1 WIPRO LTD Result Update: Q3 FY 11 C.M.P: Rs.430.00 Target Price: Rs.495.00 Date: 02 Feb 2011 BUY Stock Data: Sector: IT Face Value Rs. 2.00 52 wk. High/Low (Rs.) 499.90/321.00 Volume (2 wk. Avg.) 250000 BSE Code 507685 Market Cap (Rs.In mn) 1055005.00 Share Holding Pattern 1 Year Comparative Graph WIPRO LTD BSE SENSEX SYNOPSIS Wipro is 4th largest Company in the world in terms of market capitalization in IT services. Wipro is the first software services company in the world to be assessed at SEI CMM level 5 - the highest maturity level for any software process. During the quarter company added 36 new clients in IT services business. During the quarter Wipro Infotech has been awarded a 5-year IT outsourcing contract by Vasan Eye Care. During the quarter Vodafone Essar has signed a contract with Wipro to build and manage its fixed line telecom services. During the quarter Wipro and Central Bank of India sign five year Strategic Partnership to provide state-of-the-art, technology-driven, core banking solution for seven sponsored Regional Rural banks. During the quarter Wipro Infotech has bagged a project from the ministry of home affairs for developing the core software for a crime & criminal tracking network system (CCTNS). During the quarter company has launched and inaugurated its Mobile Computing Lab at its Atlanta Strategic Delivery Center Years Net sales EBITDA Net Profit EPS P/E FY 10 271241.00 63701.00 45931.00 31.29 13.74 FY 11E 307820.86 72811.54 53300.43 21.72 19.79 FY 12E 338602.95 79939.81 58054.49 23.66 18.17
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WIPRO LTD Result Update: Q3 FY 11
C.M.P: Rs.430.00 Target Price: Rs.495.00 Date: 02 Feb 2011
BUY
Stock Data:
Sector: IT
Face Value Rs. 2.00
52 wk. High/Low (Rs.) 499.90/321.00
Volume (2 wk. Avg.) 250000
BSE Code 507685
Market Cap (Rs.In mn) 1055005.00
Share Holding Pattern
1 Year Comparative Graph
WIPRO LTD BSE SENSEX
SYNOPSIS
Wipro is 4th largest Company in the world in terms of market capitalization in IT services.
Wipro is the first software services company in the world to be assessed at SEI CMM level 5 - the highest maturity level for any software process.
During the quarter company added 36 new clients in IT services business.
During the quarter Wipro Infotech has been awarded a 5-year IT outsourcing contract by Vasan Eye Care.
During the quarter Vodafone Essar has signed a contract with Wipro to build and manage its fixed line telecom services.
During the quarter Wipro and Central Bank of India sign five year Strategic Partnership to provide state-of-the-art, technology-driven, core banking solution for seven sponsored Regional Rural banks.
During the quarter Wipro Infotech has bagged a project from the ministry of home affairs for developing the core software for a crime & criminal tracking network system (CCTNS).
During the quarter company has launched and inaugurated its Mobile Computing Lab at its Atlanta Strategic Delivery Center
• Results Update (Q3 FY11) Wipro Ltd reported a marginal rise in consolidated net profit for the quarter ended December 2010. During the quarter, the profit of the company rose 8.33% to Rs 13188.00 million from Rs 12174.00 million in the same quarter previous year. Net sales for the quarter rose 12.44% to Rs 78293.00 million, while total income for the quarter rose 13.44% to Rs 80044.00 million, when compared with the prior year period. Company posted earnings of Rs 5.38 a share during the quarter, registering 35.25% decline over prior year period. Due to the increase of Equity capital to Rs 4904.00 million from Rs 2931.00 million in the same quarter previous year, so the EPS of company has came down.
