CMP 552.45

Target Price 605.00

ISIN: INE075A01022

JANUARY 18th

2014

WIPRO LTD.

CONSOLIDATED Result Update: Q3 FY14

BUYBUYBUYBUY

Index Details

Stock Data

Sector IT

BSE Code 507685

Face Value 2.00

52wk. High / Low (Rs.) 575.35/315.30

Volume (2wk. Avg.) 177000

Market Cap (Rs. in mn.) 1362065.48

Annual Estimated Results (A*: Actual / E*: Estimated)

YEARS FY13A FY14E FY15E

Net Sales 376851.00 434919.74 478411.71

EBITDA 91202.00 112581.42 126642.40

Net Profit 66359.00 76121.74 85782.05

EPS 26.94 30.87 34.79

P/E 20.50 17.89 15.88

Shareholding Pattern (%)

1 Year Comparative Graph

WIPRO LTD. S&P BSE SENSEX

SYNOPSIS

• Wipro Ltd. is a leading Information Technology, Consulting & Outsourcing company that delivers solutions to enable its clients.

• Wipro Ltd. has posted a net profit after taxes, Minority Interest and Share of Profit of Associates of Rs. 20147.00 million for the quarter ended December 31, 2013 as compared to Rs. 17164.00 million for the quarter ended December 31, 2012.

• Total Income has increased from Rs. 98778 million for the quarter ended December 31, 2012 to Rs. 117086 million for the quarter ended December 31, 2013.

• Wipro added 42 new customers for the quarter in IT Services segment.

• Wipro Ltd. and Michigan State University jointly announced the launch of a fellowship program in the United States.

• Wipro Ltd. and Tele2 AB (Tele2) announced a partnership to jointly develop solutions around Machine-to-Machine (M2M) & the Internet of Things.

• Wipro Ltd. has signed a definitive agreement to acquire Opus CMC in Dec 2013 was completed in January 2014.

• Wipro Ltd. announced the launch of nationwide skills enhancement initiative for undergraduates titled FINPro in colleges in Chennai, Bangalore & Hyderabad in an e-learning format.

• Wipro Ltd. has been recognized with the National award for the Empowerment of Persons with Disabilities, 2013 under the category – Best Accessible Website (Private Sector) for its corporate website http://www.wipro.com.

• Net Sales and PAT of the company are expected to grow at a CAGR of 9% and 16% over 2012 to 2015E respectively.

PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND

Company Name (Rs.) Rs. mn. (Rs.) Ratio Ratio (%)

Wipro Ltd. 552.45 1362065.48 26.94 20.50 4.79 350.00

TCS Ltd. 2215.65 4339855.60 85.24 25.99 13.37 2200.00

Infosys Ltd. 3728.05 2140781.10 167.46 22.26 5.94 840.00

HCL Technologies Ltd. 1381.15 965364.00 69.66 19.83 9.43 600.00

QUARTERLY HIGHLIGHTS (CONSOLIDATED)

Results Updates- Q3 FY14,

Months DEC-13 DEC-12 % Change

Net Sales 113274.00 109891.00 3.08%

PAT 20147.00 17164.00 17.38%

EPS 8.17 6.97 17.24%

EBITDA 30339.00 25405.00 19.42%

WIPRO Ltd achieved a turnover of Rs. 113274.00 million for the 3rd quarter of the current year 2013-14 as

against Rs. 109891.00 millions in the corresponding quarter of the previous year. The company has reported an

EBITDA of Rs. 30339.00 millions and a net profit of Rs. 20147.00 million against Rs. 17164.00 million reported

respectively in the corresponding quarter of the previous year. The company has reported an EPS of Rs. 8.17 for

the 3rd quarter as against an EPS of Rs. 6.97 in the corresponding quarter of the previous year.

Break up of Expenditure

Graphical Representation (Q3 FY14)

Latest Updates

� Wipro Ltd. and Tele2 AB (Tele2) announced a partnership to jointly develop solutions around Machine-to-

Machine (M2M) and the Internet of Things (IoT). This strategic partnership will help them reduce cost and

open up new revenue streams.

� Wipro Ltd. and Michigan State University (MSU) jointly announced the launch of a fellowship program in the

United States. This multi-year program will be funded by a USD 2.8 million grant from Wipro, and will involve

over a hundred school teachers, with the aim of nurturing excellence in science and mathematics, starting

with the public school systems of Chicago.

