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Wipro
Performance Highlights
(` cr) Net revenue EBITDA EBITDA margin (%) PAT 4QFY12 9,869 1,961 19.9 1,481 3QFY12 9,997 1,984 19.8 1,456 % chg (qoq) (1.3) (1.2) 2bp 1.7 4QFY11 8,302 1,707 20.6 1,375 % chg (yoy) 18.9 14.9 (69)bp 7.7
NEUTRAL
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code IT 100,630 0.8 472/310 126,707 2 17,151 5,202 WIPR.BO WPRO@IN
`410 -
For 4QFY2012, Wipros results came in-line with our expectations. The companys client base increased to seven in the US100mn+ bracket at the end of FY2012 from three in FY2011, which was a positive sign. The major disappointment came from managements 1QFY2013 USD revenue growth guidance of -1 to 1%, which is very sluggish as 1Q is typically a good quarter for IT companies. This guidance indicates that management is seeing further delays in deal closures and ramp-up of projects. We recommend Neutral on the stock. Quarterly highlights: For 4QFY2012, Wipro registered a 1.3% qoq decline in its revenue to `9,869cr. Revenue from the IT services segment came in at US$1,536mn, up 2.0% qoq. Revenue from the consumer care and lighting segment grew strongly by 25.2% yoy, while the IT products segment reported merely 2.9% yoy revenue growth. EBIT margin of the IT services, IT products and consumer care and lighting business declined by 8bp, 60bp and 61bp qoq to 20.7%, 4.7% and 12.5%, respectively. Wipros overall EBIT margin declined by 8bp qoq to 17.2%. Outlook and valuation: For 1QFY2013, Wipro has given USD revenue guidance of US$1,520mn-1,550mn, which translates into qoq growth of -1 to 1% qoq, which is extremely subdued. Now, managements endeavor is to grow at par with industrys average revenue growth for FY2013. Nasscom has guided for 11-14% yoy USD revenue growth for FY2013 to achieve this Wipro needs to record at least 3.5% qoq USD revenue growth post 1QFY2013. This number indicates that management is banking more on back-ended growth for FY2013, which makes us slightly cautious about the companys growth outlook. We expect USD and INR revenue CAGR for IT services to be at 10.3% and 11.0%, respectively, over FY2012-14E. We expect EBIT margin of the IT services segment to slide down to 20.2% in FY2013 from 20.8% in FY2012. We expect a 12.1% and 12.3% CAGR in EBITDA and PAT, respectively, over FY2012-14E. We value the stock at 15x FY2014E EPS of `28.6, which gives us a target price of `430. We recommend Neutral on the stock.
Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 78.4 3.4 6.7 11.5
3m 0.4
1yr (12.4)
3yr 51.4
Ankita Somani
+91 22 3935 7800 Ext: 6819 ankita.somani@angelbroking.com
4QFY12 9,869 6,580 3,289 1,328 1,961 267 1,694 198 1,893 402 1,491 10 1,481 6.0 33.3 19.9 17.2 17.0
3QFY12 9,997 6,710 3,287 1,303 1,984 260 1,724 113 1,849 381 1,468 11 1,456 5.9 32.9 19.8 17.2 15.7
% chg (qoq) (1.3) (1.9) 0.1 1.9 (1.2) 2.5 (1.7) 2.4 5.4 1.6 (9.6) 1.7 1.7 44bp 2bp (8)bp 131bp
4QFY11 8,302 5,512 2,790 1,083 1,707 228 1,479 149 1,642 260 1,381 6 1,375 5.6 33.6 20.6 17.8 16.6
% chg (yoy) 18.9 19.4 17.9 22.6 14.9 17.0 14.6 15.3 54.2 7.9 74.6 7.7 7.7 (28)bp (69)bp (64)bp 37bp
FY2012 37,525 25,304 12,220 4,806 7,414 1,013 6,401 541 6,975 1,376 5,599 26 5,573 22.7 32.6 19.8 17.1 16.3
FY2011 31,099 20,464 10,635 4,047 6,588 821 5,767 472 6,303 971 5,332 35 5,297 21.7 34.2 21.2 18.5 18.6
% chg (yoy) 20.7 23.7 14.9 18.8 12.5 23.4 11.0 10.7 41.7 5.0 (25.8) 5.2 4.7 (163)bp (143)bp (149)bp (226)bp
(%)
4 2.8 2 0 (2) Onsite
Source: Company, Angel Research
2.0 0.2 1QFY12 2QFY12 1.5 3QFY12 Offshore 1.1 0.2 4QFY12
(0.4) 4QFY11
(%)
4QFY11
1QFY12
3QFY12
4QFY12
Service wise, Wipros anchor service lines, business application services (contributed 30.6% to revenue), application development and maintenance (ADM) (contributed 23.6% to revenue) and technology infrastructure services (contributed 22.6% to revenue) posted 1.3%, 0.7% and 6.4% qoq growth in revenue, respectively. In addition, analytics and information management services posted modest 5.4% qoq growth in revenue. However, revenue from other service verticals such as BPO and product engineering and mobility declined by 2.0% and 1.5% qoq, respectively. Service vertical wise, the company is now witnessing traction from deals related to application management, application support, infrastructure services and BPO. Revenue from BPO services has been declining since the last three quarters and management indicated that revenue from BPO is expected to come back to the growth path in the next couple of quarters.
