under relevance and under-performance takes time to "undo" for large services organisations, JM Financial Institutional Securities said.

The ongoing restructuring at US-based Cognizant Technology Solutions Corp and the hit taken by Infosys Ltd on its profitability through 2017-18 and 2018-19 (Apr-Mar) are a case in point, the brokerage said.

Abidali Neemuchwala, who preceded Delaporte, oversaw the restructuring of the company's business in West Asia, and reorganisation of the Indian business. The company also divested its data centre business, but it did little to shore up the flagging growth momentum.

"We are mindful that Wipro has been an underperformer...and that several leadership changes in the past have been more about assurances than actual delivery," Edelweiss Securities said.

Wipro's growth rates have been lagging that of peers Tata Consultancy Services Ltd and Infosys for several years now as it dealt with sector-specific troubles, changes in leadership, and slower deal wins. This has also led to the company being valued at a discount of 20-30% to both.

Delaporte intends to right the historical wrongs by prioritising high-growth sectors and geographies, consolidate its service lines, pursue large deals, make the work culture performance-oriented, and also simplify its operating model. He had unveiled the strategy earlier in October, but revealed the details on Wednesday.

Though a near 140% surge in share price from the lows in March underlines the expectations from the company given the change in leadership, the low probability of a quick turnaround along with Wipro's unfavorable execution history is keeping the Street on a wait-and-watch mode.

A sharper, proactive, result-oriented and narrow-focused approach is "ideal", but will face difficulties in execution, brokerage Dolat Capital said.

Even though Delaporte's term comes in the midst of a structurally strong period for technology companies because of faster adoption of technology, analysts see little room for the company to catch up with its peers.

Wipro's sales growth could be as much as 200-400 basis points lower than its peers in 2021-22 (Apr-Mar), Nirmal Bang Institutional Equities said.

While the strategic changes could help bring down the difference in growth rates with peers, Wipro is unlikely to completely bridge the gap, Kotak Institutional Equities said.

A revamped strategy, a conducive growth environment, and a fresh leadership perspective, Wipro has most of what it needs to improve growth momentum as long it does not let its past get in between.  End

Edited by Ashish Shirke

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