Wipro shares volatile on $375 mn HARMAN DTS acquisition; analysts weigh in

Wipro shares rose 1.2 per cent in morning deals, however, reversed gains later after company inked agreement to acquire HARMAN's DTS unit

Wipro shares rose 1.26 per cent on Friday, logging an intraday high at ₹253.1 per share on the BSE, before reversing the gains and closing 0.54 per cent lower at ₹248.60 per share. The stock reacted to the information technology (IT) services major’s agreement to acquire HARMAN’s Digital Transformation Solutions (DTS) unit, a Samsung company, for about $375 million, which it announced on Thursday evening. In comparison, the BSE Sensex was down 0.85 per cent at 81,306.85.

 

Acquisition details

 

As part of the Wipro-HARMAN acquisition agreement, over 5,600 DTS employees, including key leadership, across the Americas, Europe, and Asia will transition to Wipro upon closing of the transaction. The company believes this acquisition will accelerate Wipro’s mission to deliver next-generation engineering research & development (ER&D) services.

 

 

The acquisition is subject to regulatory approvals and is expected to close by December 31, 2025.

 

The impact for Wipro

 

According to global brokerage Nomura’s analysis, the acquisition is likely to increase Wipro’s footprint in existing large accounts, such as Samsung and HARMAN.

 

“If the acquisition is successful, the acquired entity could add 280 basis points (bps) to Wipro’s (forecast) revenues in 2026-27 (FY27F), in our estimate,” Nomura noted.

 

DTS derives 80 per cent of its service revenues from embedded engineering and the rest from IT services, and 75 per cent of its revenues come from the US and the rest from Europe, Asia-Pacific (Apac), and the Middle-East Asia.

 

Management has indicated the deal could negatively impact earnings before interest and taxes (Ebit) margin by 50 bps in FY27F (on a full-year basis) due to integration costs, amortisation charges, and lower margin to start with in the acquired entity.

 

Nomura has maintained a “Buy” rating, with a target of ₹310 per share.  ALSO READ | Apollo Hospitals shares fall as 1.3% equity change hands; check seller here

 

Emkay Global Financial Services has not yet factored in the acquisition, but analysts reckon it will likely contribute around 3 per cent to Wipro’s revenue, with margin dilution of 50-60 bps in the first year of consolidation. The brokerage has retained “Reduce” on Wipro, with a target of ₹280 per share.

 

JM Financial Institutional Securities, too, sees a 50-60 bps Ebit margin impact, led largely by lower margin profile (20-30 bps impact); required investments (10-15 bps); and incremental amortisation of 10-15bps, based on Wipro’s purchase price allocation for Capco.

 

“Flat revenues over the past three years are a concern. It possibly reflects the stress in DTS’ end-clients, especially in Telecom/ISVs/Semicon sub-segment. That possibly explains the relatively lower valuation paid by Wipro,” the brokerage said.

 

DTS had revenues of $315 million in calendar year 2024 (CY24) — $308.2 million in CY23 and $314 million in CY22 — with 85 per cent of revenue from services and the rest from product sales. According to the agreement, Wipro will acquire the entity for $375 million, including earn-outs through cash, implying a 1.19x price/sales multiple (based on CY24 numbers).

 

Earnings per share (EPS) impact could be marginal, around 1 per cent. Further, purchase consideration will represent merely 6 per cent of cash-on-books, not impacting future payout/buyback hopes, the brokerage noted.

 

JM Financial has continued with a “Buy” on Wipro for a target of ₹320 per share.

 

According to Bloomberg, three each of the eight analysts polled on Thursday and Friday are either bullish or bearish on Wipro while the remaining two are neutral. Their average one-year target price is ₹273.75.