Quarterly Results - Consolidated (Rs in mn)
As at Dec - 10 Dec - 09 %Change
Net Sales 78293.00 69634.00 12.44
Net Profit 13188.00 12174.00 8.33
Basic EPS 5.38 8.30 (35.25)
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Net Sales & PAT Growth
During the quarter, Net sales rose by 12.44% to Rs.78293.00 million from Rs.69634.00 million in the same quarter last year and the Total Profit for the quarter ended December 2010 was Rs.13188.00 million grew by 8.33% from Rs.12174.00 million compared to same quarter last year.
EPS
Due to increase in equity capital the basic EPS of the company stood at Rs.5.38 for the quarter ended Dec 2010 from Rs.8.30 for the quarter ended Dec 2009.
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• Launches First of its kind "Testing as a Service" Portal
Wipro Technologies launched its Testing as a Service (TaaS) Portal to act as a virtual marketplace for potential customers to browse, request for quotes and purchase services online. The portal empowers the customer to select and buy services at the click of the mouse, thereby dramatically changing the market landscape for software Testing Service providers.
• Inaugurates Mobile Computing Lab
Wipro Technologies has launched and inaugurated its Mobile Computing Lab at its Atlanta Strategic Delivery Center in the United States. This mobile computing lab will enhance the engagement between Wipro, the local Atlanta community, its customers and its developer partners.
• McGraw-Hill and Wipro to Develop mConnect
The McGraw-Hill Companies a premier global financial information and education company, and Wipro will work together to develop “mConnect, ” an open-standard mobile learning platform designed to bridge the skills gap in emerging markets. Initial pilots in India will focus on the most critical needs for India’s students and workers: test preparation for entrance into universities that will best prepare them for the workplace and English Language Training, an increasingly essential skill in the global economy. The intention is to extend this program later to other countries in Asia and Africa.
• Wipro wins 5-year IT Outsourcing Contract from Vasan Eye Care
Wipro Infotech has been awarded a 5-year IT outsourcing contract by Vasan Eye Care - one of India's largest network of eye care centres and a unit of Vasan Healthcare Group. As part of this contract, Vasan Eye Care will outsource its entire IT Infrastructure to Wipro, for monitoring and management for duration of 5 years.
• Vodafone Essar signs Wipro
Vodafone Essar has signed a contract with Wipro, a Global IT services company and leading business transformational player. As a part of this strategic engagement, Wipro will support Vodafone Essar with its fixed line telecom services for enterprise business customers. Wipro will provide a wide range of services including network design & build, integration with existing IT OSS/ BSS applications and managed services of the setup over three years. In addition, Wipro will also build an Enterprise Network Operation Center (NOC) to manage the operations of Vodafone Essar’s enterprise customers.
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• Wipro secures Contract with Electricity North West Limited
Wipro Technologies has entered into a 5 year strategic partnership with Electricity North West Limited to deliver end to end service transition and transformational services to maintain their IT systems through a managed service framework. This collaboration will achieve the critical task of separation of IT operations from Electricity North West’s current service arrangement. Electricity North West owns operates and maintains the electricity distribution network throughout the North West of England.
• Wipro wins engagement with global financial messaging services
Wipro Technologies has entered into a relationship with SWIFT (Society for Worldwide Interbank Financial Telecommunication), the global provider of standardized and secure messaging services to more than 9000 financial institutions in 209 countries and territories. Wipro has been selected to provide the technical qualification testing services for over 100 vendor applications that apply every year to the SWIFTReady Label program.
• Wipro Announces Solution for Electronic Bank Account Management
Wipro Technologies announced that it is collaborating with EMC Corporation to develop an electronic bank account management solution for the Corporate Banking sector of the Financial Services industry.
• Central Bank of India strikes 5 yr deal with Wipro Central Bank of India, one of the largest Public Sector Banks in India and IT major Wipro entered into a 5 year total outsourcing agreement to provide state-of-the-art, technology-driven, core banking solution for seven sponsored Regional Rural banks. One of them Uttar Bihar Gramin Bank is the biggest RRB in India and has a large presence in Bihar.
