'Reduce' Wipro – TP Rs.350 - Geojit BNP Paribas Financial Services Limited

Company reported encouraging numbers for 3QFY12 but no turnaround in business visible. 3QFY12 USD revenue growth at 2.2% is in line with market estimates. However, the INR revenue and EPS beats are due to higher USD/INR realized rates (due to rupee depreciation) and higher MTM hedging gains.

Company's 4QFY12 guidance of revenue growth at 1-3% qoq looks very aggressive. However, no adequate improvement in several core metrics, suggesting that the turnaround would continue.

It seems that demand situations in core markets like the US and Europe remain weak despite the expectations that restructuring should have borne fruits by now. As in 2Q, around 40% of incremental growth in 3Q came from Japan and emerging markets.

Though the company has now six USD100 million accounts as against one in 1Q, their contribution to revenue has not improved much. Excluding the largest client, revenue from the top 10 clients in 3Q grew only 10.6% yoy, which is lower than the services total revenue of 12%. EBIT margin from services also dropped 140 bps yoy.

All these indicate that a recovery is not in sight despite better numbers for the third quarter and the stock is recommended to 'reduce'.

Source : Equity Bulls

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