� Wipro Ltd. announced the launch of a nationwide skills enhancement initiative for undergraduates in the

finance and accounting domain, in an e-learning format. The pilot program of the initiative titled FINPro

(Finance & Accounting Skills Enhancement Program) has been launched in colleges in Chennai, Bangalore

and Hyderabad.

� Wipro Ltd has been recognized as a role model organization by the Helen Keller awards.

� Wipro Ltd. has been selected as part of the Asia IP Elite, a groundbreaking research project conducted by

Intellectual Asset Management (IAM)’s editorial team.

� Wipro Ltd. received the ‘2013 ESCAP-Sasakawa Award for Disability-Inclusive Business in Asia and the

Pacific’, in the category ‘Disability-Inclusive Multinational Enterprise’.

� Wipro Ltd. has been recognized with the National award for the Empowerment of Persons with Disabilities,

2013 under the category – Best Accessible Website (Private Sector) for its corporate website

http://www.wipro.com.

� Wipro Ltd. announced that its year-long partnership with CAST, a leader in software analysis and

measurement, has resulted in delivery of superior quality application services to its customers, across

industry sectors. Wipro's 'AppInsight Center of Excellence (CoE)', powered by CAST, is boosting application

quality to the next level.

� Wipro Ltd. has been recognized by Information Technology Services Marketing Association (ITSMA) with a

Gold Award in the category 'Marketing with Social and Digital Media’.

� Wipro Ltd. has signed a definitive agreement to acquire Opus CMC (Opus Capital Markets Consultants LLC),

one of the leading US-based providers of mortgage due diligence and risk management services for a

purchase consideration of USD 75 million that includes a deferred earn-out component.

� Wipro Applying Thought in Schools, Wipro's decade old initiative in school education reform, announced the

launch of a website dedicated to promoting children's literature in India. Goodbooks.in is a website to review,

discuss and critically engage with Indian books for children.

� Wipro Ltd. was named a "Leader" by technology global research and advisory firm Forrester Research Inc. in

its report "The Forrester Wave™: Business Intelligence Service Providers In Asia Pacific, Q4 2013".

� Wipro Ltd. has been ranked as a leader in the 'Global R&D Service Provider' survey by Zinnov Management

Consulting for the fourth successive year.

� Wipro Ltd. announced the launch of the Wipro Mobility Center of Excellence with Kony, Inc. in Hyderabad.

COMPANY PROFILE

Wipro is India's third largest software services exporter and also has interests in the hardware and consumer

care and lighting businesses. Wipro Ltd is a global information technology, consulting and outsourcing company

with 145,812 employees serving over 900 clients in 61 countries. The company posted revenues of $6.9 billion

for the financial year ended Mar 31, 2013. Wipro provides comprehensive IT solutions and services, including

systems integration, Information Systems outsourcing, IT enabled services, package implementation, software

application development and maintenance, and research and development services to corporations globally.

Wipro Limited is the first PCMM Level 5 and SEI CMM Level 5 certified IT Services Company globally.

Business Areas

The following are the different verticals where Wipro is working:

• Aerospace, Defense &

Satellite

• Automotive Electronics

• Automotive IT

• Broadband & Optical

Networks

• Chemicals

• Computing Peripherals

• Computing Platforms

• Consumer Electronics

• Consumer Packaged

Goods

• Distribution

• Energy

• Finance

• Health Science

• High Technology

• IP Multimedia Networks

• Industrial Automation

• Insurance

• Manufacturing

• Media & Entertainment

• Medical Devices

• Mobile Devices

• Retail

• Semiconductors

• Software Products

Group

• Storage Technologies

• Telecom - Equipment

Vendors

• Telecom - Service

Providers

• Travel & Transportation

• Utilities

Wipro Group Companies

� Wipro Consumer Care & Lighting

Wipro Consumer Care and Lighting (WCCLG), a business unit of Wipro Limited, has contributed a range of

consumable commodities to these. Established in 1945, the first product to be introduced by WCCLG was

vegetable oil, later popularized under the brand name 'Sunflower Vanaspati'. In the subsequent period, other

Wipro brands managed to attract and retain a large consumer base, from personal care products, such as

Wipro Baby Soft and Wipro Safewash, to toilet soaps like Santoor and Chandrika. WCCLG is the owners of

international brands like Yardley and Unza. WCCLG also provide comprehensive lighting solutions with

fittings like Smartlite CFL, LED, emergency lights and more.