% growth (qoq) % growth (yoy) 6.4 5.4 1.3 (2.0) (1.5) 0.7 (2.9) (1.1) 14.7 24.9 13.0 (8.4) 8.5 5.1 1.3 0.3
Industry wise, Wipros growth was led by retail and transportation (contributed 15.4% to revenue) and energy and utilities (contributed 14.0% to revenue), which reported revenue growth of 5.2% and 5.1% qoq (CC terms), respectively. Revenue from the companys anchor vertical, financial services (contributed 26.6% to revenue) reported a 1.1% qoq decline (CC terms) due to challenges and delays seen from investment banking and insurance firms. Revenue from healthcare, life sciences and services (contributed 10.0% to revenue) and manufacturing and hi-tech (contributed 19.1% to revenue) grew by 1.7% and 2.4% qoq (CC terms), respectively. Management indicated that equipment manufacturers space in the telecom industry is still challenged in terms of IT spend; service provider companies, especially small companies, are looking for new opportunities in Europe and Asia Pacific. Other than telecom, management indicated that the deal pipeline in financial services and healthcare looks promising.
Geography wise, Wipro reported revenue growth across all its geographies, except Japan. Revenue from APAC and other emerging markets grew by 6.2% qoq (CC terms). Revenue from America and India and Middle East posted 1.0% and 4.1% qoq (CC terms) growth, respectively.
Segmental performance
During the quarter, the IT services segments revenue came in at US$1,536mn, up 2.0% qoq, with India and Middle East business being the major growth driver, posting 6.4% qoq growth. Revenue from global IT services came in at US$1,159mn, up 1.5% qoq, while revenue from BPO services declined by 1.6% qoq to US$126mn.
9.8 7.7 4.2 7.5 6.4 4.7 2.3 0.5 1QFY12 (4.4) (4.6) India and Middle East (1.0) 2QFY12 4.6 4.3 2.2 1.5 (1.2) 3QFY12 4QFY12 (1.6) 2.0
(%)
2.7
(%)
4 3 2 1 0
The IT products segment reported merely 2.9% yoy growth in revenue to `937cr during the quarter. The consumer care and lighting segment posted another strong quarter with 25.2% yoy growth in revenue to `907cr, with brands like Yardley, Santoor and Chandrika bolstering growth. In the lighting business, Wipro is gaining traction in its eco-energy business, which involves managing energy through the use of renewable products.
(` cr)
2.4 900
2.9 937
(5)
(` cr)
(%)
(%)
Utilization rate of the global IT business improved slightly by 30bp qoq to 67.4%. As per management, of the total hiring to be done in FY2012, ~70% was of freshers, which in turn did not give utilization level much headroom to scale up. Going ahead, increased utilization level will be an important margin lever.
22.1
12.0
4.5
5.3
4.7
2QFY12
3QFY12
4QFY12 Consolidated
Client pyramid
Wipro added 41 new clients in 4QFY2012 but its active client base reduced to 943 in 4QFY2012 from 953 in 3QFY2012. The companys client pyramid witnessed qualitative improvement, with one client getting added in the US$100mn plus revenue bracket and one client in the US$75mn-100mn revenue bracket. Two clients from the US$10mn-20mn bracket moved to the US$20mn-50mn revenue bracket. The company witnessed addition of 11 clients in the US$5mn-10mn revenue bracket.
