WIPRO LTD. SYNOPSIS. C.M.P: Rs Target Price: Rs Date: Nov. 29 th 2011 BUY. Share Holding Pattern. 1 Year Comparative Graph

Transcription

1 WIPRO LTD. Result Update: Q2 FY 2 C.M.P: Rs Target Price: Rs Date: Nov. 29 th 20 BUY Stock Data: Sector: IT Face Value Rs wk. High/Low (Rs.) /30.20 Volume (2 wk. Avg.) BSE Code Market Cap (Rs in mn) Share Holding Pattern SYNOPSIS Wipro is 4 th largest Company in the world in terms of market capitalization in IT services. During the quarter ended, the robust growth of revenue is increased by 7.64% Rs million. Wipro Tech. has entered into an alliance with Workday to help customers build 2st Century HR organizations. Wipro named as one of the Global Top Companies for Leaders by Aon Hewitt, The RBL Group and Fortune in the Prestigious Global Rankings. Year Comparative Graph Wipro Technologies has won the 20 Microsoft Software Development Partner of the Year Award. Wipro Ltd. BSE SENSEX Wipro BPO inaugurated its first rural BPO center at Manjakkudi Village in Tamil Nadu. Wipro wins engagement with UK based food retailer- Premier Foods as a strategic technology partner. The Company s revenue and PAT are expected to grow at a CAGR of 6% and 3% over FY0 to FY3E respectively. Years Net sales EBITDA Net Profit EPS P/E FY FY 2E FY 3E

2 Peer Group Comparison Name of the company CMP (Rs.) Market Cap. (Rs. mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%) Wipro Ltd TCS Infosys HCL Tech Investment Highlights Q2 FY2 Results Update Wipro Ltd has posted a consolidated result for the quarter ended September 30, 20. During the quarter, the company has posted a net profit of Rs million for the quarter ended September 30, 20 as compared from Rs million for the quarter ended September 30, 200, rise of.6%. Net sales are surged by 7.64% to Rs million from Rs million same quarters last year. Company posted earnings of Rs a share during the quarter, registering.38% increment over prior year period. Quarterly Results - Consolidated (Rs. in mn) As At Sep- Sep-0 %change Net sales % PAT % Basic EPS % 2

3 Net Sales & PAT growth During the quarter, Net sales rose by 7.64% to Rs million from Rs in the same the quarter last year and the Total Profit for quarter ended September 20 was Rs million grew by.6% from Rs million compared to same quarter last year. EPS Due to increase in equity capital the basic EPS of the company stood at Rs.5.29 for the quarter ended Sep 20 from Rs.5.22 for the quarter ended Sep

4 Wins engagement with UK based food retailer - Premier Foods Wipro Technologies has been chosen by Premier Foods, the United Kingdom s largest food producer, as a strategic technology partner. Premier Foods plc produces and markets over 40 iconic British brands. Wipro will be supporting both systems and processes to enhance efficiency of Premier Foods supply chain for five year strategic relationship. Named as one of the Global Top Companies for Leaders by Aon Hewitt, The RBL Group and Fortune Wipro was the only Indian IT company ranked in the prestigious Aon Hewitt 'Top Companies for Leaders' global list. The 'Top Companies for Leaders' study is conducted by Aon Hewitt, a global human resource consulting firm, in partnership with The RBL Group, a strategic HR and leadership advisory firm, and FORTUNE magazine. This year's winners were selected based on strength of leadership practices & culture, examples of leader development on a global scale, alignment of business and leadership strategy, business performance and company reputation. Launches new version of Wipro Hospital Information Management System Wipro InfoTech, the India, Middle East and Africa, IT Business unit of Wipro Ltd and a leading provider of IT and business transformation services launched a new version of its Hospital Information Management System (HIMS) with enhanced business functionalities. The new version of the HIMS has been developed to cater to the future needs of large healthcare providers, Hospital chains, Government hospitals, clinics, and diagnostic centers in India, the Middle East and Africa. Recognized as 20 Microsoft Software Development Partner of the Year Wipro Technologies has won the 20 Microsoft Software Development Partner of the Year Award. The company was honored among a global field of top Microsoft partners for demonstrating excellence in innovation and implementation of customer solutions, based on Microsoft technology. 4

