Key highlights for the year

Transcription

1 Recommendation Not Rated Snapshot CMP (26/04/2010) Rs. 693 Sector IT & Software Stock Details BSE Code NSE Code Bloomberg Code Market Cap (Rs. Crs) Free Float (%) 52- wk HI/Lo Avg. volume BSE (Quarterly) Face Value Dividend (FY10) Shares o/s (No.) WIPRO WPRO IN 1,00,991 20% 753/ Rs % Relative Performance 1Mth 3Mth 1 Yr Wipro -3.71% -0.99% % Sensex 1.39% 4.95% 58.91% is the first PCMM Level 5 and SEI CMM Level 5 certified IT Services Company globally. Wipro provides comprehensive IT solutions and services, including systems integration, Information Systems outsourcing, package implementation, software application development and maintenance, and research and development services to corporations globally. Wipro also has profitable presence in niche market segments of consumer products and lighting. In the Asia Pacific and Middle East markets, Wipro provides IT solutions and services for global corporations. Key highlights for the year FY 2010 revenues grew by 5.9% YoY and Q4 FY10 topline grew by 6.9% YoY and 0.7% QoQ. Wipro added 121 clients during FY 2010 and 27 clients during Q4 FY10 in IT Services During FY 2010, Wipro has signed 5 deals over US $100 mn and 14 deals over US $50 million. While during Q4 FY10, Wipro has signed total deals worth around US$ 1 billion of which 2 deals were worth over US $ 100 mn. 0 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 SENSEX Wipro Shareholding Pattern as of 31/03/2010 Promoters Holding 79.52% Institutional (Incl. FII) 8.93% Corporate Bodies 2.80% Public & others 8.75% Ashish Khetan, Research Analyst ( ) ashish.khetan@nirmalbang.com Niraj Garhyan, Research Associate ( ) niraj.garhyan@nirmalbang.com Year Net Sales Rs. in Cr Growth EBITDA Rs. in Cr 0 EBITDA Margin The company had a net addition of employees for FY In Q4 FY10 net addition was 5325 which was highest over last 8 quarters signaling the rapid uptick in demand. Wipro declared a final cash dividend of Rs.6 per share and issue of bonus shares to shareholders in the ratio of 2:3 (two shares for every three shared held). For Q1 FY11, Wipro has given a guidance of revenues from IT services business to be in the range of US$ 1190 mn to US $ 1215 mn. This indicated a potential growth of 2% - 4.2% QoQ in revenues from IT services in Q1 FY11. PAT EPS PE P/BV ROE FY08A % % % FY09A % % % FY10A % % %

2 Quarterly Result Analysis Wipro Q4 FY10 revenues grew 6.9% YoY to Rs Crs. On a QoQ basis revenues grew marginally by 0.7% in Q4 FY10 as the 4.1% volume growth was partially offset by appreciation of INR against US dollar. In US dollar terms revenues increased 3.8% QoQ reflecting improved demand. Revenue for IT Services stood at Rs.5260 Crs, a YoY growth of 6.7% and sequential growth of 1.9%. IT Services business accounted for 75% of the revenue in Q4 FY10 as against 74% in Q3 FY 10. EBITDA margin slightly declined to 21.6% (-28 bps QoQ) in Q4 FY10. The wage hike implemented during Q4 FY10 caused the EBITDA margins to decline on a QoQ basis in the quarter. Wipro s profit after tax witnessed a growth of 22.4% YoY to Rs Crs. On a QoQ basis, PAT margins remained flat (+14bps QoQ). Wipro reported a diluted EPS of Rs.8.42 in Q4 FY10. As Per Indian GAAP Consolidated in Rs Crs Q4FY10 Q3FY10 QoQ Q4FY09 YoY Income from Sales & Service % % Cost of Sales and Service % % Gross profit % % GP Margin 34.4% 34.1% 29 bps 33.8% 50 bps SG&A Expenses % % EBITDA % % EBITDA Margin 21.6% 21.9% -28 bps 21.4% 26 bps Depreciation % % Interest % % Op profit after Interest & Depreciation % % Other income % % Profit before tax (PBT) % % Provision for taxation % % Net profit after tax (PAT) % % Minority Int & Sh of Assoc % % PAT after MI & Sh of associates % % PAT Margin 17.7% 17.6% 14 bps 15.5% 224 bps Diluted EPS % % Source: Company data, Nirmal Bang Research

3 As Per IFRS GAAP Consolidated figs in US$ mn Q4 FY10 Q3 FY10 QoQ Q4 FY09 YoY Revenue 1,552 1, % 1, % Gross Profit % % Margin 31.6% 31.2% 40 bps 30.4% 119 bps Operating Profit % % Margin 19.1% 19.5% -39 bps 16.6% 252 bps PBT % % PAT % % Margin 17.3% 17.3% 1 bps 13.9% 342 bps Diluted EPS % % Source: Company data, Nirmal Bang Research