(`)
Oct-06
Oct-07
Oct-08
Oct-09
Oct-10
Oct-11
Apr-06
Apr-07
Apr-08
Apr-09
Apr-10
Apr-11
Price
Source: Company, Angel Research
34x
28x
21x
14x
7x
Apr-12
FY2010* 27,124 18,630 8,494 31.3 1,861 6.9 1,482 5.5 783 2.9 5,151 19.0 337 53 5,541 929 16.8 4,612 18 4,594 18.9
FY2011 31,099 21,285 9,814 31.6 2,218 7.1 1,829 5.9 821 2.6 5,767 18.5 472 64.8 6,303 971 15.4 5,332 35 5,297 21.7
FY2012 37,525 26,317 11,207 29.9 2,778 7.4 2,029 5.4 1,013 2.7 6,401 17.1 541 33.3 6,975 1,376 19.7 5,599 26 5,573 22.7
FY2013E 41,918 29,390 12,529 29.9 3,240 7.7 2,315 5.5 1,144 2.7 6,974 16.6 819 20 7,812 1,641 21.0 6,172 20 6,152 25.1
FY2014E 46,879 32,740 14,139 30.2 3,627 7.7 2,472 5.3 1,280 2.7 8,040 17.2 1,216 20 9,276 2,226 24.0 7,050 1 20 7,030 28.6
10
FY2010* 5,380 401 5,346 235 120 346 169 878 12,875 793 5,093 2,111 1,671 3,042 660 262 6,488 20,118 32,993 294 2,919 16,579 314 (440) (54) 19,611 44 19,655 1,811 38 288 307 323 10 2776.7 4,440 3,875 746 485 138 650 227 10,561 13,338 32,993
FY2011 5,482 355 5,509 299 298 924 147 898 13,913 971 6,163 1,974 2,415 4,928 496 171 6,114 23,231 37,144 491 3,012 20,325 136 58 (54) 23,968 69 24,037 1,976 30 259 502 271 8 3045.3 3,304 4,405 660 734 136 591 232 10,062 13,107 37,144
FY2012 FY2013E FY2014E 6,794 423 5,899 323 346 1,029 260 1,178 16,251 1,066 8,033 2,574 3,003 4,196 564 147 7,767 27,349 43,600 492 3,046 24,191 198 659 (54) 28,531 85 28,616 2,251 35 31 540 352 6 3215.3 3,645 4,726 957 723 635 970 112 11,769 14,984 43,600 6,794 500 5,954 400 500 1,338 300 1,469 17,255 1,034 8,039 2,632 3,101 9,411 780 247 7,700 32,943 50,199 492 3,046 28,620 198 659 (54) 32,960 85 33,045 2,401 70 350 700 400 16 3937 3,978 5,636 750 780 635 1,220 216 13,216 17,153 50,199 6,794 500 5,875 400 500 1,234 300 1,477 17,079 1,156 8,990 2,700 3,468 12,799 800 250 10,421 40,584 57,663 492 3,046 33,928 198 659 (54) 38,268 85 38,353 2,551 80 370 850 450 15 4316 4,350 6,369 900 850 635 1,620 270 14,994 19,310 57,663
11
FY2010* 5,204 783 (18) 5,969 337 6,306 (929) 5,377 (1,076) 237 (840) 4,537 (1,150) 182 (1,455) 268 (120) (346) 20 (436) (70) (3,107) (157) 982 (679) 146 1,576 4,912 6,488
FY2011 5,832 821 (35) 6,618 472 7,090 (971) 6,119 (1,601) (499) (2,101) 4,018 (985) (56) (1,951) 22 (178) (578) 25 103 (20) (3,616) 165 617 (1,558) (775) (374) 6,488 6,114
FY2012 6,434 1,013 (26) 7,422 541 7,962 (1,376) 6,586 (3,197) 1,707 (1,490) 5,096 (1,402) (1,380) 708 (113) (48) (105) 16 (105) (280) (2,709) 275 713 (1,723) (735) 1,653 6,114 7,767
FY2013E 6,994 1,144 (20) 8,118 819 8,937 (1,641) 7,296 (447) 1,448 1,001 8,297 (1,200) (77) (5,291) (40) (154) (310) 572 (290) (6,791) 150 0 (1,723) (1,573) (67) 7,767 7,700
FY2014E 8,060 1,280 (20) 9,320 1,216 10,536 (2,226) 8,310 (1,531) 1,778 247 8,557 (1,200) (3,389) 104 229 (8) (4,263) 150 0 (1,723) (1,573) 2,721 7,700 10,421
12
Key Ratios
Y/E March Valuation ratio(x) P/E (on FDEPS) P/CEPS P/BVPS Dividend yield (%) EV/Sales EV/EBITDA EV/Total assets Per share data (`) EPS (Fully diluted) Cash EPS Dividend Book value DuPont analysis Tax retention ratio (PAT/PBT) Cost of debt (PBT/EBIT) EBIT margin (EBIT/Sales) Asset turnover ratio (Sales/Assets) Leverage ratio (Assets/Equity) Operating ROE Return ratios (%) RoCE (pre-tax) Angel RoIC RoE Turnover ratios (x) Asset turnover(fixed assets) Receivables days Payable days
Note: *Adjusted for 2:3 bonus
FY2010* 21.7 9.3 4.6 1.0 3.4 15.7 2.8 18.9 44.3 4.0 89.3 0.8 7.1 0.0 0.8 1.7 23.5 15.6 28.5 23.4 0.9 67 79
FY2011 18.9 9.1 4.2 1.5 2.9 13.9 2.5 21.7 45.1 6.0 98.0 0.8 7.7 0.0 0.8 1.5 22.2 15.5 28.0 22.0 0.9 66 71
FY2012 18.1 8.4 3.5 1.5 2.4 12.3 2.1 22.7 48.8 6.0 116.6 0.8 6.9 0.0 0.9 1.5 19.6 14.7 25.8 19.5 0.9 69 63
FY2013E 16.4 7.7 3.0 1.5 2.1 10.6 1.7 25.1 53.5 6.0 134.7 0.8 6.8 0.0 0.8 1.5 18.7 13.9 26.5 18.6 0.9 70 64
FY2014E 14.3 6.7 2.6 1.5 1.7 8.6 1.4 28.6 61.4 6.0 156.3 0.8 7.2 0.0 0.8 1.5 18.4 13.9 29.1 18.3 0.9 66 67
13
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Website: www.angelbroking.com
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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered
Wipro No No No No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors
Ratings (Returns):
14