Wipro Ltd is set to enhance its engineering research and development (ER&D) services and capabilities following the IT services provider’s agreement to acquire the digital transformation solutions (DTS) business unit of Harman, a Samsung company. The deal is for a cash consideration of $375 million and is expected to close by December.
However, Wipro shares were little changed in early trading on Friday, suggesting that investors weren’t thrilled by the deal. To be sure, the acquisition would give Wipro access to markets such as South Korea since DTS has a presence in 14 countries. It will help Wipro expand in the high-growth sectors of hi-tech, industrial, aerospace, healthcare, and consumer industries. Cross-selling opportunities could emerge.
The deal is likely to increase Wipro’s footprint in existing large accounts such as Samsung and Harman, Nomura Global Markets Research said in a report dated 21 August. As part of the acquisition, Wipro will enter a multiyear strategic agreement with Harman and Samsung to create new avenues for joint growth and transformation.
“If the acquisition is successful, the acquired entity could add around 280 basis points (bps) to Wipro’s revenues in FY27 (forecast), in our estimate,” Nomura added.
On the flipside, the deal is likely to be margin dilutive due to integration costs, amortization charges and the lower margin profile of the acquired entity. Wipro could face margin dilution of 50-60 basis points in the first year of consolidation, according to Emkay Global Financial Services Ltd.
Sure, Wipro got the deal at a relatively lower valuation than peers that have made acquisitions in the ER&D space lately. But there’s a catch.
Client stress?
DTS’ revenue was $314.5 million in 2024, little changed since 2022. Flat revenue over the past three years is a concern and possibly reflects the stress in clients of DTS, especially in the telecom, independent software vendor and semicon sub-segments, JM Financial Institutional Securities Ltd said.
That possibly explains the relatively lower valuation paid by Wipro. The transaction values DTS at 1.2x CY24 revenue, which is less than the Cognizant-Belcan (1.6x), Infosys Technologies-In Tech (2.7x) and HCL Technologies-ASAP (1.6x) deals, JM Financial added.
The Wipro stock has slid 18% so far in 2025, in line with the Nifty IT index. Wipro’s performance in the June quarter was a mixed bag, with IT services revenue falling 2% sequentially in constant currency terms. It anticipates sequential revenue growth of -1% to +1% in Q2.
The management expects revenue growth in the second half of FY26 to be better than in the first half, aided by a ramp-up of deals. The stock trades at FY27 price-to-earnings of 18x – a discount to tier-1 peers, according to Bloomberg data.