4 Annual Result Analysis Wipro FY 2010 revenues grew 5.9% YoY to Rs Crs. In US dollar terms revenues increased 20.9% YoY to US$ 6050 mn reflecting improved demand. Revenue for IT Services stood at Rs Crs, a YoY growth of 6%. IT Services business accounted for 74.7% of the revenue in FY 2010 as against 75.1% in FY IT Services added 121 clients in FY 2010 as against 110 clients during FY EBITDA margin improved to 21.9% (+169 bps YoY) in FY 2010 driven by top-line growth and reduction in provision for doubtful debts and miscellaneous expenses. Wipro s profit after tax witnessed a growth of 18.7% YoY to Rs Crs. On a YoY basis, PAT margins improved by 184 bps due to improvement in EBITDA margins. Wipro reported a diluted EPS of Rs in FY Consolidated in Rs Crs FY 2010 FY 2009 YoY Income from Sales & Service % Cost of Sales and Service % Gross profit % GP Margin 34.3% 32.7% 160 bps SG&A Expenses % EBITDA % EBITDA Margin 21.9% 20.17% 169 bps Depreciation % Interest % Op profit after Interest & Depreciation % Other income % Profit before tax (PBT) % Provision for taxation % Net profit after tax (PAT) % Minority Int & Sh of Assoc % PAT after MI & Sh of associates % PAT Margin 17.0% 15.2% 184 bps Diluted EPS % Source: Company data, Nirmal Bang Research

5 Volume Growth and Pricing in Q4 FY10 Wipro had a volume growth of 4.1% in Q4 FY10 as against a volume growth of 4.7% in Q3 FY10. Offshore pricing slightly increased by 0.2% while onsite pricing marginally declined by 0.4% during Q4FY10. Client Additions The Client addition in Q4 FY10 stood at 27 as compared to 31 in Q3 FY10. Share of revenue of new customers increased to 3.5% in Q4 FY10 in comparison to 2.2% in Q3 FY10. While the revenue contribution from the top 5 clients reduced by 30 bps QoQ. During the year, Wipro signed 5 deals worth over US $100 mn and 14 deals worth over US$ 50 mn. Client additions during last few quarters Key Wins during the quarter Wipro entered into a seven year strategic agreement with The Main Street America Group, a leading provider of commercial, personal and surety insurance products to supplement Main Street America s IT organization to support its present and future business needs Wipro has signed a multi-year, strategic partnership with consumer electronics retailer Best Buy Co., Inc. As part of the deal Wipro will provide a comprehensive range of technology and business services to the retailer across the globe.

6 Wipro signed a 6-year deal with a large Consumer Product company. As part of this strategic deal Wipro will manage end to end Infrastructure for setting up centralized Global IT operation that includes data center consolidation, hosting, assets, contracts and human capital within an overarching service management framework across 15 countries in Americas, Europe, LATAM and Asia Pacific. Net additions in Employees IT Services Business ended the year with an employee headcount of 1,08,071. In Q4 FY10 net addition was 5325 which was highest over last 8 quarters signaling the rapid uptick in demand. The utilization rate of Global IT services was 72.1% in Q4 FY10 as against 73.2% in Q3 FY10. The attrition rate increased to 17.1% in Q4 FY10 as compared to 13.4% in Q3 FY10. To counter the increasing attrition rate, Wipro hiked the salary of its offshore employees by 8-9% and that of its onsite employees by 2-3% effective 01 Feb The company plans to hire 11,000 to 12,000 fresh graduates from campuses during FY Performance Overview The growth was led by strong performance in BFSI, Healthcare & Services and Energy & Utilities business segments. Even the troubled verticals like Telecom and Technology has improvement in performance. The practices which drove the revenue growth were Technology Infrastructure Services, Testing Services and BPO. Volumes which saw an uptick of 4.1% contributed mainly to the growth. In case of geography, the emerging markets remain the key focus for the company. India and Middle East achieved a sequential growth rate of 15.4% while the other emerging markets had a growth rate of around 13%. Going ahead the company is bullish on European markets as it feels the downturn there has bottomed out. For the current quarter the company achieved a constant currency growth rate of 8.6% QoQ in its European business. INR appreciation remains a major concern However, rupee appreciation is expected to negatively impact the company s top-line growth. Wipro realized a currency rate of Rs.45.11/USD in Q4 FY10 as against a currency rate of Rs.45.84/USD

7 in Q3 FY10.If the rate declines further; it will impact the company s profitability USD/INR rate movement over last one year Apr-09 Jul-09 Oct-09 Jan-10 Mar-10 Valuation At current price of Rs Wipro is trading at PE multiple of at its annualized EPS of Q4 FY10 (Rs.8.42) and at PE multiple of at its EPS of FY 2010 (Rs.31.56). Wipro has shown broad based growth driven by strong performance in the Financial Services, Healthcare & Services and Energy & Utilities verticals as well as improvement in performance of the troubled verticals like Technology & Telecom. Over the past few quarters macroeconomic factors have been improving with an increase in customer spending. Wipro expects the IT budgets of its clients to grow by 2-3% over the next year on the backdrop of improving macroeconomic conditions. Wipro is confident of being able to maintain the pricing and margins going ahead and it expects the pricing to remain stable in the medium term. Based on the broad based growth achieved by Wipro in the various verticals, robust demand growth in Emerging markets and an improvement in the European markets, we expect Wipro to have a moderate upside in the medium term. However, rupee appreciation against the US dollar remains a slight concern in the near term.

8 NOTE Disclaimer This Document has been prepared by Nirmal Bang Research (Nirmal Bang Securities PVT LTD).The information, analysis and estimates contained herein are based on Nirmal Bang Research assessment and have been obtained from sources believed to be reliable. This document is meant for the use of the intended recipient only. This document, at best, represents Nirmal Bang Research opinion and is meant for general information only. Nirmal Bang Research, its directors, officers or employees shall not in anyway be responsible for the contents stated herein. Nirmal Bang Research expressly disclaims any and all liabilities that may arise from information, errors or omissions in this connection. This document is not to be considered as an offer to sell or a solicitation to buy any securities. Nirmal Bang Research, its affiliates and their employees may from time to time hold positions in securities referred to herein. Nirmal Bang Research or its affiliates may from time to time solicit from or perform investment banking or other services for any company mentioned in this document.