WIPRO LTD. BUY SYNOPSIS. C.M.P: Rs Target Price: Rs Date: May 15 th Share Holding Pattern. 1 Year Comparative Graph

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1 WIPRO LTD. Result Update: Q4 FY 12 C.M.P: Rs Target Price: Rs Date: May 15 th 2012 BUY Stock Data: Sector: IT Face Value Rs wk. High/Low (Rs.) / Volume (2 wk. Avg.) BSE Code Market Cap (Rs in mn) Share Holding Pattern 1 Year Comparative Graph 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 18.48% to Rs million. Wipro Limited has signed an agreement to acquire Promax Applications Group (PAG) for a total purchase consideration of AUD 35 Million. Wipro Infotech has established a partnership with Eucalyptus Systems to provide end-to-end enterprise cloud computing offering. The USPTO (United States Patent and Trademark Office) has granted a patent to Wipro for its invention in the area of Information management. Wipro Ltd. BSE SENSEX Standard & Poor's Ratings Services raised its long-term corporate credit rating on Wipro to 'BBB+' from 'BBB'. The Company s revenue and PAT are expected to grow at a CAGR of 16% and 12% over FY11 to FY14E respectively. Years Net sales EBITDA Net Profit EPS P/E FY FY 13E FY14E

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 Q4 FY12 Results Update Wipro Ltd has posted a consolidated result for the quarter ended March 31, During the quarter, the company has posted a net profit of Rs million for the quarter ended March 31, 2012 as compared from Rs million for the quarter ended March 31, 2011 rise of 7.67%. Net sales are surged by 18.48% to Rs million from Rs million same quarters last year. Company posted earnings of Rs a share during the quarter, registering 7.47% increment over prior year period. Quarterly Results - Consolidated (Rs. in mn) As At Mar-12 Mar-11 %change Net sales % PAT % Basic EPS % 2

3 Net Sales & PAT growth During the quarter, Net Sales rose by 18.48% to Rs million from Rs in the same the quarter last year and the Total Profit for quarter ended March 2012 was Rs million grew by 7.67% 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 for the quarter ended Mar from Rs for the quarter ended Mar

4 Break up of Expenditure Segment Revenue Pariculars Q4 FY12 (Rs. mn) IT Services IT Products Consumer Care & Lighting Others Total

5 Recommends Final Dividend Wipro Ltd has recommended final dividend of Rs. 4/- per equity share and ADR (200% on an equity share of par value of Rs. 2). Wipro to acquire Analytics Co, Promax Applications Group Wipro Limited has signed an agreement to acquire Promax Applications Group (PAG), a leading player in trade promotion planning, management, and optimization solutions space for a total purchase consideration of AUD 35 Million. The acquisition of Promax Applications Group will strengthen Wipro s positioning and capability in management, analytics & optimization of trade promotions, and further extends our leadership in analytics and information management services. Wipro and University of Canberra Win ANZ-ISG Paragon Awards 2012 for 'Best Service Provider Innovation Excellence' Wipro Technologies and University of Canberra, a leading Australian University has jointly won 'Best Service Provider' Innovation Excellence Award at the 2012 ANZ- ISG Paragon awards. This award recognizes Wipro's innovative managed services delivery on a single platform covering IT Infrastructure, Business Process Outsourcing and Applications in a distributed global-delivery model, for the University of Canberra. Wipro named by Ethisphere Institute as one of the World s Most Ethical Companies Wipro Technologies has been recognized by the Ethisphere Institute, the leading business ethics think-tank, as one of the 2012 World's Most Ethical (WME) Companies. This recognition is for a select number of companies from around the world who demonstrate consistently high levels of transparency, ethics and corporate responsibility. Wipro's recognition is a reflection of its long standing legacy of conducting business on a strong foundation of values where integrity and transparency have been top priorities. 5

