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Wipro: An Overlooked Offshore Player

IT firm's strong momentum isn't reflected at current valuation levels.

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We believe the market may be overlooking  Wipro's (WIT) improving execution. The firm has made several key investments in the last 12-15 months to revive its fortunes, and recent results indicate the company is on the right track. Wipro's continued focus on strengthening its client and employee management programs, coupled with strategic investments in consulting and underpenetrated verticals, should help it win back lost market share, in our opinion.

Offshore Model Is on Target
Wipro continues to be a dominant player in the offshore outsourcing sector. The firm is a pioneer of the offshore-centric model and used its first-mover advantage to carve out a space for itself in the information technology outsourcing market. The company has been consistently ranked among the top four players in the offshore outsourcing space and we see minimal threat to its position in the medium term. Wipro's solid performance can largely be attributed to its well-defined outsourcing strategy and solid execution skills. The firm's growth was partly aided by increased adoption of global sourcing by large enterprises in developed countries. Global IT outsourcing spending increased at a faster pace in the late 1990s until the beginning of the recession in 2008. As the market grew rapidly, it attracted new players and competition accelerated. Wipro was one of the few companies that not only managed to thrive in this environment, but also dominate it. The company's revenue grew at a compound annual growth rate of 28% during the last 10 years while its operating margin consistently stayed above 20%.

Swami Shanmugasundaram does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.