Sell Wipro; target of Rs 400: Emkay

Emkay Global Financial Services is bearish on Wipro and has recommended sell rating on the stock with a target of Rs 400 in its April 25, 2012 research report.

“Wipro reported a 2% QoQ growth in revenues to US$ 1,536 mn below est (Emkay: US$ 1,550 mn). Point to note that constant currency revenue growth was 1.3% QoQ below mid point of co’s revenue guidance of 1-3% QoQ growth. IT Services EBIT margins were 20.7% flat sequentially (Emkay est of +100 bps improvement), albeit better than peers who reported sequential decline in margins. Profits at Rs 14.8 bn met estimates aided by higher other income despite op performance miss. Metrics performance was mixed with company continuing to report improvement in client metrics albeit top 1/top 5 client revenues declined by 8.4%/0.6% sequentially. Amongst geographies, US (+1.3% QoQ) and Europe (+0.2% QoQ) reported modest performance with Emerging geographies accounting for ~70% of the sequential increase in revenues. DSO was flat sequentially at 71 days however Cash generation improved materially to Rs 18 bn V/s Rs 11 bn in Dec’11 qtr. Headcount declined sequentially by ~800 people to ~1,36,000 but comes on the back of strong employee addition in the recent quarters.”

“Wipro is guiding for a -1% to +1% QoQ growth in revenues for June’12 quarter V/s street expectations of ~2-4% sequential increase and compares with a 0-1% QoQ growth outlook by peer Infosys. Wipro’s March’12 performance along with a muted June’12 qtr outlook in our view puts to risks to street’s prognosis on a superior revenue growth for Wipro given recent performances and a much more confident management commentary. We see downside risks to street’s 13%+ rev growth assumptions for FY13 as we lower our below consensus revenue growth assumptions to ~11% now.”

“We lower our FY13/14E earnings to Rs 26.1/28.9 now (V/s Rs 26.7/Rs 29earlier) as we moderate our revenue growth estimates. Although Wipro is doing well to address the inherent client mining woes, valuations at ~16x/14x FY13/14 (and ~10% premium to Infosys after the 8% fall today) demand continuous improvement in execution. We retain REDUCE with a unchanged TP of Rs 400 with Wipro remaining the least preferred pick in our Tier I coverage universe,” says Emkay Global Financial Services research report.     

Institutional holding more than 40% in Indian cos

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