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Wipro shares slip 2% after acquiring Capco, brokerages flag integration concerns –

Wipro | The company has signed an agreement to acquire Capco, a global management and technology consultancy providing digital, consulting and technology services to financial institutions in the Americas, Europe and the Asia Pacific. London-headquartered Capco’s clients include many marquee names in the global financial services industry. In addition, Capco services clients in the energy and commodities trading sector. This acquisition will make Wipro one of the largest end-to-end global consulting, technology and transformation service providers to the banking and financial services industry.

Wipro share price was down over 2 percent in the morning session on March 5, a day after the Bengaluru-based IT services major said it had acquired Capco, a consultancy firm in the banking and financial services space, for $1.45 billion in its biggest-ever acquisition.

The stock was under pressure after some research firms remained underweight on the stock, raising integration concerns.

The London-headquartered The Capital Markets Company (Capco) is a management and technology consultancy firm that provides digital, consulting, and technology services to the global banking and financial services industry.

“We are very excited to welcome Capco’s admirable leadership team and employees, and global clients, to Wipro. Together, we can deliver high-end consulting and technology transformations, and operations offerings to our clients,” Thierry Delaporte, CEO and Managing Director of Wipro Limited, said in a statement.

On March 5 morning,  the stock was trading at Rs 430.05, down Rs 8.80, or 2.01 percent. It has touched an intraday high of Rs 440.00 and an intraday low of Rs 428.25.

Also read: Wipro started as an oil mill 75 years ago. Today it bought a UK consulting firm for $1.45 billion

Here’s what top research firms have to say about the stock:

CLSA : Underperform, target Rs 460

The global research firm has an underperform rating on the stock with the target at Rs 460 per share. It is of the view that Capco acquisition is aimed at adding scale to BFSI vertical, adding that Capco is an impressive target with material scale, decent profit and strong client base, according to a CNBC-TV18 report.

Commercial rationale hinges on the company’s ability to secure large flow-through revenues adding that Capco’s scale also poses integration challenges. Acquisition valuations are likely at the upper-end of the range. Its transaction could impact FY22/FY23 EPS by -2.5 percent/-5 percent. Given current valuations and buyback trigger now behind, the stock may be rangebound.

Jefferies: Underperform, target cut to Rs 380 from Rs 400

The research firm also has an underperform call and cut the target to Rs 380 from Rs 400 per share. It has also lowered EPS estimate by 5 percent. Capco acquisition should help the company become an integrated player in the BFSI space. It may add $700 million to revenue. However, its integration could be tricky, the brokerage firm said.

Jefferies believes that the company will need $41 million synergies to make the deal EPS accretive. It will require $766 million revenue from Capco to earn 15 percent RoCE.

UBS: Neutral, target Rs 470

UBS has a neutral call on the stock, with the target at Rs 470. Capco will bolster BFSI credentials of the company. The key positive is that it signals a more aggressive go-to-market approach. Execution of this strategy (both in organic and inorganic terms) remains the key. Neutral call signals our view of balanced risk-reward at current valuations.

Credit Suisse: Neutral Call, target Rs 500

Credit Suisse also has a neutral call on the stock, with the target at Rs 500 per share. The company is taking the right steps towards its transformation journey. The benefits of new initiatives may take some time to reflect. We await credible data points in the revival of organic growth.

Morgan Stanley: Underweight, target Rs 410

The brokerage firm has an underweight rating, with the target at Rs 410 per share. The acquisition of Capco comes as a surprise given the size of the deal. The company might have integration challenges given its large onsite presence. Management is confident on capability and cultural fit. Wipro believes Capco will drive momentum in the BFSI vertical, according to a CNBC-TV18 report.

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