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Wipro: Beyond expectations - Views on News from Equitymaster
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  • Apr 20, 2001

    Wipro: Beyond expectations

    In 4QFY01 Wipro has clocked a net profit of Rs 2,175 m, up 151% over 4QFY00 figure of Rs 868 m. For the full year (FY01) the company has recorded a net profit of Rs 6,679 m, a growth of 169% based on Rs 2,464 m for FY00. However, this includes an extraordinary loss of Rs 523 m in FY00. Adding this back and considering net profit figure for FY00 to be Rs 3,006 m the company has shown a growth in net profit of 122.1% for FY01.

    (Rs m) 3QFY01 4QFY01 Change
    Sales 7,738 9,212 19.0%
    Other Income 63 176 179.4%
    Expenditure 5,483 6,627 20.9%
    Operating Profit (EBDIT) 2,255 2,585 14.6%
    Operating Profit Margin (%) 29.1% 28.1%
    Interest (114) (107)
    Depreciation 264 314 18.9%
    Profit before Tax 2,168 2,554 17.8%
    Tax 280 395 41.1%
    Profit after Tax/(Loss) 1,888 2,159 14.4%
    Net profit margin (%) 24.4% 23.4% ††
    Extraordinary item 0.0 16.0 ††
    Profit after Tax/(Loss)# 1,888 2,175 15.2%
    Net profit margin (%)# 24.4% 23.6% ††
    Diluted number of shares 231.9 231.9 †††
    Diluted Earnings per share* 32.6 37.2
    # incl extraordinary income

    The company has posted a hefty sequential growth in total income of 20% clocking Rs 9,338 m for 4QFY01.On a YoY basis the total income for 4QFY01 has grown by 25%. For FY01 the total income for the company is Rs 30.9 bn, which translates to a growth of 34.9% over a figure of 22.9 bn in FY00.

    The company's Global IT division has shown a revenue growth of 7.7% compared to December quarter falling a bit short of expectations. However, the superb sequential growth that Wipro has posted is on the back of a whopping 56% QoQ growth in revenues by the Indian IT services division of the company.

    The company has seen a drop in operating margins of 100 basis points in 4QFY01 compared to 3QFY01. This could be because the contribution of global IT services division to the revenues of 4QFY01 has come down to 55% (62% in 3QFY01) and the contribution of Indian IT services division has gone up to 30% (up from 23% in 3QFY01). The operating margins are higher for the Global IT divison compared to the Indian IT services divison. However, according to the company the Indian IT services division has managed to improve operating margins by 4.5% compared to 4QFY00.

    (Rs m) FY00 FY01 Change
    Net Sales (Gross - Excise) 22,736 30,539 34.3%
    Other income 185 383 107.0%
    Expenditure 18,501 22,529 21.8%
    Operating profit (EBDIT) 4,222 8,010 89.7%
    Operating Margins 18.6% 26.3%
    Depreciation 699 979 40.1%
    Interest 214 (241)
    Profit before tax 3,507 7,655 118.3%
    Extraordinary Items (523) 16
    Tax 501 992 98.0%
    Profit after tax 2,483 6,679 169.0%
    Net profit margin 10.9% 21.9%
    Profit after tax# 3006 6,663 121.7%
    Net profit margin# 13.2% 21.8%
    No of shares 229.2 231.9
    FDEPS 10.7 28.7 168.5%
    P/E (X) 48.7
    # Excl extraordinary item

    Wipro has posted excellent results for FY01 showing a 35% growth in revenues. But the highlight of the performance was the huge 770 basis points jump in operating margins compared to FY00. At the end of the FY01 the revenue mix for the company stood at 57% from Global IT services division, 27% from Indian IT services and products division and 11% from the Consumer Care and Lighting division. However, the major contributor to the bottomline was the Global IT services division that accounted for 82% of the profit before interest and tax. The contributions to the bottomlines of the Indian It Services and Consumer Care division were 11% and 6% respectively. This is due to the fact that operating margins for the Global IT services division are significantly higher than the other divisions. For 4QFY01 the operating margins for this division was 35% compared to 13.7% (up from 10.8% in 3QFY01) for Indian IT services and 16% (up from 15% in 3QFY01) for Consumer Care and Lighting division.

    R&D services group contributed to 50% of the revenues of the Global IT services division (up from 46% previous year). The other contributors to the Global IT services divisionís revenues were the enterprise solutions group and the support services group.

    Over the year the company has significantly reduced the contribution of US to its revenues. The share of US came down from 70% in FY00 to 64% in FY01. The share of revenues from Europe increased from 24% to 29% in FY01. Japan too saw its share going up from 5% in FY00 to 6% in FY01.

    The company has managed to de risk its client concentration during the year very effectively. The contribution from top five clients came down to 27% from 39% last year. For the top 10 clients the figure dropped to 43% from 53% in FY00.

    At the current market price of Rs 1,400, the stock is trading at a P/E multiple of 49 times its 4QFY01 annualised earnings.



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