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Wipro
Muted volume growth, new CEO in focus; maintain Hold
Wipro’s reported 3QFY11 IT Services revenue was up 5.6% qoq
(in US dollar terms) on 1.4% volume growth. Pricing was up 2.5%
qoq for offshore, and down 0.8% for onsite in constant currency
terms. Wipro announced the stepping down of the two joint CEOs
and TK Kurien as the new CEO of the company. We maintain
both our target price of `510/share and Hold rating.
Earnings guidance inline with peers’. Wipro guided for
4QFY11 revenue of US$1,384-1,411m, implying a 3-5% qoq rise, in
line with peers’ guidance. The 4Q revenue guidance implies revenue
growth of ~19% for FY11e.
Revenue growth. IT Services revenue was up 4.1% in constant
currency terms. Main growth drivers were Energy & Utilities
(13.9% qoq), Financial Services (5%) and Europe (10.5%).
Contribution from fixed-price projects increased 230bps qoq to
46.3%, and the offshore share of revenue dipped 10bps to 48.2%.
Other key points. Management indicated that decisions of some
large deals got delayed, and hence resulted in muted volume
growth. Attrition (quarterly annualized) dipped 180bps to 21.7%
and net addition stood at 3,591 (total employees to 119,491).
Consumer care and lighting grew 4.5% qoq to `6.9bn.
Slightly trim estimates; valuation and risks. We slightly trim our
FY11e/FY12e/FY13e earnings and target price of `510. Risks: i)
Integration problems due to acquisitions; ii) Slowdown in demand.
Results review
Wipro registered in line 3QFY11 results, though volume growth of
1.4% was lower than peers’. Margin was up 30bps qoq, aided by
lower-than expected wage costs and lower S&M costs. Management
has guided for 3-5% qoq revenue growth.
Revenue analysis
Wipro’s 3QFY11 revenue stood at `78.3bn, 2.2% lower than our
estimates. The average rupee-dollar conversion for the quarter was 44.8.
In US dollar terms, revenue was US$1,746m, flat sequentially.
IT Services’ revenue was in line with our estimates (in rupee terms);
Consumer-care stood 1.5% higher than expectations. However,
revenue from IT Products was down 17.8% qoq, belying our estimate
by 20.2%.
IT Services’ volumes rose only 1.4% qoq (onsite: 4%; offshore: 0.5%)
as against our estimate of 3.2% blended volume increase. Pricing was
up 2.5% qoq for offshore, and down 0.8% for onsite in constant
currency vis-à-vis our expectation of flattish pricing.
The average rupee-dollar rate realized for IT Services in 3QFY11 was
44.3.
EBITDA margin
EBITDA margin was 48bps higher than our expectations, owing to lowerthan-
expected cost of revenue and S&M costs.
Non-operating items
Other income – ‘Other income’ was higher our estimate.
Effective tax rate – The tax rate was 16.4% vs. our estimate of 16%.
Dilution – ESOP conversion was in line with estimate.
Net profit growth
Net profit was higher than our estimate by 2%, helped however by nonoperational
items such as higher-than-expected ‘other income’.
Outlook
Management has guided for 4QFY11 revenue of US$1,384-1,411m,
implying a rise of 3-5% qoq.
Client issues
The contribution from the top-client increased 8.1% qoq in the quarter;
for the top 2-5 clients it rose 3.2%. Wipro lost 10 (net) clients in 3QFY11,
leading to the number of active clients increasing to 880 (for the first time
after 3QFY10). Further, the number of clients in the +US$10m bracket
increased to 113 (from 106 in the previous quarter).
Verticals breakdown
In terms of industry breakdown, Energy & Utilities (13.9% qoq), Financial
Services (5%) and Europe (10.5%) were the main growth drivers.
Employee details
Wipro added 3,591 employees (net) in 3QFY11 (as against our estimate of
4,000), resulting in the headcount rising to 119,491 and indicating keener
focus on boosting productivity.
Operational parameters
In Global IT Services, voluntary attrition dipped 180bps qoq to 21.7%.
Other key points
At end-Dec ’10, the company maintained its hedge amount at
US$2.2bn. Accumulated losses of US$11m have still to be written off
the balance sheet over the next ten quarters.
IT Services revenue, in US dollars, was US$1,344m, a sequential
increase of 5.6% (increasing 4.1% in constant currency to
US$1,325m).
The Americas grew 2.4% qoq in constant currency terms; Europe
reported growth of 9.7%, Asia Pacific was down 1.1% and India & the
Middle East was up 2.6%.
Wipro announced that the two joint CEOs have stepped down and
TK Kurien will be taking over as CEO of the company from 1 Feb
’11. Mr Kurien has been instrumental in building and scaling multiple
businesses at Wipro over the past decade.
Slight change in estimates
We marginally trim our FY11e/ FY12e/FY13e earnings to
`21.5/`23.6/`27.5 from `21.7/`23.7/`27.8 to account for the robust
IT demand environment. We retain our target price of `510 and
maintain our Hold rating on the stock.
Minor estimate changes
1. Pricing changes have occurred due to the difference in actual and
estimated 3QFY11 prices. These changes do not factor in any crosscurrency
movements.
2. Volumes assumed for FY11/FY12 are a combination of the
company’s growth guidance and 1.4% qoq volume increase in 3Q.
3. Wipro would be changing its wage hike cycle for FY12. For FY12, the
wage hike would be given in 1QFY12.
Valuation
We retain our target price of `510 and maintain our Hold rating on the
stock.
Risks
Integration problems. Wipro is scouting for acquisitions. Any
unfavorable event in terms of integration could be a drag.
