Wipro Ltd (Q4 FY14)

India Infoline News Service | Mumbai |

Wipro reported slower than expected constant currency (CC) dollar revenue growth in its IT services segment at 2.3% qoq (our estimate was 3% qoq).

CMP Rs586, Target Rs570, Downside 2.8% 
  • Organic revenue growth was behind expectations 

  • Weak guidance for Q1 FY15; where is the growth convergence?

  • Growth volatility continues within verticals/services; Top 10 clients grew much behind company 

  • Substantial OPM expansion was heartening; but growth resurgence key for margin sustenance 

  • Earnings cut and probable valuation de-rating underpins our rating downgrade to Market Performer

Result table
(Rs mn)
Q4 FY14
Q3 FY14
% qoq
Q4 FY13
% yoy
Net sales
116,535
113,317
2.8
96,284
21.0
Operating profit
28,180
26,527
6.2
19,965
41.1
OPM (%)
24.2
23.4
77 bps
20.7
345 bps
Depreciation
(2,880)
(3,109)
(7.4)
(2,314)
24.5
Interest
(842)
(898)
-
(395)
-
Other Income
4,469
3,812
17.2
3,077
45.2
PBT
28,927
26,332
9.9
20,333
42.3
Tax
(6,536)
(6,060)
7.9
(3,973)
64.5
Effective tax rate (%)
22.6
23.0
-
19.5
-
Minority Interest
(126)
(125)
-
(86)
-
Adjusted PAT
22,265
20,147
10.5
16,274
36.8
Adj. PAT margin (%)
19.1
17.8
133 bps
16.9
220 bps
EPS (Rs)
9.1
8.2
10.5
6.6
36.8
Source: Company, India Infoline Research

Organic revenue growth was behind expectations 

Wipro reported slower than expected constant currency (CC) dollar revenue growth in its IT services segment at 2.3% qoq (our estimate was 3% qoq). Assuming that Opus CMC acquisition would have aided sequential growth by 0.5-0.6% (as expected by the company), organic revenue growth was modest at 1.7-1.8%. In absolute terms, IT services revenues came in at US$1,720mn near the lower end of stated guidance of US$1,712-1,745mn. With pricing being stable, the dollar revenue growth was largely volume driven. The onsite/offshore revenue mix was steady at 54:46 while revenue contribution of fixed priced projects rose further to 51.3% (has increased by 400bps since Q1 FY14


Weak guidance for Q1 FY15; where is the growth convergence?

Against our expectation of 2-4% qoq growth guidance for Q1 FY15, Wipro issues a muted outlook of (0.3)-2% for IT services revenues. Such weak guidance surprised negatively as the company has been witnessing strong order wins and has a substantial order book to execute. The sequential weakness in India IT business also does not completely explain the low growth guidance. After converging revenue growth with larger peers in H2 FY14, a muted growth in a traditionally strong quarter for the industry would again lead to growth divergence. With a weak start, Wipro is most likely to underperform industry growth in FY15 also.


Growth volatility continues within verticals/services; Top 10 clients grew much behind company 

During Q3 FY14, Wipro witnessed strong revenue growth in Financial Solutions (3.8% qoq) and Healthcare & Life Sciences (4.4% qoq) verticals while Manufacturing & Hitech de-grew (-0.9% qoq). Amongst services, BPO (11.9% qoq) witnessed robust growth wher

BSE 287.90 0.70 (0.24%)
NSE 288.60 1.40 (0.49%)

***Note: This is a NSE Chart

 

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