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Wipro 3QFY2014 performance highlights and results update

January 20, 2014, Monday, 10:20 GMT | 06:20 EST | 15:50 IST | 18:20 SGT
Contributed by Angel Broking


For 3QFY2014, Wipro’s results were broadly in line with our estimates, largely on all fronts. The IT services revenue came in at US$1,678mn, up 2.9% qoq vs our expectation of 2.8% qoq growth. Going forward, for 3QFY2014, the Management has given a USD revenue guidance of US$1,712mn-1,745mn, which translates into a qoq growth of ~2-4%, thus showing a sign of stability and consistency on the revenue front. We recommend an Accumulate rating on the stock.
 
Quarterly highlights: For 3QFY2014, Wipro’s consolidated revenues came in at Rs.11,332cr, up 3.1% qoq. The company’s IT services EBIT margin grew by 51bp qoq to 22.5%, on account of productivity gains. On a consolidated level, Wipro’s EBIT margin grew by 27bp qoq to 20.7%. Its PAT registered a growth of 4.4% qoq and stood at Rs.2,027cr.
 
Outlook and valuation: The Management remains confident of the revenue growth pick-up sustaining, citing a pick-up in large deal closures and win rates, uptick in discretionary spending, strong business pipeline and momentum in demand from US sustaining. Wipro has chosen a growth strategy of focusing on a selected few segments in terms of industry verticals and services. Wipro is now better positioned than it was three years ago to capture upsides from overall market improvement and reduce the gap in revenue growth with its peers. We expect USD and INR revenue CAGR for IT services to be at 9.2% and 16.6%, respectively over FY2013-15E. Wipro has been showing a decent performance in the past six quarters by rationalizing costs. We have factored in a FY2014 EBIT margin at 20.2% considering that most headwinds are already behind for Wipro and hence believe that this can be achieved if the company improves its operational efficiency. The stock is currently trading at 17.6x FY2014E and 14.6x FY2015E EPS. We value the stock at 16.5x FY2015E EPS of Rs.37.7, which is still at a reasonable discount to our target multiple for TCS. We recommend an Accumulate rating on the stock with a target price of Rs.625.

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