5 Wipro and Workday enter into an alliance Wipro Technologies, the global Information Technology has entered into an alliance with Workday to help customers build 2st Century HR organizations. Wipro will provide Consulting and IT Services to clients deploying Workday solutions. Workday is the leader in SaaS-based enterprise solutions for global human resources, payroll, and financial management. Recognized as Asia's Most Admired Knowledge Enterprise (MAKE) Winner Wipro Technologies has been recognized as Asia's Most Admired Knowledge Enterprise (MAKE) winner 20 for the 9 th consecutive time, the only company in Asia to have achieved this distinction in the IT sector. The Award was handed out in the 2th World Knowledge Forum at Seoul, South Korea. Sets up its first Rural BPO Center Wipro BPO inaugurated its first rural BPO center at Manjakkudi Village in Tamil Nadu. The Manjakkudi center has a capacity of 20 seats, and will open with a 50 seat pilot project for an international client in the retail sector. Wipro plans to expand its rural BPO operations to 500 seats by March 203, in Tamil Nadu and to replicate this BPO model across other states in India, in the near future. Helps UGI Utilities create agile IT Systems based on new Oracle platform Wipro Technologies implemented latest Oracle Financial suite (2..3) of products for UGI Utilities Inc., a natural gas and electric utility, and a wholly-owned subsidiary of UGI Corporation, based in the United States. The solution helps UGI Utilities streamline financial processes, update latest compliance mandates and create agile IT systems, to effectively support their new business processes. 5

6 Revenue Composition (Q2 FY2) Geography Composition (Q2 FY2) 6

7 Service Line Distribution (Q2 FY2) Customer Concentration 7

8 Onsite/Offshore Revenue Head Count 8

9 Company Profile Wipro Limited is the first PCMM Level 5 and SEI CMM Level 5 certified IT Services Company globally. In the Asia Pacific and Middle East markets, Wipro provides IT solutions and services for global corporations. Wipro s ADSs are listed on the New York Stock Exchange, and its equity shares are listed in India on the Stock Exchange, Mumbai and the National Stock Exchange, among others. Wipro Ltd provides comprehensive information technology (IT) solutions and services, including systems integration, information systems outsourcing package implementation, software application development and maintenance, and research and development services to corporations globally through its IT services, solutions and products division. The following are the different verticals where Wipro is working: Aerospace, Defense & Satellite Automotive Electronics Automotive IT Broadband & Optical Networks Chemicals Computing Peripherals Computing Platforms Consumer Electronics Consumer Packaged Goods Distribution Energy Finance Health Science High Technology IP Multimedia Networks Industrial Automation Insurance Manufacturing Media & Entertainment Medical Devices Mobile Devices Retail Semiconductors Software Products Group Storage Technologies Telecom - Equipment Vendors Telecom - Service Providers Travel & Transportation Utilities Wireless Networks & Devices Alliances The company has alliance with the following companies: Actuate Amber Point Aprision Ariba ARM Artisan ATG Autonomy Axiom BEA Blue Titan Business Objects Cape Clear Cognos Cisco Computer Associates Data Flux Data Foundations DSPA Embedded Linux Consortium FileNet GXS HP Hyperion Subex UMC CEVA JDA Hyundai IBM Informatica Interwoven ITKO Magic Software Microsoft 9

10 Nortel Obilcore OM Partners Oracle PeopleSoft Real Time Image RSA SAS SAP Siebel Sun Tibco Vignette Web Methods Zafin Labs Sterling Commerce Getronics TSMC ATG Selectica Subsidiaries Wipro Infrastructure Engineering Ltd. Wipro Inc. C Mango Pte Ltd. Wipro Japan KK. Wipro Shanghai Ltd. Wipro Trade Marks Holding Limited. Wipro Travels Services Ltd. Wipro Consumer Care Ltd Wipro Cyprus Private Ltd. Quantech Global Services Ltd. Wipro Austrial Pty Ltd. 3D Networks Pte Ltd. Spectra mind Inc. Wipro Chandrika Ltd. Infocrossing Services The company services are divided into five. They are as follows:. IT services 2. Product Engineering Solutions 3. Technology Infrastructure Services 4. Business Process Outsourcing 5. Consulting Services Services IT Services Product Engineering Technology Infrastructure Services BPO Services Consulting Services 0

11 Financial Results 2 Months Ended Profit & Loss Account (Consolidated) Value (Rs.in.mn) FY0 FY FY2E FY3E Description 2m 2m 2m 2m Net Sales Other Income Total Income Expenditure Operating Profit Interest Gross profit Deprecation Exceptional Items Profit Before Tax Tax Profit After Tax Minority interest Share of Profit & Loss of Asso Net Profit Equity capital Reserves Face value EPS

12 Quarterly Ended Profit & Loss Account (Consolidated) Value (Rs.in.mn) 3-Mar- 30-Jun- 30-Sep- 3-Dec-E Description 3m 3m 3m 3m Net sales Other income Total Income Expenditure Operating profit Interest Gross profit Depreciation Exceptional Items Profit Before Tax Tax Profit After Tax Minority interest Share of Profit & Loss of Asso Net Profit Equity capital Face value EPS