• Wipro secures agreement with ArcelorMittal Wipro Technologies has entered into a five year agreement with ArcelorMittal, the world's leading steel company, to consolidate and migrate, its messaging systems to the Microsoft Exchange 2010 messaging platform.
• Wipro to drive UCO Bank’s Regional Rural Bank (RRB) initiative
Wipro Infotech, the India, Middle East and Africa, IT Business of Wipro Ltd and a leading provider of IT and business transformation services has signed a 7 year Total Outsourcing contract with 5 RRBs sponsored by UCO Bank, a leading Public Sector Bank. The contract is for implementing a Core Banking
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Solution (CBS) across 803 branches of Regional Rural Banks (RRBs) under UCO Bank’s sponsorship.
• Revenue Composition (Q3 FY11)
• Geography Composition (Q3 FY11)
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• Service Line Distribution (Q3 FY11)
• Customer Concentration
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• Onsite/Offshore Revenue
• Head Count
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Company Profile
Wipro Limited is the first PCMM Level 5 and SEI CMM Level 5 certified IT Services Company globally. In the Asia Pacific and Middle East markets, Wipro provides IT solutions and services for global corporations. Wipro’s ADSs are listed on the New York Stock Exchange, and its equity shares are listed in India on the Stock Exchange, Mumbai and the National Stock Exchange, among others. Wipro Ltd provides comprehensive information technology (IT) solutions and services, including systems integration, information systems outsourcing package implementation, software application development and maintenance, and research and development services to corporations globally through its IT services, solutions and products division. The following are the different verticals where Wipro is working are:
• 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 • Wireless Networks & Devices
Alliances The company has alliance with the following companies:
• Actuate • Amber Point • Aprision • Ariba • ARM • Artisan • ATG • Autonomy • Axiom • BEA • Blue Titan • Business Objects • Cape Clear
• Cognos • Cisco • Computer Associates • Data Flux • Data Foundations • DSPA • Embedded Linux Consortium • FileNet • GXS • HP • Hyperion • Subex • UMC
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• CEVA • JDA • Hyundai • IBM • Informatica • Interwoven ITKO • Magic Software • Microsoft • Nortel • Obilcore • OM Partners • Oracle • PeopleSoft • Real Time Image
• RSA • SAS • SAP • Siebel • Sun • Tibco • Vignette • Web Methods • Zafin Labs • Sterling Commerce • Getronics • TSMC • ATG • Selectica
Subsidiaries
• Wipro Infrastructure Engineering Ltd. • Wipro Inc. • C Mango Pte Ltd. • Wipro Japan KK. • Wipro Shanghai Ltd. • Wipro Trade Marks Holding Limited. • Wipro Travels Services Ltd. • Wipro Consumer Care Ltd • Wipro Cyprus Private Ltd. • Quantech Global Services Ltd. • Wipro Austrial Pty Ltd. • 3D Networks Pte Ltd. • Spectra mind Inc. • Wipro Chandrika Ltd. • Infocrossing
Services The company Services is divided into five. They are:
1. IT services 2. Product Engineering Solutions 3. Technology Infrastructure Services 4. Business Process Outsourcing 5. Consulting Services
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Financial Results
12 Months Ended Profit & Loss Account (Consolidated)
Value(Rs. in million) FY09A FY10A FY11E FY12E
Description 12m 12m 12m 12m
Net Sales 256171.00 271241.00 307820.86 338602.95
Other Income 4910.00 4360.00 6432.59 7140.17
Total Income 261081.00 275601.00 314253.45 345743.12
Profit before Tax 15440.00 14986.00 15681.00 16888.85
Tax -2345.00 -2183.00 -2582.00 -2904.88
Profit after Tax 13095.00 12803.00 13099.00 13983.97
Minority Interest -67.00 -148.00 -71.00 -66.74
Share of Profit & Loss of Assoc 157.00 192.00 160.00 163.20
Net Profit 13185.00 12847.00 13188.00 14080.43
Equity Capital 4899.00 4904.00 4907.00 4907.00
Face Value 2.00 2.00 2.00 2.00
Total No. of Shares 2449.50 2452.00 2453.50 2453.50
