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Wipro: Extra-ordinary performance - Views on News from Equitymaster
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  • Jan 19, 2001

    Wipro: Extra-ordinary performance

    The net profit figure at Rs 1,888 m for 3QFY01 has jumped 120% compared to the net profit of Rs 840 m in 3QFY00, this is excluding extra ordinary losses of Rs 415 m (this was due to sale of shares of Wipro Finance Ltd.,). Considering the extra ordinary loss the net has jumped up 325% on a YoY basis. On a sequential basis the company’s topline growth was 4% and the bottomline growth was around 22%.

    The highlight of the performance is the jump in operating margins from 24.2% in 2QFY01 to 29.1% in 3QFY01, indicating higher billing rates.

    (Rs m) 2QFY01 3QFY01 Change
    Sales 7,404 7,738 4.5%
    Other Income 153 63 -58.8%
    Expenditure 5,611 5,483 -2.3%
    Operating Profit (EBDIT) 1,793 2,255 25.8%
    Operating Profit Margin (%) 24.2% 29.1%  
    Interest - -114  
    Depreciation 208 264 26.9%
    Profit before Tax 1,738 2,168 24.7%
    Tax 198 280 41.4%
    Profit after Tax/(Loss) 1,540 1,888 22.6%
    Net profit margin (%) 20.8% 24.4%  
    Diluted number of shares 229 231.9  
    Diluted Earnings per share* 26.6 32.6  
    P/E (at current price) 107.4 87.6  

    As expected the contribution of Global IT services business (comprising of R&D services group, Enterprise solutions group, Global support services group) to revenues has gone up to 62% in 3QFY01 from 56% for 1HFY01. The R&D services group contributed 50%. This R&D group is focused on technology solutions. Telecom and Inter-networking practice contributed to 30% of the revenues of the group. This is inline with its vision to become one of the top ten technology companies in the world by 2004.

    The Enterprise solutions group contributed to 45% of the revenues this is down from 51% in 1HFY01. Global support services group contributed the remaining 5%. Wipro is leveraging on its expertise in the technology arena and its experience in support services. These two groups will give Wipro the cutting edge.

    Wipro Infotech contributed 23% to the revenues (29% in 1HFY01). This group too saw an increase in contribution from solutions and service segment. The operating margins for this group expanded from 3.2% in FY00 to 10.8% in 3QFY01. This is due to the spin off of its peripherals business in September 2000, which was a low margin business.

    The Consumer care and Lighting business contributed to 12% of the revenues in 3QFY01 compared to 11% for 1HFY01. Lighting products showed a YoY growth of about 25% and toilet soaps grew at 20% for the nine months ended December 2000.

    The geographic distribution of revenues have not changed significantly only contribution of US has gone down by 1% and this has been offset by a similar increase from Europe.

    The number of new clients added in 3QFY01 was 26, contributing to 10.2% of the revenues for the quarter. The exposure to dot-coms was just 1.5%. Technology product start up companies contributed to 3.5% of the revenues for the quarter. Share of the largest customer was 8% of the revenues this quarter. The figure assumes importance in the light of rumors about Wipro loosing the GE account, which the company claims contributes to only 5% of the revenues. The Global IT division now services about 67 clients. Therefore, it seems Wipro’s client concentration is sufficiently de-risked.

    Compared to our projections Wipro’s topline line growth was very low, but it has beaten our OPM projections with significant improvement in operating margins. Also, it has earned an interest income of Rs 114 m.

    Growth rates
    Particulars 3QE 3Q
    Sales 18.0% 4.5%
    Operating profit 21.8% 25.8%
    Net profit 21.1% 22.6%
    Key Ratios
    Particulars 3QE 3Q
    OPM (excl. Other Inc.) 25.0% 29.10%
    Tax / PBT 10.0% 12.90%
    NPM 21.3% 24.40%

    At the current market price of Rs 2,852 Wipro is trading at a P/E multiple of 110 times its 9 months FY01 annualised earnings. We have to revise our projections on the back of better than expected performance of the company.



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