Wipro Ltd (Q4 FY13)

India Infoline News Service | Mumbai |

Q4 FY13 dollar revenues performance for Wipro Ltd (only IT services & products business) was below expectation.

CMP Rs369, Target Rs410, Upside 11.1% 
  • Constant currency revenue growth below estimates; Realisation corrects 1.7% sequentially

  • Patchy growth across verticals and services; Emerging markets shine 

  • OPM performance marginally below estimates despite realization headwinds; Employee attrition reduces further

  • Q1 FY14 guidance a dampener; Reduce estimates/TP to reflect weakness; Maintain BUY  

Result table*
(Rs mn) Q4 FY13 Q3FY13 %qoq Q4 FY12 % yoy
Net sales 96,284 95,987 0.3 85,267 12.9
Operating profit 20,281 20,492 (1.0) 18,472 9.8
OPM (%) 21.1 21.3 (29) bps 21.7 (60) bps
Depreciation (2,745) (2336) (1.8) (2,303) 19.2
Interest (395) - - (375) -
Other income 3,077 - (4.9) 2,448 25.7
PBT 20,218 - (0.9) 18,242 10.8
Tax (3,973) - (21.8) (3,804) 4.4
Effective tax rate (%) 19.7 - - 20.9 -
Other Prov./Minority (86) - - (103) -
Adjusted PAT 16,159 - 6.2 14,335 12.7
Adj. PAT margin (%) 16.8 - 46 bps 16.8 (3) bps
Reported PAT 16,159 - 6.2 14,335 12.7
EPS (Rs) 6.6 - 6.2 5.8 12.7
Source: Company, India Infoline Research
*Only Wipro IT business (IT services and products)

Constant currency revenue growth below estimates; Realisation corrects 1.7% sequentially

Q4 FY13 dollar revenues performance for Wipro Ltd (only IT services & products business) was below expectation. Though the IT services volume growth of 2.5% was in-line, the reported revenues at US$1.585bn were just up 0.5% qoq. This is was due to realization correction of 1.7% in cc mainly on the back of adverse business mix. The negative impact of cross currency movements further worsened the reported realization (down 2.8% qoq). On a yearly basis though, Wipro has improved realization (4.2% onsite and 2.7% offshore) through higher productivity. Q4 FY13 was also impacted by delay in deal conversion (largely related discretionary services) with decisions pushed out to next quarter/s. The product business, on the other hand grew well at 14.7% yoy to Rs10.7bn


Patchy growth across business segments; Emerging markets shine 

Growth across verticals/services/geographies was patchy from Q4 FY13 perspective. Within verticals, E&U continued to lead growth (+3.9% qoq cc) followed by Manufacturing (+3.4% qoq) and Healthcare (+2.8% qoq cc). On the other hand, financial services (-0.3% qoq cc) and global media& telecom (-1.9% qoq cc) underperformed. Amongst services, growth was largely driven by IMS (+4% qoq). ADM de-grew materially by 3.4% qoq due to continued weakness in telecom equipment clients. Being a seasonally strong quarter for Middle east and India business, the growth in Q4 was driven by these markets (+7% qoq cc). APAC and other EMs too grew well at 4.3% qoq cc. 


Developed markets’ growth was sluggish with America (1% qoq cc) and Europe (-0.9% qoq cc) growing below company average. From the clients’ perspective, while the top client had a stellar growth (13.1% qoq), growth was weak for rest of the top 10 clients. On a positive note, management alluded to client satisfaction index improving 7% in FY13.


OPM performance marginally below estimates despite realization headwinds; Employee attrition reduces further

The IT services OPM for Q4 FY13 was marginally below estimate at 23.02% (down 52bps versus expectation of 10bps expansion). Nevertheless this performance is commendable considering the adverse pricing movement (-1.7% qoq cc) and adverse cross currency movements. Lower than estimated operating profit was offset by strong other income of Rs3.1bn (up 12% yoy) resulting in net profit of RS16.2bn for the IT business (services & products). On the employee front, attrition continued its downward trend coming at 12.5% (12.9% in Q3 FY13). The net addition of employees also was decent growing 2% of previous quarter base.


Q1 FY14 guidance a dampener; Reduce estimates/TP to reflect weak results/guidance; Maintain BUY

The key disappointment from Wipro’s Q4 FY13 results was the weak dollar revenue guidance of -0.3 to 1.6% qoq growth. Traditional weakness of India/Middle East business in Q1, lack of traction in discretionary projects as well as decision making delays led to the lackluster guidance. A patchy growth across geographies and lack of discretionary spending do not indicate a strong recovery in demand environment impacting Wipro performance. On profitability front, though, decent OPM performance despite the correction in realization was creditable. Going forward, the bottoming out of the weakness in the telecom vertical and management expectation of better decision making should result in a improvement in revenue traction from Q2 FY14. Also diversified industry exposure, strength in IMS/Analytics should hold the company in good stead. We nonetheless reduce our estimates to factor in the weak results/guidance resulting in a reduced 9-month TP of Rs410 (Partially driven by reduction in core IT business growth assumptions as well as absence of non IT business henceforth in our estimates). We maintain BUY.


Financial Summary*
Y/e 31 Mar (Rs m) FY12 FY13 FY14E FY15E
Revenues 322,749 377,669 399,773 436,576
yoy growth (%) 3.9 17.0 5.9 9.2
Operating profit 69,819 80,454 84,893 96,232
OPM (%) 21.6 21.3 21.2 22.0
Reported PAT 53,465 62,303 64,924 73,547
yoy growth (%) (0.3) 16.5 4.2 13.3
         
EPS (Rs) 21.8 25.4 26.4 29.9
P/E (x) 16.9 14.5 13.9 12.3
Price/Book (x) 3.2 3.2 2.7 2.3
EV/EBITDA (x) 12.1 10.1 9.1 7.5
RoE (%) 20.4 21.9 21.1 20.4
RoCE (%) 21.3 23.1 22.5 22.3
BSE 288.10 0.20 (0.07%)
NSE 289.70 1.10 (0.38%)

***Note: This is a NSE Chart

 

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