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Wipro: Insipid end to FY15
Apr 22, 2015 | Updated on Apr 23, 2015

Wipro has announced its results for the fourth quarter and full year 2014-2015. The company has reported a 0.7% QoQ increase in sales and a 3.6% QoQ increase in net profits. Here is our analysis of the results.

Performance summary
  • Consolidated net sales increased by 0.7% QoQ during the quarter. For the full year FY15 revenues increased 8.1% YoY.
  • The operating margin was stable at 22.9% during the quarter. On an absolute basis, the operating profit increased by 0.5% QoQ in the quarter.
  • Net profits increased by 3.6% QoQ. For the full year FY15, net profits increased by 11% YoY.
  • The company has declared a final dividend of Rs 7 per share to be paid on 31st July 2015.

Consolidated financial performance
(Rs m) 3QFY15 4QFY15 Change FY14 FY15 Change
Gross revenues 120,851 121,714 0.7% 437,549 473,180 8.1%
Expenditure 93,170 93,891 0.8% 337,089 364,934 8.3%
Operating profit 27,681 27,823 0.5% 100,460 108,246 7.8%
Operating profit margin (%) 22.9% 22.9%   23.0% 22.9%  
Other income 5,035 5,476 8.8% 14,542 19,859 36.6%
Finance expenses 810 912 12.6% 2,891 3,599 24.5%
Depreciation 3,647 3,267 -10.4% 11,106 12,823 15.5%
Profit before tax 28,259 29,120 3.0% 101,005 111,683 10.6%
Tax 6,228 6,255 0.4% 22,600 24,624 9.0%
Profit after tax 22,031 22,865 3.8% 78,405 87,059 11.0%
Minority interest 103 145 40.8% 438 531 21.2%
Net profit 21,928 22,720 3.6% 77,967 86,528 11.0%
Net profit margin (%) 18.1% 18.7%   17.8% 18.3%  
No. of shares (m)         2,469.0  
Diluted earnings per share (Rs)*         35.0  
P/E ratio (x)*         15.5  
* On a trailing 12-months basis

What has driven performance in 4QFY15?
  • In terms of verticals, service lines and geographies Wipro had a muted quarter. The US and the Middle East regions led the way again. The appreciation of the US dollar against the Euro impacted the reported revenues from Europe. The product engineering as well as the enterprise services divisions witnessed good momentum. The retail and financial services verticals delivered a good performance in this quarter. On the flip side, the traditional ADM business continued to remain under pressure due to intense completion and client specific issues. The fall in crude prices has continued to delay projects in the energy vertical.

    Business mix
    Revenue breakup for IT services (Rs m) 3QFY15 4QFY15 Change
    Based on geography
    US 62,117 62,926 1.3%
    Europe 33,355 32,011 -4.0%
    India and Middle East 11,602 13,023 12.3%
    Rest of the world 13,777 13,754 -0.2%
    Based on service offerings
    Application Development and Maintenance 19,336 17,040 -11.9%
    Global Infrastructure Services 32,992 33,471 1.5%
    Business Application Services 34,926 36,514 4.5%
    Product Engineering 8,580 9,250 7.8%
    Advanced Technologies & Solutions 13,535 13,997 3.4%
    BPO 11,481 11,441 -0.3%
    Based on verticals
    Global Media & Telecom 16,677 16,431 -1.5%
    Finance Solutions 31,059 32,254 3.8%
    Manufacturing & Hi-tech 22,116 22,274 0.7%
    Healthcare, Life Sciences & Services 14,140 14,241 0.7%
    Retail, Consumer goods & Transportation 17,040 17,649 3.6%
    Energy and Utilities 19,820 18,866 -4.8%

  • At the operating level, the margins delivered a flat performance. The management has repeatedly stated that they would maintain margins in a tight range (excluding the cross currency impact) and that was clearly evident in this quarter.

  • At the net level, a lower tax rate and lower depreciation (both on a sequential basis) somewhat compensated for the muted operating performance. The bottomline grew by 3.6% QoQ.
What to expect?
At the current price of Rs 544, the stock is trading at a multiple of 15.5 times its trailing 12 month earnings.

Wipro's delivered a fairly subdued performance in 4QFY15. In constant currency terms, the IT services revenue grew by just 1.2% QoQ. However, for the full year FY15, the company's performance was satisfactory. The client metrics improved across the board. The company added 65 new clients in 4QFY15 and 194 in FY15. Total active clients increased from 986 to 1,054 on a YoY basis. The deal pipeline for the company remains healthy.

The company continues to face client specific issues in the Energy and BFSI verticals. The management maintained that these issues will get resolved over the next two quarters. However, these issues are likely to lead to a muted performance in 1QFY16.

The company's automation drive to improve margins continues. This has certainly helped to maintain margins in an extremely competitive environment. The employee utillisation (excluding trainees) improved to 80.5% in the quarter while attrition has fallen to 15.6% in 4QFY15.

We had recommended Wipro in the November 2014 Stock Select report. After the sharp run up in the stock price we had revised our view to hold in Feb 2015. However, given the recent fall in the stock price we believe there is sufficient margin of safety as well as upside potential now for investors at these levels. Therefore, we revise our view on the stock to Buy. Our target price of Rs 750 remains unchanged.

We would like to gently remind you that your allocation to equities should be decided upon after keeping aside some safe cash. Also within your overall exposure to equities please ensure that you broadly follow our suggested asset allocation and that no single stock comprises more than 5% of your portfolio.

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