EPS 5.38 5.24 5.38 5.74
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Key Ratios Particulars FY09 FY10 FY11E FY12E
EPS (Rs.) 26.64 31.29 21.72 23.66
EBITDA Margin (%) 22% 23% 24% 24%
PAT Margin (%) 15% 17% 17% 17%
P/E Ratio (x) 16.14 13.74 19.79 18.17
ROE (%) 29% 23% 21% 19%
ROCE (%) 26% 22% 21% 19%
EV/EBITDA (x) 11.26 9.91 14.49 13.20
Debt-Equity Ratio 0.37 0.25 0.23 0.20
Book Value (Rs.) 93.09 135.71 103.73 127.39
P/BV 4.62 3.17 4.15 3.38
Charts
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Outlook and Conclusion
• At the current market price of Rs.430.00 the stock is trading at a P/Ex of 19.79x for FY11E and 18.17x for FY12E.
• Due to increase in equity capital, the EPS of the stock is expected to be at
Rs.21.72 and Rs.23.66 for FY11E and FY12E respectively. • On the basis of price to book value, the stock trades at 4.15x and 3.38x for
FY11E and FY12E respectively.
• The Net sales and PAT of the company is expected to grow at a CAGR of 10% and 15% respectively over FY09 to FY12E.
• Wipro Infotech has been awarded a 5-year IT outsourcing contract by Vasan
Eye Care - one of India's largest network of eye care centres and a unit of Vasan Healthcare Group.
• Vodafone Essar has signed a contract with Wipro, a Global IT services company
and leading business transformational player. As a part of this strategic engagement, Wipro will support Vodafone Essar with its fixed line telecom services for enterprise business customers.
• Company has seen a positive demand environment which has driven broad
based sequential growth across all their verticals, service lines and geographies.
• We recommend a “BUY” on the stock with a target price of Rs.495.00 for medium to long term.
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Industry Overview Sector structure/Market size The Indian information technology industry has played a key role in putting India on the global map. Thanks to the success of the IT industry, India is now a power to reckon with. According to the National Association of Software and Service Companies (NASSCOM), the apex body for software services in India, the revenue of the information technology sector has risen from 1.2 per cent of the gross domestic product (GDP) in FY 1997-98 to an estimated 5.8 per cent in FY 2008-09. India's IT growth in the world is primarily dominated by IT software and services such as Custom Application Development and Maintenance (CADM), System Integration, IT Consulting, Application Management, Infrastructure Management Services, Software testing, Service-oriented architecture and Web services. As per NASSCOM's latest findings:
• Indian IT-BPO sector grew by 12 per cent in FY 2009 to reach US$ 71.7 billion in aggregate revenue (including hardware). Of this, the software and services segment accounted for US$ 59.6 billion.
• IT-BPO exports (including hardware exports) grew by 16 per cent from US$ 40.9 billion in FY 2007-08 to US$ 47.3 billion in FY 2008-09.
Moreover, according to a study by Springboard Research, the Indian IT services market is estimated to remain the fastest growing in the Asia-Pacific region with a CAGR of 18.6 per cent. Despite the uncertainty in the global economy, the top three IT majors— Infosys, TCS and Wipro—have seen revenue growth from all important sources of income: from the North American and European regions, in the financial services vertical and from application maintenance and development (ADM) offerings between fiscal years 2008 and 2009. At present, there are 60 million Internet users in the country. According to Manufacturer’s Association of IT (MAIT), the number of active Internet entities rose to 8.6 million by March 2009 from 7.2 million units in March 2008. MAIT has outlined 'Goal 511', an ambitious target that talks about 500 million Internet users, 100 million broadband connections, and 100 million connected devices by 2012. A latest study by MAIT estimated that the total PC sale in India is likely to grow by 7 per cent in 2009-10, with total sales expected to cross 7.3 million units.
