Emkay Global Financial has given Hold recommendation for Wipro with a target price of Rs. 450 in its research report issued on Mar 05, 2021
Emkay Global Financial’s report on Wipro
Wipro has signed an agreement to acquire Capco, a global management and technology consultancy to the BFSI industry, for a cash consideration of USD1.45bn (~2x EV/Sales on a trailing basis). This acquisition will strengthen Wipro’s positioning in the BFSI sector with integrated, endto-end consulting and digital transformation capabilities. It will create significant crossselling opportunities and aid wallet share expansion across existing clients. Integration of a low-margin business (Capco operates at mid to high single-digit margins; similar to Wipro’s onsite business) and higher non-cash charges are likely to impact EBITM by ~200bps in the first year. Margins will improve on revenue and cost synergies from the second year. The acquisition is expected to be EPS accretive in the third year. Capco acquisition reflects Wipro’s aspiration and bold bet to accelerate revenue growth and augment capabilities. Most of the Consulting business acquisitions across the industry failed to deliver anticipated revenue synergies in the past.
We maintain the Hold rating with a revised TP of Rs450 at 20x FY23E earnings (earlier 18x). The target multiple was revised to negate the impact of non-cash charges and directionally positive acquisition.