Fitch affirms Wipro, HCL Tech's long term 'A-' rating, outlook stable

The rating agency, in a statement, said it has affirmed Wipro's senior unsecured rating on the $750-mn senior notes due 2026

Fitch Ratings has affirmed long-term foreign- and local-currency Issuer Default Ratings (IDRs) at 'A-' for Indian IT firms Wipro Ltd and HCL Technologies reflecting their strong market position.

The cutlook on instruments of both IT firms is stable.

The rating agency, in a statement, said it has affirmed Wipro's senior unsecured rating of 'A-' and the 'A-' rating on the $750-million senior notes due 2026 issued by Wipro IT Services, LLC and guaranteed by Wipro.

The ratings reflect Wipro's strong market position in the global IT service industry, improving business performance, robust industry growth, stable profitability and cash generation, and a conservative capital structure. Fitch expects Wipro to maintain its net cash position over the medium term. Its revenue has gap narrowed.

The revenue gap of HCL, Wipro's closest peer, narrowed to 8% in the nine months of the financial year to March 2022 (9MFY22), from 22% in 9MFY21. A management reshuffle in 2020 and reorganisation in 2021 led to strong growth.

The growth was stronger than the industry average and that of top peers and believe Wipro will continue to close the revenue gap with its peers through organic and inorganic growth, it added.

HCL Tech became the third-largest Indian IT service company by revenue after Tata Consultancy Services and Infosys when it overtook Wipro from the financial year ended March 2019 (FY19). HCL has a strong globally diversified presence and provides comprehensive IT services to an established customer base.

HCL Tech has robust profitability and cash generation and its rating is supported by strong profitability and solid operating cash generation. The company EBITDA margin to be around 23 per cent in the medium term, lower than FY21's 26 per cent, due to intense competition for talent, reversal of pandemic-related savings and a change in the service mix.