Wipro Excels in Q2 With Key Verticals Firing on All Cylinders; Increasing FVE to INR 495

Narrow-moat Wipro posted solid results and even better guidance to close out its second fiscal quarter. The robust top-line growth, aided by continued organic and inorganic investments, was coupled with revenue guidance above our expectations for the upcoming quarter. In addition, we have upgraded Wipro’s cost of equity to a below-average rating from average. As a result, we are increasing our fair value estimate to INR 495/$6.60 per share from INR 350/$4.60 per share. With shares trading around INR 672 after results, we continue to view Wipro as overvalued. We consider other Indian IT services names Tata Consultancy and Infosys to be overvalued as well. IT services stocks have skyrocketed, with Wipro’s stock doubling in the last year alone. We think the pandemic has brought significant tailwinds to the industry, like accelerated digital demand, but that has come with headwinds, such as scarce labor. Also, we believe a substantial portion of the IT services market growing includes managed infrastructure from new workloads enabled by the cloud, which we think will favor cloud-service providers like Amazon and Microsoft.