Result Highlights
Net Sales Growth: India's third largest IT bellwether, Wipro Ltd reported a marginal sequential de-growth of 1% in its consolidated net sales to Rs 9836.3 crores. Both volume and pricing for the company saw a sequential increase of +0.8% and +0.7% respectively. On a YoY basis, revenues increased by 18.85%. For the year ended March 2012, revenues grew by 20.67% to Rs 37404.4 crore from Rs 30998.0 crore in FY11.
Operating Margin: The operating margin narrowed slightly to 17.3% vs 17.9% observed in the same quarter of the previous year. The Operating margin for IT Services was 20.7% for the quarter while the ratio was 4.7% for IT products segment. The Consumer Care and Lighting segment registered an operating margin of 12.5% for the quarter.
Bottom-Line Growth: The company's fourth-quarter consolidated net profit rose 8% YoY to Rs 1480.9 crore from a year ago. The net profit posted a sequential rise of a muted 1.68%. For the year ended 2012, the company reported a rise in the profit levels by 5.2% to Rs 5573 crore from Rs 5297.7 crore of the corresponding year.
Future Outlook: For Q1FY13, revenue in its mainstay information technology services business is pegged at $1.52 to $1.55 billion indicating that the outlook remains unpredictable for IT companies. Out of the three Offshore IT service companies that provide quarterly guidance, Wipro is now the second company (after Infosys) to warn of a slow June quarter. Further, the company also expects a slowdown in India business which has grown well in the fourth quarter.
Developments: The IT Services segment saw an increase of 13,535 employees in the year. The company added 41 new customers for the quarter and 173 new customers during the year. One new client was added in the >US$100mn bucket and two in the >US$75mn bucket in the current quarter. Attrition was seen at 17.5%.
Snapshot (Consolidated)
Outlook
Performance Movers & Shakers:
Wipro’s, IT services business grew 2% sequentially for the march quarter to $1.54 billion (Rs. 7590 crores). This was primarily because of weaker volumes which grew a meager 0.8% sequentially. On the flip side, this was supported by better than expected improvement in realization with pricing improving 0.7% QoQ (0.4% QoQ onsite and 1.4% QoQ offshore). Lower than expected IT services revenues were offset to a certain extent by strong growth in Consumer care business (up 25% YoY in Rupee terms). Geographically, Revenue from the Americas, which accounts for over half of sales, rose 1.1 percent, compensating for an 18.4 percent plunge in Japan sales. Growth in Europe was muted at 0.2% QoQ, while strong growth was seen in Asia and the Middle East (+7.6% QoQ) and other emerging markets (+10.5% QoQ).
Conclusion:
Global economic uncertainty has cast a shadow over India's outsourcing sector, which also faces political headwinds in the United States, its largest market. The industry has proven resilient in times of economic trouble, but with each downturn, outsourcing companies must fight harder to maintain prices, win new deals and speed up decision making. Although results for the Mar-12 quarter for Wipro, were in line with estimates, the tough macro environment could make it difficult for Wipro going forward. Further, the muted guidance for the June quarter by the management indicates that the near-term outlook remains challenging for the company. The positives of strong pipeline, improved client metrics, client satisfaction and stabilizing attrition keep us positive about the long term structural improvement at Wipro. Nonetheless, the slower near term demand environment as also evident in quarterly guidance by larger peer Infosys makes us concerned about the near term performance of the sector. Wipro’s stock has seen a good run over the past six months and is now trading at a valuation premium to Infosys. This will be difficult to justify given the Jun-12 quarter guidance and the inherent execution risks with the company. Given the volatile macro environment and the execution risks associated with the company, we remain neutral on the company in the near term till the macro-economic headwinds get resolved.
Financial Overview (Consolidated)
Net Sales Growth: India's third largest IT bellwether, Wipro Ltd reported a marginal sequential de-growth of 1% in its consolidated net sales to Rs 9836.3 crores. Both volume and pricing for the company saw a sequential increase of +0.8% and +0.7% respectively. On a YoY basis, revenues increased by 18.85%. For the year ended March 2012, revenues grew by 20.67% to Rs 37404.4 crore from Rs 30998.0 crore in FY11.Operating Margin: The operating margin narrowed slightly to 17.3% vs 17.9% observed in the same quarter of the previous year. The Operating margin for IT Services was 20.7% for the quarter while the ratio was 4.7% for IT products segment. The Consumer Care and Lighting segment registered an operating margin of 12.5% for the quarter.
Bottom-Line Growth: The company's fourth-quarter consolidated net profit rose 8% YoY to Rs 1480.9 crore from a year ago. The net profit posted a sequential rise of a muted 1.68%. For the year ended 2012, the company reported a rise in the profit levels by 5.2% to Rs 5573 crore from Rs 5297.7 crore of the corresponding year.Future Outlook: For Q1FY13, revenue in its mainstay information technology services business is pegged at $1.52 to $1.55 billion indicating that the outlook remains unpredictable for IT companies. Out of the three Offshore IT service companies that provide quarterly guidance, Wipro is now the second company (after Infosys) to warn of a slow June quarter. Further, the company also expects a slowdown in India business which has grown well in the fourth quarter.
Developments: The IT Services segment saw an increase of 13,535 employees in the year. The company added 41 new customers for the quarter and 173 new customers during the year. One new client was added in the >US$100mn bucket and two in the >US$75mn bucket in the current quarter. Attrition was seen at 17.5%.
Snapshot (Consolidated)
Performance Movers & Shakers:
Wipro’s, IT services business grew 2% sequentially for the march quarter to $1.54 billion (Rs. 7590 crores). This was primarily because of weaker volumes which grew a meager 0.8% sequentially. On the flip side, this was supported by better than expected improvement in realization with pricing improving 0.7% QoQ (0.4% QoQ onsite and 1.4% QoQ offshore). Lower than expected IT services revenues were offset to a certain extent by strong growth in Consumer care business (up 25% YoY in Rupee terms). Geographically, Revenue from the Americas, which accounts for over half of sales, rose 1.1 percent, compensating for an 18.4 percent plunge in Japan sales. Growth in Europe was muted at 0.2% QoQ, while strong growth was seen in Asia and the Middle East (+7.6% QoQ) and other emerging markets (+10.5% QoQ).
Conclusion:
Global economic uncertainty has cast a shadow over India's outsourcing sector, which also faces political headwinds in the United States, its largest market. The industry has proven resilient in times of economic trouble, but with each downturn, outsourcing companies must fight harder to maintain prices, win new deals and speed up decision making. Although results for the Mar-12 quarter for Wipro, were in line with estimates, the tough macro environment could make it difficult for Wipro going forward. Further, the muted guidance for the June quarter by the management indicates that the near-term outlook remains challenging for the company. The positives of strong pipeline, improved client metrics, client satisfaction and stabilizing attrition keep us positive about the long term structural improvement at Wipro. Nonetheless, the slower near term demand environment as also evident in quarterly guidance by larger peer Infosys makes us concerned about the near term performance of the sector. Wipro’s stock has seen a good run over the past six months and is now trading at a valuation premium to Infosys. This will be difficult to justify given the Jun-12 quarter guidance and the inherent execution risks with the company. Given the volatile macro environment and the execution risks associated with the company, we remain neutral on the company in the near term till the macro-economic headwinds get resolved.
Financial Overview (Consolidated)
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