Wipro CMP: Rs289 TP: Rs 255 REDUCE
Results optically better but remain weak operationally, guidance moderate, remain underperform
Wipro delivered strong reported numbers with 2.1% QoQ topline growth in USD terms with OPM gains of about 50bps sequentially. However, in CC terms growth remain soft at 0.3% for the quarter, and bulk of the OPM gains are driven by higher revenue realized rate (need to get clarity on Fx contribution to OPM gains). Also, cost savings were driven by decline in headcount base by 2% in the quarter. Guidance range of 0-2% is wide and give no clear indication of any possible traction. Operating metrics are also suggesting moderate to negative signals and thus we maintain our underperformer view on the stock with TP of Rs 255 per share, valued at 13x FY20E earnings (we may revisit our earnings estimate post concall today at 1915hrs - 39381025)
Sep’17 result highlights
- Wipro reported Sep’17 quarter revenues at US$ 2,014mn (+2.1% QoQ, +0.3% QoQ in constant currency terms) inline with our expectations of 2% QoQ US$ revenue growth (The revenue growth in CC terms were below estimates compared for our estimate of 1% QoQ growth)
- IT Services EBIT margins at 17.3%, up 50 bps sequentially were ahead of our estimate of 15.8% aided by 20bps increase in Gross margins (despite impact of wage revision) and 30bps decline in SG&A expenses as % of revenues. The OPM beat were driven by higher US$/INR exchange realized rate at Rs 66.9/$ (V/s peers which have realized revenues at Rs 64.4/$) as the company has changed the methodology to compute the same (would seek more clarity on the same in earnings call).
- Dec’17 quarter revenue guidance at US$ 2014mn-US$ 2054mn imply 0 to 2% QoQ US$ revenue growth in Q3FY18, slightly lower than our/street expectations.
- Profits at Rs 21.9bn(5.5% QoQ, 6.8%YoY) was ahead of our estimates of Rs19.8 bn largely supported by better operating performance and higher than expected other income.
Operating metrics performance at a glance
- Utilization without trainees: 82.5%, up40 bps QoQ.
- Utilization with trainees: 81.8%, up 50bps QoQ.
Growth by Verticals (all in US$ terms)
- Financial Services: 5.1%QoQ
- Manufacturing: 3.4%QoQ
- Healthcare: -5.2%QoQ
- Telecom: -1.8%QoQ
- Energy: 2.8% QoQ
Growth by Service line wise (all in US$ terms)
- Tech Infra Services: 3.5%QoQ
- Application Services: 1.4% QoQ
- BPO: 2.5% QoQ
- Product Engineering: 2.1% QoQ
- Analytics: 0.8% QoQ
Growth by Geographies (US$ terms)
- US: 0.5% QoQ
- Europe: 5.8% QoQ
- India & Middle East : -3.2% QoQ
- APAC & Emerging: 7.4% QoQ
Sep’17 quarter result summary
|
In Rs mn
|
Q2FY18A
|
Q1FY18
|
QoQ(%)
|
Q1FY17
|
YoY (%)
|
Q2FY18E
|
|
IT Services (US$mn)
|
2,014
|
1,972
|
2.1
|
1,916
|
5.1
|
2,011
|
|
Net sales
|
1,34,687
|
1,36,614
|
-1.4
|
1,38,938
|
-3.1
|
1,40,195
|
|
Operating expenses
|
1,11,646
|
1,14,521
|
1,15,967
|
1,19,255
|
||
|
EBIT
|
23,041
|
22,093
|
4.3
|
22,971
|
0.3
|
20,940
|
|
Margins (%)
|
17.1
|
16.2
|
90.0
|
16.5
|
57.4
|
14.9
|
|
Interest
|
1,386
|
1,474
|
1,428
|
525
|
||
|
Other income
|
6,666
|
6,200
|
5,105
|
5,250
|
||
|
Pre-tax profit
|
28,321
|
26,819
|
5.6
|
26,648
|
25,665
|
|
|
Tax provided
|
6,426
|
5,994
|
5,909
|
5,775
|
||
|
Profit after tax
|
21,895
|
20,825
|
20,739
|
19,890
|
||
|
Minority Interest
|
(22)
|
59
|
67
|
50
|
||
|
Emkay Net profit
|
21,917
|
20,766
|
5.5
|
20,518
|
6.8
|
19,840
|
|
EPS, Rs
|
4.5
|
4.28
|
5.6
|
4.26
|
4.1
|
|
|
EBIT , IT Services
|
22,784
|
21,916
|
4.0%
|
23,372
|
-2.5%
|
20,940
|
|
% margins
|
17.3
|
16.8
|
50.0
|
17.8
|
(50.0)
|
15.8
|
Source: Company, Emkay Research.