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WIPRO LTD

BUY Target Price: Rs.783.00

CMP: Rs.699.00 Market Cap.: Rs.1025083.5mn.

Date: January 22, 2010

Key Ratios:

Particulars FY09A FY10E FY11E

OPM(%) 22 23 23

PAT Margin(%) 15 17 17

ROE(%) 29 25 22

ROCE(%) 28 24 21

P/BV(x) 7.51 5.61 4.36

P/E(x) 26.24 22.12 19.44

Key Data:

Sector IT

Face Value Rs.2.00

52 wk. High/Low Rs.753.00/Rs.195.00

Volume (2 wk. Avg.) 443000

BSE Code 507685

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 31 new clients

in IT services business.

• During the quarter, Wipro entered into a multi-year

outsourcing engagement with a leading Global

tobacco group.

• During the quarter Wipro Arabia won a very large

order from an upcoming university in Saudi Arabia.

• During the quarter, Wipro completed its acquisition

of the Yardley business in Asia, Middle East,

Australasia and certain African markets from UK-

based Lornamead Group.

• Total head count of the company as on Dec. 31,

2009 stood at 102,746.

• During the quarter company has set up its second

development centre in China at Chengdu to provide

IT and BPO services.

• The topline of the company is expected to grow at a

CAGR of 15% over FY08 to FY11E.

Share Holding Pattern:

V.S.R. Sastry

Vice President

Equity Research Desk

91-22-25276077

vsrsastry@firstcallindiaequity.com

Dr. V.V.L.N. Sastry Ph.D.

Chief Research Officer

drsastry@firstcallindia.com

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Investment Highlights

• Result Updates (Q3 FY10)

Wipro, India`s third largest software exporter, reported a rise of 21.27% in consolidated

net profit for the quarter ended December 2009. During the quarter, the profit of the

company rose to Rs 12174.00 million from Rs 10039.00 million in the same quarter

previous year. The consolidated total income for the quarter rose 4.17% to Rs 70558.00

million, when compared with the prior year period.

IT services business reported revenues of Rs. 5164.00 million for the quarter ended

December 31, 2009, a growth of 2% YoY and PBIT of Rs. 1227.00 million, a growth of

17% YoY. Operating income to revenue for the quarter was 23.8%. IT services business

accounted for 74% of the Revenue and 90% of the PBIT for the quarter ended December

31, 2009. For the quarter ended December 31, 2009, IT products business recorded

revenues of Rs. 1002.00 million, representing a growth of 20% YoY. PBIT grew by 34%

YoY to Rs. 579.00 million. Operating income to revenue for the quarter was 5.8%.

For the quarter ended December 31, 2009, company consumer care and lighting

business recorded revenues of Rs. 601.00 million, a growth of 14% YoY and PBIT of Rs.

740 million, a growth of 21% YoY. PBIT to revenue was 12.3% for the quarter. Consumer

care & lighting business accounted for 9% of the Revenue and 5% of the PBIT for the

quarter ended December 31, 2009. During the quarter, Wipro completed its acquisition

of the Yardley business in Asia, Middle East, Australasia and certain African markets

from UK-based Lornamead Group. The revenues of Yardley have been consolidated with

Wipro from December 9, 2009.

• To start employee negotiation

Wipro Technologies Oy, the IT services arm of Wipro in Finland plans to initiate a

consultation process with the employee representatives, with the aim of restructuring

part of its Finnish telecom research and development (R&D) operations to meet

changing market and customer needs.

• Launches cloud based retail solutions

Wipro Technologies has launched two strategic retail solutions, Digital Customer

Experience Platform and Loss Prevention Platform. Wipro’s Digital Customer Experience

Platform (DCxP) is a comprehensive solution designed to enable retailers manage their

online business in an integrated manner. Wipro’s Loss Prevention (LP) Platform is a

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complete shrink management solution that provides retailers an integrated view across

the entire shrink management lifecycle.