� Wipro Infrastructure Engineering

Since 1976, Wipro Infrastructure Engineering, a division of Wipro Limited, has been in the business of

manufacturing high-quality hydraulic cylinders, truck cylinders, and their components and solutions. The

company deliver world-class cylinders to international OEMs, bearing in mind that precise fit, maximum load

capacity and enduring performance are critical to business. It represents the Kayaba, Kawasaki, Sun

Hydraulics and Teijin Seiki range of hydraulic products in India. Wipro Infrastructure Engineering is now the

second largest independent manufacturer of cylinders in the world.

� Wipro GE Medical Systems Limited

Wipro GE Medical Systems Limited, are engaged in the research and development of advanced solutions,

which help overcome these obstacles. Wipro GE Healthcare is a highly successful joint venture, and part of GE

Healthcare South Asia. We are committed to delivering quality solutions that effectively meet the needs of

customers and patients. Our products and services range from diagnostics to IT, helping healthcare

professional’s combat cancer, heart disease and other ailments.

Services

The company services are divided into five. They are as follows:

1. IT services

2. Product Engineering Solutions

3. Technology Infrastructure Services

4. Business Process Outsourcing

5. Consulting Services

Segment Reports

The company has the following reportable segments:

IT Services:

The IT Services segment provides IT and IT enabled services to customers. Key service offering includes software

application development, application maintenance, research and development services for hardware and

software design, data center outsourcing services and business process outsourcing services.

Consumer Care and Lighting:

The Consumer Care and Lighting segment manufactures, distributes and sells personal care products, baby care

products, lighting products and hydrogenated cooking oils in the Indian and Asian markets.

IT Products:

The IT Products segment sells a range of Wipro personal desktop computers, Wipro servers and Wipro

notebooks. The Company is also a value added reseller of desktops, servers, notebooks, storage products,

networking solutions and packaged software for leading international brands. In certain total outsourcing

contracts of the IT Services segment, the Company delivers hardware, software products and other related

deliverables. Revenue relating to these items is reported as revenue from the sale of IT Products.

The Others’ segment consists of business segments that do not meet the requirements individually for a

reportable segment as defined in IFRS 8.

Corporate activities such as treasury, legal and accounting, which do not qualify as operating segments under

IFRS 8, and elimination of inter-segment transactions have been considered as ‘reconciling items’.

FINANCIAL HIGHLIGHT (CONSOLIDATED) (A*- Actual, E* -Estimations & Rs. In Millions)

Annual Profit & Loss Statement for the period of 2012 to 2015E

Value (Rs. mn) FY12A FY13A FY14E FY15E

Description 12m 12m 12m 12m

Net Sales 374044.00 376851.00 434919.74 478411.71

Other Income 8895.00 11317.00 14625.72 18282.15

Total Income 382939.00 388168.00 449545.46 496693.86

Expenditure -299902.00 -296966.00 -336964.04 -370051.46

Operating Profit 83037.00 91202.00 112581.42 126642.40

Interest -3491.00 -2693.00 -2991.90 -3291.09

Gross profit 79546.00 88509.00 109589.52 123351.31

Depreciation -10129.00 -9913.00 -11397.18 -12924.40

Profit Before Tax 69417.00 78596.00 98192.34 110426.91

Tax -13763.00 -16912.00 -21627.36 -24073.07

Profit After Tax 55654.00 61684.00 76564.99 86353.84

Extraordinary Items 0.00 5012.00 0.00 0.00

Minority Interest -257.00 -337.00 -443.25 -571.79

Share of Profit & Loss of Asso. 333.00 0.00 0.00 0.00

Net Profit 55730.00 66359.00 76121.74 85782.05

Equity capital 4915.00 4926.00 4931.00 4931.00

Reserves 265258.00 278886.00 355007.74 440789.79

Face value 2.00 2.00 2.00 2.00

EPS 22.68 26.94 30.87 34.79

Quarterly Profit & Loss Statement for the period of 30 JUNE, 2013 to 31 MARCH, 2014E

