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Wipro Limited
Wipro was represented by Mr. Rishad Premji (Chief Strategy Officer—IT
Business) and Mr. Aravind Viswanathan (Head—Investor Relations).
Demand outlook: Responding to investor queries on revenue
underperformance relative to TCS and Infosys, Wipro management pointed
out that revenue growth has been robust over the past few quarters. However,
the lower exposure to the BFSI sector (26.9% versus 35.4% for Infosys and
44.0% for TCS), where spending recovery has been most significant, has led
to relative underperformance on revenue growth.
Supply concerns: Wipro has been surprised by the speed and sustainability
of the recovery, and lower hiring, coupled with higher attrition also led to
slower growth than Infosys and TCS, which had much higher excess
capacity than Wipro. Wipro plans to address this issue through increased
hiring, and plans to tap Tier 2 engineering colleges and non-engineering
colleges to access lower cost manpower supply.
Margins: Wipro expects the EBIT margins to be maintained at 22% for IT
services (versus 22.2% in Q2 FY11 and 23.4% in FY10). The company
effected 12,000 promotions in Q2 FY11, which impacted operating margins
by 300-350 bps. The company has also awarded ESOPs to 4,000 employees
in H1 FY11. Wipro’s management believes these measures will be sufficient
to contain attrition and reduce wage-related margin pressures for the
company.
UBS view: We maintain our Sell rating on the stock based on our view that
Wipro has a more defensive business mix that is likely to limit sharp revenue
upsides as seen in TCS and Infosys. We also expect incremental margin
pressures on account of supply pressures (due to its just-in-time hiring policy)
and currency appreciation.
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