Hold Wipro, recommends Ventura

Ventura's report on Wipro

For Q2FY14, Wipro reported a very strong set of numbers with its top-line registering a growth of 13 percent QoQ (19 percent YoY) to Rs 10,989 crore. Despite headwinds from wage increases (two-month impact), the EBITDA margins in Wipro’s IT services increased sharply by 235bps QoQ. Although the rupee depreciation was a significant tailwind, operational efficiencies such as utilization and employee productivity aided margin expansion during Q2FY14. Driven by the higher EBITDA margins and forex gain of Rs 219.3 crore, Wipro’s net profit reported a sharp growth of 19.0 percent QoQ to Rs 1,942 crore.

The revenue from IT services stood at Rs 10,070 crore (USD1,631 mn), representing a QoQ growth of 12.7 percent in rupee and 2.7 percent in USD terms. The EBIT witnessed a growth 26.9 percent QoQ to Rs 2,260 crore. The EBIT margin, at 22.5 percent, surged 250bps QoQ. The management expect Wipro’s IT services to witness an implied growth of 1.8-3.6 percent QoQ to USD1,660-1,690mn.

Revenue from the IT products business stood at Rs 940 crore, a 14.8 percent increase QoQ. The EBIT stands at Rs 15.2 crore, up 16.0 percent QoQ, while the EBIT margin was flat QoQ at 1.6 percent. Business application services (BAS) and Product engineering and mobility (PE&M) posted good sequential growth of 4.6 percent and 3.5 percent, respectively, while Analytics and information management (AIM) and technology infrastructure services (TIS) grew 1.1 percent and 2.8 percent QoQ, respectively. BPO and consulting grew by 0.4 percent and 1.5 percent, respectively, while the company’s R&D business grew 7.4 percent QoQ.

With regards to its geographical spread, the company has witnessed 2.9 percent of growth on a quarterly basis in America, while Europe grew at 2.3 percent. The growth contribution from India & the Middle East and APAC and Other Emerging Markets came in at -2.2 percent and 6.3 percent, respectively, on a QoQ basis.

"At a CMP of Rs 481, the stock is trading at 15.9x and 14.1x FY14E and FY15E earnings estimates, respectively. Given the strong revenue visibility and improving margins, we recommend a HOLD on the stock," says Ventura Securities research report.

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