Value (Rs. mn) 30-June-13 30-Sep-13 31-Dec-13 31-Mar-14E

Description 3m 3m 3m 3m

Net Sales 97332.00 109907.00 113274.00 114406.74

Other income 3361.00 3412.00 3812.00 4040.72

Total Income 100693.00 113319.00 117086.00 118447.46

Expenditure -77129.00 -84869.00 -86747.00 -88219.04

Operating profit 23564.00 28450.00 30339.00 30228.42

Interest -495.00 -656.00 -898.00 -942.90

Gross profit 23069.00 27794.00 29441.00 29285.52

Depreciation -2501.00 -2616.00 -3109.00 -3171.18

Profit Before Tax 20568.00 25178.00 26332.00 26114.34

Tax -4251.00 -5754.00 -6060.00 -5562.36

Profit After Tax 16317.00 19424.00 20272.00 20551.99

Minority Interest -84.00 -103.00 -125.00 -131.25

Share of Profit & Loss of Asso. 0.00 0.00 0.00 0.00

Net Profit 16233.00 19321.00 20147.00 20420.74

Equity capital 4928.00 4930.00 4931.00 4931.00

Face value 2.00 2.00 2.00 2.00

EPS 6.59 7.84 8.17 8.28

Ratio Analysis

Particulars FY12A FY13A FY14E FY15E

EPS (Rs.) 22.68 26.94 30.87 34.79

EBITDA Margin (%) 22.20% 24.20% 25.89% 26.47%

PBT Margin (%) 18.56% 20.86% 22.58% 23.08%

PAT Margin (%) 14.88% 16.37% 17.60% 18.05%

P/E Ratio (x) 24.36 20.50 17.89 15.88

ROE (%) 20.60% 21.73% 21.27% 19.37%

ROCE (%) 28.39% 29.09% 29.68% 27.96%

EV/EBITDA (x) 16.35 14.92 12.10 10.76

Book Value (Rs.) 109.94 115.23 145.99 180.78

P/BV 5.03 4.79 3.78 3.06

Charts

OUTLOOK AND CONCLUSION

� At the current market price of Rs. 552.45, the stock P/E ratio is at 17.89 x FY14E and 15.88 x FY15E

respectively.

� Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs.30.87 and

Rs.34.79 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 9% and 16% over 2012 to 2015E

respectively.

� On the basis of EV/EBITDA, the stock trades at 12.10 x for FY14E and 10.76 x for FY15E.

� Price to Book Value of the stock is expected to be at 3.78 x and 3.06 x respectively for FY14E and FY15E.

� We recommend ‘BUY’ in this particular scrip with a target price of Rs.605.00 for Medium to Long term

investment.

INDUSTRY OVERVIEW

The Indian Information Technology (IT) and Information Technology enabled Services (ITeS) sectors go hand-in-

hand in every aspect. The industry has not only transformed India’s image on the global platform, but also fuelled

economic growth by energising higher education sector (especially in engineering and computer science). The

industry has employed almost 10 million Indians and hence, has contributed a lot to social transformation in the

country.

Furthermore, Indian firms, across all other sectors, largely depend on the IT & ITeS service providers to make

their business processes efficient and streamlined. Indian manufacturing sector has the highest IT spending

followed by automotive, chemicals and consumer products industries.

Indian organisations are turning to IT to help them grow business in the current economic environment. IT is

seen as a change enabler and a source of business value for organisations by 85 per cent of the respondents,

according to a study by VMware.

Market Size

India's IT-business process outsourcing (BPO) industry revenue is expected to cross US$ 225 billion mark by

2020, according to a Confederation of Indian Industry (CII) report, titled 'The SMAC Code-Embracing New

Technologies for Future Business'.

India is expected to become world's second-largest online community after China with 213 million internet users

by December 2013 and 243 million by June 2014, according to a report by Internet and Mobile Association of

India (IAMAI) and IMRB International.

Technology firms in India are expected to reap the benefits of Internet of Things (IoT) data, considered to be a

US$ 18 billion opportunity, to help clients improve productivity and asset utilisation as well as to enhance end-

customer experience, as per networking firm Cisco.

India’s total IT industry’s (including hardware) share in the global market stands at 7 per cent; in the IT segment

the share is 4 per cent while in the ITeS space the share is 2 per cent. India's IT and BPO sector exports are

expected to grow by 12-14 per cent in FY14 to touch US$ 84 billion - US$ 87 billion, according to Nasscom.

Moreover, India plans to spend around US$ 3.9 billion on cloud services during 2013-2017, of which US$ 1.7

billion will be spent on software-as-a-service (SaaS), according the latest outlook of IT research and advisory

company, Gartner Inc.

