Wipro: Impressive numbers

Wipro's operation profit margins go up 70 basis points

Wipro has posted fairly good numbers for the March 2006 quarter with global IT revenues growing by 6.3 per cent sequentially while operating profit margins were up by 70 basis points.

Wipro has ended FY06 with global IT revenues of Rs 8073 crore, a rise of 33 per cent y-o-y though the operating profit margin was down by 200 basis points y-o-y at 24 per cent partly the result of higher compensations.

Most of the revenue growth in Q4 FY06 has been the result of higher volumes though there have been some increases in realisations.

The on-site billing rates were up 3 per cent, a reversal from the December quarter when they had fallen. Besides utilisation rates were better as the company recruited fewer people in Q4, at just 1029 net additions.

The operating margins would have been better had it not been for the losses of NewLogic, which Wipro acquired some time back.

The BPO business too appears to be recovering with revenues up 7.5 per cent q-o-q and margins improving by 260 basis points.

The company has added 42 clients during the quarter.Wipro has indicated a 4 per cent sequential growth for the June quarter, which seems to be rather subdued given that the environment for IT services and offshoring is strong.

The guidance appears particularly weak when compared with that of Infosys which has said it would grow revenues by about 29-30 per cent this year.

The Wipro management believes that while it has been able to negotiate better billing rates with new clients and also for some existing clients, there would be no real upward trend in pricing.

Thus, it says operating margins for the current year would remain in a narrow range because there could be some wage inflation, as the IT industry ramps up. At the current price of Rs 557, the stock trades at 30 times estimated FY07 earnings. Most of the near-term upsides appear to be factored in the price.

Varun Shipping

Considering the overall weakness in spot shipping freight rates in the March 2006 quarter, Varun Shipping's sharply improved performance is surely a surprise.

Operating profit rose 128.2 per cent y-o-y to Rs 124.76 crore in the March 2006 quarter, helped by its operating income growing 72.9 per cent to Rs 190.35 crore.

The stock gained 1.55 per cent to Rs 85.3 on Wednesday. Spot average freight rates in the key tanker segment had broadly eased in Q4 FY06 on a y-o-y basis.

For instance, in the Suezmax segment, spot freight rates averaged about $ 44,175 per day in the March 2006 quarter as compared to $46,900 per day levels a year earlier.

VLCC spot freight rates averaged about $53,660 a day last quarter compared with about $50,950 a day in March 2005. Varun Shipping has been expanding its capacity in the tanker segment over the past several quarters and it has also focussed on improving its capacity utilisation to offset the weakness in spot rates.

Also, the company had earlier entered into long term contracts with key customers, say analysts.

These measures have helped the company's operating profit margin expand a staggering 2045 basis points y-o-y to 65.54 per cent in the last quarter.

Going forward, the company is planning to expand its presence in the offshore sector, given the buoyant conditions in the upstream oil sector. At 5.4 times trailing fully diluted consolidated earnings, the stock appears reasonable.

Reliance Energy: Net income slips

In Q4 FY06, Reliance Energy's operating profit remained unchanged on a y-o-y basis at Rs 190.14 crore, despite net income slipping 29.23 per cent to Rs 1038.18 crore.

The fall in revenues was largely due to a 67.11 per cent decline in its EPC and Contracts division. Analysts say that was largely due to its order backlog not reaching the profit-booking stage.

Meanwhile, in its core electrical energy business, the company sold about 1984 million units in Q4 FY06, as compared to 1879 million units a year earlier, say analysts.

However, the company's purchase of electrical energy rose to 846 million units in the last quarter as compared to 610 million units a year earlier.

Reliance Energy's average realisations were estimated at Rs 4 per unit in the last quarter as compared to Rs 3.5 per unit in Q4 FY05, say analysts. Segment profit of the electrical energy business rose 108 per cent to Rs 92.74 crore in the last quarter.

The fall in segment revenue at its EPC and Contracts division in Q4 FY06 was also accompanied with a 71.2 per cent y-o-y fall in cost of materials and sub-contract charges.

This helped overall operating profit margin grow 545 basis points y-o-y to 18.3 per cent in Q4 FY06. At Rs 634.6 levels, the stock trades at about 18.5 times estimated earnings.

With contributions from Shobhana Subramanian and Amriteshwar Mathur