“Wipro, India's third largest software exporter reported 2% sequential fall in consolidated revenues to Rs98,691 mn (down by ~11% from our estimates) for the fourth quarter of FY’12. IT services revenues de-grew ~0.24% QoQ to Rs75,900 mn in INR terms but grew ~2.1% QoQ to USD1,536 mn in USD terms due to ~0.4% increase in onsite price realization and ~1.4% increase in offshore/offsite price realization on a QoQ basis. IT revenues increased by ~1.3% sequentially on a constant currency basis. On a constant currency basis, onsite realizations were flat and offshore realizations were up ~1.1% on a QoQ basis. Though, the company might have disappointed our estimates (including guidance) but the restructuring that the company started a year ago (as we mentioned in our IC) seems to be delivering results.”
“Wipro witnessed growth only in 2 out of 6 verticals exceeding the overall growth rate of the Company. Though the Company sees seeing positive feedback from customers and employees on the restructuring approach, it is taking greater than estimated time to actually boil down to financials. Revenue guidance does not seem to be good indication especially after a sequentially flat to ~1% revenue growth guidance by Infosys. However, we believe volume growth was weak, with high debtor days and lower cash conversion ratio. Wipro’s onsite volumes grew ~0.2% QoQ in Q4FY’12, while offshore volumes rose 1.1% sequentially. Its major growth drivers were the verticals like Retail & Transportation (5.2%), Energy & Utilities (~5.1%) and the geographies like APAC & Emerging Markets (6.2% QoQ in constant currency). The contribution from fixed-price projects declined by 30 bps QoQ to 45.2%, while the onsite share of revenue dipped by 50 bps to 53.9%.”
“OPM remained flat at ~20% which led to a similar ~1% QoQ fall in operating profits to Rs19,611 mn. Net profits was up by ~2% to Rs14,809 mn aided by increase in other income, decline in interest costs and muted increase in depreciation charges although tax rate inched up by 48bps to 21.22%. During FY’12, revenues increased by ~21% to Rs3,72,973 mn; OPM worsened by 50bps to ~19.8% and the resultant operating profit grew at a lower 13% to Rs75,729 mn crore. Net profit grew only ~5% to Rs58,745 mn on account of tax increase, to an effective rate of ~19.8% in FY’12 end.”
“We cut our FY’13E EPS estimates by ~4%, however, that’s not final, positive induction in Q1FY’13E could set us to change our stance and views for FY’13E as its restructuring showing results quite fast, induces confidence for a long-term period. At CMP, the stock trades at a P/E & P/BVPS of ~13.0x and ~3.1x of FY’13E EPS & BVPS. We re-iterate HOLD, re-affirming to our earlier TP of Rs461 from (a potential upside of ~13.8% from current levels), factored over a P/E & P/BVPS of ~14.9x and ~3.6x using FY’13E EPS of Rs31 & BVPS of Rs126,” says R K Global research report.
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