6 Wipro launches Cloud Based NextGen Care Management Solution for US Healthcare Market Wipro Technologies announced the launch of its NextGen Care Management solution for the US healthcare market, specifically aimed at primary care physicians and healthcare providers. The objectives of the Wipro solution are aligned with the United States' Medical Home and Accountable Care Organization (ACO) program to enable personalized, affordable and quality care. Wipro's NextGen Care Management solution enables physicians to drive patient participation in devising a personalized care plan with defined care goals, treatment plan and health improvement activities. USPTO grants patent to Wipro for Innovative Methodology for Automotive Sector Wipro Technologies has been granted a patent for innovation in the automotive manufacturing sector by the United States Patent and Trademark Office. The patent termed as Wipro's 'Warranty Insight Solution Framework System and Method' was filed by Wipro's Automotive Centre of Excellence (USPTO Application # 11/927712) and is among those granted to Wipro in the area of 'Business Process Frameworks'. The patent is for a unique methodology that helps gain insights from product breakdowns, which help in improving product design and manufacturing processes, in the automotive manufacturing sector. Wipro establishes Strategic Partnership with Eucalyptus Wipro Infotech has established a partnership with Eucalyptus Systems, creators of the most widely deployed open source on-premise infrastructure as a service (IaaS) cloud platform. As a part of the collaboration, Wipro Infotech will offer the Eucalyptus' Infrastructure as a Service (IaaS) solution as part of its end-to-end enterprise cloud computing offering. Wipro will provide integrated solutions for planning, building, and managing scalable, elastic cloud services for enterprises. 6

7 Wipro launches Wipro M2M to enable Communication Service Providers Wipro Technologies announced the launch of Wipro M2M, a comprehensive solution that enables Communication Service Providers (CSPs) to launch Machineto-Machine (M2M) services quickly and cost effectively. M2M refers to technologies that use both wireless and wireline networks to enable direct communication between devices and applications. CSPs are investing heavily in M2M, because it offers tremendous potential to replace declining revenues in legacy business areas, such as voice and broadband services. Wipro launches Wipro RAPIDS 2.0, a pre-integrated solution Wipro Technologies announced the launch of 'Wipro RAPIDS 2.0' (Rapid Application Integration & Deployment Solution), a pre-integrated solution that enables Communication Service Providers (CSP) to significantly accelerate their transformation journey. Wipro RAPIDS 2.0 is an enhanced version which leverages Oracle's Communications Rapid Offer Design and Order Delivery Solution, aimed at providing innovative features and functionalities that are required by CSPs in today's digital world to swiftly launch differentiated offerings and deliver an enhanced customer experience. Revenue Composition (Q4 FY12) 7

8 Geography Composition (Q4 FY12) Service Line Distribution (Q4 FY12) 8

9 Customer Concentration Onsite/Offshore Revenue 9

10 Head Count Company Profile Wipro is India's third largest software services exporter and also has interests in the hardware and consumer care and lighting businesses. The IT Services segment provides research and development services for hardware and software design to technology and telecommunication companies and software application development services to corporate enterprises. The BPO services segment provides services to global corporations. The India and Asia Pacific IT Services and Products segment focuses on addressing the IT and electronic commerce requirements of companies in India, Middle-East and Asia-Pacific regions. 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. 10

11 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 11

12 DSPA Embedded Linux Consortium FileNet GXS HP Hyperion Subex UMC CEVA JDA Hyundai IBM Informatica Interwoven ITKO Magic Software Microsoft 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. 12

13 3D Networks Pte Ltd. Spectra mind Inc. Wipro Chandrika Ltd. Infocrossing Services The company services are divided into five. They are as follows: 1. 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 3 1

14 Financial Results 12 Months Ended Profit & Loss Account (Consolidated) Value(Rs.in.mn) FY11 FY12 FY13E FY14E Descrption 12m 12m 12m 12m Net Sales Other Income Total Income Expenditure Operating Profit Interest Gross profit Depreciation Profit Before Tax Tax Profit After Tax Minority Interest Share of Profit & Loss of Asso Net Profit Equity capital Reserves Face value EPS

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

16 Key Ratios Particulars FY11 FY12 FY13E FY14E No. of Shares(in mn) EBITDA Margin (%) 23.32% 22.20% 22.09% 22.12% PBT Margin (%) 20.06% 18.56% 18.60% 18.73% PAT Margin (%) 16.94% 14.88% 14.90% 15.03% P/E Ratio (x) ROE (%) 21.98% 19.51% 18.34% 17.30% ROCE (%) 26.72% 27.55% 26.22% 24.92% Debt Equity Ratio EV/EBITDA (x) Book Value (Rs.) P/BV Charts: Net sales & PAT: 6 1

