Wipro CEO Thierry Delaporte resigns: What management change means for company’s growth? What should investors do?
Thierry Delaporte steps down as Wipro's CEO ahead of schedule, replaced by Srinivas Pallia. The market reacts with caution as challenges for the new CEO loom. Analysts predict subdued stock performance in the short term, uncertainty before potential turnaround.
The departure of Wipro's Chief Executive Officer (CEO) and Managing Director (MD), Thierry Delaporte, comes as a surprise to the market, despite being widely discussed for the last few months. Some media reports had discussed earlier that Delaporte could be asked to move due to the IT major's unimpressive performance amidst global headwinds, his decision on expensive acquisitions and the exit of top-level executives in FY23.
As per Wipro's exchange filing, Delaporte will be relieved from his duties as CEO on May 31, 2024. His tenure as CEO was to end in July 2025.
Srinivas Pallia will succeed him as Wipro's new MD and CEO. Pallia, who was the CEO of the company's America region, will take over as the new CEO and MD from April 7, 2024, for five years.
Wipro share price declined over a per cent in intraday trade on Monday, April 8. It, however, pared losses and traded about 0.42 per cent down at ₹483 on NSE around 12:10 pm.
Over the last year, Wipro share price has gained about 29 per cent, largely in sync with the equity benchmark Nifty 50, but outperforming the Nifty IT index which has gained about 21 per cent in the last one year.
Also Read: Wipro's stock price rose 121% during Thierry Delaporte's tenure, revenue up 47% in last 14 quarters
The road ahead for Wipro
Delaporte's departure from Wipro, ahead of his scheduled tenure, signals a significant shift for the company. Experts say the challenges for the new CEO are daunting but it is too early to anticipate how this transition is going to impact the company and what it means for investors. In the short term, the stock is expected to remain subdued.
As CNBC-TV18 reported, Morgan Stanley finds the announcement of the CEO's exit a surprise to the market as his tenure was expected to last till July 2025.
Morgan Stanley, as reported by CNBC-TV18, anticipates that the transition may initially introduce uncertainty before paving the way for a promising potential turnaround.
As per Nirmal Bang Equities, Wipro's near-term growth trajectory will be significantly influenced by external demand conditions while its consulting unit may act as a drag.
Moreover, the brokerage firm believes the test for Srini Pallia would be how Wipro measures up against its peers when demand normalises.
"Srini Pallia needs to put in place the blocks now, to see that Wipro starts running fast as soon as the demand picks up. We think both investors and promoters would give him three years to deliver though his tenure has been set at five years," said Nirmal Bang.
On the other hand, Dipeshkumar Mehta, a senior research analyst at Emkay Global Financial Services, believes the appointment of Srini will confirm a smooth transition and sustain current growth strategies with only some tweaking to ensure better execution.
"Srini will find him in action from day one as the company is facing challenges in addition to broader industry headwinds like muted demand, weak discretionary spending, Gen AI disruptions, uncertain macros, and uncertainties linked with election year in key markets," said Mehta.
Dhruv Mudaraddi, a research analyst at StoxBox said despite the stock's commendable performance during Delaporte's tenure, Wipro encountered challenges with its operating model changes, top-level departures, and costly acquisitions that didn't yield expected growth.
However, the appointment of Pallia as the new CEO and MD brings optimism for Wipro’s business performance.
Mudaraddi pointed out that as a seasoned Wipro veteran with over three decades of experience, Pallia brings a deep understanding of the company's operations, values, and culture. His successful track record as the CEO of Wipro's Americas region underscores his capability to navigate challenging environments and deliver results.
"Pallia's promotion signifies a return to Wipro's core values and culture, emphasising a client-centric approach, growth mindset, and strong execution focus. His insider perspective positions him well to build upon Delaporte's initiatives, leveraging successful strategies and addressing areas that require improvement," Mudaraddi said.
CA Vatsal Vinchhi, Equity Analyst - IT sector, Choice Equity Broking anticipates that the market's response to the resignation of Wipro’s CEO Thierry Delaporte could be negative as he resigned a year before the completion of his term amidst the company's underwhelming performance and significant top-level exits during FY23.
Vinchhi said the new CEO will face a challenging environment marked by industry headwinds such as subdued demand and weak discretionary spending. However, despite these challenges, his emphasis on diversifying into different industry sectors and his implementation of various growth strategies are expected to facilitate a smoother transition beneficial to the company and shareholders in the long term.
What should investors do?
Experts have mixed views on Wipro. While some of them find it a decent buy for the long term, some have negative views on the stock.
Mudaraddi pointed out that Wipro looks poised to enter a new chapter of growth and profitability under Pallia's leadership, capitalising on his commendable track record and ability to ensure performance despite adverse conditions in his region.
He remains positive on Wipro’s long-term growth picture and recommends investors hold the stock and also consider a buy-on-dips strategy.
Brokerage firm Nirmal Bang maintains a sell call on the stock with a target price of ₹441 while Emkay Global has retained its estimates as it awaits more clarity on the leadership transition. Emkay has maintained an 'add' call on the stock with a target price of ₹500 at 19 times its Mar-26E EPS (earnings per share).
Morgan Stanley has an 'underweight' view on the stock with a target price of ₹450, reported CNBC-TV18.
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Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.
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