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Wipro is set to announce its Q2 earnings next week.mint (MINT_PRINT)
Wipro is set to announce its Q2 earnings next week.mint (MINT_PRINT)

Wipro’s growth strategy is exciting but execution key for revival of its fortunes

  • The management has re-emphasized focus on revenue growth without affecting margins
  • Analysts caution that the restructuring process could be time-consuming and fraught with troubles

IT services provider Wipro Ltd has lagged its peers in revenue growth for a long while now. This, analysts say, is primarily due to lack of aggressive business strategies. In a refreshing move, Wipro has acknowledged the importance of change and is adopting a bold avatar.

At its analysts’ meet on 18 November, new chief executive officer Thierry Delaporte outlined an “operating restructuring" plan and strategic initiatives to boost growth. Chairman Rishad Premji said, “You will see an obsession for growth, you will see much stronger external market orientation. I’m confident that you will see a bolder Wipro, that’s not afraid to shake the apple cart."

The management re-emphasized its focus on accelerating revenue growth without compromising on margins. Wipro has hired a chief growth officer whose responsibilities include acceleration of large deals and strategic partnerships. Further, Wipro will simplify its operating model by bringing down its 20-25 profit and loss units to four, starting calendar year 2021. This is expected to drive significant savings of cost and resources. Along with a focus on talent management, it also aims to accelerate existing portfolios of large clients, which contribute nearly 70% to its revenues, by various customer-centric measures.

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Analysts see this as a welcome change. “The new management has tried to take the bull by the horns—which is what Wipro needed. After many failed experiments, this was perhaps the last throw of the dice by the Wipro board—a CEO who will not shy away from taking hard decisions, to take Wipro to its rightful place, on a par with peers," analysts at PhillipCapital (India) Pvt. Ltd said in a report on 19 November.

But the success of any plan depends on its execution. Analysts caution that the restructuring process could be time-consuming and fraught with teething troubles.

Analysts at JM Financial Institutional Securities Ltd are wary of short-term pain on margins due to restructuring. Their worry stems from the re-organization experiences of US-listed Cognizant Technology Solutions Corp., which saw anaemic growth, and margin dilution at Infosys Ltd through FY2018-20.

Although Wipro’s September-quarter earnings were encouraging and these measures are positive, analysts won’t revise ratings on the stock in a hurry. They prefer waiting for Wipro’s Q1FY22 revenue growth to gauge if this strategy is yielding the desired results.

“Wipro’s new operating model should help drive growth and is a step in the right direction in our view. However, its execution will require change management at scale which in our view may only be gradual. We maintain our ‘underperform’ rating as Wipro’s price-to-earnings multiples imply the highest price/earnings-to-growth (PEG) ratio of 2.1 times, the buyback catalyst is behind us and the results of new strategic focus remain to be seen," Jefferies India Pvt. Ltd said in its latest report.

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