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.) 507685 WIPRO WPRO IN 1,00,991 20% 753/282 139943 Rs.2.00 300% 145.74 Relative Performance 1Mth 3Mth 1 Yr Wipro -3.71% -0.99% 121.43% Sensex 1.39% 4.95% 58.91% 20000 800 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. 15000 10000 5000 600 400 200 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 (+91 22 3027 2259) ashish.khetan@nirmalbang.com Niraj Garhyan, Research Associate (+91 22 3027 2226) 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 10261 employees for FY 2010. 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 19980 33.21% 3955 19.80% 3283 22.51 30.8 8.6 28.1% FY09A 25700 28.63% 5184 20.17% 3900 26.72 25.9 7.4 28.6% FY10A 27213 5.89% 5949 21.86% 4631 31.56 22.0 5.6 25.4%
Quarterly Result Analysis Wipro Q4 FY10 revenues grew 6.9% YoY to Rs. 6978 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. 1236 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 6978 6927 0.7% 6528 6.9% Cost of Sales and Service 4581 4567 0.3% 4318 6.1% Gross profit 2397 2360 1.6% 2210 8.5% GP Margin 34.4% 34.1% 29 bps 33.8% 50 bps SG&A Expenses 888 842 5.5% 815 9.0% EBITDA 1509 1518-0.6% 1395 8.2% EBITDA Margin 21.6% 21.9% -28 bps 21.4% 26 bps Depreciation 181 192-6.1% 187-3.5% Interest 24 24 0.4% 58-59.3% Op profit after Interest & Depreciation 1305 1302 0.2% 1150 13.5% Other income 209 131 60.3% 29 629.3% Profit before tax (PBT) 1514 1433 5.7% 1178 28.5% Provision for taxation 292 229 27.6% 167 75.4% Net profit after tax (PAT) 1222 1204 1.5% 1012 20.8% Minority Int & Sh of Assoc. 14 14 1.4% -2-1040.0% PAT after MI & Sh of associates 1236 1217 1.5% 1010 22.4% PAT Margin 17.7% 17.6% 14 bps 15.5% 224 bps Diluted EPS 8.42 8.30 1.5% 6.93 21.6% Source: Company data, Nirmal Bang Research
As Per IFRS GAAP Consolidated figs in US$ mn Q4 FY10 Q3 FY10 QoQ Q4 FY09 YoY Revenue 1,552 1,495 3.8% 1,287 20.6% Gross Profit 490 466 5.2% 391 25.3% Margin 31.6% 31.2% 40 bps 30.4% 119 bps Operating Profit 296 291 1.7% 213 39.0% Margin 19.1% 19.5% -39 bps 16.6% 252 bps PBT 337 310 8.7% 207 62.8% PAT 269 259 3.9% 179 50.3% Margin 17.3% 17.3% 1 bps 13.9% 342 bps Diluted EPS 0.18 0.18 0.0% 0.12 50.0% Source: Company data, Nirmal Bang Research
Annual Result Analysis Wipro FY 2010 revenues grew 5.9% YoY to Rs. 27213 Crs. In US dollar terms revenues increased 20.9% YoY to US$ 6050 mn reflecting improved demand. Revenue for IT Services stood at Rs. 20249 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 2009. IT Services added 121 clients in FY 2010 as against 110 clients during FY 2009. 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. 4631 Crs. On a YoY basis, PAT margins improved by 184 bps due to improvement in EBITDA margins. Wipro reported a diluted EPS of Rs. 31.56 in FY 2010. Consolidated in Rs Crs FY 2010 FY 2009 YoY Income from Sales & Service 27213 25700 5.9% Cost of Sales and Service 17871 17288 3.4% Gross profit 9342 8412 11.1% GP Margin 34.3% 32.7% 160 bps SG&A Expenses 3392 3228 5.1% EBITDA 5949 5184 14.8% EBITDA Margin 21.9% 20.17% 169 bps Depreciation 754 686 9.9% Interest 123 240-48.7% Op profit after Interest & Depreciation 5072 4258 19.1% Other income 438 262 67.0% Profit before tax (PBT) 5510 4520 21.9% Provision for taxation 916 646 41.8% Net profit after tax (PAT) 4593 3874 18.6% Minority Int & Sh of Assoc. 38 26 43.7% PAT after MI & Sh of associates 4631 3900 18.7% PAT Margin 17.0% 15.2% 184 bps Diluted EPS 31.56 26.72 18.1% Source: Company data, Nirmal Bang Research
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 60 50 40 30 20 33 56 49 48 31 28 31 20 26 37 31 27 10 0 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.
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 2010. The company plans to hire 11,000 to 12,000 fresh graduates from campuses during FY 2011. 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
in Q3 FY10.If the rate declines further; it will impact the company s profitability. 52 50 48 46 44 42 40 USD/INR rate movement over last one year Apr-09 Jul-09 Oct-09 Jan-10 Mar-10 Valuation At current price of Rs.692.95 Wipro is trading at PE multiple of 20.57 at its annualized EPS of Q4 FY10 (Rs.8.42) and at PE multiple of 21.96 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.
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