Buy Wipro - Prabhudas Lilladher

Tad below expectation, but guidance indicates stable outlook: Wipro reported another quarter of the weakest revenue growth of 1.7% QoQ (TCS:4.6%, INFO: 2.6%, HCLT: 3.2%), led by realization improvement 1.2% QoQ (Onsite: 1.9%, Offshore: 1.4%). However, volume growth of 0.2% QoQ is weaker by ~2pp compared to peers. Nevertheless, the company guided for 1.2% to 3.2% QoQ growth which indicates pick-up in growth, as Q3 is seasonally a weak quarter.

Revenue per client lowest among peers – A lever to unleash growth potential: In terms of increasing revenue per client over the last 12 quarters, TCS (4% CQGR) fared the best, followed by Wipro (2.2% CQGR) and Infosys (1.8% CQGR). For Q2FY13 annualized, TCS ($10.96m/client/year) has the highest revenue followed by Infosys ($10.05m/client/year) and HCL Tech ($8.31m/client/year), whereas Wipro ($6.56m/client/year) has the least. Wipro has the strongest growth potential by virtue of improving client mining as it derives ~21% lower revenue per client per year compared to HCL Tech (the next in pecking order) and ~40% lower than TCS.

Investment to S&M to be steady: Wipro likely to have steady investment in S&M (i.e. not to grow ahead of revenue). We do not expect it to decline on a QoQ basis, neither do we expect as a percentage of revenue. The company's structure to mine its top clients (farming) have started showing results and so is new clients addition (hunting). We see improved deal pipeline, pick-up in sale cycle and better win ratio to help pushing better growth in CY13.

Commentary optimistic, momentum to get better in CY13: The management commentary was more confident and optimistic compared to previous quarters. According to the company, the decisions are getting made, sales cycle is improving and deal funnel is getting better. The management expects deal ramp-ups to start getting reflected in revenue momentum in CY13. We expect the volume growth to get stronger in FY14.

Source : Equity Bulls

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