Slowdown in demand. We are factoring healthy volume growth in our
estimates due to the current buoyant demand environment. Any
slowdown could be detrimental to our estimates.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Wipro
Muted volume growth, new CEO in focus; maintain Hold
Wipro’s reported 3QFY11 IT Services revenue was up 5.6% qoq
(in US dollar terms) on 1.4% volume growth. Pricing was up 2.5%
qoq for offshore, and down 0.8% for onsite in constant currency
terms. Wipro announced the stepping down of the two joint CEOs
and TK Kurien as the new CEO of the company. We maintain
both our target price of `510/share and Hold rating.
Earnings guidance inline with peers’. Wipro guided for
4QFY11 revenue of US$1,384-1,411m, implying a 3-5% qoq rise, in
line with peers’ guidance. The 4Q revenue guidance implies revenue
growth of ~19% for FY11e.
Revenue growth. IT Services revenue was up 4.1% in constant
currency terms. Main growth drivers were Energy & Utilities
(13.9% qoq), Financial Services (5%) and Europe (10.5%).
Contribution from fixed-price projects increased 230bps qoq to
46.3%, and the offshore share of revenue dipped 10bps to 48.2%.
Other key points. Management indicated that decisions of some
large deals got delayed, and hence resulted in muted volume
growth. Attrition (quarterly annualized) dipped 180bps to 21.7%
and net addition stood at 3,591 (total employees to 119,491).
Consumer care and lighting grew 4.5% qoq to `6.9bn.
Slightly trim estimates; valuation and risks. We slightly trim our
FY11e/FY12e/FY13e earnings and target price of `510. Risks: i)
Integration problems due to acquisitions; ii) Slowdown in demand.
Results review
Wipro registered in line 3QFY11 results, though volume growth of
1.4% was lower than peers’. Margin was up 30bps qoq, aided by
lower-than expected wage costs and lower S&M costs. Management
has guided for 3-5% qoq revenue growth.
Revenue analysis
Wipro’s 3QFY11 revenue stood at `78.3bn, 2.2% lower than our
estimates. The average rupee-dollar conversion for the quarter was 44.8.
In US dollar terms, revenue was US$1,746m, flat sequentially.
IT Services’ revenue was in line with our estimates (in rupee terms);
Consumer-care stood 1.5% higher than expectations. However,
revenue from IT Products was down 17.8% qoq, belying our estimate
by 20.2%.
IT Services’ volumes rose only 1.4% qoq (onsite: 4%; offshore: 0.5%)
as against our estimate of 3.2% blended volume increase. Pricing was
up 2.5% qoq for offshore, and down 0.8% for onsite in constant
currency vis-à-vis our expectation of flattish pricing.
The average rupee-dollar rate realized for IT Services in 3QFY11 was
44.3.
EBITDA margin
EBITDA margin was 48bps higher than our expectations, owing to lowerthan-
expected cost of revenue and S&M costs.
Non-operating items
Other income – ‘Other income’ was higher our estimate.
Effective tax rate – The tax rate was 16.4% vs. our estimate of 16%.
Dilution – ESOP conversion was in line with estimate.
Net profit growth
Net profit was higher than our estimate by 2%, helped however by nonoperational
items such as higher-than-expected ‘other income’.
Outlook
Management has guided for 4QFY11 revenue of US$1,384-1,411m,
implying a rise of 3-5% qoq.
Client issues
The contribution from the top-client increased 8.1% qoq in the quarter;
for the top 2-5 clients it rose 3.2%. Wipro lost 10 (net) clients in 3QFY11,
leading to the number of active clients increasing to 880 (for the first time
after 3QFY10). Further, the number of clients in the +US$10m bracket
increased to 113 (from 106 in the previous quarter).
Verticals breakdown
In terms of industry breakdown, Energy & Utilities (13.9% qoq), Financial
Services (5%) and Europe (10.5%) were the main growth drivers.
Employee details
Wipro added 3,591 employees (net) in 3QFY11 (as against our estimate of
4,000), resulting in the headcount rising to 119,491 and indicating keener
focus on boosting productivity.
Operational parameters
In Global IT Services, voluntary attrition dipped 180bps qoq to 21.7%.
Other key points
At end-Dec ’10, the company maintained its hedge amount at
US$2.2bn. Accumulated losses of US$11m have still to be written off
the balance sheet over the next ten quarters.
IT Services revenue, in US dollars, was US$1,344m, a sequential
increase of 5.6% (increasing 4.1% in constant currency to
US$1,325m).
The Americas grew 2.4% qoq in constant currency terms; Europe
reported growth of 9.7%, Asia Pacific was down 1.1% and India & the
Middle East was up 2.6%.
Wipro announced that the two joint CEOs have stepped down and
TK Kurien will be taking over as CEO of the company from 1 Feb
’11. Mr Kurien has been instrumental in building and scaling multiple
businesses at Wipro over the past decade.
Slight change in estimates
We marginally trim our FY11e/ FY12e/FY13e earnings to
`21.5/`23.6/`27.5 from `21.7/`23.7/`27.8 to account for the robust
IT demand environment. We retain our target price of `510 and
maintain our Hold rating on the stock.
Minor estimate changes
1. Pricing changes have occurred due to the difference in actual and
estimated 3QFY11 prices. These changes do not factor in any crosscurrency
movements.
2. Volumes assumed for FY11/FY12 are a combination of the
company’s growth guidance and 1.4% qoq volume increase in 3Q.
3. Wipro would be changing its wage hike cycle for FY12. For FY12, the
wage hike would be given in 1QFY12.
Valuation
We retain our target price of `510 and maintain our Hold rating on the
stock.
Risks
Integration problems. Wipro is scouting for acquisitions. Any
unfavorable event in terms of integration could be a drag.
Slowdown in demand. We are factoring healthy volume growth in our
estimates due to the current buoyant demand environment. Any
slowdown could be detrimental to our estimates.
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