We retain 'add' rating on Wipro with a target price of R620 per share, valuing the stock at 16X FY16e earnings. Valuations are undemanding and we are encouraged by the company's efforts to consolidate strength even as the turnaround effort have had mixed results. Despite inexpensive valuations, Wipro hasn’t participated meaningfully in the recent rally that saw Infosys gain more than 8% over the last month. The stock currently trades at a little over 14x FY16e earnings, undemanding in our view. We believe Wipro’s solid deal wins in recent quarters will help improve its revenue growth momentum. We also highlight our estimates are at a long-term currency assumption of R58 against a dollar versus the spot rates of R60-61.
In most turnaround attempts, a disproportionate amount of management focus goes into fixing areas of weaknesses. We do not necessarily question the logic given the need to address the areas of weakness. However, this has to happen alongside efforts to consolidate strengths. Ensuring sustained strong performance in core areas of strengths will afford companies the breathing space to fix other challenges. One of our key concerns with Wipro was that it failed to protect market share even in its core areas of strength. Wipro was an early starter in services like IMS, BPO, etc. but failed to build on its lead over peers.