Tech cos still need a help from Rupee for long term

55472 Investors following Wipro. Share this News with them.

0

Like this story, share it with millions of investors on M3

Tech cos still need a help from Rupee for long term

Maybe a little bit more, a little bit of a knee-jerk upside on Wipro that is entirely possible but longer-term, I still think that they need a lot of help from the currency otherwise to build a case for re-rating upwards looks a bit more challenging.

Post your opinion here

 

0

Tweet

Share on Tumblr

Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See what other CNBC-TV18 anchors have to say Wipro BSE | NSE 25/05/12 Are Mutual Funds betting on Wipro?

Q: Any material difference to Wipro this morning?

A: There maybe a little bit, Rs 10-15 here and there because it is a big contributor to topline. They have augmented their topline quite a bit, quite materially; it is not one of those USD 40-50 million deals, which do not really materially impact couple of billion dollar sized companies or USD 2-3 billion sized companies. Having said that, my sense is that technology will still move in sync with the currency and not with in swing with any of this acquisitions.

A couple of points about this acquisition, I am no expert on infrastructure management services, so we will wait to hear from experts on what they think about the space but it looks like a space, which Wipro has got a fair ambitions on and to that extent, they are getting more access to clients in that space. So fair enough, there is no argument there. They paid about an enterprise value of USD 600 billion for this deal. This company will have net income of about USD 11 million this year. So on a net income basis, it is paying about 50 times. If you look at EBITDA, they are expected to deliver something in the zone of under USD 50 million in terms of EBITDA. So at USD 600 billion, you are talking about 12 times EV EBITDA for the current year.

It is not cheap for a company which delivers margins in the range of 12%, which are half of Wipro's current operating margin and in a scenario where people are generally quite worried about what kind of margins tech companies will eventually settle at, given the way the rupee is going, you are adding more pressure to your blended margins with the largish acquisition. So there are two ways to look at it, directionally this might be the right move and there is no arguing with that till we find out more but in the near-term, the price which has been paid, the margin pressure etc seems to suggest that people beyond the point may not be very enthusiastic about it. Because the next few quarters as the blended numbers come in, you will see Wipro's combined margin settling at a lower price point without much more of a kick from the rupee. So maybe a little bit more, a little bit of a knee-jerk upside that is entirely possible but longer-term, I still think that they need a lot of help from the currency otherwise to build a case for re-rating upwards looks a bit more challenging.