The enterprise software market in India is expected to reach US$ 3.92 billion in 2013, registering a growth of

13.9 per cent over 2012 revenue of US$ 3.45 billion, according to Gartner.

Mumbai with 12 million internet users has emerged as the top most city in the country with highest penetration

of internet users, followed by Delhi (8.1 million) and Hyderabad (4.7 million), according to the data released by

Internet & Mobile Association of India (IAMAI).

Investments

Indian IT's core competencies and strengths have placed it on the international canvas, attracting investments

from major countries.

According to data released by the Department of Industrial Policy and Promotion (DIPP), the computer software

and hardware sector has attracted foreign direct investment (FDI) worth Rs 54,347.88 crore (US$ 8.77 billion)

between April 2000 and September 2013.

Some of the major investments in Indian IT and ITeS sector:

• Wipro plans to acquire US-based mortgage due diligence and risk management service provider Opus Capital

Markets Consultants (Opus CMC) for Rs 465 crore (US$ 75.07 million). Opus CMC provides comprehensive

risk management solutions to the mortgage industry in the US.

• Infosys has opened a new centre in Sydney, Australia. This is its fourth development centre in Australia and

has a capacity to seat 140 employees. Further, the company plans to hire 85 people in the region.

• Hitachi has acquired a foothold in India's payment space with the acquisition of Prizm Payment Services. The

firm has entered into share transfer agreements with Prizm shareholders, including Winvest Holdings

(India), Sequoia Capital and Axis Bank.

• Dell has opened its India design centre for its storage technologies and has realigned its domestic research

and development (R&D) unit. The facility will focus on developing software, integrating aspects involving

back-up of emails and related storage.

• Tata Consultancy Services (TCS) has launched a software development facility in Ahmedabad, Gujarat. The

facility will serve global customers across industry segments.

• Cognizant Technology Solutions has acquired ValueSource, a subsidiary of KBC Group, a Belgium-based

multi-channel bank insurance group.

• Schneider Electric has commissioned a services bureau in Bengaluru as a nerve centre and a support facility

for data centres in India and the Asia-Pacific region.

Government Initiatives

IT spending by the Government of India is projected to reach US$ 6.4 billion in 2013, a growth of 7 per cent year-

on-year, according to a report by Gartner.

Some of the major initiatives taken by the Government to promote IT and ITeS sector in India are:

• After a successful first-ever international delegation to Dubai, Gujarat-based small and medium enterprises

(SMEs) in the IT sector plan to send similar business delegations to European and South East Asian countries.

• The Government of Karnataka plans to announce a new information technology (IT) policy to boost

investments in state’s tier-II and tier-III cities. The policy would enable the sector to employ about two

million people in the state directly by 2020.

• The Government of India has fast tracked the process of setting up of centers of National Institute of

Electronics and Information Technology (NIELIT) in Northeast India.

• The Government of Brazil has liberalised the issue of short term work visas, a move which will make it easier

for Indian IT professionals to take up assignments in Brazil.

• India and Vietnam have signed two memorandums of understanding (MoU) for partnership in the field of

information, communications and technology (ICT).

Road Ahead

Globalisation has a profound impact in shaping the Indian IT industry over the years with India capturing a

sizeable chunk of the global market for technology sourcing and business services. Over the years the growth

drivers for this sector have been the verticals of manufacturing, telecommunication, insurance, banking, finance

and of late the fledgling retail revolution. As the new scenario unfolds it is getting clear that the future growth of

IT and ITeS will be fuelled by the verticals of climate change, mobile applications, healthcare, energy efficiency

and sustainable energy. Traditional business strongholds would make way for new geographies, there would be

new customers and more and more of SMEs will go for IT application and services.

Demand from emerging countries is expected to show strong growth going forward. Tax holidays are also

extended to IT sector for software technology parks of India (STPI) and special economic zones (SEZs). Further,

the country is providing procedural ease and single window clearance for setting up facilities. The country’s cost

competitiveness in providing IT services, which is approximately 3-4 times cheaper than the US continues to be

its USP in the global sourcing market.

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale

of any financial instrument or as an official confirmation of any transaction. The information contained herein is

from publicly available data or other sources believed to be reliable but do not represent that it is accurate or

complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall

not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the

information contained in this report. This document is provide for assistance only and is not intended to be and must

not alone be taken as the basis for an investment decision.

Firstcall India Equity Research: Email – info@firstcallindia.com

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