LilladherPrabhudas Wipro

CMP: Rs574 TP: Rs680 Rating: BUY MCap: Rs1,415.5bn

Largely in-line quarter: Wipro reported Q1FY15 results in line with expectation. IT Services (USD) revenue grew by 1.2% QoQ (0.3% @cc) to US$1,740m (PLe: US$1,746m, Cons: US$1,745m). Overall revenue declined by 3.5% QoQ to Rs112.5bn (PLe: Rs113.9bn, Cons.: Rs113.8bn). Operating margins eroded by 135bps to 20.4% (PLe: 20.5%, Cons: 21.2) due to wage hike (one-month impact), RSU costs and currency appreciation. EPS declined by 6% QoQ to Rs8.55 (PLe: Rs8.64, Cons: Rs8.72).

H2FY15 likely to be stronger compared to H1FY15: Management asserted for stronger H2FY15 than H1FY15 on the back of large deal wins over the last six months. Weakness in Q2FY15 guidance was attributed to ramp-down, project closure and delay in ramp-up of the new project. Wipro has announced ~US$2bn TCV of deal closures over the last four months. We expect revenue growth to accelerate in Q3FY15 yielding stronger FY15 exit rate.

Margin to track better – Tailwinds outscores headwinds: Wipro is likely to face margin headwinds in Q2FY15 due to remainder impact of wage hike and project ramp-up from large deals. However, the management highlighted room for utilization improvement, non-recurral of cost associated with RSU and retirement benefit that increased due to wage hike in Q1FY15 as key tailwinds. We see margin tailwinds outscoring headwinds for remainder of FY15.

Valuation & Recommendation – Retain ‘BUY’, with target price of Rs680: We see improvement in the win rate to drive revenue momentum in H2FY15, along with available margin levers that would accelerate earnings momentum. We see Wipro in an early stage of re-rating cycle as visibility for growth improves. Retain “BUY” rating, with a target price of Rs680, 16x FY16E earnings estimate.

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Key Financials (Rs m)

Y/e March FY12 FY13 FY14 FY15E FY16E

Revenue (Rs m) 318,747 374,256 434,269 488,922 545,933

Growth (%) 2.6 17.4 16.0 12.6 11.7

EBITDA (Rs m) 66,713 78,181 97,101 112,036 125,903

PAT (Rs m) 52,568 61,684 78,394 88,718 103,034

EPS (Rs) 21.4 25.0 31.8 36.0 41.8

Growth (%) (1.0) 17.1 26.9 13.2 16.1

Net DPS (Rs) 7.0 6.9 9.0 9.0 9.0

Source: Company Data, PL Research

Profitability & valuation

Y/e March FY12 FY13 FY14 FY15E FY16E

EBITDA margin (%) 20.9 20.9 22.4 22.9 23.1

RoE (%) 20.0 21.7 25.0 23.5 22.9

RoCE (%) 18.2 20.5 24.2 22.6 22.1

EV / sales (x) 4.3 3.6 3.0 2.5 2.1

EV / EBITDA (x) 20.3 17.0 13.5 11.0 9.2

PER (x) 26.8 22.9 18.1 16.0 13.7

P / BV (x) 4.9 5.0 4.1 3.5 2.9

Net dividend yield (%) 1.2 1.2 1.6 1.6 1.6

Source: Company Data, PL Research

Stock Performance

(%) 1M 6M 12M

Absolute 5.7 2.5 20.8

Relative to Sensex (0.1) (21.2) (14.2)

LilladherPrabhudas Financials

Wipro

9/12/2014 31

Income Statement (Rs m)

Y/e March FY12 FY13 FY14 FY15E FY16E

Net Revenue 318,747 374,256 434,269 488,922 545,933

Direct Expenses 225,794 260,665 295,488 331,108 368,523

% of Net Sales 70.8 69.6 68.0 67.7 67.5

Employee Cost - - - - -

% of Net Sales 0.0 0.0 0.0 0.0 0.0

SG&A Expenses 26,240 35,410 41,680 45,778 51,508

% of Net Sales 8.2 9.5 9.6 9.4 9.4

Other Expenses - - - - -

% of Net Sales 0.0 0.0 0.0 0.0 0.0

EBITDA 66,713 78,181 97,101 112,036 125,903

Margin (%) 20.9 20.9 22.4 22.9 23.1

Depreciation 10,129 10,835 11,106 12,814 13,006

PBIT 56,584 67,346 85,995 99,223 112,896

Interest Expenses - - 52 - -

PBT 65,523 78,596 101,057 113,998 132,224

Total tax 12,955 16,912 22,601 25,079 29,089

Effective Tax rate (%) 19.8 21.5 22.4 22.0 22.0

PAT 52,568 61,684 78,394 88,718 103,034

Extraordinary Gain/(Loss) - - - - -

Adjusted PAT 52,568 61,684 78,394 88,718 103,034

Source: Company Data, PL Research

Balance Sheet (Rs m)

Y/e March FY12 FY13 FY14 FY15E FY16E

Share Capital 4,917 4,926 4,932 4,932 4,932

Reserves & Surplus 241,912 259,178 314,952 381,577 462,518

Shareholder's Fund 285,314 283,812 343,499 410,124 491,065

Preference Share Capital - - - - -

Total Debt 22,510 854 10,909 10,909 10,909

Other Liabilities(net) 4,736 4,688 6,196 6,196 6,196

Deferred Tax Liability 5,756 5,636 5,244 5,244 5,244

Total Liabilities 318,316 294,990 365,848 432,473 513,414

Gross Block 109,736 101,685 113,471 128,139 144,517

Less: Depreciation 56,207 57,096 66,708 79,522 92,528

Net Block 53,529 44,589 46,763 48,617 51,988

Capital Work in Progress 5,459 5,936 4,686 4,686 4,686

Cash & Cash Equivalent 123,089 154,060 175,044 250,336 323,723

Total Current Assets 225,892 230,824 284,355 379,346 474,444

Total Current Liabilities 117,685 144,740 136,456 166,676 184,204

Net Current Assets 108,207 86,084 147,899 212,670 290,240

Other Assets 105,698 89,159 105,657 105,657 105,657

Total Assets 318,316 294,990 365,848 432,473 513,414

Source: Company Data, PL Research

LilladherPrabhudas Disclaimer

9/12/2014 68

BUY : Over 15% Outperformance to Sensex over 12-months Accumulate : Outperformance to Sensex over 12-months

Reduce : Underperformance to Sensex over 12-months Sell : Over 15% underperformance to Sensex over 12-months

Trading Buy : Over 10% absolute upside in 1-month Trading Sell : Over 10% absolute decline in 1-month

Not Rated (NR) : No specific call on the stock Under Review (UR) : Rating likely to change shortly

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PL’s Recommendation Nomenclature

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