In this deployment of SCCM 2012 R2, the WSUS is installed on a separate server.
There are so many options that need to configured to make SCCM work that I missed one thing and SCCM was not able to do initial configuration on WSUS server which is done at the 1st Sync.

Upon checking Monitoring/Component Status/SMS_WSUS_SYNC_MANAGER.

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