Wipro - Acquiring Australian Analytics - Prabhudas Lilladher

Wipro announced acquisition of Promax Applications Group (PAG) for a total purchase consideration of AUD35m ($36.6m).

- PAG ‐ player in trade promotion planning, management, and optimization solutions: PAG was founded in 1989. It has product and services around Trade Promotion Management, Forecasting & Volume Planning, Customer Account Planning & Budget and Modelling & Optimization solutions. Headquartered in Australia with offices in Central Europe, UK, North America, Japan & New Zealand, Promax has a clientele spanned across global CPG, manufacturing, and distribution companies e.g. Kimberly-Clark, Henkel/Dial, Kraft, L'Oreal, Heinz, J&J, Clorox, Beiersdorf etc. PAG has ~45 global customers.

- About transaction and financials: PAG has revenue of AUD15-16m. Although Wipro has not disclosed the profitability, but our expectation is that EBITDA margin of PAG was in mid-teens. Wipro has paid ~2xrevenue for the transaction.

- Opportunity to cross sell: Wipro is looking for an opportunity to sell the analytics services offered by PAG to other verticals. Moreover, strong clientele of PAG could be offered other services. Wipro is looking to customize the offering of PAG for a platform and cloud. Analytics contributes ~7% revenue and grew at CQGR of 6.8% over the last eight quarters, whereas retail contributes ~15% of revenue for Wipro and grew at CQGR of 4% since Q1FY11.

- Continuing with "String of Pearl" strategy: This is Wipro's second IT Services acquisition in the last two years. The company continues to build their capabilities inorganically. Wipro has acquired 30 companies since 1993 and 17 since 2002. The management is keen to further strengthen their competencies in analytics, platform and cloud. Wipro acquired Infocrossing in August 2007 ($600m) and SAIC (IT practise) in April 2011 ($150m).

- Valuation and Recommendation: Muted outlook for Q1FY13 has raised doubt over the company's ability to gain market share. However, we see lowered analyst expectation as an opportunity to "Accumulate" on dips.

Source : Equity Bulls

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