Wipro Ltd Sep09 Results Updated Detailed Report.im.sify.com/sifycmsimg/nov2009/Finance/14918943_Wipro_Sep09Results_Report.pdfWipro Limited is the first PCMM Level 5 and SEI CMM Level

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Firstcall India Equity Advisors Pvt Ltd

WIPRO LTD

BUY Target Price: Rs.662.00

CMP: Rs.602.00 Market Cap.: Rs.881328.0mn.

Date: November 09, 2009

Key Ratios:

Particulars FY09A FY10E FY11E

OPM(%) 22 23 23

PAT Margin(%) 15 16 17

ROE(%) 29 25 22

ROCE(%) 28 24 21

P/BV(x) 6.47 4.84 3.79

P/E(x) 22.60 19.26 17.41

Key Data:

Sector IT

Face Value Rs.2.00

52 wk. High/Low Rs.640.00/Rs.195.00

Volume (2 wk. Avg.) 283389

BSE Code 507685

SYNOPSIS

• Wipro is 4th largest Company in the world in terms

of market capitalization in IT services.

• Wipro is the first software services company in the

world to be assessed at SEI CMM level 5 - the

highest maturity level for any software process.

• Wipro won 7 multi-million dollar deals in the

current quarter and added 37 new clients in IT

services business.

• During the quarter, Wipro entered into a 10 year

Total Outsourcing agreement with Delhi

International Airport Limited (DIAL).

• During the quarter company has entered into a 5

year agreement with BP to provide IT Applications

Development and Maintenance services for BP’s

Fuels Value Chain.

• Total head count of the company as on Sep. 30,

2009 stood at 97,891 with utilization rate at 78.2%.

• During Q2FY10 healthcare, energy & utility &

communication media service provider segment did

well, growing by 4.4%, 11.9% & 11.3% respectively.

• The topline of the company is expected to grow at a

CAGR of 15% over FY08 to FY11E.

Share Holding Pattern:

V.S.R. Sastry

Vice President

Equity Research Desk

91-22-25276077

[email protected]

Dr. V.V.L.N. Sastry Ph.D.

Chief Research Officer

[email protected]

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Investment Highlights

• Result Updates (Q2 FY10)

Wipro reported a substantial rise in consolidated net profit for the quarter ended

September 2009. During the quarter, the profit of the company rose 18.76% to Rs

11,617 million from Rs 9,782 million in the same quarter last year. Total income for the

quarter rose 5.89% to Rs 70,574 million compared with the prior year period.

IT services revenue increased by 5.2% (Y-o-Y) & 3.6% (Q-o-Q) to Rs. 50 bn. In dollar

terms, the revenue increased by 3.2% (Q-o-Q) to USD 1,065 mn. The company beat its

own guidance of USD 1,035-1,053 mn. Revenue on constant currency was $1,052

million, an increase of 1.9% on a Q-o-Q basis. Volumes declined by 1.5% Q-o-Q in

Q2FY10 the offshore pricing increased by 3.4%, while the onsite pricing was up 4.7%.

Cross currency benefited offshore and onsite pricing by 1.0% & 1.3% respectively, while

higher number of working days contributed 0.9% & 1.6%. The improvement was due to

higher proportion of fixed price contracts, which improved by 190 bps Q-o-Q on a like-

on-like basis.

Geographically, Europe grew by 7% (Q-o-Q), while India & Middle East grew by 6% each

(Q-o-Q). Even North America was stable, growing 1% (Q-o-Q). Offshore revenues’

contribution to total revenues stands at 50.1%, which is down 30 bps Q-o-Q. The

company added 37 clients (up from 26 clients in Q1FY10), which was above its peer

Infosys (which added 35 clients). Also, its total active client count has increased to 840

from 830 in the previous quarter. However, the number of USD 1 mn clients declined

from 413 to 403. The company’s top client grew 7.1% (Q-o-Q). However, top 10 clients

declined 1.3% Q-o-Q. Most of the decline was from top 6-10 clients that declined 5.8%

Q-o-Q.

• Acquires Yardley business

Wipro has signed an agreement to acquire the Yardley business in Asia, Middle East,

Australasia and certain African markets for consideration of nearly USD 45.5 million,

from UK-based Lornamead Group.

