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Wipro (WPRO)
Technology
Quarter in line, guidance poor. We stay positive, keeping the faith. Poor revenue
growth guidance for 1QFY12 marred an otherwise in-line earnings report from Wipro.
The guided poor start to FY2012 forces EPS downgrades for FY2012/13E. Nevertheless,
we keep the faith with two key assumptions – (1) the pain of transition stays short and
does not linger beyond 1QFY12, and (2) the ‘post-transition Wipro’ is able to pull its
weight in the expected strong demand environment. Retain ADD. TP stays at Rs525.
An in-line quarter, on balance
Wipro’s reported consolidated revenues and net income of Rs83 bn (+6% qoq, +18% yoy) and
Rs13.8 bn (+4% qoq, +14% yoy) were in line with our expectations. IT services revenues of
US$1.4 bn also came in line, though IT services EBIT margins of 22.1% (flat qoq) fell 20 bps short
of our estimate. Consolidated EBIT of Rs14.8 bn was 3% lower than our estimate on account of
lower-than-expected EBIT in the IT products and others segment. Higher-than-expected other
income compensated for the EBIT shortfall.
1QFY12 revenue growth guidance disappointing; transition pain, in our view
Even as 4QFY11 earnings report was in line, Wipro’s revenue guidance for the June 2011 quarter
disappointed. The company has guided for a sequential revenue growth of (-)0.4% to +1.5% for
the June 2011 quarter, particularly disappointing in the wake of strong demand environment and
the typical seasonal strength seen in the June quarters historically. Wipro’s poor revenue guidance
is not reflective of the demand environment, in our view; it is more on account of the impact of
ongoing transition within the company. We note that Wipro is undertaking a major organizational
restructuring impacting structures, roles and responsibilities at multiple levels.
We keep the faith and retain ADD
Sustained underperformance on revenue growth versus the peer set has forced Wipro to
undertake a massive organizational restructuring exercise. Complete verticalization and clearer
accountability were the central tenets of the restructuring exercise, as we understand it.
At 16.4X our revised FY2013E earnings, Wipro is not particularly inexpensive. A positive view from
these levels demands potential upside to estimates, which in turn demand that Wipro turns the
corner on relative revenue growth versus the peer group – essentially, the revamped (‘leaner, agile,
and more customer-centric’, as per the management) organization structure needs to start
delivering goods, and soon. Even as we do not yet build in better-than-peer revenue growth for
Wipro in 2QFY12E or for that matter FY2013E, we keep the faith and factor in the upside
possibility in our ascribed PE multiple of 19X FY2013E (10% discount to TCS) to arrive at our TP of
Rs525. Retain ADD.
4QFY11 – key highlights
IT services revenue growth of 4.2% qoq to US$1.4 bn was in line with our estimate and
the company’s guidance range. Volume growth was 1.9% qoq, while improvement in
FPP-shift driven price realizations (+1.9% qoq onsite, 1.2% offshore) and cross-currency
benefit (70 bps) drove the balance revenue growth.
IT services margins declined 10 bps qoq to 22.1% (EBIT) versus our expectation of a 10
bps increase. Margin performance was disappointing in the wake of several tailwinds like
currency benefits, improvement in utilization, and better pricing. Wipro attributed the
margin decline to increase in onsite benefits and pressure on profitability of acquisitions.
Revenue growth was led by the telecom OEM (+10.6% qoq) and Energy and Utilities
(+7.4% qoq) verticals.
Net hiring for the quarter was ~2,900 taking the total net hires for FY2011 to ~13,700.
Quarterly annualized attrition came down marginally to 23%.
Wipro reported strong client metrics for the quarter – top-5 accounts grew 11% qoq. The
company also added two customers in the US$100 mn bracket. Improvement in client
metrics is a welcome change but more consistency is required to call it a turnaround on
account management.
Wipro has announced a wage hike of 12-15% offshore and 2-4% onsite, effective June 1,
2011. We note that this range includes the impact of promotions.
Wipro has not included the impact of its recent acquisition of SAIC’s oil and gas practice
into the 1QFY12 guidance. We note that Wipro had announced the acquisition of this
asset with a revenue run-rate of US$188 mn for a total consideration of US$150 mn
around a month back.
Reduce earnings estimates
We have reduced our EPS estimate for FY2012E to Rs24.2 from Rs25.6 earlier, and our
FY2013E EPS to Rs27.5 from Rs28.4 earlier. Our revenue growth estimate for FY2012E
stands reduced at 20.4% versus 22.9% earlier, despite building in an additional 2.5%
revenue growth kicker from the acquisition – in effect a 5% pt cut. We have also reduced
our IT services EBIT margin estimate for FY2012E to 21.6% (down 110 bps yoy) from 22.2%
earlier.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Wipro (WPRO)
Technology
Quarter in line, guidance poor. We stay positive, keeping the faith. Poor revenue
growth guidance for 1QFY12 marred an otherwise in-line earnings report from Wipro.
