Hold Wipro; target of Rs 439: BP Equities

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Hold Wipro; target of Rs 439: BP Equities

BP Equities has recommended hold rating on Wipro with a target of Rs 439, in its January 25, 2012 research report.

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BP Equities has recommended hold rating on Wipro with a target of Rs 439, in its January 25, 2012 research report.

"In Q3FY12 Wipro Ltd. delivered a decent performance on revenue coming more or less in line with ours as well as street's expectations. The company surprised on pricing front which grew 2.9% onsite and 2.3% offshore sequentially, primarily due to some fixed price projects which we believe is one time and expect pricing to be flat. Volumes growth stood way below industry average and stood at just 1.8% q-o-q. Guidance of 1-3% rise in US$ revenues for Q4 FY12 margins came as a positive surprise where Infosys expects a flat Q4. Top & Top 5 client grew strongly by 8% and 4% q-o-q respectively in the quarter which indicates that vertical restricting has started to pay off. Going forward we expect that the restructuring of verticals and service lines, new management hierarchy and team will have to work hard to catch up peers performance and will take around 1-2 quarters more to deliver."

"Wipro revenues grew 26.3% Y-o-Y and 9.7% Q-o-Q to Rs 98.8 bn primarily aided by a volumes growth of 1.8% Q-o-Q (v/s ~2-4% for peers) and ~11% depreciation in INR. Revenues for Wipro IT services revenues in USD were up 2.2% Q-o-Q and 12.0% Y-o-Y to US$ 1,505.5 mn (coming exactly inline with our estimate of US$ 1,506 mn) due to 1.8% volumes growth and better pricing (2.9% onsite and 2.3% offshore sequential increase) offset by fall in Utilization rates. Net profit came in at Rs.14.56 bn, up 10.4% Y-o-Y and 12.0% sequentially primarily aided by rupee depreciation and offset by higher forex losses of Rs 1.16 bn and higher tax rate for the quarter. Diluted EPS for the quarter stood at Rs.5.9, up 10.1% Y-o-Y and 11.8% sequentially in line with our estimate of Rs 6.0 for the quarter. Management expects revenues for Q4 FY12E to grow by 1-3% to US$1,520-1,550 mn (as compared to flat for Infosys), which we believe is decent and as per expectation. Management believes budgets to be relatively flat for CY12. Investment banking and telecom segments can witness some budget cuts while projects with lower payback period like analytics, mobility and cloud will not be affected."

"Management is cautiously optimistic about the overall demand environment, expects budgets to be flat for CY12. and believe that it will match peers growth rate in next 1-2 quarters. We expect the company to grow 21.0% and 15.7% Y-o-Y to Rs 375.8 bn and Rs 434.8 bn in FY12E and FY13E respectively. We assume margins to decline ~122 bps Y-o-Y in FY12E to 17.3%. In view of lower than expected volumes growth, higher sales and marketing expense to boost sales and organizational restructuring of the company which will take ~1-2 quarters time to deliver results, we maintain our "HOLD" rating on Wipro Ltd with a price target of Rs 439 ~16x times (20% discount to Infosys) FY13 earnings. The company now trades at a P/E of 18.3.x and 15.5x FY12E and FY13E earnings," says BP Equities research report.

Public holding more than 90% in Indian cos

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To read the full report click on the attachment