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Research
Neutral on Wipro - 3QFY2012 Result Update - Angel Broking
Posted On : 2012-01-20 10:50:41( TIMEZONE : IST )
For 3QFY2012, Wipro's results came in-line with our expectations. The major highlight of the result was the 2.9% and 2.3% qoq onsite and offshore pricing growth, respectively. However, the company disappointed on the volume front, which reported flat growth of merely 1.8% qoq. For 4QFY2012, management has given decent revenue guidance of 1-3% qoq growth in USD revenue. We maintain our Neutral view on the stock.
Quarterly highlights: For 3QFY2012, Wipro registered 9.9% qoq growth in revenue to Rs.9,997cr. Revenue from the IT services segment came in at US$1,505.5mn, up 2.2% qoq. Revenue from the consumer care and lighting segment grew strongly by 26.4% yoy, while the IT products segment reported merely 2.4% yoy revenue growth. EBIT margin of the IT services, IT products and consumer care and lighting business grew by 83bp, 77bp and 87bp qoq to 20.8%, 5.3% and 11.9%, respectively. Overall, EBITDA and EBIT margin of Wipro grew by 72bp and 88bp qoq to 19.8% and 17.2%, respectively.
Outlook and valuation: For 4QFY2012, management has given a decent revenue guidance of US$1.520bn-1.550bn for the IT services segment, with qoq growth of 1-3%, which is slightly better than one of its peers, Infosys. Also, management maintained that the company will take another 1-2 quarters to grow at rates comparable to its peers. This implies poor annual growth for FY2012. Thus, we expect revenue CAGR for IT services (USD terms) to be muted at 12.8% over FY2011-13E. At the operating front, Wipro has limited tailwinds and headwinds such as wage inflation, integration impact of SAIC (lower EBIT margin at 13.5%) and moderate volume growth, which are expected to pull down margins. Thus, we expect EBIT margin of the IT services segment to slide down to 21.1% in FY2012 and 20.8% for FY2013. Also, the ~400bp increase in effective tax rate is expected to mar the company's net profitability further, and we expect a 14.0% CAGR in PAT over FY2011-13E. Thus, we value the company at 15.3x FY2013E EPS (15% discount to Infosys) of Rs.27.8, which gives us a target price of Rs.425. We maintain our Neutral rating on the stock.
