Reduce Wipro; target of Rs 400: Emkay

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Reduce Wipro; target of Rs 400: Emkay

Emkay Global Financial Services is bearish on Wipro and has recommended reduce rating on the stock with a target of Rs 400 in its January 20, 2012 research report.

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Emkay Global Financial Services is bearish on Wipro and has recommended reduce rating on the stock with a target of Rs 400 in its January 20, 2012 research report.

"Wipro's op performance was in line with expectations. Rev at US$ 1,505 mn (+2.2% QoQ, +4.5% QoQ in c.c terms) met estimates (Emkay: US$ 1,508 mn), margins improved only by ~80 bps sequentially to 20.8 % despite a 9% QoQ currency depreciation and a 2.7% constant currency pricing benefit impacted adversely by ~100 bps QoQ increase in SG&A expenses during the qtr. Profits at Rs 14.6 bn (+12% QoQ) beat est. helped by higher than expected other income. We note that vol growth was tepid at 1.8% QoQ (lower than peers Infy, TCS) with rev growth aided by a 2.7% QoQ increase in pricing (note this comes on the back of decline in the past 2 qtrs). However we appreciate the improvement in op metrics especially on client mining with growth being led by top clients (top 1/5 clients grew by 8%/4% sequentially at Wipro unlike peers Infy and TCS wherein top clients performance has been relatively subdued). HC addition was strong for the 2nd qtr in a row with co adding ~5k people on a net basis following on the strong Sep'11 qtr addition with attrition falling to the lowest levels in 8 qtrs. Rev from US were up by ~3.8% QoQ while amongst the momentum verticals, Fin Svcs (+3% QoQ), Healthcare (+4.3% QoQ) and Retail (+3.6% QoQ) led growth."

"Wipro has guided for rev of US$ 1,520-1,550 mn (+1-3% QoQ) for March'12 qtr which is in line with Emkay est (we expected a 2-3% QoQ growth outlook) and better than peer Infosys (flat growth). Management cited delays in client decision making in fin svcs(especially European investment banks wherein co indicated not only pressure on overall IT budgets but also pricing pressure), however expects spending in the areas of regulatory compliance, analytics and mobility to remain strong."

"Our FY12/13E earnings estimates remain unchanged for Wipro at Rs 23.2/26.7. While Wipro's senior management has done well on inherent plagues in the recent qtrs, we see it as 'Work in Progress' and believe that a 10-15% stock outperformance to peers in the past 3 months captures that, With valuations in line with peer Infosys despite inferior cash generation and return ratios, we find better risk-reward there. Wipro remains the least preferred stock in out Tier I coverage universe. Retain REDUCE, TP Rs 400," says Emkay Global Financial Services research report.    

Non-Institutions holding more than 90% in Indian cos

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To read the full report click on the attachment