X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Wipro: Lower billing days hurts topline - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

StockSelect
  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Wipro: Lower billing days hurts topline
Jan 21, 2011

Wipro has announced its 3QFY11 results. The company has reported a 0.6% QoQ growth in sales but a 2.6% QoQ growth in net income. Here is our analysis of the results.

Performance summary
  • Sales grow marginally by 0.6% QoQ during the quarter.
  • Operating margins decline by 0.3% QoQ due to higher administrative expenses (as a percentage of sales).
  • Net profits grow by 2.6% QoQ. The lower operating margins were offset by higher other income and lower interest expenses.
  • Employee strength of the IT services business stood at 119,491 at the end of December 2010. IT services added 3,591 (net) employees during 3QFY11. Attrition rose to 21.6% as compared to 19.4% for the last quarter (September 2010).
  • IT services segment adds 36 new clients during the quarter, thereby taking the total count of active clients to 880.
  • Declares an interim dividend of Rs 2 per share.


Consolidated financial performance
(Rs m) 2QFY11 3QFY11 Change 9MFY10 9MFY11 Change
Net Sales 77,719 78,202 0.6% 202,185 227,827 12.7%
Expenditure 61,204  61,858 1.1% 157,320  179,152 13.9%
Operating profit (EBDIT)  16,515  16,344 -1.0% 44,865  48,675 8.5%
Operating profit margin (%) 21.2% 20.9%   22.2% 21.4%  
Other income 1,422 1,751 23.1%   3,091  4,525 46.4%
Interest  467    427 -8.6%    1,334  1,297  
Depreciation 2,068    2,078 0.5%   5,944  5,930 -0.2%
Exchange difference   (414)    91      (772)   136  
Profit before tax  14,988   15,681 4.6%   39,906   46,109 15.5%
Tax 2,183 2,582 18.3%   6,279  7,110 13.2%
Minority interest   (148) (71)   (139)    (286)  
Equity in earnings of affiliates 192 160 -16.7%   354  509 43.8%
Profit after tax/(loss)  12,849   13,188 2.6% 33,842   39,222 15.9%
Net profit margin (%) 16.5% 16.9%   16.7% 17.2%  
No. of shares (m)        1,467.8 2,453.7  
Diluted earnings per share (Rs)*       20.9  
P/E ratio (x)*         22.0  
* On a trailing 12-months basis

What has driven performance in 3QFY11?
  • Wipro’s sales grew by around 0.6% QoQ during 3QFY11. This was driven by a 4% QoQ growth in the IT services business (76% of total sales) and a 5% QoQ growth in the consumer care & lighting business (9% of total sales). The IT products business (11% of total sales) witnessed a decline of 18% QoQ during the quarter.

  • Wipro’s IT services business saw a growth across its key segments. Application development and maintenance, which constitutes 40% of IT services’ total sales, grew by 8% QoQ during the quarter. The technology infrastructure service segment (21% of sales) witnessed a decent growth of 5% QoQ during the period. However, sales from product engineering and BPO segments (5% and 9% of IT services’ sales respectively) declined by 5% QoQ and 2% QoQ respectively.

  • All the verticals saw a growth except for the healthcare vertical, which declined by 6% QoQ. Growth in verticals was led by ‘Energy & Utilities’ and the ‘Financial Services’ verticals that grew by 14% QoQ and 5% QoQ respectively. The Manufacturing vertical witnessed a growth of 4% QoQ during the quarter.

    Revenue breakup (In Rs m) 2QFY11 3QFY11 Change
    Based on geography
    (Rs m) 2QFY11 3QFY11 Change
    US     43,445         42,385 -2.4%
    Europe     20,596          22,131 7.5%
    Japan         1,166  1,173 0.6%
    India and Middle East        6,917 6,960 0.6%
    Rest of the world        5,596  5,552 -0.8%
    Based on businesses
    IT Services     57,471         59,486 3.5%
    IT products     10,693 8,792 -17.8%
    Consumer care & Lighting        6,651 6,950 4.5%
    Others         2,490 2,808 12.8%

  • In terms of geographies, revenues from Wipro’s major market for IT services i.e., the US (54% of sales) witnessed a decline of 2% QoQ during the quarter. During the quarter, the revival in the business from Europe continued. Sales from the region grew by 8% QoQ during the period. Sales from India and Middle East and Japan saw a flattish growth of 0.6% QoQ each. Sales from the rest of the world declined by 0.8% QoQ during the quarter.

    IT services revenue breakup (In Rs m) 2QFY11 3QFY11 Change
    Based on service offerings
    Application development and maintenance     22,299         23,973 7.5%
    Technology infrastructure services      12,184         12,730 4.5%
    Package Implementation        7,816           7,852 0.5%
    Testing services        6,552            6,543 -0.1%
    BPO        5,632            5,532 -1.8%
    Product Engineering        2,988            2,855 -4.5%
    Based on verticals
    Technology, Media and Telecom      14,368         14,574 1.4%
    Financial Services     15,460         16,240 5.0%
    Manufacturing        8,506            8,863 4.2%
    Healthcare services       5,057           4,759 -5.9%
    Retail and Transportation        8,908            9,161 2.8%
    Energy and Utilities        5,172            5,889 13.9%

  • Wipro’s operating margins declined by 0.3% QoQ during the quarter. This was mainly due to lower number of working days as well as lower utilization during the quarter. Gross utilization rates dropped to 68.6% during the quarter as compared to 70.9% seen last quarter (2QFY11). Operating margins were also impacted by higher administrative costs (as a percentage of sales).

  • Wipro’s net profit improved by 2.6% QoQ during the quarter. The decline in the operating margins was offset by higher other income and lower interest costs during the quarter. However, there was a negative impact of higher tax rates on the net profits. Tax rates for the quarter stood at 16.5% as compared to 14.6% seen in the previous quarter (2QFY11).

What to expect?
At the current price of Rs 460, the stock is trading at a multiple of 16.0 times our estimated FY13 earnings (Research Pro subscribers please click here ). We would be updating our analysis post the conference call with the management, which is scheduled for later today.

To Read the Full Story, Subscribe or Sign In


Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

WIPRO SHARE PRICE


Jul 18, 2018 12:25 PM

TRACK WIPRO

WIPRO - TREE HOUSE COMPARISON

COMPARE WIPRO WITH

MARKET STATS