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Growth lag to continue
Fix for organic growth
differentials to take time and to
come with margin pain
1Q FY12F: 2.1% revenue growth, 130bps margin decline likely
We expect Wipro’s IT services division to post USD revenue growth of
2.1% q-q in 1Q FY12, which will include about one month of the SAIC
acquisition. EBIT margins in IT services are likely to dip by 130bps q-q on
account of the partial impact of wage hikes and the SAIC acquisition.
Lowering revenue estimates slightly
We reduce our USD revenue growth estimates marginally to account for
SAIC revenue in line with management guidance, and slightly lower
organic revenue growth expectations. We now look for an organic USD
revenue CAGR of 19%, a 230bps decline in EBIT margins and an EPS
CAGR of 11% over FY11-13.
Action/Valuation: No immediate return to parity with tier 1; NEUTRAL
We believe the results of recent management and business restructuring
will take time to fructify, while leading to underperformance on revenue
growth and margins near term. We prefer Infosys and HCL Tech among
tier-1 IT companies on better earnings growth and greater valuation
comfort. We remain NEUTRAL and retain our TP of INR450 based on 17x
FY13F EPS. Wipro remains our least preferred stock in tier-1 IT.
Catalyst: Early results from restructuring
Early results of Wipro’s restructuring leading to growth acceleration would
likely be a key stock catalyst. 2Q FY12 organic revenue growth guidance
of lower than 5% organic growth could be a downside trigger, we believe.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Growth lag to continue
Fix for organic growth
differentials to take time and to
come with margin pain
1Q FY12F: 2.1% revenue growth, 130bps margin decline likely
We expect Wipro’s IT services division to post USD revenue growth of
2.1% q-q in 1Q FY12, which will include about one month of the SAIC
acquisition. EBIT margins in IT services are likely to dip by 130bps q-q on
account of the partial impact of wage hikes and the SAIC acquisition.
Lowering revenue estimates slightly
We reduce our USD revenue growth estimates marginally to account for
SAIC revenue in line with management guidance, and slightly lower
organic revenue growth expectations. We now look for an organic USD
revenue CAGR of 19%, a 230bps decline in EBIT margins and an EPS
CAGR of 11% over FY11-13.
Action/Valuation: No immediate return to parity with tier 1; NEUTRAL
We believe the results of recent management and business restructuring
will take time to fructify, while leading to underperformance on revenue
growth and margins near term. We prefer Infosys and HCL Tech among
tier-1 IT companies on better earnings growth and greater valuation
comfort. We remain NEUTRAL and retain our TP of INR450 based on 17x
FY13F EPS. Wipro remains our least preferred stock in tier-1 IT.
Catalyst: Early results from restructuring
Early results of Wipro’s restructuring leading to growth acceleration would
likely be a key stock catalyst. 2Q FY12 organic revenue growth guidance
of lower than 5% organic growth could be a downside trigger, we believe.
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