Monday, January 30, 2012

>WIPRO: IT budgets are likely to be flattish in FY13

Restructuring initiative started to payoff
Wipro revenue grew 9.9% QoQ to Rs. 99,972mn, which is above our estimate (est. Rs. 98,395mn). In constant currency terms revenue grew 4.5% sequentially, which is ahead of HCL Tech 3.7% growth and inline with Infosys (4.4%) & TCS (4.5%) growth. This indicates that its restructuring initiative has started to pay off.

Revenue from IT services grew 11.4% QoQ to Rs. 76,076mn, IT Product revenue de grew by 10% and Consumer care and Lighting grew 9.8% QoQ. Currency and realization had a positive impact on margins, during the quarter, EBIT margin expanded by 80 bps to 17.2%; which can be explained as follows; Currency (+70bps), Realization (+170 bps), SG&A (-80 bps) and others (-80bps). Wipro has declared an interim dividend of Rs. 2 per share

IT budgets are likely to be flattish in FY13
IT budgets are likely to be finalized in February 2012; initial indications show that the budgets are likely to be flattish. IT spending curb has been witnessed in Investment banking, retail and consulting space in energy space; however, upstream energy business will help kick in growth. Realignment of budget has been happening in retail banking with significant spend happening in analytics, regulatory and mobility space.

Outlook & Valuation:
At the CMP Rs. 417.85, the stock trades at 18.1X and 15.8X to FY12E and FY13E of Rs. 23.1 and Rs. 26.5 respectively. We value Wipro at 15X to FY13E earnings (~15% discount to Infosys forward earnings multiple) to arrive at a 12-month target price of Rs.398.

Top client grew faster than company
Wipro’s top client during the quarter grew 7.8% sequentially to US$59mn. Up-selling and cross-selling initiatives were witnessed across client verticals. US$100mn clients have improved from 1 in Q3FY11 to 6 in Q3FY12 and similar pattern were witnessed across the clients pyramid.

To read the full report: WIPRO