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4Q11 top-line growth of 4.2% was marginally above our forecast, but downbeat 1Q12
guidance and commentary reflects the challenge of restructuring. Our forecasts are broadly
intact, lowering organic revenues/margins and adjusting for the SAIC Oil & Gas IT acquisition
and lower tax rate. We stay at Hold.
Decent 4Q11, but downbeat guidance highlights restructuring impact; retain Hold
IT Services’s top line grew 4.2%, marginally above our forecast, but its volumes were tepid.
However, Wipro’s 1Q12 guidance for organic US$ revenue growth of -0.5 to +1.5% is a
negative surprise (ex-currency guidance of -1.5% to +0.5% is lower than Infosys’s 2-3%
guidance). Wipro cites 1Q-2Q12 as a transition period, after which it expects growth to
normalise. We subscribe to this view of back-ended growth, given broad-based
vertical/geographical growth and positive client additions/bucket movements. Recently
announced wage hikes of 12-15% offshore and 3-4% onsite were higher than we expected.
We cut our organic revenue/margin forecasts, but the SAIC Oil/Gas IT business acquisition,
a lower tax rate and higher treasury yield forecasts keep our numbers broadly intact. We
reiterate Hold, given the lack of triggers.
4Q11 IT Services revenues marginally higher than our forecast
At US$1.4bn, IT Services revenues rose 4.2% qoq (3.5% in constant currency), marginally higher
than our forecast. Volumes rose a modest 1.9% qoq, and average realisation rose 0.8%, driven
by productivity gains on fixed-price projects and cross-currency. The top line was driven by strong
qoq growth in Telecom (+9%) and Energy & Utilities (+7%), and geographically by seasonally
strong India/ME business (+7%) and APAC/emerging markets (+10%).
1H12 margins to remain under pressure
Despite 4Q11 IT Services’s EBIT margin down 220bp yoy to 22.1% (RBS f’cst: 22.5%), we
believe 1H12 margins are likely to see further pressure due to higher wage inflation (to control
higher attrition) and muted volume growth. Management attributed a margin decline of 14bp qoq
(despite positive movement in FX, pricing, utilisation, offshore) to higher allowances for onsite
staff in Europe/Canada to meet minimum wage requirements. Consolidated, FX loss was Rs28m
vs Rs114m loss in 3Q11. Recurring PAT rose 5.7% qoq to Rs13.8bn, reflecting lower tax rates
(15.7% vs 17.3% in 3Q11 and RBS f’cast of 18.0%).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
4Q11 top-line growth of 4.2% was marginally above our forecast, but downbeat 1Q12
guidance and commentary reflects the challenge of restructuring. Our forecasts are broadly
intact, lowering organic revenues/margins and adjusting for the SAIC Oil & Gas IT acquisition
and lower tax rate. We stay at Hold.
Decent 4Q11, but downbeat guidance highlights restructuring impact; retain Hold
IT Services’s top line grew 4.2%, marginally above our forecast, but its volumes were tepid.
However, Wipro’s 1Q12 guidance for organic US$ revenue growth of -0.5 to +1.5% is a
negative surprise (ex-currency guidance of -1.5% to +0.5% is lower than Infosys’s 2-3%
guidance). Wipro cites 1Q-2Q12 as a transition period, after which it expects growth to
normalise. We subscribe to this view of back-ended growth, given broad-based
vertical/geographical growth and positive client additions/bucket movements. Recently
announced wage hikes of 12-15% offshore and 3-4% onsite were higher than we expected.
We cut our organic revenue/margin forecasts, but the SAIC Oil/Gas IT business acquisition,
a lower tax rate and higher treasury yield forecasts keep our numbers broadly intact. We
reiterate Hold, given the lack of triggers.
4Q11 IT Services revenues marginally higher than our forecast
At US$1.4bn, IT Services revenues rose 4.2% qoq (3.5% in constant currency), marginally higher
than our forecast. Volumes rose a modest 1.9% qoq, and average realisation rose 0.8%, driven
by productivity gains on fixed-price projects and cross-currency. The top line was driven by strong
qoq growth in Telecom (+9%) and Energy & Utilities (+7%), and geographically by seasonally
strong India/ME business (+7%) and APAC/emerging markets (+10%).
1H12 margins to remain under pressure
Despite 4Q11 IT Services’s EBIT margin down 220bp yoy to 22.1% (RBS f’cst: 22.5%), we
believe 1H12 margins are likely to see further pressure due to higher wage inflation (to control
higher attrition) and muted volume growth. Management attributed a margin decline of 14bp qoq
(despite positive movement in FX, pricing, utilisation, offshore) to higher allowances for onsite
staff in Europe/Canada to meet minimum wage requirements. Consolidated, FX loss was Rs28m
vs Rs114m loss in 3Q11. Recurring PAT rose 5.7% qoq to Rs13.8bn, reflecting lower tax rates
(15.7% vs 17.3% in 3Q11 and RBS f’cast of 18.0%).
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