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Wipro: Strong quarter driven by all segments
Jul 23, 2010

Wipro has announced its 1QFY11 results. The company has reported a 3.1% QoQ growth in sales and 9% QoQ growth in net profit. Here is our analysis of the results.

Performance summary
  • Sales grow 3.1% QoQ during the quarter driven by a healthy growth across all its segments except for IT products where sales decline 7% QoQ.
  • Operating margins improve by 0.4% QoQ despite the headwinds of wage increases and a decline in billing rates.
  • Net profits grow by 9% QoQ during the quarter on account of margin expansion, higher other income, higher interest income and lower tax liability.
  • Employee strength of the IT services business stood at 112,925 at the end of June 2010. IT services added 4,854 (net) employees during 1QFY11. Attrition rose to 15.8%.
  • IT services segment adds 22 new clients during the quarter, thereby taking the total count of active clients to 858.


Consolidated financial performance
(Rs m) 4QFY10 1QFY11 Change
Net Sales 69,772 71,906 3.1%
Expenditure 54,578 55,988 2.6%
Operating profit (EBDIT) 15,194 15,918 4.8%
Operating profit margin (%) 21.8% 22.1%  
Other income 1,270 1,351 6.4%
Interest (342) 403  
Depreciation 1,887 1,884 -0.2%
Exchange difference 57 458  
Profit before tax 14,976 15,440 3.1%
Tax 3,015 2,345 -22.2%
Minority interest (46) (67) 45.7%
Equity in earnings of affiliates 176 157 -10.8%
Profit after tax/(loss) 12,091 13,185 9.0%
Net profit margin (%) 17.3% 18.3%  
No. of shares (m) 1,468.2 2,449.0  
Diluted earnings per share (Rs)*   20.0  
P/E ratio (x)*   20.6  
* On a trailing 12-months basis

What has driven performance in 1QFy11?
  • Wipro's sales grew by around 3.1% QoQ during 1QFY11. This was driven by a 5% QoQ growth in the IT services business (76% of total sales) and a 5% QoQ growth in the consumer care and lighting business (9% of total sales). Sales from IT products business (11% of total sales) declined by 6.5% QoQ. IT services saw a growth across all segments except for BPO, where sales declined by 3% QoQ. Application development and maintenance, which constitutes 39% of total sales, grew by 5% QoQ during the quarter. In terms of verticals, the growth was led by Financial Services and Manufacturing verticals which grew by 8% QoQ and 7% QoQ respectively. The Healthcare and Energy & Utilities segments witnessed declines of 3% QoQ each.

    IT services revenue breakup
      4QFY10 1QFY11 Change
    Based on service offerings      
    Application development and maintenance 20,512 21,561 5.1%
    Technology infrastructure services 11,361 11,605 2.2%
    Package Implementation 6,680 7,425 11.2%
    Testing services 6,154 6,270 1.9%
    BPO 5,733 5,555 -3.1%
    Product Engineering 2,156 2,585 19.9%
    Based on verticals      
    Technology, Media and Telecom 13,465 14,136 5.0%
    Financial Services 13,728 14,796 7.8%
    Manufacturing 7,784 8,305 6.7%
    Healthcare services 4,839 4,675 -3.4%
    Retail and Transportation 7,732 8,195 6.0%
    Energy and Utilities 5,049 4,895 -3.1%

    In terms of geographies, revenues from Wipro’s major market for IT services i.e., the US (57% of sales) saw a growth of nearly 5% QoQ during the quarter. India and Middle East (9%) grew by 6% QoQ during the quarter. Sales from Japan (2%) and the rest of the world (7%) increased by 4% QoQ and 5% QoQ respectively.

    Revenue breakup
    (Rs m) 4QFY10 1QFY11 Change
    Based on geography      
    US 39,561 41,202 4.1%
    Europe 18,350 18,264 -0.5%
    Japan 1,047 1,079 3.1%
    India and Middle East 6,140 6,472 5.4%
    Rest of the world 4,675 4,890 4.6%
    Based on businesses      
    IT Services 52,596 55,002 4.6%
    IT products 8,900 8,320 -6.5%
    Consumer care Lighting 6,084 6,414 5.4%
    Others 2,285 2,321 1.6%

  • Wipro's operating margins increased by 0.4% QoQ during the quarter. This was despite the wage hike and currency volatility, and was largely due to cost containment and growth in volumes.

  • Wipro's net profit grew by 9% QoQ during the quarter. This was led by higher margins, higher other income, and lower tax charges during the quarter.

What to expect?
At the current price of Rs 412, the stock is trading at a multiple of 15.2 times our estimated FY13 earnings. Wipro’s management is upbeat about the business environment. The company has signed some major deals and will see its benefits in quarters to come as billed hours for these start to pick up. The management expects margins to remain stable from a medium to long term perspective. However, it expects margins to contract next quarter primarily due to employee expenses related to the stock initiatives and performance linked programmes undertaken by the company during the quarter. In addition to this, there are some foreign exchange hedging contracts that were undertaken at a lower rate, which will mature during the next quarter and will therefore have an adverse impact on margins.

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