Friday, July 30, 2010

WIPRO: Result Update 1Q FY11

WIpro’s IT services volume growth was in-line with our expectation but way lowerthan peers; however we expect it to catch up peers (in terms of volume growth) from 2Q FY11 onwards. Further, our view of the company gaining ground is corroborated by double-digit onsite volume growth indicating strong momentum in new projects and 6.1% QoQ revenue growth guidance for 2Q FY11 (in US$). Moreover we are impressed by the company’s ability to maintain margins despite decline in billing rate, dip in utilization rate, cross currency headwinds and impact of wage hike (it was effective from February 2010). Considering, strong momentum in new projects, 6% QoQ revenue growth guidance (in US$) for 2Q FY11 and the company’s ability to manage cost despite many headwinds, we upgrade our recommendation on the stock to “BUY” from “HOLD” and assign P/E of 19x to FY12E EPS of INR24.6.

• Consolidated revenue recorded modest growth: Wipro’s consolidated revenue in 1Q FY11 increased 3.7% to INR72.4 billion, from INR69.8 billion in 4Q FY10, primarily led by IT services and consumer care and lighting segment. The IT products business continues to be under pressure for the third consecutive quarter.

• Growth in IT led by double-digit onsite volume increase: Global IT services’ revenue was US$1218 million (in constant currency) in the quarter, marginally higher than the management’s guidance of US$1215 million.

To read the full report: WIPRO