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India Equity Research Reports, IPO and Stock News
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Story little changed
1Q headline numbers in line, but from FX and lumpy product revs
Still looking for a 2H turnaround, but interim results uninspiring
Client mining and attrition improving, but focus verticals are not
Relatively cheap valuation, but no catalysts until results improve
Story little changed
Wipro’s story is little changed from
4QFY11. We are still looking for a
2HFY12 turnaround after management
and organisational changes earlier this
year, but in the interim the company’s
results continue to be lacklustre and we
are still not seeing the positive signs that
we had hoped would surface by this time.
What works for Wipro, in our view, is its
relatively cheap valuation of 16.8x FY12
P/E (on BNPP estimates), which makes it
only slightly more expensive than smaller
peer HCL Tech (HCLT IN, BUY, CP:
INR500), which trades at 15.6x FY12 P/E
(BNPP). But we believe the stock could be without catalysts until the
improvements start coming through. Our estimates are under review.
Good headline numbers, but uninspiring details
Wipro’s headline INR revenue, EBIT margin and EPS numbers in
1QFY12 were marginally above our estimates, but were helped by a
better-than-expected realised USD/INR rate and lumpy product revenue.
In USD terms, services revenue (75% of the total) was up only 0.5% q-q
and declined marginally in organic terms, and was about 2% below our
expectation. Wipro’s 1Q services revenue growth guidance of -0.5-1.5%
q-q did not include ~USD9.5m from the SAIC acquisition, which means
the company reported close to the lower end of its guidance. Further, the
2Q growth guidance of 2-4% (0-2% organic by our calculations) looks
muted at a time when we expect large-cap peers to report closer to 5%.
Some positives, but not enough of them at this stage
Among the positives were: 1) USD100m+ accounts increased from one
in 3QFY11 to four in 1QFY12 on an LTM basis, indicating improving
traction with top customers, which was one of management’s top priorities.
2) Reported attrition was above 25% (well above peers’ 15-16%), but
management noted that between April and June attrition fell by about
5ppts, and that 2Q could see sub-20% attrition. The negative, however,
was that among the “momentum” verticals (together 64% of revenue)
only energy & utilities (+14.4% q-q) was strong, while financial services
(+0.5% q-q), retail (-3.6% q-q) and healthcare (-3.2% q-q) are yet to show
the promise we were hoping for
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Story little changed
1Q headline numbers in line, but from FX and lumpy product revs
Still looking for a 2H turnaround, but interim results uninspiring
Client mining and attrition improving, but focus verticals are not
Relatively cheap valuation, but no catalysts until results improve
Story little changed
Wipro’s story is little changed from
4QFY11. We are still looking for a
2HFY12 turnaround after management
and organisational changes earlier this
year, but in the interim the company’s
results continue to be lacklustre and we
are still not seeing the positive signs that
we had hoped would surface by this time.
What works for Wipro, in our view, is its
relatively cheap valuation of 16.8x FY12
P/E (on BNPP estimates), which makes it
only slightly more expensive than smaller
peer HCL Tech (HCLT IN, BUY, CP:
INR500), which trades at 15.6x FY12 P/E
(BNPP). But we believe the stock could be without catalysts until the
improvements start coming through. Our estimates are under review.
Good headline numbers, but uninspiring details
Wipro’s headline INR revenue, EBIT margin and EPS numbers in
1QFY12 were marginally above our estimates, but were helped by a
better-than-expected realised USD/INR rate and lumpy product revenue.
In USD terms, services revenue (75% of the total) was up only 0.5% q-q
and declined marginally in organic terms, and was about 2% below our
expectation. Wipro’s 1Q services revenue growth guidance of -0.5-1.5%
q-q did not include ~USD9.5m from the SAIC acquisition, which means
the company reported close to the lower end of its guidance. Further, the
2Q growth guidance of 2-4% (0-2% organic by our calculations) looks
muted at a time when we expect large-cap peers to report closer to 5%.
Some positives, but not enough of them at this stage
Among the positives were: 1) USD100m+ accounts increased from one
in 3QFY11 to four in 1QFY12 on an LTM basis, indicating improving
traction with top customers, which was one of management’s top priorities.
2) Reported attrition was above 25% (well above peers’ 15-16%), but
management noted that between April and June attrition fell by about
5ppts, and that 2Q could see sub-20% attrition. The negative, however,
was that among the “momentum” verticals (together 64% of revenue)
only energy & utilities (+14.4% q-q) was strong, while financial services
(+0.5% q-q), retail (-3.6% q-q) and healthcare (-3.2% q-q) are yet to show
the promise we were hoping for
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