17 December 2015
Update | Sector: Technology
Wipro
Neutral
BSE Sensex
25,494
S&P CNX
7,751
CMP: INR555
TP: INR600 (+8%)
Designing Digital prowess
Takeaways from our meeting with Mr Rajan Kohli – Head, Wipro Digital
Stock Info
Bloomberg
Equity Shares (m)
M.Cap.(INR b)/(USD b)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
AvgVal (INR m)
Free float (%)
WPRO IN
2,462.4
1,423/20.6
677/513
1/6/8
1034
26.6
Financial Snapshot (INR Billion)
Y/E Mar
2015 2016E 2017E
Sales
469.5 513.6 585.7
EBITDA
104.6 114.8 135.3
PAT
EPS (INR)
EPS Gr. (%)
BV/Sh. (INR)
RoE (%)
RoCE (%)
P/E (x)
86.6
35.1
10.9
23.0
20.2
16.5
93.0 105.5
37.8
7.6
21.8
19.0
15.3
10.9
42.8
13.5
22.0
20.4
13.5
9.0
We met Mr Rajan Kohli, who heads WPRO’s Digital initiatives, to understand the
addressable opportunity for WPRO, its strategic approach and capabilities in the
segment.
While Digital is a big opportunity for service providers, success in Digital is a
function of combining capabilities in: [1] strategic and technical consulting, [2]
designing, and [3] agile and iterative development.
WPRO’s holistic approach in Digital is substantiated by acquisition of DesignIt,
which helps complete the “Imagination to Execution” loop, as WPRO’s technical
capabilities drive implementation of the ideas and strategy laid out by DesignIt.
If we include Digital-related (which are not accounted in Wipro Digital), the
larger piece contributes ~14% to WPRO’s revenues today
While the scale may be small today, its capabilities harbor potential to drive
revival in growth for the company in due course.
Raison d’etre:
Three-pronged need for a separate entity
The carving out of Wipro Digital as a separate entity is a function of three main
factors:
1.
In terms of
talent,
Digital projects require engineers capable of developing
technology at the front end as well as backend (or in other words, full stack
developers). Such personnel have strong algorithmic capabilities in addition to
knowledge of multiple open source technologies, and have to be sourced amidst
competition from start-ups.
2.
Digital requires selling to
stakeholders
beyond the CIO. WPRO’s Design team
(courtesy DesignIt acquisition) and Strategy team bring on the table the skill sets
that enable foot-in-the-doors of CXOs other than the CIO.
3.
Digital is more than a technology, and requires a change in the organizational
DNA.
At the very core, it needs the teams to be agile. Delivery to clients
happens in one-to-two week stints through iterative models using agile / dev-
ops based methodologies.
166.1 181.7 208.9
EV/EBITDA (x) 12.2
What
does Wipro Digital address?
According to WPRO, ~80% of the clients’ incremental IT budgets are being
allocated towards Digital. This is coming at the cost of (spending cuts in) legacy
areas. Through Wipro Digital, the company’s endeavor is to grow this 80%
incremental piece faster than the decline in traditional services. Wipro Digital
addresses this incremental / new areas of client spending, which can be
classified as follows:
1. Spends that fall under the
Chief Marketing Officer (CMO)
– these are
broadly categorized into:
User Experience
– this is an area where multiple technology companies
have built capabilities, from start-ups to large organizations, and
Ashish Chopra
(Ashish.Chopra@MotilalOswal.com); +91 22 3982 5424
Sagar Lele
(Sagar.Lele@MotilalOswal.com); +91 22 3982 5585
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