Result Review - Wipro Ltd :: HDFC Securities

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In our Q2FY15 result review dated Oct 29, 2014, we recommended investors to buy Wipro on dips to Rs. 489-508 for a price target of Rs. 635 over the next quarter. Thereafter, the stock touched a low of Rs. 524.9 on Dec 15, 2014 and subsequently touched a high of Rs. 614 on Jan 29, 2015. Currently it is quoting at Rs. 606.3. Wipro’s Q3FY15 numbers were more or less in line with our estimates (and marginally better than the street estimates). Healthy Q-o-Q revenue growth in constant currency (CC) despite cross currency headwinds, healthy growth across verticals & geographies and reasonable revenue growth guidance for Q4FY15 were some of the positive highlights of the quarter. Given below are some of the key highlights, which we came across while reviewing the results. Key highlights of Q3FY15 results: (IT services and products)  Consolidated net revenues (INR) for the quarter increased by 6.4% Y-o-Y and by 2.6% Q-o-Q to Rs. 119.93 bn. In dollar terms, the IT services revenues grew by 1.3% Qo-Q to USD 1795.4 mn, impacted by cross currency headwinds. The Q-o-Q revenue growth in CC was at 3.7% Q-o-Q, which was at the upper end of guidance (2.1-4% Q-o-Q) given by the management adjusted for cross currency headwinds. Further, the CC growth was better than that reported by Infosys & TCS (2.5% Q-o-Q growth in CC). This growth was also driven by start of revenues from ATCO deal. In INR terms, the revenue growth was supported by rupee depreciation during the quarter. IT services revenues in INR grew by 3.9% Q-o-Q, while IT products revenues de-grew by 15.4% Q-o-Q.  Overall EBIT grew by 2.6% Y-o-Y & by 4.2% Q-o-Q. EBIT margins declined by 73 bps Y-o-Y, but rose 30 bps Q-o-Q. Despite cross currency headwinds, lower utilization levels & onsite shift in revenues, the EBIT margins improved sequentially on the back of rupee tailwinds, higher share of fixed price projects & productivity gains in such contracts. Segment-wise, IT services business EBIT increased by 4% Y-o-Y & 3% Q-o-Q, while the EBIT margins declined by 123 bps Y-o-Y & 18 bps Q-o-Q to 21.8%, impacted by cross currency headwinds & lower utilization levels. However, Q2 margins included ~60 bps positive impact pertaining to profit from sale of strategic investment. After adjusting for the same the Q3 margins of IT services have improved by nearly 42 bps Q-o-Q. The IT products business reported EBIT of Rs. 89 mn, up from loss of Rs. 116 mn in Q3FY14 and up 43.5% Q-o-Q. The segment EBIT margins improved to 1.2% from negative 1.1% Y-o-Y & up 47 bps Q-o-Q.  PBT growth stood at 7.3% Y-o-Y & 4% Q-o-Q. Finance & Other income (net) grew by 45% Y-o-Y & 2.5% Q-o-Q. Effective tax rate declined by 97 bps Y-o-Y & 77 bps Q-oQ to 22%. Minority interest declined by 17.6% Y-o-Y & 23.7% Q-o-Q. PAT grew by 8.8% Y-o-Y & 5.2% Q-o-Q. PAT margins improved by 41 bps Y-o-Y & 44 bps Q-o-Q to 18.3%. EPS for the quarter stood at Rs. 8.9 (on equity of Rs. 4937 mn) vs. Rs. 8.2 (on equity of Rs. 4931 mn) in Q3FY14 and Rs. 8.4 in Q2FY15 (on equity of Rs. 4935 mn).

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