Wipro: Not good enough

Benefits from the tech major's acquisitions don't seem to be coming through quickly.

What's disappointing about the Bangalore-headquartered Wipro's March 2008 quarter numbers is that they don't yet reflect the benefits of the several acquisitions the company has made over the last couple of years.

Wipro's best buy has been Infocrossing which specialises in data and infrastructure management, a domain that not too many players venture into. Infocrossing needs to fetch Wipro some large deals soon otherwise the $600 million investment would simply not have been worth it. So far, there has been only one big deal after the acquisition.

The top line growth in the March quarter has been reasonably good at 5.9 per cent q-o-q in rupee terms at Rs 3,827 crore marginally ahead of the guidance.

Despite an increase in billing rates from telecom OEMs, however, blended billing rates were down with rates for onsite projects lower by about two per cent sequentially.

The operating margin too has expanded by 60 basis points to 24 per cent, partly because of the depreciation of the rupee.

The guidance, for the June 2008 quarter, of a revenue growth of 2.9 per cent is not bad "�Infosys has guided for a top line of just 0.9 per cent.

For FY08, Wipro's global IT revenues grew 32 per cent in dollar terms, in line with peers, though margins dropped 220 basis points-- despite better utilisation levels for offshore projects--compared to flat margins for Infosys.

That would suggest that Wipro's execution, especially of fixed price contracts, may not be as strong as that of its competitors because the rupee appreciation of 11 per cent has impacted the entire sector.

So while the results have been more or less in line with the street's expectations, they have not been exceptional. However, Wipro doesn't appear to be using its strengths adequately to win some really big deals or execute better than the competition so that it posts better earnings.

The other three big players in the IT space, seem to be playing to their strengths and benefiting from them.TCS has been winning big deals like the $1.2 billion Nielsen deal, Infosys has been leveraging its execution strengths to deliver the best earnings and margins and Satyam has made the best of its expertise in the manufacturing vertical to post good revenue growth and consequently seen a remarkable turnaround.

At Rs 459, the Wipro stock trades at just over 16 times FY09 earnings; since it announced results Infosys has gained 17 per cent and at Rs 1666, now trades at 17.7 times forward earnings. If investors choose to play technology stocks they would be better off choosing between Infosys, TCS and Satyam.