Soft, for seasonally strong quarter… • Wipro :: ICICI Securities, PDF link

Please Share::

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

��

-->
Soft, for seasonally strong quarter…
• Wipro reported a soft quarter with IT services constant currency (CC)
revenues growing 3% QoQ (1.7-4% guidance) while $ revenues grew
1.8% QoQ to $1,772 million (2.4% QoQ, $1,782 million estimate)
• IT services EBIT margins declined 80 bps QoQ to 22%, in line with
our 22% estimate, led by wage hikes. Reported PAT of | 2,085 crore
was below our | 2,133 crore estimate
• Wipro gave Q3FY15E revenue guidance of $1,810 million to $1,840
million (2% to 4% QoQ growth)
Q3 guidance appears strong in seasonally weak quarter…
Wipro guided for 2-4% growth in Q3FY15E, which for a seasonally weak
quarter appears strong and can be attributed to large deals (eight in Q2)
wins in the recent past. As for Q2, though sequential constant currency
growth was in line with its stated guidance, dollar revenue growth was
below our 2.4% estimate led by softness in BFSI, telecom and Europe.
Finally, assuming the midpoint of the guidance for Q3 and Q4 implies YoY
growth of 9% in FY15E. Though growth has accelerated relative to FY13-
14 average of 5.7%, it may still be lower than industry average.
Margins surprise negatively…
Wipro IT services EBIT margins declined 80 bps QoQ and 50 bps YoY to
22% led by impact of wage hikes (two month) and offset by rupee and
utilisation improvement. Note, Q2 margin includes the positive impact
(| 61 crore, ~60 bps) related to gains from sale of strategic investment,
excluding which Q2 margins would have been 21.4%; 60 bps below our
22% estimate. That said, the H1 margin profile of 22.4% is higher than its
FY09-14 average of 22% and represents an improvement of 160 bps
during the same period (22.6% in FY14 vs. 21% in FY09) primarily led by
automation and rupee (utilisation is up 610 bps to 77.5% in Q2FY15 vs.
71.4% in Q1FY14). We expect FY15E consolidated margins to improve 50
bps YoY to 20.9% primarily led by growth and efficiency.
Client metric continues to be stable…
Client metric continues to be generally healthy. Clients contributing >$75
million and >$50 million in revenue on LTM basis increased by one each
to 15, 30, respectively, while >$100 million bucket was stable QoQ at 10
but is down one compared to 11 in Q3FY14. That said, >$1, >$10 and
>$20 million buckets saw healthy QoQ additions of 13, 7, 1, respectively.
Utilisation continues to see healthy uptick…
Wipro’s automation initiatives in the traditional ADM business led to net
utilisation (excluding support) and net utilisation (excluding trainees)
improving 150 bps each QoQ to 77.5% and 79.4%, respectively. Further,
though commentary suggests utilisation may improve from current
levels, rising attrition at ~17%, especially for junior staff (two to five
years) could dictate higher wage inflation, thus partially negating the
margin tailwinds from utilisation improvements.
Upbeat guidance, modest valuations dictate BUY
We estimate Wipro will report revenue, EPS CAGR of 8%, 11% during
FY14-16E (average 22.9% IT services EBIT margins in FY15-16E), vs. 14%
each, reported during FY09-14 (average 21.9% margins) led by large deal
ramp ups, client mining initiatives and a pick-up in discretionary
spending. We value Wipro at | 610 (15.7x our FY16E EPS estimate of
| 38.8) and maintain BUY rating

LINK
http://content.icicidirect.com/mailimages/IDirect_Wipro_Q2FY15.pdf