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We recently met the management of Wipro at corporate office in
Bangalore. Following are the key points of discussion.
Clients’ budgets are flattish – Clients have largely finished their
budget exercise by January end and it is flattish on an average. The
decision cycle on discretionary projects is taking longer time and
actual spending of the budget will depend on macro environment.
BFSI and Energy & Utilities (E&U) have traction, hi-tech weak –
The management has not witnessed pressure in BFSI and deal wins
are pretty strong in manufacturing and E&U. However, telecom OEM
and hi-tech verticals are posing issues and likely to be weak.
Europe opening up but lacks momentum – Europe has performed
decently well in the last quarter but a large scale movement to
outsourcing something similar to what happened in US might not be
the case. This is due to current political backlash and complex labour
laws in European nations. US will continue to be a growth driver and
witness some early signs of recovery.
Operating margin expected to be better– Operating margin for IT
services is just better than HCL Tech but lower than Infosys and TCS.
The company expects the margin to improve with increase in growth
rates providing leverage in SG&A and employees expense through
improved pyramid.
Growth rate difference with peers expected to lower down- For the
last two years, the company has shown lower volume growth
compared to peers. The difference in revenue growth rates is likely to
narrow down in FY13 and Wipro’s revenue growth rate should be
closer to its peers. According to the management, Q4FY12 revenue
should be somewhere in middle of the guided range of 1-3%QoQ
growth in dollar terms.
Outlook and Recommendation – Wipro has shown some early
positive signs due to restructuring but the full benefit will reflect
when growth rates are higher which will also help increase its
margins. We believe this process is likely to take longer time to
materialise especially under current macro environment. The stock
has also run recently to factor in the early benefits of restructuring
exercise. Maintain ‘REDUCE’ recommendation on the stock with a TP
of Rs445 based on 16.5x PER multiple on 18-months forward
earnings.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
We recently met the management of Wipro at corporate office in
Bangalore. Following are the key points of discussion.
Clients’ budgets are flattish – Clients have largely finished their
budget exercise by January end and it is flattish on an average. The
decision cycle on discretionary projects is taking longer time and
actual spending of the budget will depend on macro environment.
BFSI and Energy & Utilities (E&U) have traction, hi-tech weak –
The management has not witnessed pressure in BFSI and deal wins
are pretty strong in manufacturing and E&U. However, telecom OEM
and hi-tech verticals are posing issues and likely to be weak.
Europe opening up but lacks momentum – Europe has performed
decently well in the last quarter but a large scale movement to
outsourcing something similar to what happened in US might not be
the case. This is due to current political backlash and complex labour
laws in European nations. US will continue to be a growth driver and
witness some early signs of recovery.
Operating margin expected to be better– Operating margin for IT
services is just better than HCL Tech but lower than Infosys and TCS.
The company expects the margin to improve with increase in growth
rates providing leverage in SG&A and employees expense through
improved pyramid.
Growth rate difference with peers expected to lower down- For the
last two years, the company has shown lower volume growth
compared to peers. The difference in revenue growth rates is likely to
narrow down in FY13 and Wipro’s revenue growth rate should be
closer to its peers. According to the management, Q4FY12 revenue
should be somewhere in middle of the guided range of 1-3%QoQ
growth in dollar terms.
Outlook and Recommendation – Wipro has shown some early
positive signs due to restructuring but the full benefit will reflect
when growth rates are higher which will also help increase its
margins. We believe this process is likely to take longer time to
materialise especially under current macro environment. The stock
has also run recently to factor in the early benefits of restructuring
exercise. Maintain ‘REDUCE’ recommendation on the stock with a TP
of Rs445 based on 16.5x PER multiple on 18-months forward
earnings.
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