13 Key Ratios Particulars FY0 FY FY2E FY3E No. of Shares (in Million) EBITDA Margin (%) 23.49% 23.32% 22.46% 22.39% PBT Margin (%) 20.23% 20.06% 9.2% 9.4% PAT Margin (%) 6.8% 6.94% 5.76% 5.79% P/E Ratio (x) ROE (%) 22.88% 22.05% 9.49% 8.08% ROCE (%) 27.33% 27.68% 26.06% 24.54% Debt Equity Ratio EV/EBITDA (x) Book Value (Rs.) P/BV Charts: Net sales & PAT: 3

14 P/E Ratio(x): Debt Equity Ratio: 4

15 EV/EBITDA(x): P/BV: 5

16 Outlook and Conclusion At the current market price of Rs , the stock is trading at 5.83 x FY2E and 3.99 x FY3E respectively. Earning per share (EPS) of the company for the earnings for FY2E and FY3E is seen at Rs and Rs respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 6% and 3% over 200 to 203E respectively. On the basis of EV/EBITDA, the stock trades at.2 x for FY2E and 9.95 x for FY3E. Price to Book Value of the stock is expected to be at 3.2 x and 2.55 x respectively for FY2E and FY3E. We expect that the company will keep its growth story in the coming quarters also. We recommend BUY in this particular scrip with a target price of Rs for Medium to Long term investment. Industry Overview Indian information technology (IT) and IT enabled Services (ITeS) sectors have seen stupendous growth during the last decade. The IT industry, as a whole, has placed India on the world map as a major knowledge-based economy and outsourcing hub. Business Process Outsourcing (BPO) segment, which is an industry in itself, has played a vital part in fuelling economic growth. The industry not only influences people s lives through an active direct and indirect contribution to the various socioeconomic parameters such as employment, standard of living and diversity, but also has played a significant role in transforming India s image to a land of innovative entrepreneurs and a global player in providing world class technology solutions and business services. 6

17 Nearly one million jobs were created in India during 200-, of which 70 per cent were from the IT and BPO sectors, according to data released by the Ministry of Labour and Employment. Various industry experts believe that the workforce in Indian IT industry will reach 30 million by 2020 and this sunrise industry is expected to continue its mammoth growth. The sector is estimated to have grown by 9 per cent in the FY20, aggregating revenue of almost US$ 76 billion. India s outsourcing industry has witnessed a rebound and registered better than expected growth according to National Association of Software and Service Companies (NASSCOM). The export revenues are estimated to have aggregated to US$ 59 billion in FY20 and contributed 26 per cent in total Indian exports (merchandise plus services), according to a research report IT-BPO Sector in India: Strategic Review 20, published by NASSCOM. Within exports, ITeS segment (contributed 57 per cent of total IT exports), grew by 22.7 per cent for FY, while BPO export segment grew by 4 per cent. Driven by increasing use of electronics, technology alignment and demand for localised products, engineering design and products development segments generated revenues of US$.3 billion in FY20, growing by 3.4 per cent. The domestic IT-BPO market marked an improvement of 6 per cent to aggregate revenues of US$ 7.6 billion. Massive expansion in technology adoption across government and private sectors has driven customer services and internal controls to get efficient which has led to an increase in outsourcing within domestic market also. Market Dynamics Top 200 Indian IT companies have garnered combined revenues of US$ 84 billion, achieving an average growth rate of 25 per cent in 200-, the highest since 2007, according to an annual research by Cybermedia s Dataquest magazine. According to 7

18 the survey, the top 5 Indian IT companies in FY were Tata Consultancy Services (TCS), Infosys, Wipro, Hewlett Packard (HP) and Cognizant with revenues of US$ 7.4 billion (25 per cent growth over ), US$ 5.8 billion (22 per cent), US$ 5.6 billion (3 per cent), US$ 5.2 billion (30 per cent) and US$ 4.8 billion (37 per cent), respectively. IT & ITeS - Key Developments and Investments Between April 2000 and April 20, the computer software and hardware sector received cumulative foreign direct investment (FDI) of US$ 0,82 million, according to the Department of Industrial Policy and Promotion (DIPP). Latin American nations, in a bid to have closer ties with India, have indicated development of bilateral trade pacts and free trade agreements, wherein there is a growing interest for co-operation in IT. Tech giant IBM and telecom service provider Bharti Airtel have signed a 0-year deal wherein former will provide IT solutions to the latter s employees in 6 African countries. Cloud Computing is an increasingly upcoming concept in the Indian markets. It is basically a technology that enables organisations to have network access to a shared pool of computing resources like servers, networks, storage and applications. This implies that users need not invest in infrastructure set-ups as they can avail thirdparty services for all IT requirements and pay according to their usage. Apart from global players like Amazon, Google, IBM, HP, Cisco and Oracle, Indian players like TCS and Netcore offer these services. Zinnov Management Consulting conducted a study on Indian cloud computing market and stated that the current estimation of around US$ 400 million market size is anticipated to reach US$ 4.5 billion in 205. It stated that about 75 per cent of the total market would be driven by private clouds as their deployment would help companies reduce operational costs by 50 per cent. The study also revealed that IT expenditure on cloud technology is expected to grow from.4 per cent in 200 to 8.2 per cent by

