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.
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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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