We downgrade Wipro to ‘reduce’ (from ‘add’), noting limited upsides to a revised fair value of Rs 570 based on September 2015 earnings. We value the stock at 15x Q2 FY15e earnings, down from 16x earlier. Wipro has disappointed with a moderate revenue growth in the Q4 and 0-2% revenue growth guidance for Q1 FY15. Weak start to the year means the company will underperform industry once again and puts the turnaround thesis under the scanner. Our recommendation on the stock was based on valuations and not conviction on turnaround theme. Valuations are not attractive anymore. We cut FY15-16e revenue estimates by ~3% and retain EPS estimates.
On the positive side, huge operational improvement drives 60-90 bps change in margin assumption and neutralises the cut in revenue estimates. We forecast EPS of R36.5 for FY15e (Rs 35.9 earlier) and R40 for FY16e (Rs 39.8 earlier). In our view, Wipro is a valuation play rather than a turnaround theme. We will turn constructive at a more favourable price point — 15% lower.
Wipro’s Q4 revenue growth of 2.5% to $1,720 million was 0.7% lower than estimate. Opus’ acquisition contributed 0.6% to revenues for the quarter. Weak growth was on account of a decline in manufacturing revenues. Ebit margin surprised positively and increased 150 bps to 24.5%, highest in the last few years.