Buy Wipro; target of Rs 413: R K Global

R K Global is bullish on Wipro and has recommended buy rating on the stock with a target of Rs 413 in its November 19, 2012 research report.

“Wipro posted results, ~7% lower than our estimates. The Company’s revenue were flat on QoQ but grew by ~17% YoY in Q2FY’13 to Rs1,05,840 mn on the back of muted volume growth despite the pricing improvement. Whereas the onsite price realization was up ~1.9% and offshore realization was up by 1.5% but the volume growth is mere 0.2% on QoQ basis. The IT services (~79% of sales) grew by 0.7% QoQ to Rs83,730 mn in rupee terms and grew by ~1.7% to USD1,541 mn in dollar terms. The Non-GAAP constant currency IT Services Revenue in dollar terms was USD 1,535 mn, within the guidance range of USD1,520 mn to USD1,550 mn. Improvement Foreseen.”

“Net sales growth was flat at Rs1,05,840 mn for the quarter ended September 2012. Also, margins were flat at ~20.1% on the back of decline in other expenses (60 bps QoQ) and consumption cost (20 bps QoQ) despite the rise in Staff cost (90 bps QoQ) and Sub-contracting costs (10 bps) as percentage to the sales. Eventually, the operating profit growth was also flat at Rs 21019 mn after the 20% increase in the other income to Rs3,597 mn, PBIDT grew by ~2% QoQ to Rs24,616 mn. Also, with the sharp ~61% fall in interest cost by ~61% QoQ to Rs537 mn and ~35% increase in depreciation to Rs2,795 mn, PBT grew by ~6% QoQ to Rs21,284 mn. However, the rise in effective tax rate by 370 bps QoQ to ~23.9% led to mere ~1% PAT growth QoQ to Rs16,205 mn. After accounting to Share of loss from associates Rs35 mn (as against Rs102 mn) and minority interest Rs64 mn (as against Rs97 mn) net profit grew by ~2% QoQ to Rs16,106 mn for the period ending Q2FY’13. THE Company’s EPS for the Quarter stood at Rs6.5 in comparison to YoY Q’s EPS at Rs5.2. The demerger of the Wipro Consumer Care & Lighting (including Furniture business), Wipro Infrastructure Engineering (Hydraulics & Water businesses), and Medical Diagnostic Product & Services business (through its strategic joint venture), into a separate company to be named Wipro Enterprises Ltd. the Wipro Ltd will remain a publicly listed, that will focus exclusively on information technology where as Wipro Enterprises ltd will be an unlisted. Notably, the demerger will provide fresh impetus for both businesses to pursue their individual growth strategies and improve their competitiveness in respective markets.”

“The financial services industry, especially banking, is in the midst of massive upgrade of existing IT set ups to cope with future regulatory and customer-driven online and mobile services. The management has guided that the financial services industry, especially banking, is in the midst of massive upgrade of existing IT set ups to cope with future regulatory and customer-driven online and mobile services. The company has guided towards a stronger Q3FY’13 performance with IT services USD revenue growth expected at ~1.6% (USD1,560 mn) to ~3.6% (USD1,590 mn) against Q2 range of 0.34% to 2.32%. However, we do not feel too optimistic on this guidance as we believe that all the three pillars (volume, pricing [pricing saw a good uptick] & utilization) aren’t mature yet, but will likely take 2Qs more to enter the growth arena. We have not changed our estimation as we would like to one Q more for any such estimation change for FY’13E/14E. However, if we do it would be solely on the basis of INR appreciation and S&M investments.  At CMP, the stock trades at a P/E of ~11.2x and P/BV of ~2.8x , using FY’13E EPS and BVPS & P/E of ~9.2x and P/BV of ~2.2x FY’14E EPS and BVPS. We re-iterate a BUY on Wipro Ltd stock with a revamped TP of Rs413 (15% potential return from CMP). Our TP is arrived at, by using P/E of ~12.9x and ~3.2x of FY’13E EPS and BVPS of Rs32 and Rs127 respectively and P/E of ~10.6x and ~2.3x of FY’14E EPS of Rs39 and BVPS of Rs157,” says R K Global research report.

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