• Launch Process Integration Pack

Wipro Technologies and Oracle launched co-developed Oracle Application Integration

Architecture (AIA) Process Integration Pack (PIP) for the retail industry. The Oracle AIA

PIP integrates Oracle Retail Merchandise Operations Management and the Oracle E-

Business Suite Financials using Oracle Application Integration Architecture (AIA) to offer

customers a pre-configured, supportable and upgradeable integration of the retail

merchandising execution applications with the financial operation control applications.

• Enters into Open Hand set Alliance

Wipro Technologies entered into the Open Handset Alliance TM, extending its device

development and service Integration expertise around Android TM – an open mobile

phone software stack. The Open Handset Alliance (OHA) is a partnership of more than

60 global mobile industry leaders working together to accelerate innovation and offer

consumers an enhanced mobile experience.

• To employ more locals in US

Wipro Technologies is expanding its US operations and will hire about 1,000 people,

including more locals, at its Atlanta development facility.

• Acquires Yardley business

Wipro has signed an agreement to acquire the Yardley business in Asia, Middle East,

Australasia and certain African markets for consideration of nearly USD 45.5 million,

from UK-based Lornamead Group.

• Opens development center

Wipro Technologies has set up its second development centre in China at Chengdu to

provide IT and BPO services to both local and global customers. The centre can grow to

a capacity of 1,000 seats over the next few years and will have secure facilities, labs and

infrastructure.

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• Revenue Composition (Q3 FY10)

• Geography Composition (Q3 FY10)

5

• Service Line Distribution (Q3 FY10)

• Customer Concentration

6

• 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

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• Data Flux

• Data Foundations

• DSPA

• Embedded Linux Consortium

• FileNet

• GXS

• HP

• Hyperion

• Subex

• Getronics

• TSMC

• UMC

• 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

• 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

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Company Services

The company Services is divided into five. They are:

Peer Group Comparison

Name of the company CMP

(As on

Jan.22,

2010)

Market

Cap.

(Rs. Mn.)

EPS

(Rs.)

P/E

(x)

P/BV

(x)

Dividend(%)

Wipro Technologies Ltd 699.00 1025083.5 26.64 26.24 7.51 200

Infosys Technologies Ltd 2573.05 1475734.8 103.60 24.84 8.28 470

Tata Consultancy

Services

755.10 1477897.6 27.01 27.96 11.07 200

HCL Technologies Ltd 382.90 257885.4 15.50 24.70 6.12 350

Key Concerns

• Significant rupee appreciation Vis a Vis US dollar, Euro and Pound could lead to revision

in earning growth.

• Significant USD depreciation Vis- a- Vis Euro, Pound, and Australian dollar could lead to

revision in earning growth.

• A prolonged recession in the developed markets.

• A lower-than-anticipated cut in bonuses.

• Any adverse currency movement.

Services

Consulting

Services

BPO Services

Technology

Infrastructure

Services

Product

Engineering

Solutions

IT Services

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Financials 12 Months Ended Profit & Loss Account (Consolidated)

Value(Rs.in million) FY08A FY09A FY10E FY11E

12m 12m 12m 12m

Description

Net Sales 200,195.00 256171.00 272953.68 305708.12

Other Income 3,775.00 4910.00 4060.20 4466.22

Total Income 203,970.00 261081.00 277013.88 310174.34

Expenditure -159,852.00 -205156.00 -213346.81 -238452.33

Operating Profit 44,118.00 55925.00 63667.07 71722.01

Interest -1,690.00 -3865.00 -1607.19 -1687.55

Gross Profit 42,428.00 52060.00 62059.88 70034.46

Depreciation -5,358.00 -6864.00 -7698.46 -8468.31

Profit before Tax 37,070.00 45196.00 54361.42 61566.15

Tax -4,550.00 -6460.00 -8402.01 -9234.92

Profit after Tax 32,520.00 38736.00 45959.41 52331.23

Minority Interest 309.00 -99.00 383.95 403.15

Net Profit 32,829.00 38999.00 46343.36 52734.38

Equity Capital 2,923.00 2928.00 2,933.00 2,933.00

Reserves 112,604.00 133356.00 179,699.36 232,433.73

Face Value 2.00 2.00 2.00 2.00

Total No. of Shares 1,461.50 1464.00 1,466.50 1,466.50

EPS 22.46 26.64 31.60 35.96

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Quarterly Ended Profit & Loss Account (Consolidated)

