Accumulate WIPRO - Dolat Capital

Results slightly below estimates, guidance not encouraging; underperformance to continue

View: The results disappoints with sustained revenue growth underperformance, weaker profit performance (FY12 PAT up mere 5% YoY) and soft guidance for Q1. We believe the scaling up in large accounts has not helped in overall growth owing to weak net new client addition (added just 40 new clients in FY12). We continue to maintain our underperformer stance on Wipro versus other Tier 1 peers.

Wipro declared a disappointing set of numbers for Q4FY12 with a degrowth in Revenue/EBIT by 0.7%/1.7% QoQ. The deceleration was on account of flat volume growth and weaker realizations on Rs.appreciation.

The company indicated no major deceleration in deal TCV versus Q3 and said the slippage in Top account (down 8% QoQ) as one off event. It is witnessing deal wins across BFSI, Healthcare and Manufacturing verticals.

It has guided 1% growth (Top end) for Q1 and believes the existing pipeline would ensure revenue growth ahead of industry/Nasscom estimate for FY13. We believe even if it achieves top end revenue for Q1 it has to clock a 6.5% CQGR for rest of the quarters to achieve 14%+ growth; which seems daunting considering the underperformance in FY12.

EBIT Margin slipped further by 10bps to 17.3% over Q3 (down by 140 bps in FY12). The company suggested margin maintenance for FY13 but we believe it would see some slippage on profitability as it would be investing in its new sales structure (hunting and farming).

We have revised down our EPS estimates by 3%/5% for FY13/FY14E with an Accumulate rating on the stock and Target price of Rs.470, valued at 15x of its FY14E earnings

Valuation

We continue to maintain our sector underperformer call on Wipro owing to its dismal FY12 performance and weaker outlook for FY13. We believe that stock would deliver lower growth compared for peers and does not see any margin improvement potential in near term as it is investing big time on sales efforts. We recommend Accumulate on the stock with a Target Price of Rs.470, valued at 15x of its FY14E earnings (inline with Infy and 15% discount to TCS)

Source : Equity Bulls

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