How Wipro stock performed under various CEOs; CLSA says 'Sell', shares target price

Foreign brokerage CLSA said Wipro has consistently underperformed its peers such as Tata Consultancy Services Ltd, Infosys Ltd and HCL Technologies Ltd since 2008 on revenue growth, margins, and stock price performance, when Azim Premji relinquished the CEO post and passed the baton to internal leaders until 2015, after which external candidates were brought in from TCS and Capgemini.

In its latest note, the brokerage said the new CEO has a tough task ahead to turn Wipro around.

For now, CLSA maintained its industry-lagging revenue growth and margin forecasts for Wipro with potentially volatile revenue growth and margin performance over the next 2-4 quarters. A change in CEO could potentially lead to changes one-to-two levels below, it said.

The brokerage suggested 'Sell' rating on the stock with a target price of Rs 445.

 

CLSA said Wipro may continue to lose market share to its peers. This is largely due to weak execution around client stickiness with low client mining, high level of revenue leakage during periods of weak discretionary demand and suboptimal EBIT margins despite having a significant revenue scale. High senior management churn under the recently resigned CEO is another concern which could lead to long gestation time for large deal closures and slippage in services delivery, it said.

"Our target multiple is at 30 per cent discount to our target multiple for Tata Consultancy Services (TCS) of 26 times (the average over the past six years when the current technology cycle of digitalisation/cloud migration became mainstream for Indian IT services sector. This 30 per cent discount is closer to last 6-year average discount of Wipro versus TCS," CLSA said.

Azim Premji made way for other internal leaders as CEO in April 2008. Here's how the stock performed between 2004 and 2008:

 

The underperformance continued under Girish Paranjpe and Suresh Vaswani. Here's April 2008–Janury 2011) price movement:

Another internal candidate T K Kurien was appointed in February 2011. Here's the Wipro's stock performance between 2011 and 2015:

Abidali Neemuchwala from TCS was appointed CEO in April 2016. He was tasked to bring in the best market practices.

Thierry Delaporte tried to make significant changes, leading to margin and return dilution. There were several senior management departures under his tenure, CLSA noted.