India’s third largest software services exporter Wipro missed street expectations on IT services revenues front that declined 1.2 percent sequentially to USD 1.77 billion in the quarter ended March 2015.Hitesh Shah of IDFC Securities says the company’s operating margins are ahead of the brokerage firm’s expectations, driven by higher realization.
He has a target of Rs 700 for the stock from the next 12 months perspective.
Below is the verbatim transcript of Hitesh Shah's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.
Latha: Looks like a mixed bag with a miss on the revenue from Wipro but margins improving, how have you read it?
A: Revenue numbers were a little below our expectations about 50 bps or thereabouts, the management had guided to 1-3 percent constant currency growth. We were expecting it closer to the lower end of the band, 1.5-1.7 percent quarter-on-quarter (Q-o-Q) on constant currency while they delivered 1.2 percent. Given their high exposure to energy and utilities vertical vis-à-vis its peers, we already had expected them to do closer to the lower end but they missed that also marginally. On the other hand, operating margins were ahead of our expectation. We believe that was primarily driven by higher realization per head count as also tighter cost control. So clearly a mixed bag of results, little miss on revenue line, little better on the margin front.
Sonia: Have you scaled down your earnings per share (EPS) estimates for FY16 and if yes, by how much?
A: For FY16 we have cut our EPS estimate by approximately 3 percent primarily to account for their tepid outlook for Q1 for the high energy exposure. As also slightly lower operating profits.
Latha: What is the price target you said?
A: Our current price target is approximately Rs 700 for Wipro from a 12-months perspective.Sonia: You did mention that the margins were good this time around at 22 percent but given that the company may have to go ahead and elevate their investments which a lot of other IT companies doing, do you think that could dilute margins going ahead and what is your own expectation for the quarters to come?
A: Management also said this on the call that the focus is on growing revenues while what margin they get is an outcome rather than the primary focus of the company. We expect the margins to come off over the next two years in constant currency terms. Though we expect the rupee to be a little weaker than where it has been, incorporating that rupee as well we see some marginal decline in their operating profits over the next two years.
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