Wipro Ltd (Q3 FY13)

• IT services revenues marginally better than estimates; Higher FP productivity leads to better pricing but lower volumes
• Broad based growth across verticals/services ; Client mining continues to improve
• OPM performance in-line on the back of strong realisation increase; Employee additions were decent
• Wide range in guidance builds in caution but management commentary improves; Maintain positive stance

IT services revenues marginally better than estimates; Higher FP productivity leads to better pricing but lower volumes

Q3 FY13 dollar revenue performance for Wipro IT services was marginally above estimates at US$1.58bn (v/s expectation of US$1.57bn). While the volumes corrected 1% qoq, realisation was up 3.8% in dollar terms. This was largely due to lower billing days, higher traction on Fixed price (FP) projects, and their strong execution (implies same revenues from lower efforts and hence improved productivity). Amongst other business segments, the IT products business grew strongly at 10.8% yoy and consumer care business had a slower growth of 17% yoy in rupee terms.

Broad based growth across verticals/services; Client mining continues to improve

In the quarter gone by, growth was largely broad-based across verticals and service lines. Amongst verticals, growth was driven by Healthcare (+6.7% qoq), Retail & Transportation (+3.1% qoq) and Energy & Utilities (+2.4% qoq). Within services, business application services (+4.7% qoq), technology infra services (+4.6% qoq) and BPO (+3.5% qoq) grew higher than company average (+2.4% qoq). Amongst geographies, Europe was the key driver growing 7.5% qoq in dollar terms. From the clients’ perspective, top5/Top10 grew better than company average at 3.9%/2.8% qoq respectively. Client additions remained decent and the US$100mn+ clientele continued its up-trend increasing by 1 qoq. Client satisfaction index too showed sustained improvement (+2% qoq).

OPM performance in-line on the back of strong realisation increase; Employee additions were decent

The Q3 FY13 OPM performance of Wipro was largely in-line with expectation with the consolidated OPM coming in at 20.1%. IT services OPM at 23.5% was slightly better than our expectation of 23.3%. The strong improvement in realisation (+3.8% qoq in dollar terms) helped to shore up the impact of RSU/promotion costs and lower utilization. Higher other income and lower tax rate resulted in PAT coming in 8-9% higher than expected at Rs17.2bn. On the employee front, net additions were decent at 1.7 %of its Q2 Fy13 base. Employee attrition for its IT services business further improved to 12.9% (versus 14.4% last quarter)

Wide range in guidance builds in caution but management commentary improves; Maintain positive stance

For the coming quarter (Q4 FY13), company has guided for 0.5%-3% qoq growth in its IT services business, a slightly wider range. This is largely on the back of ample caution built in towards any slow ramp-ups in newly won deals and uncertainty on the India business momentum. The management commentary has shown signs of improvement with higher deal pipeline (1.7 x yoy), better macro environment and consequent improvement in client decision making. A good exposure to growing areas of Healthcare, energy utilities, IMS and BI/analytics should help Wipro further improve its performance. Decent hiring and better client metrics add to the comfort. We maintain our positive stance a BUY recommendation. Our 9-month/18-month TP is Rs464/Rs490 remains.

Financial Summary