Accumulate Wipro; target of Rs 460: Arihant capital markets

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Accumulate Wipro; target of Rs 460: Arihant capital markets

Arihant capital markets is bullish on Wipro and has recommended accumulate rating on the stock with a target of Rs 460 in its January 20, 2012 research report.

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Arihant capital markets is bullish on Wipro and has recommended accumulate rating on the stock with a target of Rs 460 in its January 20, 2012 research report.

"Wipro posted their Q3FY12 results which was broadly inline with our estimates. In USD terms, its IT services revenue came at $1505.5mn-a growth of 2.2% QoQ, while on a constant currency basis, revenue grew by 4.5%. In INR terms, the topline grew by a whopping 11.4% at Rs.7607.6cr. Volume growth however was disappointing at only 1.8% (onsite-1.5%, offshore-1.9%), which was the lowest among the top 4 Indian IT companies (Infosys-3.4%, TCS-3.2%, HCLT-4.9%). Wipro's total income grew by 9.9% QoQ to Rs.9997.3. Its bottomline came slightly better at Rs.1456.4cr v/s our expectation of Rs.1430cr-a growth of 11.9% QoQ. This was mainly on the back of a 93bps improvement in their EBIDTA margin to 17.5% after incurring a forex loss of Rs.116.4cr. The improvement in margins was aided by favourable currency movement and better revenue productivity."

"Wipro saw a sequential improvement of 2.9% and 2.3% in onsite and offshore pricing respectively. Though it was pleasing to see this pricing uptick after two quarters of decline however, the fact that it came on the back of sacrifice in volume growth is a matter of concern. A sharply lower voluntary attrition rate of 14.2% v/s 18.5% in the previous quarter was another positive for the company which also may have provided some relief on the margin front. Thus, Wipro was able to increase its operating margin in IT services to 20.8% in Q3 from 20.0% in Q2. Wipro's utilisation level during the quarter saw a sharp dip by around ~3% to 77.5% from 80.7% (excluding trainees). The company attributes this drop to their initiative of keeping a larger bench in order to capture shortterm growth opportunities better. The company also added 5004 employees on a net basis out of which half were freshers, which also contributed to the utilisation dip. Going ahead, we believe once projects starts flowing in utilisation should see some uptick." 

"Wipro's management sounded relatively confident about the business environment. Though, this was not reflected much in their next quarter's guidance, we believe that Wipro will be able to better its performance in the coming quarters. Factoring in a weaker rupee than our previous expectation, we up our estimates. However, taking a fragile global economic scenario and weaker market sentiment into consideration, we lower our target PE multiple for Wipro to 18x from 20x earlier for its FY13E EPS of Rs.25.6per share. We thereby lower our target price to Rs 460 per share from Rs 495 earlier and reduce our call to 'ACCUMULATE' on dips from 'BUY' earlier as the stock has run up quite a bit during the December quarter (around 12%)," says Arihant capital markets research report.  

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