Value(Rs. in million) 30-Jun-09 30-Sep-09 31-Dec-09 31-Mar-10E

3m 3m 3m 3m

Description

Net Sales 62891.00 69402.00 69634.00 71026.68

Other Income 994.00 1,172.00 924.00 970.20

Total Income 63885.00 70574.00 70558.00 71996.88

Expenditure -49498.00 -54358.00 -54090.00 -55400.81

Operating Profit 14387.00 16216.00 16468.00 16596.07

Interest -606.00 -561.00 -219.00 -221.19

Gross Profit 13781.00 15655.00 16249.00 16374.88

Depreciation -1,798.00 -2,016.00 -1,923.00 -1,961.46

Profit before Tax 11983.00 13639.00 14326.00 14413.42

Tax -1864.00 -2085.00 -2291.00 -2162.01

Profit after Tax 10119.00 11554.00 12035.00 12251.41

Minority Interest 36.00 63.00 139.00 145.95

Net Profit 10155.00 11617.00 12174.00 12397.36

Equity Capital 2929.00 2931.00 2933.00 2933.00

Face Value 2.00 2.00 2.00 2.00

Total No. of Shares 1464.50 1465.50 1466.50 1466.50

EPS 6.93 7.93 8.30 8.45

E=Estimated

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Charts

1) Net Sales & PAT Chart 2) P/E Chart

3) EV/EBIDTA Chart 4) P/BV Chart

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1 Year Comparative Graph

Wipro Ltd BSE SENSEX

Outlook and Conclusion

• At the current market price of Rs.699.00 the stock is trading at a P/Ex of 22.12x for

FY10E and 19.44x for FY11E.

• The EPS of the stock is expected to be at Rs.31.60 and Rs.35.96 for FY10E and FY11E

respectively.

• On the basis of price to book value, the stock trades at 5.61x and 4.36x for FY10E and

FY11E respectively.

• Global IT Services and Products business added 31 new clients during the quarter taking

the total active clients to 822 clients.

• A large Europe-based global steel manufacturer is leveraging Wipro's business

transformation expertise to engage in business driven initiatives during a period of

strategic restructuring.

• Wipro entered into a multi-year outsourcing engagement with a leading Global tobacco

group, to help the customer improve the effectiveness and efficiency of application

support services for its global business operations.

• Wipro Arabia won a very large order from an upcoming university in Saudi Arabia for

end to-end set up of their IT and Telecom infrastructure.

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• Another prestigious win in the government sector was a turnkey project for

implementation of FINnet (Financial intelligence network) for tracking money

laundering, financing of unlawful activities and other economic crimes occurring within

the country for Financial Intelligence Unit, Ministry of Finance, and India.

• Infocrossing, a Wipro subsidiary signed a significant and large multi-year IT

Infrastructure outsourcing contract with a large outsourcer of data processing services

in the US.

• During the quarter, Wipro completed its acquisition of the Yardley business in Asia,

Middle East, Australasia and certain African markets from UK-based Lornamead Group.

• Wins in the infrastructure segment include turnkey implementation of State Data Center

projects for Gujarat and Maharashtra, end-to-end implementation of a Data Center for

Shipping Corporation of India (SCI), and upgrade and enhancement of the Primary Data

Center and Disaster Recovery Infrastructure for Oriental Bank of Commerce.

• The Net sales and PAT of the company is expected to grow at a CAGR of 15% and 17%

respectively over FY08 to FY11E.

• 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.783.00 for medium to

long term.

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.

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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.

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

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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.

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

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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 opportunities

emerge in areas such as public sector and healthcare, and as geographies including BRIC and

Japan opt for greater outsourcing.

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___________________________________________________________

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 we 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 its 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.

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