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Wipro: Higher billing rates drive profits

Oct 31, 2000

Wipro Ltd. India's one of the largest software company has clocked a quarter on quarter 43% jump in its net profits to Rs 1.5 bn in 2QFY01. However, the profits of the company jumped by 116% year on year. The operating margins of the company improved to 24% due to higher billing rates. Wipro Technologies (the global IT service business) contributed 88% of and Wipro Infotech accounted for 8% of the profit before tax and interest.

(Rs m)1QFY012QFY01Change
Sales 6,185 7,404 19.7%
Other Income 38 153 302.6%
Expenditure 4,834 5,611 16.1%
Operating Profit (EBDIT) 1,351 1,793 32.7%
Operating Profit Margin (%)21.8%24.2%
Interest - -
Depreciation 193 208 7.8%
Profit before Tax1,1961,73845.3%
Tax11819867.8%
Profit after Tax/(Loss) 1,078 1,540 42.9%
Net profit margin (%)17.4%20.8%
Diluted number of shares 229 229
Diluted Earnings per share* 18.8 26.9
*(annualised)9.9%11.4%

Wipro Technologies contributed 49% of the software revenue while the enterprise division accounted for the balance 51%. During the first half the telecom domain accounted for 64% of revenues from the technology division, and e-commerce contributed 30% of revenues from the enterprise division.

The company also has well diversified geographic mix. Revenues from North America contributed 65%, followed by 27% from Europe, and 7% from Japan, to total revenues of Wipro Technologies. Its largest customer accounted for 10% of revenues and top 5 customers contributed 33% to total revenues.

At the current market price of Rs 2,248 Wipro is trading at PER of 84 times its 2QFY01 annualised earnings. The company has always enjoyed premium valuations compared to its peers in the industry. This exceptionally high valuation ratio was due to lack of supply of stock in the market, which propelled the valuation of the stock (management holding is 75%). It seems that the stock is rather overvalued at the current price and there is limited upside potential.

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