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Wipro reported its 2QFY2011 numbers, which were much below street as well as our
expectations on all fronts. IT services revenue came in at US $1,273mn with muted growth
of 5.7% qoq (v/s our expectation of US $1,286mn). Volume growth for IT services was
6.6% qoq backed by better growth of 7.4% in offshore volumes and 4.4% qoq growth in
onsite volumes. Overall consolidated revenue came in at `7,730.5cr (v/s our expectation
of `8,177cr) with 6.8% qoq growth, whereas its peers have reported double-digit revenue
growth in the same quarter. This is because IT services growth was muted and the
IT products segment declined largely. Overall EBITDA margins slumped by 158bp qoq to
20.7% (v/s our expectation of 30bp qoq dip) on the back of promotions, grant of restricted
stock units and lower exchange realisations. PAT came in at `1,285cr with a
2.5% qoq decline (v/s our expectation of `1,352cr) on the back of lower profitability and
forex loss.
Wipro’s 2QFY2011 results were very disappointing and the guidance for 3QFY2011 at
3.5–5.5% qoq growth looks much muted, considering the upbeat environment for
IT spending. Also, the management’s commentary about its anchor verticals,
i.e. technology and telecom, was not encouraging. At the CMP of `470, the stock is
trading at 18.3x FY2012E of `25.7, close to its intrinsic value of `489. The stock is
currently under review.
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