Hold Wipro; target of Rs 441: R K Global

“Wipro Ltd, India's third largest software services exporter, reported an impressive ~27% YoY growth (in comparison to our expectation of ~18%) in its revenue for the Q3FY’12. However, cited weak global cues and impacts on its business for the periods to come as most client budgets have been finalized. Though, spend is unlikely to contract but flat budgets are more likely to happen, resulting in pale revenues. Moreover, restructuring effect is unlikely to be seen in a dampened global environment and cautious IT spends from marquee clients”

“Wipro Ltd, reported very stable revenue, where consolidated revenue rose by ~27% YoY to ~99,792 mn, while on a sequential basis the revenue grew by ~11%. Numbers were better than our expectations as revenue segregation proved very vital for the company and is continuing to do so (as we mentioned in our IC in Sep’11). Global IT revenues (standalone IT business) of the company moved up by ~11.4% to Rs76,070 mn in the quarter ended December FY’12 versus Rs68,290 mn in the previous quarter. The investment in sales has partly offset the currency pricing benefits. The pricing is up ~3-4% in constant currency terms. EBIT margin of the global IT business too improved at ~20.8% versus ~20% during the same period. The company has added an impressive list of 39 clients this Q3FY’12 and added 5,000 net employees for the period. For the next quarter i.e fourth quarter, the company expects revenues at USD 1.52-1.55 bn (Rs78,660-80212 mn), which is based on USD/INR rate of 51.75 and €/USD of 1.33. We expect the company’s operating margin to the levels of ~23% as compared to the reported ~20% (down by 300 bps) over increase in onsite & offsite wage increase. The company’s profit grew by ~14% YoY (our expectation at ~16%), while the net-margin fell by ~500 bps.”

“There are three levers that we typically use to value IT firms. One is the pricing piece of it. The second is the utilization. The third is volume growth. In case of Wipro, all three levers are yet to mature and thus rooms are remaining and re-evaluation will depend on the improvement in levers. At CMP of Rs413, the stock trades at a P/E & P/BVPS of ~7.1x and ~2.0x respectively, using FY’13E EPS & BVPS. Hence, we e-iterate our earlier rating on HOLD, re-affirming on our ETP of Rs441 (upside potential of ~6.3% from current levels), factored over a P/E & P/BVPS of ~7.6x and ~2.0x, using FY’13E EPS of Rs58 and BVPS of Rs211,” says R K Global research report.

Public holding more than 90% in Indian cos

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.