Buy Wipro; target of Rs 690: Angel

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Buy Wipro; target of Rs 690: Angel

Broking house, Angel Broking is bullish on Wipro and has recommended buy rating on the stock with a 12-month target of Rs 690.

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Wipro BSE | NSE 25/05/12 Are Mutual Funds betting on Wipro?

Broking house, Angel Broking is bullish on Wipro and has recommended buy rating on the stock with a 12-month target of Rs 690.

Angel Broking report on Wipro

Performance Highlights

Other businesses come to the party to power topline growth  

Wipro in Q4FY2007 recorded a strong 8.8% QoQ growth in its topline during   Q4FY2007. The global IT services business clocked a 6.0% QoQ growth,   driven by acquisitions and the BPO business. Pure IT services grew at 5.0%   QoQ, driven by a 5.3% QoQ growth in onsite and offshore volumes combined   and a 2.2% onsite and a 0.6% offshore increase in billing rates. A 1.7% lower   realised rupee rate (Rs 44.13 to a dollar in Q4 vis-à-vis Rs 44.89 in Q3) led to   the growth in rupee terms being slower than the growth in dollar terms (7.8%   QoQ). The other businesses of Wipro, that is, Wipro Infotech, Wipro   Consumer Care & Lighting (CC&L) and Others, including infrastructure   engineering, grew at QoQ rates of 11.8%, 7.6% and 38.7% respectively.   However, it should be noted that comparing these businesses on a sequential  basis would not be appropriate, given the seasonality factor inherent in some   of them. On a YoY basis, these businesses clocked impressive growth rates   ranging between 37% (CC&L) and 247% (Others).     

Higher SG&A costs pressurise margins  

During Q4FY2007, Wipro recorded a 43bps fall in its EBITDA margins. Higher   SG&A costs as a percentage of sales was the main reason that led to this fall (impact of 139bps), apart from a salary hike given to its onsite employees (impact of 60bps). This is undoubtedly a cause for concern and if we look at the quarterly trend in margins in FY2007, the company has recorded a fall with each successive quarter. From 24.2% in Q1, EBITDA margins fell to 23.3% in Q2, 22.2% in Q3 and 21.8% in Q4. Consequently, we believe that going forward, margin management is a big challenge for Wipro.     

Higher other income, lower taxes power the bottomline  

Wipro recorded a strong 11.8% QoQ rise in its bottomline for Q4. Higher other income (up 17.2% QoQ) and lower taxes enabled this growth, despite the margin dilution witnessed. The company appears to have managed its forex risks well during the quarter, even as it reduced its hedges by around 50% to USD 188mn. The current outstanding positions stand at USD 195mn.