17 P/E Ratio(x): Debt Equity Ratio: 7 1

18 EV/EBITDA(x): P/BV: 8 1

19 Outlook and Conclusion At the current market price of Rs , the stock is trading at x FY13E and x FY14E respectively. Earning per share (EPS) of the company for the earnings for FY12E and FY13E is seen at Rs and Rs respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 16% and 12% over 2011 to 2014E respectively. On the basis of EV/EBITDA, the stock trades at x for FY13E and 9.24 x for FY14E. Price to Book Value of the stock is expected to be at 2.84 x and 2.35 x respectively for FY13E and FY14E. 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 India's Information technology (IT) and information technology enabled services (ITeS) segments are aligned in a way that the growth in one avenue has ripple effects on another. The IT & ITeS industry, as a whole, is the mainstay of Indian technology sector as it has driven growth of the economy in terms of employment, revenue generation, standards of living etc and has played a major part in placing the country on the global canvas. National Association of Software and Services Companies (Nasscom) president Som Mittal believes that software exports would be in tune with the estimates and are projected to grow per cent to generate about US$ 70 billion in as against US$ 59 billion in Furthermore, Internet and Mobile Association of India (IAMAI) has stated that internet users in the country have crossed the 100-million mark (owing to increasing internet 9 1

20 penetration and affordability for personal computers (PCs), of which 17 million are online shoppers. It estimates that the number of Internet users in India will triple by Rural India Calling Rural business process outsourcing (BPO) units account for over US$ 10 million towards India's IT-BPO revenues. Many big IT-BPO companies in India are getting attracted towards hinterlands due to availability of immense untapped talent and lower costs. Attrition rates in rural areas are just about 3-5 per cent as against a high of 50 per cent in urban BPOs. Employee costs in rural BPOs is almost half as against that of urban BPOs which bring overall operational costs down by almost per cent for IT companies. Nasscom has further stated that employee base in these areas would expand by over 10 times by from 5000 in Wipro BPO, the BPO arm of Wipro Technologies had launched its first rural BPO centre at Manjakkudi Village in Tamil Nadu in August In October 2011, Infosys BPO had inked an agreement with the Government of Andhra Pradesh to open rural BPO centres in 22 districts. Rural Shores is another firm that had opened a BPO centre in Bagepalli district of Karnataka and serves over 20 clients including HDFC, Infosys, Wipro Technologies and Genpact. It aims to recruit more than 10, 000 youth by IT & ITeS - Key Developments and Investments Between April 2000 and November 2011, the computer software and hardware sector received cumulative foreign direct investment (FDI) of US$ billion, according to the Department of Industrial Policy and Promotion (DIPP). Network equipment maker Cisco Systems Inc.'s Indian unit is vying for a bigger share of the IT spending by small and medium enterprises (SMEs) in 14 nonmetro markets. The company is planning to increase the amount of investments on its distribution network in the smaller cities in It has also intensified its research activities in order to develop India-specific products that in some cases may cost just 20 per cent of the global product. 0 2

21 California-based IT services company UST Global is expanding its footprints in India's IT capitalbengaluru. The company already operates in Thiruvananthapuram and Kochi in Kerala. In Thiruvananthapuram also, the company is building a 3 million sq ft campus which would be a major hub for offshore IT services offered by the company. Online Retailing on a High Emergence of internet retailing and e-commerce as a completely new space is driving the growth of number of online shoppers. As a result, the internet retailing companies are getting attracted towards Indian markets which are poised to grow leaps-andbounds in the years to come. There are about 17 million online shoppers in India and the number is projected to grow over three times in the years to come. Seattle-based world's largest internet retailer Amazon.com has recently launched its website Junglee.com with a view to harness burgeoning online shopping market in India which is expected to triple in size by Junglee.com has partnered with several Indian online and offline retailers like HomeShop18, Hidesign, Dabur Uveda, the Bombay Store and others. It has also formed alliances with online players like Snapdeal, Univercell, Saholic (a Spice Group firm) and Fommy.co.in. India's largest and most-funded e-commerce company Flipkart Online Services Pvt. Ltd has acquired Letsbuy.com, the country's second-largest online electronics retailer, for an undisclosed amount. The move reflects Flipkart's strategy of becoming a major player through acquisitions and eventually grabbing a substantial pie of ever- increasing Indian online retailing space. Cloud Computing The Emerging Technology Cloud computing is a set of services that provide infrastructure resources using internet media and data storage on a third party server, that is, the subscriber (of cloud service) does not need to own the infrastructure, which saves him from entailing any capital expenditure and he pays to the service provider as per his usage. 1 2

