Analyst Corner| Wipro bets big on Capco; reduce fair value to Rs 450 – news 07 trends

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Bets huge on Capco. Wipro launched a fairly large acquisition of Capco, a financial corporations centered administration and experience consulting company for US$1.4 bn. The acquisition builds energy in financial corporations vertical by together with US$720 mn revenues to present US$2.5 bn of revenues of Wipro and offers entry to 30 big purchasers of Capco.

The acquisition comes at a worth and might dilute FY2022E EDIT margin by 200 bus and drag ESP by 9%. ESP hit will scale back in subsequent years as synergy benefits kick in. We scale back Honest Worth to Rs 450. A giant guess for sure nonetheless Wipro has overpaid for the acquisition and carries integration risks. Capco is Wipro’s largest acquisition. Headquartered in London and organize in 1998, Capco is a worldwide administration and experience consultancy company to the financial corporations enterprise.

Capco works with Boards, C-Suites and enterprise leaders all through the banking, capital markets, wealth, asset administration and insurance coverage protection sectors.

The transaction could be funded by way of cash stability of ~US$3.7 bn in December 2020. Revenues grew 4% yoy in CY2020 to US$720 mn nonetheless are nonetheless lower than US$734 mn reported in CY2018. Capco has over 5,000 people and derives 48% of revenues from consulting, 38% from digital and 14% from experience corporations. Geo unfold is 55% of revenues from North America, 41% from Europe and 4% from Asia. Income of Capco is concentrated with excessive 30 purchasers contributing 79% to revenues (US$569 mn). EDIT margin is north of 10% in our view. Valuation paid for the acquisition is ~17X trailing EBITDA, stiff in our view and captures huge earnings synergies hope.

Capco has over 5,000 people and derives 48% of revenues from consulting, 38% from digital and 14% from experience corporations.

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