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Restructuring and Investments to impact
growth and margins
While Wipro managed at par topline growth of 4.2% (QoQ in
dollar terms) with its peers, it disappointed in terms of Q1
guidance. Restructuring, Investments in momentum verticals,
re-aligning of sales force for better account mining and
highest amongst Tier-1 wage hikes are likely to keep the
margins and growth under pressure in the near term while the
positives of these changes would likely flow in the medium to
long term. Our negative stance on the stock is mainly driven
by its below par growth, low capital efficiency and low EBIT
margins resulting in an ROIC that is a third that of Infy’s. We
believe it should trade at a higher PE discount to Infosys and
maintain Sell with a revised TP of Rs358 (13.6x March 2013
FDEPS, 35% discount to Infosys’ target PE multiple). We
believe the market, by according it higher PE multiples, is
pricing in a marked change in performance going forward,
something we are sceptical about.
Revenue growth in line; Guidance disappoints. IT services
revenue grew by 4.2% in dollar terms and 5.4% in rupee
terms. Volume growth was 1.9% while pricing/realization
increased by 1%. Higher realization was due to higher
proportion of Fixed price projects (FPP). EBIT margin for IT
services was flat at 19.3%. Guidance of 0-2% growth to $1394-
$1422mn for Q1 is disappointing and is attributed to
lumpiness in Q4FY11 revenue.
Investment in sales, momentum vertical and higher wages
to impact margins in near term. Wipro is undergoing reorganization
to prepare itself for improved of growth.
Although investments in momentum vertical and sales force
would yield results in mid to long term, the margins would be
impacted in the nearer term. Higher than expected wage hike
would further suppress margins.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Restructuring and Investments to impact
growth and margins
While Wipro managed at par topline growth of 4.2% (QoQ in
dollar terms) with its peers, it disappointed in terms of Q1
guidance. Restructuring, Investments in momentum verticals,
re-aligning of sales force for better account mining and
highest amongst Tier-1 wage hikes are likely to keep the
margins and growth under pressure in the near term while the
positives of these changes would likely flow in the medium to
long term. Our negative stance on the stock is mainly driven
by its below par growth, low capital efficiency and low EBIT
margins resulting in an ROIC that is a third that of Infy’s. We
believe it should trade at a higher PE discount to Infosys and
maintain Sell with a revised TP of Rs358 (13.6x March 2013
FDEPS, 35% discount to Infosys’ target PE multiple). We
believe the market, by according it higher PE multiples, is
pricing in a marked change in performance going forward,
something we are sceptical about.
Revenue growth in line; Guidance disappoints. IT services
revenue grew by 4.2% in dollar terms and 5.4% in rupee
terms. Volume growth was 1.9% while pricing/realization
increased by 1%. Higher realization was due to higher
proportion of Fixed price projects (FPP). EBIT margin for IT
services was flat at 19.3%. Guidance of 0-2% growth to $1394-
$1422mn for Q1 is disappointing and is attributed to
lumpiness in Q4FY11 revenue.
Investment in sales, momentum vertical and higher wages
to impact margins in near term. Wipro is undergoing reorganization
to prepare itself for improved of growth.
Although investments in momentum vertical and sales force
would yield results in mid to long term, the margins would be
impacted in the nearer term. Higher than expected wage hike
would further suppress margins.
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