Jan 28, 2013, 11.50 AM | Source: Moneycontrol.com
KRChoksey has maintained hold rating on Wipro with a target price of Rs 409 in its January 24, 2013 research report.
, KRChoksey |
"Wipro, IT Services registered revenue growth of 2% QoQ in constant currency (CC) in Q3 FY13 which is marginally higher than our expectation of 1.5% QoQ growth. However, the company continues to trail peer sets in terms of revenue growth for instance Infosys, TCS and HCL Technologies reported revenue growth (on QoQ basis) of 3.8%, 2.7% and 3.1%, respectively, in Q3 FY13 in CC terms. Moreover, we are disappointed with subdued revenue growth guidance of 0.5% to 3% QoQ growth in USD terms in Q4 FY13E, as it indicates that the company will continue to trail peer sets in terms of revenue growth in near term. For instance, Infosys has guided minimum growth of 2.8% QoQ (in USD terms) in Q4 FY13E and TCS management has indicated that they are likely to clock higher revenue growth in Q4 FY13E compared to Q3 FY13 i.e. 3% plus QoQ. Further we were let down by decline in IT Services’ EBIT margin (excluding forex gain/loss) by 41 QoQ versus our expectation of improvement by 34 bps QoQ led by decline in utilization rate. Nonetheless, we believe the same is reflected in recent stock correction and hence there is limited downside from the current level.
ADM and Product Engineering continues to be pain area for the company: The company continues to trail peer sets in terms of revenue growth led by pressure in ADM and Product engineering (constituting 29% of IT Series revenue) for the second consecutive quarter. It indicates that the company is losing out to peers during consolidation exercise by clients.
Widening of guidance range indicates lack of visibility for the coming quarter: The company has registered pickup in deal pipeline (about 70% jump on YoY basis); however the same is not reflected in the management guidance for the coming quarter i.e. 0.5% to 3% QoQ (in USD terms). It indicates lower wining ratio or client specific issues being faced by the company. Moreover, the company has widened guidance range indicating low visibility for the coming quarter.
Valuation and view: Considering modest revenue growth guidance and pressure in two key segments i.e. ADM and Product Engineering; we believe the company will continue to grow at slower rate than industry’s average in near term. However, we believe the same is already reflected in recent stock correction and hence recommend "HOLD" on the stock with a price target of Rs. 409 by assigning multiple of 15 times (i.e. around 20% discount to TCS’s target P/E multiple) to its FY14E EPS of Rs. 27.3," says KRChoksey research report.
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