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Nov 10, 2012, 04.16 PM IST | Source: Moneycontrol.com

Buy Wipro; target Rs 421: Angel Broking

Angel Broking is bullish on Wipro and has recommended buy rating on the stock with a target price of Rs 421 in its November 2, 2012 research report.

Angel Broking is bullish on Wipro and has recommended buy rating on the stock with a target price of Rs 421 in its November 2, 2012 research report.

"Wipro’s results came in largely in line with our estimates (For 2QFY2013). The IT services USD revenue growth came in at 1.7% qoq. One key negative thing was the tepid volume growth of 0.2% qoq (way below other peer companies), but on the positive side the company has been able to maintain its pricing as against peer companies and also despite giving wage hikes, the decline in EBIT margin of IT services was much less than expected (31bp qoq). For 3QFY2013, the management has given a USD revenue guidance of US$1,560mn-1,590mn, which translates into a qoq growth of 1.1-3.1%.

For 2QFY2013, Wipro posted almost flat revenue to Rs 10,657cr. Wipro’s EBITDA and EBIT margins declined slightly by 5bp and 13bp qoq to 20.1% and 17.4%, respectively. The PAT came in at Rs 1,617cr, up 2.3% qoq, aided by Rs 270cr finance income.  For 3QFY2013, the management has given USD revenue guidance of US$1,560mn-1,590mn, which translates into qoq growth of 1.1-3.1%, (lower than our expectation of 1.5-3.5%) because of continued weakness in IT spend from investment banks, India region and seasonally weak 3Q. Wipro has chosen its growth strategy to revolve around focusing on selected few segments in terms of industry verticals and services.

We expect Wipro's transition will take longer than anticipated earlier and the uncertain macro environment will further push the timeline. We expect USD and INR revenue CAGR for IT services to be at 8.9% and 13.3%, respectively over FY2012-14E. On a consolidated level, we expect Wipro’s revenue to post a CAGR of 12.8% over FY2012-14E. We expect a 12.8% and 11.1% CAGR in EBITDA and PAT over FY2012-14E. The stock is currently trading at 14.0x FY2013E and 13.0x FY2014E EPS. We value the stock at 15x FY2014E EPS of Rs 28.1, which gives us a target price of Rs 421. We maintain Buy rating on the stock," says Angel Broking research report.

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