Demand remains strong

We believe that the recent correction in the stock prices of top-tier software stocks across-the-board, including Wipro, represents a buying opportunity for investors, as fundamentally, there has been no major change in the demand for offshoring. This is to a certain extent substantiated by key operating metrics in Q1FY 2008, which reflect strong volume growth despite it being a seasonally weak quarter, improved client metrics, increased expansion of service lines and robust hiring plans.

Continuing to 'String Pearls'

Wipro continues to focus on its acquisition strategy of 'String of Pearls', implying the building of a complete set of services, technology and domain expertise through plugging gaps in its service offerings to offer to potential clients. With its latest acquisition, Infocrossing, Wipro has acquired 11 companies since December 2005, making it by far the most active top-tier software company in the M&A space.

No major impact of US sub-prime concerns

Wipro has traditionally been more technologically intensive vis-à-vis its peers, with its initial focus on Research and Development (R&D) services. Consequently, the banking, financial services and insurance (BFSI) vertical's share in revenues is much lower than peers like TCS and Infosys (23.8% in Q1FY 2008). The share of the US sub-prime market is less than 1% of BFSI revenues, implying a negligible impact.

Valuations attractive post stock under-performance

Wipro has significantly under-performed the Sensex, showing negative returns of 6.8% and 20.6% over a year and year-to-date respectively (+ 33.4% and + 7.8% for the Sensex). We believe that valuations are attractive at current levels.

Valuation

At the CMP, the stock is trading at 17.5x FY2009E EPS. We reiterate a Buy on the stock with a 12-month Target Price of Rs 605.