• JANUARY 18, 2002

Wipro: Over the top

Wipro has beaten market expectations with a strong 18% growth in net profits on a YoY basis. However, the companyís YoY topline growth at 13% is in line with expectations. The highlight of the performance is that the company has managed to improve its operating margins by a significant 90 basis points.

(Rs m)3QFY013QFY02Change
Sales 7,738 8,716 12.6%
Other Income 63 183 190.5%
Expenditure 5,483 6,296 14.8%
Operating Profit (EBDIT) 2,255 2,497 10.8%
Operating Profit Margin (%)29.1%28.2%
Interest (114)15-113.2%
Depreciation 264 343 29.9%
Profit before Tax 2,168 2,323 7.1%
Tax 280 208 -25.7%
Profit after Tax/(Loss) 1,888 2,223 17.7%
Net profit margin (%)24.4%24.8%
Diluted number of shares231.9232.5
Diluted Earnings per share* 32.6 37.5
P/E (x) 47.3

The contribution of Wipro Technologies was 67% to the revenues. This translates to a sequential growth of 3%. While the R&D group contributed to 51% of the revenues, the enterprise solutions groupís share was 49%. However, the contribution of the support services group has been included in the numbers for R&D and enterprise solutions group and consequently the growth figure would be marginally higher.

Global IT services division (Rs m)2QFY023QFY02Change
R&D group 2,955 2,9780.8%
Enterprise solutions group 2,387 2,861 19.9%
Support services 341 - -
Total 5,683 5,840 2.8%

R&D group1QFY022QFY02Change
Telecom and Internet working 1,421 1,110 -21.9%
Embedded Systems and Internet Access 852 876 2.8%
Telecom and Internet Providers 682 993 45.6%
Total 2,955 2,978 0.8%

Wipro saw billing rates improve by 2.3% sequentially for offshore projects (16% YoY) and the sequential growth 1.5% for onsite projects (15%). While the growth in offshore billing rates is the same as 2QFY02, onsite billing rates have shown a far subdued growth as compared to 2QFY02. This could indicate the pricing pressure the company has been facing. However, it is quite commendable that in an environment where the pricing pressure is intense Wipro has managed to improve billing rates.

Revenues from the US and Japan geographies showed a steep sequential decline. However, a significant growth in revenue from the Europe region offset the decline in revenues. Consequently, Wipro now has a very diversified revenue stream across the US and European markets.

North America55%51%-7.6%

The company added 27 new accounts in 3QFY02 as compared to 26 accounts in 2QFY02. Six of the new clients added during the quarter belong to the Fortune 100 list. However, there are signs of pressure. Wipro has seen the number of customers with annualised billing of US$ 5 m decline from 24 in 2QFY02 to 21 in 3QFY02. However, the number of customers with annualised billing rates of over US$ 1 m have gone up from 81 to 85. The quarter also saw the addition of 4 new customer dedicated development centres. The dedicated development centres typically have projects running over a considerable period of time increasing the visibility of the companyís revenues.

The contribution of offshore projects declined sharply from 48% in 2QFY02 to 44% in 3QFY02. Such large sequential movements are generally not seen. However, this could be due to revenues from a large onsite project coming in or the loss of a significant offshore project. Wipro like Infosys and Mastek saw a sharp increase in revenues fixed price projects. The contribution shot up from 27% in 2QFY02 to 33% in 3QFY02.

The revenues from Wipro Infotech have shown a 12% YoY decline in 3QFY02. The contribution of this division to Wiproís revenues was 20%. According to the company, value added services comprising of facilities management, professional and availability services grew by 29% YoY. The division bagged 13 new contracts in the area of infrastructure management and added 13 new clients for domestic software services.

At the current market price of Rs 1,744, the stock is trading at a P/E multiple of 46x its 3QFY02 annualised earnings. The stock is likely to see some upside to its valuations due to the superb performance.

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