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Wipro wins at NASDAQ - Views on News from Equitymaster
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  • Jan 4, 2001

    Wipro wins at NASDAQ

    If we look at the performance of all the Indian software ADR (American Depository Receipts) then the clear winner is Wipro. But if all the software stocks have taken a beating at the NASDAQ (including the mighty INFY) what is holding Wipro?

    One of the possible explanations could be that after listing (Wipro listed on 19th October, 2000 on NYSE) the underwriters are allowed to make markets for the stock. Therefore, one possible explanation could be that is getting support from its underwriters. An underwriting group led by Morgan Stanley Dean Witter managed ADR issue. Credit Suisse First Boston and Banc of America Securities were the co-managers in the offering. The underwriters can support for a period of six to eight weeks. It would be interesting to watch how Wipro performs in January.

    Source Quicken.com

    Fundamentally both have a portfolio that is quite similar in nature. Both are into telecommunications software, e-business and application software development. Wipro’s niche area is telecommunications software. For Infosys insurance, finance and banking related software are its niche. But where Infosys scores over Wipro is its management perception. Infosys has a management that is viewed with awe.

    Year End March 31 FY00 FY01
    (Rs m) 1Q 2Q 3Q 4Q 1Q 2Q
    Sales growth 12.1% 22.3% 8.7% 22.5% 28.2% 25.5%
    Operating profit growth 22.9% 10.3% 14.6% 18.4% 31.0% 28.2%
    Net profit growth 40.6% 8.4% 12.3% 16.4% 41.3% 21.5%
    Operating margins (excl other income) 37.7% 36.7% 40.3% 38.9% 38.7% 38.9%
    Net profit margins 32.9% 30.2% 31.6% 30.0% 32.7% 32.8%
    FDEPS 36.7 39.7 44.6 51.9 73.4 84.8
    P/E (x) (FY01E earnings)           66.5

    Year End March 31 FY00 FY01
    (Rs m) 1Q 2Q 3Q 4Q 1Q 2Q
    Sales growth -27.5% 35.3% 1.0% 30.0% -16.5% 19.7%
    Operating profit growth -37.5% 52.2% 8.9% 39.0% -10.8% 32.7%
    Net profit growth -39.0% 51.5% 18.0% 16.2% 10.5% 42.9%
    Operating margins (excl other income) 15.7% 17.7% 19.1% 20.4% 21.8% 24.2%
    Net profit margins 11.3% 12.3% 14.7% 13.2% 17.4% 20.8%
    FDEPS 2.0 3.1 3.6 4.2 4.6 6.6
    P/E (x) (FY01E earnings)           110.8

    If we look at the performance of both the companies, Infosys has been a more consistent performer. Infosys has grown at a high rate around 70% over the past 3 years, whereas Wipro’s growth has been in the range of 30%. Infosys also earns better operating margins than Wipro. This is because while Infosys is a pure software company, Wipro has other diversified businesses such as consumer products and lighting equipment. This causes Wipro’s operating margins to be lower as a whole. But if you compare Infosys with only the software business of Wipro, there difference in operating margins shrinks sharply. In 2QFY01, while Infosys operating margins stood at 39%, Wipro’s Global IT division earned 33%.

    But despite Infosys’ outperformance, the valuation of Wipro at home is higher. This could be attributed to Wipro’s low liquidity. Chairman, Mr. Azim Premji holds around 80% of his company’s stock.

    Another reason for Wipro getting better valuations is its technology focus. 49% of the revenues of its Global IT division come from the company’s R&D group. This group is focused on research and development in the area of networking and communications. Wipro has set a goal for itself to become one of the top technology companies in the world. Compared to Wipro, Infosys is a relatively late entrant into the technology area. Infosys’ revenue from proprietary telecom software is 6%.

    Though Infosys is growing faster, Wipro has the technology to take full advantage of the emerging communication revolution. That we think is the difference.



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