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Focus disruption likely, reduce exposure…
Though Wipro’s IT services revenues were modestly ahead of our
estimates ($1,344 million vs. $1,322 million estimate), 1.5% volume
growth was least inspiring. The operating performance is equally
baffling. Voluntary trailing twelve month (TTM) attrition continues to
rise at 21.6%. Net utilisation excluding trainees dropped 2.5 percentage
points (pp) while net hiring continues to be tepid at 3,591. Wage
inflation (in Q1FY12), enhanced hiring to supplement attrition & growth
and investments to strengthen verticals (BFSI) could pressure operating
margins. Though structural changes are appreciated, management
priorities in the near term could likely lead to lower participation and
market share of incremental demand. Consequently, we have changed
our price target to | 440 (| 468 earlier) and our rating to REDUCE from
ADD earlier.
ƒ Execution challenges persists
Wipro reported 1.3% QoQ growth in consolidated revenues to |
7,829 crore. IT services revenue came in at US$1,344 million, helped
by offshore price realisation (up 3.7% QoQ in reported currency)
and volume growth of 1.5% QoQ. The consumer care business
grew 21% YoY while IT products came in weak with 13% YoY
decline. Wipro’s consolidated EBITDA margin improved 29 bps QoQ
helped by EBIT improvement in ‘others’ business segment as IT
services EBIT was flat sequentially at 22.2%, IT products (-34 bps),
consumer care & lighting (-21 bps). The company reported PAT of |
1,319 crore (| 1,280 crore our estimate) on the back of higher other
income of | 132 crore vs. our | 83 crore estimate.
Valuation
Wipro’s volume growth remains lacklustre (vs. peers) led in part by
exposure to hi-tech and telecom verticals, which continue to remain
sluggish from the IT spending perspective. We expect consolidated
revenues to grow 15% CAGR over FY10-FY12E and value the stock at 18x
(19x earlier) FY12 EPS estimate of | 24.3 i.e. with a target price of | 440 (|
468). We have changed our rating to REDUCE vs. ADD earlier.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Focus disruption likely, reduce exposure…
Though Wipro’s IT services revenues were modestly ahead of our
estimates ($1,344 million vs. $1,322 million estimate), 1.5% volume
growth was least inspiring. The operating performance is equally
baffling. Voluntary trailing twelve month (TTM) attrition continues to
rise at 21.6%. Net utilisation excluding trainees dropped 2.5 percentage
points (pp) while net hiring continues to be tepid at 3,591. Wage
inflation (in Q1FY12), enhanced hiring to supplement attrition & growth
and investments to strengthen verticals (BFSI) could pressure operating
margins. Though structural changes are appreciated, management
priorities in the near term could likely lead to lower participation and
market share of incremental demand. Consequently, we have changed
our price target to | 440 (| 468 earlier) and our rating to REDUCE from
ADD earlier.
ƒ Execution challenges persists
Wipro reported 1.3% QoQ growth in consolidated revenues to |
7,829 crore. IT services revenue came in at US$1,344 million, helped
by offshore price realisation (up 3.7% QoQ in reported currency)
and volume growth of 1.5% QoQ. The consumer care business
grew 21% YoY while IT products came in weak with 13% YoY
decline. Wipro’s consolidated EBITDA margin improved 29 bps QoQ
helped by EBIT improvement in ‘others’ business segment as IT
services EBIT was flat sequentially at 22.2%, IT products (-34 bps),
consumer care & lighting (-21 bps). The company reported PAT of |
1,319 crore (| 1,280 crore our estimate) on the back of higher other
income of | 132 crore vs. our | 83 crore estimate.
Valuation
Wipro’s volume growth remains lacklustre (vs. peers) led in part by
exposure to hi-tech and telecom verticals, which continue to remain
sluggish from the IT spending perspective. We expect consolidated
revenues to grow 15% CAGR over FY10-FY12E and value the stock at 18x
(19x earlier) FY12 EPS estimate of | 24.3 i.e. with a target price of | 440 (|
468). We have changed our rating to REDUCE vs. ADD earlier.
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