Recommendations » India

Wipro 3QFY2013 performance highlights and results update

Contributed by Angel Broking

For 3QFY2013, Wipro’s results came in largely in line with our estimates. The IT services’ USD revenue growth came in at 2.4% qoq. One key negative thing was the tepid volume growth of -1.0% qoq (way below other peer companies), but on the positive side the company has been able to inch up its price realization. For 4QFY2013, the management has given a USD revenue guidance of US$1,585mn- 1,625mn, which translates into a qoq growth of 0.5-3.0%, which is along the expected lines. The range of the guidance is wide this time as the Management has factored in the continued uncertainty in ramp up of discretionary projects. We maintain our Accumulate rating on the stock.

Quarterly highlights: For 3QFY2013, Wipro posted a 3.5% qoq growth in revenue to Rs.11,025cr. Wipro’s EBITDA and EBIT margins grew slightly by 5bp and 21bp qoq to 20.1% and 17.7%, respectively, despite low volumes, due to realization improvement. The PAT came in at Rs.1,725cr, up 6.7% qoq, driven primarily by higher other income of Rs.322cr as against Rs.211cr in 2QFY2013 and lower tax rate of 21.9% as against 23.9% in 2QFY2013.

Outlook and valuation: The Management indicated that CY2013 IT budgets are expected to remain stable and anticipates a positive demand environment ahead. Prospects of growth revival remain healthy on the back of better deal closures in 3QFY2013 as against in 2QFY2013 and 1.7x increase in the deal pipeline yoy. However, volume growth is expected to remain sluggish in the near term as the company’s ongoing process of automating RTB type spend to drive better productivity could hamper volume growth. The Management expects growth convergence with peers in FY2014 in anticipation of demand improvement, increase in the deal pipeline (1.7x yoy) and better deal closure. We expect Wipro’s revenue to post a CAGR of 12.3% over FY2012-14E. We expect 11.2% and 11.4% CAGR in EBITDA and PAT respectively over FY2012-14E. We value the stock at 15.5x FY2014E EPS of Rs.27.7, which gives us a target price of Rs.429. We maintain our Accumulate rating on the stock.