19 Software as a service (SaaS), a variation of cloud computing, has also gained significant importance over the past couple of years. The market for such service is estimated to grow by 20.7 per cent in 20, valuing up to US$ 20 million, as against US$ 99.5 million in 200, according to IT advisory firm Gartner. Customer relationship management (CRM), the largest market for SaaS, is expected to reach US$ 37.7 million in 20 to represent 32 per cent of total CRM market in India. Some of the recent key developments pertaining to cloud computing are- In a bid to widen its Cloud 205 vision, Intel has announced two new Intel Science and Technology Centers (ISTC) - both headquartered at Carnegie Mellon University. Entailing an investment of about US$ 30 million, the two centers would focus on collaboration between university deemed leaders and Intel. Indian firms like Oxford Bookstore, Reilto Enterprises, Ryan International, Kaya, Manav Rachana, Four Fountain, Karrox and United Biscuits have adopted cloud computing. Consulting Consulting is the buzzword for IT firms these days. Major players like TCS, Infosys, Wipro, Cognizant and HCL are relying on consulting services to extract maximum business from existing accounts and win quality ones. Though the companies are said to be in nascent stage under this concept, their revenues and client base are soaring because of consulting, to a major extent. For instance, Infosys number of high profile customers has gone up to 3 by the end of quarter ended June 30, 20 from 28 in the previous quarter while Wipro s average revenue from top 0 clients has gone beyond US$ 00 million in 200- from about US$ 72 million in Industry experts believe that Indian IT firms are winning lots of transformational deals by leveraging upon their consulting strengths and providing consulting and solution oriented modules rather than transactional ones to their clients. 9

20 Government Initiatives In a bid to connect Indian villages and classrooms across the country with knowledge centres, the government has taken up a task of providing broadband connectivity to all the village panchayats by 202. Sufficient funds have been allocated for the same. Minister of State for Communications and IT Sachin Pilot believes that broadening connectivity in such a manner would improve the way government interacts with people. The IT wing of West Bengal government is planning to come up with clusters of small and medium enterprises (SMEs) to promote IT as a focus industry for growth of the state. To improve the stature for SME IT clusters, the state government is also contemplating to increase state s venture capital fund which is worth US$ 2.2 million currently. IT & ITeS in India - Road Ahead According to India Information Technology Report Q 20, released by Research and Markets, Indian market for IT services and products is anticipated to grow from US$ 8.6 billion in 20 to US$ 40.5 billion in 205. During the year 20, government procurement is expected to grow substantially while opportunities in healthcare, education, telecom and financial services would broaden further. Further, NASSCOM expects software and services exports growth at 6-8 per cent, clocking US$ billion of revenues in FY202 whereas domestic market is anticipated to grow by 5-7 per cent with revenues of US$ billion. Newer phenomenon like cloud, analytical services, advanced mobile applications, healthy environment for start-ups and SaaS will drive the industry growth. According to latest projections released by Cybermedia Research, the aggregate market size of domestic IT products and ITeS would reach US$ 52.3 billion crore by 204, growing 7.3 per cent between 200 and

21 Disclaimer: This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of its affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. 2

22 Firstcall India Equity Research: C.V.S.L.Kameswari Pharma U. Janaki Rao Capital Goods D. Ashakirankumar Automobile A. Rajesh Babu FMCG H.Lavanya Oil & Gas Dheeraj Bhatia Diversified Manoj kotian Diversified Nimesh Gada Diversified Firstcall India also provides Firstcall India Equity Advisors Pvt.Ltd focuses on, IPO s, QIP s, F.P.O s, Takeover Offers, Offer for Sale and Buy Back Offerings. Corporate Finance Offerings include Foreign Currency Loan Syndications, Placement of Equity / Debt with multilateral organizations, Short Term Funds Management Debt & Equity, Working Capital Limits, Equity & Debt Syndications and Structured Deals. Corporate Advisory Offerings include Mergers & Acquisitions (domestic and cross-border), divestitures, spin-offs, valuation of business, corporate restructuring-capital and Debt, Turnkey Corporate Revival Planning & Execution, Project Financing, Venture capital, Private Equity and Financial Joint Ventures Firstcall India also provides Financial Advisory services with respect to raising of capital through FCCBs, GDRs, ADRs and listing of the same on International Stock Exchanges namely AIMs, Luxembourg, Singapore Stock Exchanges and other international stock exchanges. For Further Details Contact: 3rd Floor, Sankalp, The Bureau, Dr.R.C.Marg, Chembur, Mumbai Tel.: / / Telefax: info@firstcallindiaequity.com 2 2