Wipro - 4QFY2012 Result Update - Angel Broking

For 4QFY2012, Wipro's results came in-line with our expectations. The company's client base increased to seven in the US100mn+ bracket at the end of FY2012 from three in FY2011, which was a positive sign. The major disappointment came from management's 1QFY2013 USD revenue growth guidance of -1 to 1%, which is very sluggish as 1Q is typically a good quarter for IT companies. This guidance indicates that management is seeing further delays in deal closures and ramp-up of projects. We recommend Neutral on the stock.

Quarterly highlights: For 4QFY2012, Wipro registered a 1.3% qoq decline in its revenue to Rs.9,869cr. Revenue from the IT services segment came in at US$1,536mn, up 2.0% qoq. Revenue from the consumer care and lighting segment grew strongly by 25.2% yoy, while the IT products segment reported merely 2.9% yoy revenue growth. EBIT margin of the IT services, IT products and consumer care and lighting business declined by 8bp, 60bp and 61bp qoq to 20.7%, 4.7% and 12.5%, respectively. Wipro's overall EBIT margin declined by 8bp qoq to 17.2%.

Outlook and valuation: For 1QFY2013, Wipro has given USD revenue guidance of US$1,520mn-1,550mn, which translates into qoq growth of -1 to 1% qoq, which is extremely subdued. Now, management's endeavor is to grow at par with industry's average revenue growth for FY2013. Nasscom has guided for 11-14% yoy USD revenue growth for FY2013 – to achieve this Wipro needs to record at least 3.5% qoq USD revenue growth post 1QFY2013. This number indicates that management is banking more on back-ended growth for FY2013, which makes us slightly cautious about the company's growth outlook. We expect USD and INR revenue CAGR for IT services to be at 10.3% and 11.0%, respectively, over FY2012-14E. We expect EBIT margin of the IT services segment to slide down to 20.2% in FY2013 from 20.8% in FY2012. We expect a 12.1% and 12.3% CAGR in EBITDA and PAT, respectively, over FY2012-14E. We value the stock at 15x FY2014E EPS of Rs.28.6, which gives us a target price of Rs.430. We recommend Neutral on the stock.

Source : Equity Bulls

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