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Wipro: 4Q consolidated PAT down 5% - Views on News from Equitymaster
 
 
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  • Apr 17, 2003

    Wipro: 4Q consolidated PAT down 5%

    Wipro has posted a 5% decline (YoY) in consolidated net profits for 4QFY03. Revenues for the quarter have grown by 33% on a YoY basis. For the full year FY03, consolidated revenues have grown by 26%, while the net profit has declined by 4%. The bottomline growth excludes a Rs 389 m extra-ordinary losses on account of the ISP business being discontinued. The net profit figure for 4QFY03 is below market expectations.

    (Rs m) 4QFY02 4QFY03 Change FY02 FY03 Change
    Sales 9,273 11,171 20.5% 34,677 40,327 16.3%
    Other Income 228 117 -48.7% 875 705 -19.4%
    Expenditure 6,601 8,370 26.8% 24,603 30,017 22.0%
    Operating Profit (EBDIT) 2,672 2,801 4.8% 10,074 10,310 2.3%
    Operating Profit Margin (%) 28.8% 25.1%   29.1% 25.6%  
    Interest 10 11 10.0% 29 29 0.0%
    Depreciation 380 394 3.7% 1,419 1,380 -2.7%
    Profit before Tax 2,510 2,513 0.1% 9,501 9,606 1.1%
    Tax 304 377 24.0% 840 1,211 44.2%
    Extra-ordinary item - 26   - (263)  
    Profit after Tax/(Loss) 2,206 2,162 -2.0% 8,661 8,132 -6.1%
    Net profit margin (%) 23.8% 19.4%   25.0% 20.2%  
    Diluted number of shares 232.5 232.5   232.5 232.5  
    Diluted Earnings per share* 38.0 37.2   49.7 35.0  
    P/E (at current price)   25.7     27.4  
    *(annualised)            

    As per the numbers reported to the BSE, the company’s revenues have shown a 16% growth for the full year FY03. The net profits have declined by 6%. However, this includes an extra-ordinary write off of Rs 283 m. Excluding the write off the net profit is lower by 3%.

    Wipro Technologies
    Wipro Technologies (The group’s IT services arm accounting for 66% of the revenues) has posted 6.5% sequential growth in 4QFY03. Consequently, growth in revenues from IT services for FY03 is up 25%. This is significantly lower than a 39% growth posted by Infosys for FY03.

    As the revenue break up for the quarter in terms of service groups is not given it has become difficult to understand where the growth came from in 4QFY03. However, the revenues from the R&D service group declined 39% of IT services revenues in FY03 (50% in FY02). The clients for this business segment are from the technology domain and were the worst hit due to the technology meltdown. Revenues from the Enterprise Solutions segment continued to show strong growth. Consequently, contribution to revenues from this group has shot up from 50% in FY02 to 61% in FY03. Based on the numbers we have for 9mFY03, it appears that there has been a sequential decline in revenues from the R&D services group, while the revenues from the enterprise solutions group have shown strong growth.

    (Rs m) FY02 FY03 Change
    R&D Services 11,455 11,098 -3.1%
    % of revenues 50.0% 39.0%  
    Enterprise Solutions 11,455 17,358 51.5%
    % of revenues 50.0% 61.0%  
    Wipro Technologies 22,909 28,456 24.2%

    The operating margins from the IT services business continued to decline. For 4QFY03, the operating margins declined to 25% from 29% in 3QFY03. A 2.3% sequential decline in billing rates could be responsible for the dip in margins. The operating margins were impacted by a provision for integration bonus on account of acquisition of the energy and utilities division from AMS Inc. The company saw a marginal improvement in onsite billing rates. For the quarter, volume growth was 5.6%.

    For FY03, the operating margins declined to 28% from 34% in FY02. The fall was due to a 6.7% decline in billing rates for offshore projects and a 5.7% decline in billing rates for onsite projects. The falling margins can also be attributed to the fact the onsite offshore ratio shifted in favour of onsite projects, which have lower margins. For FY03, the contribution to total revenues from onsite projects increased to 54% as compared to 52% in FY02. Consequently, the contribution from offshore projects declined from 48% to 46% in FY03.

    Wipro Technologies added 44 new clients in 4QFY03. Of this 16 clients were added to the acquisition of the consulting business from AMS Inc. Excluding the acquisition, 28 new clients were added. The figure is moderately higher than the acquisition of 24 clients in 3QFY03.

    Clients added 1Q 2Q 3Q 4Q Total
    FY02 25 26 27 29 107
    FY03 23 30 24 28 105

    The management expects a 3% sequential growth in revenues from the IT services business. While the growth guidance in topline is in line with the guidance given by peers like Infosys, the pressure on operating margins are a cause for concern.

    Wipro Infotech
    The company’s hardware arm reported a 4% YoY growth in sales for the 4QFY03. This figure was significantly lower than the growth seen in previous three quarters of the fiscal. However, on the brighter side the operating margins at 10% were significantly higher compared to the other quarters of the fiscal. For the full year FY03, the revenues from Wipro Infotech grew by 14%. This is much lower than a 21% growth in revenues seen in FY02. The operating margins for FY03 at 7% was also lower than the margins seen in FY02 at 8%. The contribution of services to the revenues of Wipro Infotech remained unchanged at 28% in FY03.

    Wipro Spectramind
    The company’s IT enabled services division (ITES) posted a 17% sequential growth in revenues in 4QFY03. This is marginally higher than the company’s guidance. While the total number of active clients during the quarter was 15, the division signed up three more customers. Revenues from Spectramind are expected to grow 16% sequentially in 1QFY04.

    Spectramind 2QFY03 3QFY03 4QFY03
    Revenues (Rs m) 412 564 660
    Operating margins 21.0% 25.0% 25.0%

    The company’s results have failed to impress the markets due to the fact that performance of the IT services group was disappointing on two counts. Firstly, the topline growth of the IT services business. In 4QFY03, while the company managed a 5.6% sequential growth in volumes, this figure is dwarfed when compared to a 12.8% sequential growth posted by Infosys. There would have been some concession if the low volume growth had been to protect margins. However, the decline in operating margins for Wipro’s IT services business was much steeper at 6% when compared to its peers. Even though the impact of the acquisition is included in the decline, we believe a large part of the decline has come from lower realisations.

    Business group % Of consolidated
    revenues
    Operating
    Margins
    Revenue
    growth (YoY)
    Global IT services (Wipro Technologies) 66.0% 28.0% 25.0%
    IT enabled services (Spectramind) 4.0% 24.0% -
    India & Asiapac IT Services & Products
    (Wipro Infotech)
    19.0% 7.0% 14.0%
    Consumer healthcare and lighting 7.0% 15.0% -1.0%
    Wipro Healthcare and Life Sciences 2.0% - 42.0%
    Others 2.0% - -
      100.0% - -

    At the current market price of Rs 957, the stock is trading at a P/E multiple of 26x its FY03 full year earnings. The stock is likely to take a beating due to the net profit figure being lower than market expectations.

     

     

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