Wipro Ltd (Q1 FY13)

India Infoline News Service | Mumbai |

IT services dollar revenue performance was largely in-line with estimates on a constant currency basis.

CMP Rs346, Target Rs419, Upside 21.2%

  • Constant currency IT services revenue growth in line with estimate; Pricing is sluggish
  • Select verticals/service drive growth; Client mining improves with Top 2-5 growing 7%+ qoq
  • Consolidated and IT services OPM slightly below estimates; Employee additions strong
  • Q2 FY13 guidance lower than expectation; Slower client decision-making a key reason
  • Reduce FY13/14E revenue estimates; Valuations cheap post strong correction
Result table
(Rs mn) Q1 FY13 Q4 FY12 % qoq Q1 FY12 % yoy
Net sales 106,530 98,691 7.9 85,640 24.4
Operating profit 21,426 19,611 9.3 17,292 23.9
OPM (%) 20.1 19.9 24 bps 20.2 (8) bps
Depreciation (2,704) (2,668) 1.3 (2,338) 15.7
Interest (1,367) (464) - (760) -
Other income 2,692 2,441 10.3 2,903 (7.3)
PBT 20,047 18,920 6.0 17,097 17.3
Tax (4,046) (4,015) 0.8 (3,096) 30.7
Effective tax rate (%) 20.2 21.2 - 18.1 -
Other prov/minority etc (5) 110 - 110 -
Adjusted PAT 15,996 15,015 6.5 14,111 13.4
Adj. PAT margin (%) 15.0 15.2 (20) bps 16.5 (146) bps
Reported PAT 15,996 15,015 6.5 14,111 13.4
EPS (Rs) 6.5 6.1 6.5 5.7 13.4
Source: Company, India Infoline Research

Constant currency IT services revenue growth in-line with estimate; Pricing is sluggish

IT services dollar revenue performance was largely in-line with estimates on a constant currency basis (+0.3% qoq versus expectation of 0.5% growth). To put this into perspective, Infosys de-grew 0.4% and TCS grew 4% in constant currency terms in Q1 FY13.  Volume growth at 0.8% qoq was better than expectation but offshore pricing corrected by 1% on a cc basis. Higher than expected cross currency impact of US$25mn led to dollar revenues coming in marginally lower than expected at US$1.515bn. Consumer care business continued its robust growth streak growing ~30% yoy in rupee terms. On the flip side, IT products de-grew by 5.2% on yoy basis. Consolidated rupee revenues came in higher than expected at Rs106.5bn (+8% qoq) on the back of weaker rupee.


Select verticals/services drive growth; Client mining improves with Top-5 growing 5%+ qoq

The revenue growth for Q1 FY13 was been driven by select verticals, services and geographies. On the verticals front, Global Media telecom & Manufacturing led the growth in constant currency terms (+2% and 1.5% cc qoq respectively). BFSI continued to be weak (down 0.6% qoq in cc term) while Retail de-grew materially 2.2% qoq. Amongst services, growth was led by   Analytics and Product engineering which grew 3.3% and 2.5% qoq in dollar terms. ADM corrected significantly by 6.3% qoq largely due to weakness in BFS (especially investment banking) and Hi-tech.


Amongst geographies, APA/other EMs led growth registering +10% qoq in cc. While Europe growth was decent at 1.4% qoq, NA de-grew 2.1% due to weakness BFS as well as equipment manufacturing clients. On a positive note, improvement in client mining continued with Top 5 clients posting robust growth of 5%+ qoq in constant currency terms. Client movement across revenue buckets was also good with >US$100mn revenue clients improving to 8 vis-à-vis 7 in Q4 FY12 and 4 in Q1 FY12.


Consolidated and IT services OPM slightly below estimates; Employee additions strong

The consolidated and IT services operating margin for the quarter came in marginally below estimate at 20.1% and 23.8% respectively. The lower OPM, we believe, is largely due to increased S&M costs and higher than anticipated impact of cross currencies and weaker pricing. Overall the impact of various factors wereSalary: -120bps, realization correction: -20bps, S&M costs: -70bps, Rupee depreciation: +310bps. We liked the employee additions during Q1 FY13 which were strong at a sequential growth of 2%. While the attrition came down on a trailing twelve month basis, the current quarter attrition (annualized) went up from 14.4% last quarter to 15.2% now. Lower than expected other income was largely offset by lower tax payout as well as higher other income resulting in a PAT of ~Rs16bn (marginally higher than expected).


Q2 FY13 guidance lower than expectation; Slower client decision-making a key reason

We were disappointed by the Q2 FY13 dollar revenue guidance of US$1.52bn to US$1.55bn (0.3-2.3% qoq growth) which came in lower than our expectation of 3% dollar revenue growth. Management attributed the lower than expected guidance due to lack of seasonal up-tick in the India business (due to slow down in capital spending) and weakness in investment banking and Hi-tech clientele. On the positive note, the company expects the demand from BFSI, telecom to recover in coming quarters. On the pricing front, management commented certain pockets of pressure but remained stable otherwise. Pipeline, as per the company, remains robust with amount of proactive deals improving materially with the only concern being the delay in their finalization.  


Reduce FY13/14E revenue estimates; Valuations cheap post strong correction

Weak guidance and pricing sluggishness were the key dampeners from Wipro’s Q1 FY13 result report. These further accentuate the decision making slowdown, challenges in certain end verticals/geographies and cost pressure in traditional services. On the back of the lower than expected guidance for the next quarter, we pare down our FY13/14E dollar revenue expectation and now estimate a 9% dollar revenue CAGR over the same period (versus 12% earlier). Though, we continue to believe in the positive structural changes and strategic direction at Wipro, the weakening of external demand environment could delay the validation of the same. Post strong correction in last one month, the stock is trading at cheap P/E valuations of 13x FY13E. Retain BUY with a reduced 9-month TP of Rs430.    


Financial summary
Y/e 31 Mar (Rs m) FY11 FY12 FY13E FY14E
Revenues 310,542 371,971 434,500 484,059
yoy growth (%) 14.2 19.8 16.8 11.4
Operating profit 65,434 70,811 85,597 94,875
OPM (%) 21.1 19.0 19.7 19.6
Reported PAT 53,625 56,063 65,534 71,876
yoy growth (%) 16.8 4.5 16.9 9.7
         
EPS (Rs) 21.9 22.8 26.7 29.3
P/E (x) 15.8 15.2 13.0 11.8
Price/Book (x) 3.5 3.0 2.6 2.2
EV/EBITDA (x) 12.1 11.1 8.9 7.6
RoE (%) 24.6 21.4 21.3
BSE 283.75 [3.45] ([1.20]%)
NSE 283.70 [3.50] ([1.22]%)

***Note: This is a NSE Chart

 

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