Buy Wipro; target of Rs 405: SPA Research

SPA Research is bullish on Wipro and has recommended buy rating on the stock with a target of Rs 405 in its November 5, 2012 research report.

“Wipro reported Q2FY13 consolidated revenue of INR 106bn up 1.49% QoQ and 18.13% YoY. Its constant currency IT services revenue at 1,535mn were within their guided band of $1,520 - $1,550mn. The sequential IT services USD growth of 1.73% was fueled by (i) improvement in price realization of 1.48% (1.93% Onsite and 1.44% Offshore) and (ii) 0.25% increase in volumes. EBITDA Margins of the company declined by 17bps to 19.94% sequentially on the back of wage hikes, though partially offset by increase in pricing realization. EBIT margins for IT businesses remained stable at 19%. PAT margin improved by 30bps to 15.20% on the back of higher other income which also caused a higher tax rate (23.90%) in the absence of any one time deductions that the company got in Q1FY13.”

“Energy Utilities (up 8.18% QoQ), BFSI (4.04%), BPO (5.36%) and Infrastructure service (3.51%) led the growth charge. Consulting continued its downward trajectory for 4th consecutive quarter, down -21.51% YoY. Telecom declined 1.68% QoQ, this is the 3rd straight quarterly decline signifying continuing softness in the sector. The company has guided towards a stronger Q3FY13 performance with IT services USD revenue growth expected at 1.63% ($1,560mn) to 3.58% ($1,590mn) against Q2 range of 0.34% to 2.32%. We expect the company to be at a lower end of this guided range due to lesser number of working days in Q3 and also anemic volume growth trend. However we expect a pickup from Q4 onwards.”

“On the back of improved guidance and increased deal pipeline we remain confident of the company meeting our estimates. We have estimated USD revenue CAGR of 11.85% and operating margins of 18.80%/17.33% in FY13E/14E on the back of (i) INR appreciation and (ii) S&M investments, resulting in an EPS CAGR of 15.12% over FY12-14E. Thus, we recommend buy with an 18-month TP of INR 405 at 13.5x FY14E earnings,” says SPA Research report.

Institutional holding more than 40% in Indian cos

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