The guided poor start to FY2012 forces EPS downgrades for FY2012/13E. Nevertheless,
we keep the faith with two key assumptions – (1) the pain of transition stays short and
does not linger beyond 1QFY12, and (2) the ‘post-transition Wipro’ is able to pull its
weight in the expected strong demand environment. Retain ADD. TP stays at Rs525.
An in-line quarter, on balance
Wipro’s reported consolidated revenues and net income of Rs83 bn (+6% qoq, +18% yoy) and
Rs13.8 bn (+4% qoq, +14% yoy) were in line with our expectations. IT services revenues of
US$1.4 bn also came in line, though IT services EBIT margins of 22.1% (flat qoq) fell 20 bps short
of our estimate. Consolidated EBIT of Rs14.8 bn was 3% lower than our estimate on account of
lower-than-expected EBIT in the IT products and others segment. Higher-than-expected other
income compensated for the EBIT shortfall.
1QFY12 revenue growth guidance disappointing; transition pain, in our view
Even as 4QFY11 earnings report was in line, Wipro’s revenue guidance for the June 2011 quarter
disappointed. The company has guided for a sequential revenue growth of (-)0.4% to +1.5% for
the June 2011 quarter, particularly disappointing in the wake of strong demand environment and
the typical seasonal strength seen in the June quarters historically. Wipro’s poor revenue guidance
is not reflective of the demand environment, in our view; it is more on account of the impact of
ongoing transition within the company. We note that Wipro is undertaking a major organizational
restructuring impacting structures, roles and responsibilities at multiple levels.
We keep the faith and retain ADD
Sustained underperformance on revenue growth versus the peer set has forced Wipro to
undertake a massive organizational restructuring exercise. Complete verticalization and clearer
accountability were the central tenets of the restructuring exercise, as we understand it.
At 16.4X our revised FY2013E earnings, Wipro is not particularly inexpensive. A positive view from
these levels demands potential upside to estimates, which in turn demand that Wipro turns the
corner on relative revenue growth versus the peer group – essentially, the revamped (‘leaner, agile,
and more customer-centric’, as per the management) organization structure needs to start
delivering goods, and soon. Even as we do not yet build in better-than-peer revenue growth for
Wipro in 2QFY12E or for that matter FY2013E, we keep the faith and factor in the upside
possibility in our ascribed PE multiple of 19X FY2013E (10% discount to TCS) to arrive at our TP of
Rs525. Retain ADD.
4QFY11 – key highlights
IT services revenue growth of 4.2% qoq to US$1.4 bn was in line with our estimate and
the company’s guidance range. Volume growth was 1.9% qoq, while improvement in
FPP-shift driven price realizations (+1.9% qoq onsite, 1.2% offshore) and cross-currency
benefit (70 bps) drove the balance revenue growth.
IT services margins declined 10 bps qoq to 22.1% (EBIT) versus our expectation of a 10
bps increase. Margin performance was disappointing in the wake of several tailwinds like
currency benefits, improvement in utilization, and better pricing. Wipro attributed the
margin decline to increase in onsite benefits and pressure on profitability of acquisitions.
Revenue growth was led by the telecom OEM (+10.6% qoq) and Energy and Utilities
(+7.4% qoq) verticals.
Net hiring for the quarter was ~2,900 taking the total net hires for FY2011 to ~13,700.
Quarterly annualized attrition came down marginally to 23%.
Wipro reported strong client metrics for the quarter – top-5 accounts grew 11% qoq. The
company also added two customers in the US$100 mn bracket. Improvement in client
metrics is a welcome change but more consistency is required to call it a turnaround on
account management.
Wipro has announced a wage hike of 12-15% offshore and 2-4% onsite, effective June 1,
2011. We note that this range includes the impact of promotions.
Wipro has not included the impact of its recent acquisition of SAIC’s oil and gas practice
into the 1QFY12 guidance. We note that Wipro had announced the acquisition of this
asset with a revenue run-rate of US$188 mn for a total consideration of US$150 mn
around a month back.
Reduce earnings estimates
We have reduced our EPS estimate for FY2012E to Rs24.2 from Rs25.6 earlier, and our
FY2013E EPS to Rs27.5 from Rs28.4 earlier. Our revenue growth estimate for FY2012E
stands reduced at 20.4% versus 22.9% earlier, despite building in an additional 2.5%
revenue growth kicker from the acquisition – in effect a 5% pt cut. We have also reduced
our IT services EBIT margin estimate for FY2012E to 21.6% (down 110 bps yoy) from 22.2%
earlier.
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