22 The concept is on a high rage in India these days. The cloud solutions industry in India is around US$ 400 million currently and by 2015 it is poised to grow 10 times to US$ billion. This further enhances the fact that Indian market is the most mature when it comes to adoption of cloud technologies and has the highest usage levels of converged systems. The state of Gujarat has over 10 per cent of 3 million small and medium enterprises (SMEs) present in India. Hitachi Data Systems is ready to launch its cloud services for the SMEs in Gujarat as they are searching for data backup and management services along with data and business analysis by cloud solutions providers. Videocon and AEC Partners will jointly invest US$ 21 million in a cloudcomputing start-up called Nivio. The US$ 100 million-cloud computing company will use these funds to expand its engineering centre in Palo Alto, California and recruit fresh talent. AEC Partners is a US-based private equity (PE) firm that holds expertise in technology investments. Government Initiatives Industry experts believe that increase in Government spends over e-governance projects would be a major driver of growth for Indian IT/ITeS space. Nasscom has stated that infrastructure for spends is ready and now is time when National e- Governance Plan (NeGP) should be executed in full force. NeGP aims to create the right governance and institutional mechanisms, set up the core infrastructure and policies and implement various Mission Mode Projects across the Centre, state and integrated service levels to create a citizen-oriented and business-centric environment for governance. Meanwhile, the Government has recently announced that it would buy some 100,000 low-cost Aakash tablets from Datawind (the Canadian company that has developed this device) and would distribute them to students in schools and colleges for free. The move comes as an effort to facilitate e-learning. In another similar effort, IT major Intel India had joined hands with the Karnataka Government's Sarva Shiksha Abhiyan in 2011 and had launched Computers on 2 2

23 Wheels'. It was a pilot e-learning program that entailed digital instruction materials from reputed education solutions provider 'Educomp'. The program focussed to equip teachers with learning techniques and tools and deliver diverse learning styles and abilities to students, making education more participative rather than passive. The Government of India has also undertaken a project that aims to provide high quality broadband access to village Panchayats through National Optical fibre network by The process is in progress and is projected to be very beneficial, especially for the SMEs. Software giant Infosys is planning to expand its footprint in India with focus on Tier-II cities. The company has recently inked an agreement with Government of Madhya Pradesh for setting up a development centre in Indore and is awaiting response from Goverenment of West Bengal for setting up a centre in Kolkata as well. All such developments and initiatives on part of the Government of India reflect the fact that the supreme administration is making all the possible efforts to boost the country's IT and ITeS industries. IT & ITeS in India - Road Ahead There are many predictions and forecasts pertaining to IT & ITeS in India across various segments. For instance, a study by management advisory firm Zinnov states that IT adoption in Indian SME segment is growing at a rate of 15 per cent and would touch US$ 15 billion by The study noted that as of now, only 20 per cent of the total 50 million SMEs in India are technology-ready today which poses an immense scope for further growth. Another study by consulting and advisory services firm CyberMedia Research suggests that the PC market in India would have witnessed sales of million units in the 2011 calendar year which would further accelerate by 14 per cent to million units in

24 Internet retailing is also emerging as an entirely new avenue to be explored. According to estimates made by an industrial body, India's online retail industry is anticipated to surge to Rs 70 billion (US$ 1.43 billion) by 2015 from Rs 20 billion (US$ million) as broadband is becoming increasingly accessible and internet penetration is increasing. Another report by Avendus Capital Pvt. Ltd states that e-tailing would become a Rs 53,000 crore (US$ billion) market by 2015 from the current Rs 3,600 crore (US$ 731 million). 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. 4 2

25 Firstcall India Equity Research: C.V.S.L.Kameswari Pharma U. Janaki Rao Capital Goods A. Rajesh Babu FMCG H.Lavanya Oil & Gas Ashish Kushwaha 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 5 2