30 October, 2008

Wipro

Current market price: Rs 235.15

Target price: Rs 288

Upside: 22.5%

Brokerage: India Infoline

Wipro’s IT services revenues in dollar terms were $1.11 billion in Q2 FY09, a growth of 5.6 per cent quarter-on-quarter (q-o-q). Aided by 3.7 per cent depreciation of the rupee for company, IT services revenues in rupee terms grew by 7.8 per cent q-o-q. IT product revenues growth was very strong at 34 per cent q-o-q while the consumer care business grew by modest 2.8 per cent q-o-q. Overall, the revenues increased by 7.8 per cent q-o-q. OPM declined by 80 basis points q-o-q to 19.7 per cent in Q2 FY09 on account of offshore salary hike. Other income was higher 50 per cent sequentially despite a forex loss of Rs 82 crore, driven by significant growth in the treasury income. Net profit increased 7.8 per cent q-o-q.

In terms of geography, India and Middle East regions grew strongly by 14.2 per cent q-o-q. Revenues from the top 5-10 clients declined by 2.6 per cent q-o-q. Wipro has issued muted 1 per cent growth guidance for IT services revenues in Q3 FY09. Employee addition remained weak with the company adding 1,877 employees (IT services: 910 and BPO: 967) in Q2 FY09. H1 FY09 employee addition is lower by 82 per cent y-o-y. The brokerage remains negative on Wipro, relative to the sector and expects the stock to underperform in the near-term.