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Wipro to outperform market says Morgan Stanley

NetScribes/Salil Panchal

Wipro has been rated as a market outperformer by Morgan Stanley Dean Witter. The securities firm has based its rating on three factors - growth in Wipro's global IT services, little competititon in research and development and a growing client base.

Morgan has fixed a price target of Rs 3,100 for Wipro's local share price and $ 79 for its American Depository Receipt (ADR).

The Wipro scrip has been among the top gainers at the Bombay Stock Exchange (BSE) over the past seven days. On November 21, it closed at Rs 2,565.95 on the BSE, rising 17.6 per cent over the previous week's level of Rs 2,180.15. Some leading domestic mutual funds have been buying steadily in the scrip over the past two days.

The Wipro ADR closed on November 21 at $ 62.25 on the New York Stock Exchange.

Wipro holds the distinction of being the largest listed IT service company, with revenues of $ 234 million in fiscal 2000. The company's ability to build brand equity thereby attracting the best clientele and talent, will prove to be its forte, the report says.

Acquisitions will be one of the key drivers for larger IT services companies in the next two years and size would make it easier to accomplish the same. "Wipro proposes to use acquisitions to expand rapidly," the report states.

R&D is also Wipro's strong point. It was the first IT services company in the world to achieve a CMM (capability maturity model) Level 5 certification from the Software Engineering Institute. In the global IT services segment, R&D services contributed 49 per cent to revenues in the second quarter of 2001, up from 45 per cent in the previous corresponding quarter.

Morgan expects Wipro to face modest competition on account of its high-value added R&D.

Forty-four per cent of Wipro's global IT services revenues for fiscal 2000 came from R&D services and telecom software. "With the continuing growth in telecom and data communications technologies, the demand for these services will increase", states the report. Wipro's client base in this segment includes Cisco Systems, Lucent, Nokia, Sony and Sun Microsystems.

According to Morgan, Wipro's valuations appear attractive when compared to leading quality peers. Wipro's peers in India are HCL Technologies, Hughes Software, Infosys and Satyam while overseas, the competition would be integration and Internet consulting companies like Sapient and Razorfish.

Although Wipro trades at a 15 per cent premium to the Infosys scrip on the local bourses, its ADR has over a short period of time commanded a higher premium compared to the Infosys ADR. The Morgan Stanley price target for the ADR is based on a 20 per cent premium to the underlying share price. It must be noted here that the Infosys ADR is ruling at a 55-60 per cent premium to its scrip on the local bourses.

The Morgan report holds out promise for the Indian tech stocks, stating that they will attract fresh foreign institutional buying interest in the coming months.

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