CIA 1

Report on Capital Structure of WIPRO LTD

Submitted To:

Proff. Anand R

CHRIST (Deemed to be University)

Submitted By:

SATTWIK DAS (2210848)

KASTI PALIKHE (2210825)
RUDRA KHURANA (2210862)
 Wipro Limited: Navigating Innovation in the IT Industry

Introduction

Wipro Limited, a global information technology, consulting, and business process services
company, stands as a prominent player in the competitive landscape of the IT industry. This
report delves into the company's industry positioning, financial performance, and its relevance in
the dynamic business environment.

Industry Overview

Wipro operates in the Information Technology Services sector, a domain characterized by rapid
technological advancements and evolving client needs. As a key player, Wipro contributes
significantly to the sector's growth, providing a diverse range of services including IT consulting,
application development, and business process outsourcing. The company's ability to adapt to
emerging trends has positioned it as a leading innovator in the industry.

Financial Performance

Examining Wipro's financial performance reveals a robust fiscal track record. In recent years, the
company has demonstrated steady revenue growth, driven by strategic acquisitions and a focus
on digital transformation services. Wipro's financial stability is underscored by its prudent cost
management practices and a well-diversified client portfolio spanning various industries and
geographies.

Wipro's financials highlight a commitment to sustainable growth, with a balanced approach to

revenue generation and cost control. The company's adherence to high standards of corporate
governance has earned it investor confidence, evident in its stock performance and market
capitalization. The relevance of Wipro to our topic is twofold. Firstly, the company's innovative
approach to technology aligns with the overarching theme of our discussion. Wipro's emphasis
on emerging technologies such as artificial intelligence, cloud computing, and cybersecurity
reflects the broader industry's shift towards digital transformation.

Secondly, Wipro's commitment to sustainability is noteworthy. The company's initiatives in

environmental, social, and governance (ESG) practices showcase a responsible corporate
citizenship. In an era where stakeholders prioritize ethical business conduct and sustainability,
Wipro's stance becomes particularly relevant.

Key factors influencing the selected company& capital structure Decisions

1. Industry Dynamics and Risk Profile

1.1 Industry Factors

Wipro operates in a dynamic Information Technology sector, which often demands substantial
capital investments in research and development. Analyzing industry factors such as technology
trends, market competition, and regulatory influences helps understand Wipro's risk profile and
its impact on capital structure decisions.

1.2 Risk Management Strategies

Wipro's approach to risk management, including hedging strategies and diversification, directly
affects its capital structure. An analysis of risk mitigation measures provides context to the
company's debt-equity ratio and overall capital allocation.

2. Financial Performance and Leverage

2.1 Revenue Streams and Profitability

Examining Wipro's revenue streams and profitability metrics is crucial in understanding how the
company leverages its financial performance to make capital structure decisions. High-profit
margins may influence a more conservative capital structure, while aggressive growth strategies
might require higher leverage.

2.2 Debt Servicing Capacity

Assessing Wipro's ability to service debt obligations is fundamental. Metrics such as interest
coverage ratios and cash flow analyses shed light on the company's capacity to manage debt,
influencing decisions related to the proportion of debt in the capital structure.

3. Tax Considerations and Financial Flexibility

3.1 Tax Efficiency Strategies

Wipro's global presence necessitates a thoughtful consideration of tax implications on capital

structure decisions. An analysis of tax-efficient financing structures and strategies provides
insights into the company's approach to optimizing its tax position.

3.2 Financial Flexibility

Examining Wipro's financial flexibility in terms of liquidity and access to capital markets is
crucial. The company's ability to adapt to changing market conditions and its readiness to seize
strategic opportunities are influenced by its financial flexibility, impacting capital structure
choices.

4. Investor Relations and Market Perception

4.1 Shareholder Expectations

Wipro's capital structure decisions are influenced by its relationship with shareholders.
Analyzing investor expectations, dividend policies, and share buyback programs helps
understand the company's efforts to maintain investor confidence while determining its capital
mix.

4.2 Market Perception

The market's perception of Wipro's financial health and capital allocation strategies plays a
pivotal role in shaping the company's cost of capital. Understanding how market sentiments and
credit ratings impact capital structure decisions is essential for a comprehensive analysis.

Wipro Limited: Evolution in Financing Mix Over the Past Three Years

Overview of Historical Financing Mix

In the fiscal years 2021, 2022, and 2023, Wipro's financing mix exhibited notable changes,
reflecting the company's strategic response to market dynamics and its evolving business
requirements.
INCREASE IN DEBT DEPENDENCY Between 2020 and 2023, Wipro's total debt climbed
dramatically, from around 83 billion Indian rupees to over 150 billion Indian rupees. The
acquisition of Capco, a multinational management and technology consulting firm, for $1.45
billion in March 20211 was primarily to blame for this. A combination of debt and cash was used
to finance the acquisition1.

The debt to total equity ratio of Wipro also rose, rising from 17.4% in 2020 to 26.7% in 2022 and
then somewhat down to 22.3% in 2023. This suggests that the business has been more dependent
on debt funding recently.

