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Wipro: Organic growth

Apr 17, 2002

Wipro plans to grow organically, literally speaking. The company now plans to tap the bio-informatics markets for future growth. The company recently announced the formation of new business segment, Wipro Healthcare and Life Science. The new business unit will address the requirements of the bio-informatics market, which is estimated to be around US$ 25 bn (Rs 1,252 bn). The market is expected to grow at about 20% annually.In the year 2000 by mapping of the human genome, scientists broke the human genome down into a digital code of 3.1 billion chemical bases. Bioinformatics is a scientific discipline that deals with all aspects of biological information - acquisition, processing, storage, distribution, analysis and interpretation.

Now that biological information, more importantly genetic information, is understood and stored in a digital form, it can be manipulated with the processing power of computers to understand the genes, their effects and more importantly, how these effects can be altered to suit mankind. This calls for combining the tools and techniques of biology, chemistry, computer sciences, information technology and mathematics. This is where the IT services companies come in.

The Applications
Database query tools.
Sequence analysis & Molecular evolution.
Genome mapping & comparison.
Gene Identification.
Structure Prediction.
Molecular Modeling & Simulation.

Coming to the possibilities in business, the first application could be medicine. Deeper understanding of diseases using bio-informatics would help to eradicate the diseases. But after this, the possibilities are limitless right from designer babies to personalised medicine to clones. Trillions of dollars are for the taking.

However, Wipro’s new business unit will not limit itself to providing bio-informatics solutions to life science companies. The division also plans to offer solutions to hospitals and health insurance companies and IT solutions to medical and analytical devices companies. Healthcare has been the vertical IT services companies have been looking at for growth lately. Infosys recently bagged a project from The National Health Services (NHS) UK. (Read more).

Wipro is the latest to join the bioinformatics bandwagon. Satyam is already in a tie up with Center For Cellular and Molecular Biology (CCMB) and TCS has expressed interest to tap the emerging business potential from bio-informatics. Wipro has an added advantage in terms of its relationship with companies like GE Medical Systems.

At the current market price of Rs 1,780, the stock is trading at a P/E multiple of 52x its FY02 estimated earnings. We expected Wipro’s book value to be Rs 118 at the close of fiscal 02. Thus, significant growth expectations have been factored into the stock price. However, considering the fact that US economy expected to turn around in the near future, Wipro will as usual, lead the pack when the prospects for the sector brighten. The stock for the past 52-week has traded in a P/E band of 26x to 52x (Rs 815 to Rs 1,985). Thus, the element of risk is very high.

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