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UBS Investment Research
Wipro Ltd.
Joint CEO structure dismantled
„ TK Kurien to be new CEO of IT business effective February 2011
Wipro has decided to simplify the existing joint-CEO structure (created in early
2008) in a bid to increase focus on revenue growth. Mr. TK Kurien will take over
as the CEO of the IT business and Executive Director of Wipro Limited effective 1
February 2011. Mr. Kurien currently heads Wipro’s eco-energy business, and has
led BPO and Global Strategic Programs in the IT business in the past.
„ IT services revenue in-line, but volumes low at 1.5% QoQ
Wipro posted IT services Q3 FY11 revenue of US$1.34bn, in line with our
estimates. Volumes grew 1.5% QoQ, lower than peers (Infosys: 3%, TCS: 5.7%).
Operating margins in IT services remained flat at 22.2% versus our estimate of a
45bp increase. Consolidated revenue was flat QoQ at Rs78bn, 2.7% lower than our
estimate. Total profit increased 2.6% QoQ to Rs13.2bn, 3% below our estimate.
„ Q4 FY11 guidance in line, Q4 revenue growth to be more in line with peers
Wipro has guided for Q4 FY11 IT services revenue of US$1.38-1.41bn (up 3-5%
QoQ). The Q4 FY11 guidance implies that Wipro should report revenue largely in
line with peers (5-6% for TCS and Infosys) after several quarters of slower growth.
„ Valuation: maintain Sell
While Wipro seems to be catching up with peers in terms of revenue growth, the
revenue differential to Cognizant (CTSH) has narrowed. On UBS estimates, CTSH
will match Wipro in IT services revenue over the next two to three years. We
believe Wipro will move to address this issue and expect key strategy changes
from the new CEO to increase the focus on revenue growth. We maintain our Sell
rating with a DCF-based price target.
Q Wipro Ltd.
Wipro is the third largest IT services company in India with IT services
revenues of US$4.4bn and around 110,000 employees in FY10. Its main
verticals are telecoms, media and technology (26% of revenues), financial
services (26% of revenues), and manufacturing (15% of revenues). Wipro has a
diversified service offering in applications development and maintenance,
testing, package implementation, infrastructure services, and BPO. Wipro
derives 58% revenue from the US, 26% from Europe, and the rest from India
and other emerging markets.
Q Statement of Risk
A sharp decline in IT Services spending could result in downward revision of
our earnings estimates.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Wipro Ltd.
Joint CEO structure dismantled
„ TK Kurien to be new CEO of IT business effective February 2011
Wipro has decided to simplify the existing joint-CEO structure (created in early
2008) in a bid to increase focus on revenue growth. Mr. TK Kurien will take over
as the CEO of the IT business and Executive Director of Wipro Limited effective 1
February 2011. Mr. Kurien currently heads Wipro’s eco-energy business, and has
led BPO and Global Strategic Programs in the IT business in the past.
„ IT services revenue in-line, but volumes low at 1.5% QoQ
Wipro posted IT services Q3 FY11 revenue of US$1.34bn, in line with our
estimates. Volumes grew 1.5% QoQ, lower than peers (Infosys: 3%, TCS: 5.7%).
Operating margins in IT services remained flat at 22.2% versus our estimate of a
45bp increase. Consolidated revenue was flat QoQ at Rs78bn, 2.7% lower than our
estimate. Total profit increased 2.6% QoQ to Rs13.2bn, 3% below our estimate.
„ Q4 FY11 guidance in line, Q4 revenue growth to be more in line with peers
Wipro has guided for Q4 FY11 IT services revenue of US$1.38-1.41bn (up 3-5%
QoQ). The Q4 FY11 guidance implies that Wipro should report revenue largely in
line with peers (5-6% for TCS and Infosys) after several quarters of slower growth.
While Wipro seems to be catching up with peers in terms of revenue growth, the
revenue differential to Cognizant (CTSH) has narrowed. On UBS estimates, CTSH
will match Wipro in IT services revenue over the next two to three years. We
believe Wipro will move to address this issue and expect key strategy changes
from the new CEO to increase the focus on revenue growth. We maintain our Sell
rating with a DCF-based price target.
Q Wipro Ltd.
Wipro is the third largest IT services company in India with IT services
revenues of US$4.4bn and around 110,000 employees in FY10. Its main
verticals are telecoms, media and technology (26% of revenues), financial
services (26% of revenues), and manufacturing (15% of revenues). Wipro has a
diversified service offering in applications development and maintenance,
testing, package implementation, infrastructure services, and BPO. Wipro
derives 58% revenue from the US, 26% from Europe, and the rest from India
and other emerging markets.
Q Statement of Risk
A sharp decline in IT Services spending could result in downward revision of
our earnings estimates.
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