The vibe was positive on Wipro’s analyst call after results. This was on the back of an improved outlook in terms of a fairly robust deal pipeline for IT services and healthy contributions from target industry verticals of banking and finance, energy (oil and gas), manufacturing and retail, across geographies.
After its rather long underperformance, management statements this time suggested revenue growth would be back on track in the next couple of quarters.
The Street, however, didn’t look impressed. The stock was down 1.7 per cent after results to Rs 366.45. This can be attributed to factors like modest volume growth compared to peers. At current levels, it trades at a valuation of about 14 times FY13 EPS estimates, which is a significant discount compared to its peers. Analysts say the stock isn’t expected to re-rate till revenues show a consistent upward trend.
| IT SERVICES: IMPROVING OUTLOOK | |||
| In Rs crore | Q2FY12 |
Change (%) | |
For the September quarter, sequential organic volume growth in IT services was just under three per cent. Though the same was better than the last quarter and higher than the two per cent guidance given by the management, it was muted compared to peers such as Infosys, HCL Tech and TCS — their volume growth ranged between 4.5 to 6.3 per cent. Total volume growth (at 5.5 per cent in constant currency) reflected integration with the energy technology business acquired earlier this year. This, along with the favourable rupee exchange rate movement, boosted reported IT services revenues to Rs 6,829 crore — a 7 per cent sequential and 19 per cent year-on-year growth. Operating margins dipped 200 basis points compared to the June 2011 quarter to 20 per cent (220 basis points down year-on-year) reflecting the full quarter impact of wage hikes instituted in May 2011. Dollar revenues grew 4.6 per cent sequentially to $1,472.5 million.
A key data point was the dip in realisations with offshore pricing falling over 4 per cent sequentially and onsite realisation slipping marginally by 0.4 per cent. This followed lower pricing in the previous quarter as well. Now, that sparked concerns regarding a possible discounting by the company for volume gains. CEO T K Kurien was quick to deny this, attributing it to an effort mismatch towards the end of a few projects that necessitated higher effort than the company billed for. Onsite billing at Rs 11,915 is currently at the upper end of the range seen over the last six quarters, while offsite pricing in a range between Rs 4,300-4,500 is at the lower end of the range seen in the last six quarters, according to management. Realisations should trend back by fourth quarter of FY12, he stated. The CEO, nonetheless, cautioned that lower billing days in the current quarter (ending December) owing to the holiday season would also crimp realisations.
The company won about four to five large deals this quarter — and has about 25 deals of over $50 million in the pipeline, Kurien disclosed. Banking, insurance, retail, energy and utilities and healthcare are the key enclaves of growth going ahead. While BFSI has seen the first wave of growth, retail is expected to demonstrate a push in the coming quarter and healthcare and energy verticals should see growth in a couple of quarters, the management said.
The company also sees a strong pipeline over the next couple of quarters for its IT products business, which primarily is centred around India and the Middle-East. Slowing capex across verticals, including banking, government and manufacturing in India, impacted revenues this quarters -- they were flat sequentially and down 6 per cent year-on-year.
Beyond IT, the company’s consumer care and lighting businesses grew 20 per cent year-on-year and 6 per cent sequentially to about Rs 800 crore, taking consolidated revenues to Rs 9,000 crore. However, steep rise in financing expenses (up 65 per cent sequentially and almost three times year on year) restricted bottomline growth to just under Rs 1,300 crore, flat over the same period last year and three per cent lower compared to the June quarter.
