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We think Wipro's position in the IT services industry remains secure.

Morningstar's Take | 25/04/2018
by Andrew Lange

Investment Thesis

Wipro, which started as a vegetable oil manufacturer in 1945, has grown to become India’s third-largest IT services exporter behind TCS and Infosys. We think Wipro will increase revenue in line with other Tier 1 Indian IT service vendors, given the firm's commitment to top-line growth. We believe its offshore mix and product relevance will appeal to organizations, given increasing budgetary pressures, time constraints, and internal IT quality concerns. In addition, the company's solid profitability, coupled with limited reinvestment needs and the spin-off of its non-IT businesses, is expected to drive strong free cash flow, which will support its growth.

Despite a highly competitive and rapidly changing marketplace, Wipro hasn't been shy in averting away from legacy services and we think Wipro's position in the IT services industry remains secure. The firm has a well-entrenched position in the market because of its significant global presence, industry expertise, proprietary intellectual property, and established client relationships. The company’s end-to-end service capabilities have led to some significant integrated deals and recent multiyear wins with clients that exemplify Wipro's service relevance and depth across varying industries.

Wipro’s number-one priority will be top-line growth. The company will target investments that boost its geographic presence, vertical specialization, and productivity and platforms. Continental Europe continues to hold significant potential for Wipro, given outsourcing's infancy in the region and the market's increasing adoption of an outsourcing model. We think Germany is an area of particular focus for Wipro and believe management will look for inorganic growth opportunities in the country (Wipro's Cellent AG acquisition is a recent example). In a similar vein to Wipro’s development of its market-leading energy and utilities segment, we expect the company to supplement its organic growth in banking, insurance, healthcare, and manufacturing via acquisitions that broaden its scale and deepen its specialization (Wipro's HealthPlan Services acquisition is another good example here).


The IT services industry is highly competitive and constantly changing. Wipro needs to continually reinvest in new innovative service offerings in order to remain relevant in the marketplace. Employee attrition and utilization are also metrics that need to be managed closely, as these measures can have a notable impact on the firm's operating performance. Any detrimental change to U.S. immigration law could inflate the cost of Wipro's global delivery model, given the company's use of visas such as the H-1B. Meanwhile, a large appreciation in the rupee against the U.S. dollar would have a negative impact on Wipro's cost base. Also, negative movements in GDP and global IT spending would have a detrimental effect on the company.

Company Profile

Established in 1945, Wipro has grown to become one of the world's largest IT services vendors, providing such services as business application services, infrastructure services, business process outsourcing, and consulting, among others. The firm employs more than 180,000 staff, operates in more than 60 countries, runs approximately 72 global delivery centers, and serves six primary business segments. The company serves more than 1,300 clients (approximately 150 of which are Fortune 500 companies).

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Bulls Say

  • Technology budgets are moving further outside the CIO's office and toward the CMO and CFO. For Wipro, this opens new engagement avenues in which to penetrate large enterprises.

  • The adoption of outsourcing is expected to increase across continental Europe as firms seek to cut costs and improve efficiency. We expect this trend to be a tailwind for Wipro.

  • Wipro Digital, Wipro's dedicated social, mobile, analytics, and cloud business unit, strengthens the firm's portfolio in new and emerging technologies.

Bears Say

  • Low workforce utilization, combined with high wage inflation and employee attrition, could have a noticeable impact on Wipro's financial performance.

  • Wipro needs to continually innovate in order to stave off pricing pressure related to the commodification of low-level services in practices like BPO.

  • Trading conditions in markets such as retail, insurance, and high tech are expected to remain choppy for at least the near term.

Other reports in TechnologySector

Company Name Date
Infosys Ltd 21/07/2015
Tata Consultancy Services Ltd 14/07/2015
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