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Outsourcing A research by Gartner forecasts India as the undisputed leader in the outsourcing space in the year 2008. India's most prized resource is its readily available technical work force. India has the second largest English-speaking scientific professionals in the world, second only to the US. It is estimated that India has over 4 million technical workers, over 1,832 educational institutions and polytechnics, which train more than 67,785 computer software professionals every year. The enormous base of skilled manpower is a major draw for global customers. According to NASSCOM, software and services exports (including exports of IT services, BPO, engineering services and R&D and software products) reached US$ 47 billion in FY 2008-09, contributing nearly 78 per cent to the total software and services revenue of US$ 59.6 billion. India continues to be the most preferred destination for companies looking to offshore their IT and back-office functions. It also retains its low-cost advantage and is among the most financially attractive locations when viewed in combination with the business environment it offers and the availability of skilled people, according to global management consultancy AT Kearney. India has retained its numerous Uno position even as some other well-established outsourcing hubs dropped in their attractiveness to be replaced by new emerging destinations in AT Kearney’s latest ranking of the top outsourcing destinations across the globe. The top three countries in the 2009 Global Services Location Index (GSLI) remain the same — India, China and Malaysia. Domestic Markets India's domestic market has also become a force to reckon with, as the existing IT infrastructure evolves both in terms of technology and depth of penetration. According to NASSCOM, domestic IT market (including hardware) reached US$ 24.3 billion in FY 2008-09 as against US$ 23.1 billion in FY 2007-08, a growth of 5.3 per cent. India Inc's demand for IT services and products has bolstered growth in the domestic sector with deal sizes going up remarkably and contracts worth US$ 50 million-US$ 100 million up for grabs. The market for enterprise networking equipment in India is estimated to grow from US$ 1 billion in 2008 to US$ 1.7 billion by 2012, recording a compounded annual growth rate (CAGR) of 15 per cent during this period, according to a study by Springboard Research.
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Investments
• Infosys Technologies Ltd will invest US$ 70 million over the next three quarters of the current financial year towards increasing its sales and marketing staff overseas, building new capabilities and hiring local resources for its international centres.
• The Andhra Pradesh Government expects the IT-related SEZs and Software Technology Parks of India (STPI) in the State to receive about US$ 3.27 billion investments in the next five years.
• HCL Technologies has entered into a strategic partnership with South Africa’s UCS Group. As part of the all-cash deal, HCL will acquire UCS’s enterprise solutions SAP practice focused on the retail sector for US$ 7.7 million.
Rural Penetration According to a report of the Internet and Mobile Association of India (IAMAI), rural India has 3.3 million active internet users. Since rural India was mapped for the first time, the year-on-year growth of internet users in rural India could not be estimated. The research also notes there are 5.5 million people who claim to have used Internet at some point in time. Government Initiatives
• The government set up the National Taskforce on Information Technology and Software Development with the objective of framing a long term National IT Policy for the country.
• Enactment of the Information Technology Act, which provides a legal framework to facilitate electronic commerce and electronic transactions.
• The government-led National e-Governance Programme, has played an important role in increasing internet penetration in rural India.
Road Ahead The Indian information technology sector continues to be one of the sunshine sectors of the Indian economy showing rapid growth and promise. According to a report prepared by McKinsey for NASSCOM, the exports component of the Indian industry is expected to reach US$ 175 billion in revenue by 2020. The domestic component will contribute US$ 50 billion in revenue by 2020. Together, the export and domestic markets are likely to bring in US$ 225 billion in revenue, as new
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opportunities emerge in areas such as public sector and healthcare, and as geographies including BRIC and Japan opt for greater outsourcing.
