Wipro: In full flow

Wipro has managed strong volume growth in the December quarter

Wipro's global IT services and products revenues have grown a strong 12 per cent sequentially in the December quarter to Rs 2,120 crore, a small part of it being on account of the company's recent acquisitions, mPower and NewLogic.

Besides, despite a lower utilisation and an increase in offshore compensation, Wipro has managed a 70 basis points gain q-o-q in its operating profit margin (OPM) to 24.4 per cent, as per US GAAP.

The impact of higher offshore salaries of around 12 per cent, on the OPM was around 120 basis points. Not surprisingly, the stock closed 2.65 per cent higher on Wednesday at Rs 461, in an otherwise weak market.

The operating profit for global IT services was up a smart 17.7 per cent q-o-q, while the company's BPO operations have done well to post a revenue increase of 3.7 per cent sequentially, and an operating profit margin expansion of 350 basis points. The consolidated net profit (US GAAP) went up 13.16 per cent q-o-q to Rs 532.3 crore in Q3 FY06.

Most of the revenue growth has come from a strong increase in volumes of 12.5 per cent, which implies a marginal erosion in the pricing.

The management maintains that contractual pricing with clients remained flat during the quarter and the fall is due to the lower number of working days.

Wipro added a record 61 clients in the quarter, including six for Spectramind and managed to grow all its services including testing and infrastructure.

Wipro has given a guidance of $510mn for revenues in the fourth quarter, implying a growth of about 7.5 per cent q-o-q. With new acquisitions also contributing to this, the outlook is modest.

At the current price of Rs 461, the stock trades at around 26 times estimated FY07 earnings, similar to the P/E multiple commanded by Infosys but higher than that of TCS which trades at around 21-22 times.

HDFC: Stable net margins

In spite of the increase in interest rates during the December quarter, there was no impact in HDFC's net interest margin on its home loan portfolio at 2.17 per cent for nine months to December 2005, which remains at the same level as FY05. Along with an interest rate hike and higher volumes, interest income on loans increased by 30.64 per cent y-o-y.

Growth in business was robust with a 32.02 per cent rise in loan approvals and a 29.6 per cent increase in loan disbursements, whereas interest costs went up by 24.62 per cent.

But a 47.77 per cent decline in fee and other income, an over 25 per cent fall in income from leases and investments and just a 1 per cent increase in profit on sale of investments pulled down the operating income growth to 23.75 per cent. As a result, profit before tax grew 23.65 per cent y-o-y to Rs 1043.34 crore.

HDFC's capital adequacy ratio (CAR) improved by 110 basis points y-o-y to 15.7 per cent in December 2005 as it raised $500 million via FCCB. Non-performing assets also declined by 15 basis points to 1.11 per cent.

The rise in its diluted EPS was impressive - from Rs 27.59 in the nine months to December 2004 to Rs 32.37 for the similar period ended December 2005.

The stock closed 0.76 per cent lower at Rs 1149, and trades at an expensive 6.2 times December 2005 book value, but analysts point out that its unrealised pre-tax profit on listed investments work out to an additional Rs 217 per share.

With contributions from Shobhana Subramanian and Amriteshwar Mathur