From -0.118 billion Indian rupees in 2022 to -0.128 billion Indian rupees in 20233, Wipro's net
current debt—the gap between current liabilities and current assets—reduced. In 2021, Wipro
owed 0.102 billion Indian rupees; by 2034, that amount would have grown to 0.745 billion
Indian rupees, representing the percentage of the debt that was due after a year. This shows how
the Capco acquisition, which was funded with a mix of debt and cash, affected things.
Reasons Behind the Shifts-

1. The purchase of Capco was a component of Wipro's plan to increase its management
consulting services skills and global footprint1. Capco is a prominent management
consulting firm based in Europe, with an annual revenue of over $1.5 billion. Wipro
wanted to improve its services to customers in many sectors and areas, thus it bought
Capco.
2. Significant capital investment was also needed for the acquisition, which raised Wipro's
demand for outside funding. Depending on its cash flow position and the state of the
market at the time of the deal, Wipro used both cash and debt to finance the acquisition.
3. The rise in debt was also a reflection of Wipro's optimism on its potential for future
expansion and profitability1. Wipro could leverage its current assets and cash flows to
take on additional debt to increase returns for its shareholders
4. Additionally, a number of other variables, including working capital management,
inventory levels, the effectiveness of receivables collection, terms of payables, interest
rates, exchange rates, etc., also affected the change in net current debt or long-term
debt.These variables may change from quarter to quarter or year to year in response to
Wipro's operational effectiveness and business performance.

Capital Structure Benchmarking:

Analyzing WIPRO LTD in Comparison to Industry Standards"Debt-to-Equity RatioThe debt-to-
equity ratio measures the financial leverage of a company by dividing its total debt by its total
equity. A higher ratio indicates a higher reliance on debt financing in relation to equity financing.

Year Debt-to-Equity Ratio Industry Average Global Average

2020 0.17 0.18 0.16

2021 0.26 0.24 0.23

2022 0.22 0.21 0.20

2023 N/A N/A N/A

As shown in the table above, Wipro’s debt-to-equity ratio has increased from about 17% in 2020
to about 22% in 2022, indicating that the company has increased its reliance on debt financing in
recent years. However, compared to the industry average of 18% in 2020, Wipro’s debt-to-equity
ratio is still lower than most of its peers in the IT sector in India. Compared to the global average
of 16% in 2020, Wipro’s debt-to-equity ratio is also lower than most of its peers globally. This
suggests that Wipro has maintained a relatively conservative capital structure compared to both
domestic and international competitors.

CONCLUSION-

The report delves into Wipro Limited's industry positioning, financial performance, and
relevance in the business environment. Wipro operates in the dynamic IT sector, contributing
significantly to its growth through diverse services. The company's financial strength is evident
in steady revenue growth, driven by strategic acquisitions and digital transformation services.
Wipro's commitment to sustainability aligns with industry trends emphasizing responsible
corporate citizenship. The report further analyzes key factors influencing Wipro's capital
structure decisions. It explores industry dynamics, risk management strategies, financial
performance, leverage considerations, tax efficiency strategies, financial flexibility, investor
relations, and market perception. Understanding these factors provides insights into Wipro's
capital allocation choices.

The subsequent section focuses on the evolution of Wipro's financing mix from 2021 to 2023.
Notably, there has been an increase in debt dependency attributed to the acquisition of Capco.
Total debt climbed dramatically, leading to changes in the debt-to-equity ratio. Despite the rise in
debt, Wipro's net current debt reduced, reflecting a nuanced financial picture influenced by
strategic acquisitions and a mix of debt and cash financing.
RECOMMENDATION-

Wipro’s current capital structure is as follows:

• Total Debt – 150 Billion rupees
• Debt-to-equity ratio: 26.7%
• Interest coverage ratio: N/A

Some of the factors that may influence Wipro’s future capital structure decisions are:
• The industry dynamics and competitive landscape of the IT sector in India and globally
• The risk management strategies and financial performance of Wipro
• The tax efficiency strategies and financial flexibility of Wipro
• The investor relations and market perception of Wipro

Based on these factors, some possible recommendations are:

1. In order to combine its appetite for risk with its prospects for growth, Wipro should
continue to have a conservative capital structure. In order to protect its financial stability
and profitability, Wipro should refrain from taking on excessive debt or equity funding.
2. Wipro should use a range of partners, mechanisms, and markets to diversify its finance
sources. This implies that Wipro had to look into possibilities like borrowing money from
its cash reserves or retained earnings, issuing bonds, debentures, or convertible securities,
or collaborating with strategic lenders or investors.
3. Wipro ought to maximize its tax efficiency by utilizing the varied tax breaks, incentives,
and exemptions that are offered in various countries. This means that Wipro should use a
variety of tax planning strategies, including tax-loss harvesting, tax credits, tax deferral,
etc., to anticipate its tax responsibilities and commitments.
4. Effective communication with shareholders, analysts, the media, and regulators can help
Wipro improve its investor relations. This means that Wipro has to be open and prompt
with information regarding its financial performance, business plan, growth potential,
risk factors, etc.; it should also engage experts or advisors when necessary; and it should
help customers make well-informed decisions based on their own goals.
BIBLIOGRAPHY-
1. The Economic Times website: https://economictimes.indiatimes.com/

Data sources on Wipro's authorized capital, issued capital, paid-up equity capital, debt-to-equity
ratio, interest coverage ratio, etc.

2. Goodreturns website: https://www.goodreturns.in/

Data sources on Wipro's market capitalization, price-to-earnings ratio, dividend yield, etc.

3. Wipro Ventures website: https://www.wiproventures.com/

Data sources on Wipro's five capitals: financial capitals (equity), human capitals (talent), social
capitals (stakeholders), environmental capitals (sustainability), and natural capitals (resources).