Accumulate WIPRO - TP Rs.421 - Kotak

Wipro's 4QFY12 results were disappointing. IT services volumes grew by 0.8% QoQ and came in below our estimates. The management has attributed this to some temporary softness in India business. EBIT margins in the IT services business were flat QoQ. The realisations were higher, though. In 3Q, realisations had improved by about 4% QoQ on the back of improved efficiencies in the fixed priced projects. The revenue growth guidance for 1QFY13 at (-1%) - 1% in USD terms is lower than expectations and also lower than what was provided by Infosys.

Broader management commentary suggests comfort with respect to CY12 budgets and increase in outsourcing / off-shoring. Discretionary spends are under stress in some sectors, we understand.

We modify earnings to account for the 4QFY12 results - expect FY13E EPS at Rs.26 (Rs.27 earlier), on the back of marginally lower volume growth assumptions. We maintain ACCUMULATE rating with a price target of Rs.421 (Rs.438) based on FY13E earnings. We prefer TCS and Infosys over Wipro. Our exit multiple for Wipro is at a discount to TCS and equal to Infosys. Higher success in driving incremental growth from large accounts, stability in average realisations and sustained higher margins may make us more positive on the company. Higher-than-expected appreciation in the INR and a slower-than-anticipated recovery in user economies pose downside risks to our estimates.

Source : Equity Bulls

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