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Wipro: Inline result lags larger peers
While Wipro beats its lower end of the guidance, a 5.7%
sequential growth in IT services (dollar terms) led by a
6.6% volume growth was below that of larger peers like
Infosys and TCS. It is in line with our estimates though
(refer our sector report ‘Focus on the Macro and not the
Micro’). Wipro took a hit on its margin by 250 bps driving
down the profitability for the quarter (as expected by us
but surprising the street). The 2.5% growth in its top 10
client’s account further indicates Wipro’s lack of client
mining skills and could mean further underperformance
going forward.
5.7% top line growth muted compared to peers. While
Wipro beats the lower end of its Q2 guidance of $1261mn
by clocking $1273mn dollar, the growth is muted in the
context of strong growth exhibited by TCS and Infosys
which grew by 11% and 7.2% respectively in volumes.
Operating margins decline by 250bps. Restricted stock
units (RSU) and promotions to 19000 professional impacted
margins negatively by 120 bps while currency movements
eroded 130bps in the quarter.
Growth not broad based; US soft. Unlike TCS and Infosys,
Wipro’s growth came in pockets and was not broad based.
2.5%. US which contributes 56% of the total revenue also
grew only 3.2%.
Should trade at significant discount to Infosys. We believe
the market, by according it higher PE multiples, is pricing in a
marked change in performance of the company going
forward, something we are sceptical about. With much lower
ROIC and below par (or par at best) growth rates compared to
Infosys, Wipro should trade at a multiple of 13.6x Sep 2012
FDEPS, 35% discount to Infosys’ multiples. We reiterate Sell.
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