• Sign a 10-yr strategic partnership

Delhi International Airport (DAIL) and IT major Wipro entered into a 10 year total

outsourcing agreement to provide world class IT infrastructure and services for Indira

Gandhi Airport (IGIA), New Delhi. The IGI`s mew integrated terminal (T3), which will be

one of the largest airport terminals in the world, will also be the gateway for the

commonwealth games to be held in New Delhi.

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• Joint venture With GE

To accelerate the growth of its $17-billion global healthcare business, General Electric to

integrate all its GE Healthcare units in India and South Asia with the existing Wipro GE

Healthcare joint venture. With this move, Wipro GE Healthcare will be the exclusive

vehicle for all the company’s healthcare activities in India.

• Plans Development centre

Wipro Technologies is setting up a 150-seat development centre in Melbourne in

December. Wipro has chosen Melbourne for its Australia development centre to

provide integrated business, technology and process solutions to local clients. Wipro

estimates that the Melbourne centre will create 100 jobs in Victoria over the next 12

months.

• Inks pact with Oracle

Wipro Technologies has signed a master co-development agreement with Oracle to

develop multiple industry solutions using Oracle Application Integration Architecture

(AIA) — an open, standards-based platform for business process integration across

Oracle, third-party and custom applications.

• Wipro-BPO to recruit

Wipro-BPO, a division of IT giant Wipro, is on a recruitment spree to induct 15,000 fresh

employees for its operations at different locations spread across the country. The

company has already recruited around 8,000 employees and is in the process of

selecting another 7,000 over the next six months, for which it has been holding job fairs

in association with various universities.

• Deal with Aquarion

Wipro Technologies has signed a three-year deal with Aquarion Water Company (AWC),

the largest investor-0 owned water utility in New England and counted among the seven

largest water utilities in the US. Under the deal, it will provide SAP enterprise application

management services.

• Expands UK presence

Wipro Technologies has enlarged its footprint in the United Kingdom by expanding its

development facility in Reading and opening an office in London.

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• Eyes Rs 700-cr govt business

Wipro is eyeing about Rs 700 crore from Government projects in the current fiscal. It

intends to nearly triple this in three years. The move comes at a time when the Centre is

clearing the decks for a slew of projects under the National e-Governance Plan (NeGP).

• Wipro bags ANA deal

Wipro Technologies has entered into a three years partnership with ANA (All Nippon

Airways) of Japan to transform the company's material management system. ANA, with

its fleet of 209 aircraft, is looking to transform its legacy materials management system

to support its new fleet.

• Ties up with Lavasa

Lavasa Corporation Ltd and Wipro Ltd entered into the partnership for planning,

implementing and managing information and communication technology (ICT) services

across Lavasa city. Wipro will support Lavasa city in the areas of city management

system and services, e-governance, ICT infrastructure and value-added services,

including providing intelligent home solutions and digital lifestyle.

• Revenue Composition

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• Geography Composition

• Service Line Distribution

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• Customer Concentration

• Onsite/Offshore Revenue

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• Head Count

Company Profile

Wipro Limited is the first PCMM Level 5 and SEI CMM Level 5 certified IT Services Company

globally. In the Asia Pacific and Middle East markets, Wipro provides IT solutions and services

for global corporations. Wipro’s ADSs are listed on the New York Stock Exchange, and its equity

shares are listed in India on the Stock Exchange, Mumbai and the National Stock Exchange,

among others. Wipro Ltd provides comprehensive information technology (IT) solutions and

services, including systems integration, information systems outsourcing package

implementation, software application development and maintenance, and research and

development services to corporations globally through its IT services, solutions and products

division.

The following are the different verticals where Wipro is working are:

• Aerospace, Defense & Satellite

• Automotive Electronics

• Automotive IT

• Broadband & Optical Networks

• Chemicals

• Computing Peripherals

• Computing Platforms

• Consumer Electronics

• Consumer Packaged Goods

• Distribution

• Energy

• Finance

• Health Science

• High Technology

• IP Multimedia Networks

• Industrial Automation

• Insurance

• Manufacturing

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• Media & Entertainment

• Medical Devices

• Mobile Devices

• Retail

• Semiconductors

• Software Products Group

• Storage Technologies

• Telecom - Equipment Vendors

• Telecom - Service Providers

• Travel & Transportation

• Utilities

• Wireless Networks & Devices

Alliances

The company has alliance with the following companies:

• Actuate

• Amber Point

• Aprision

• Ariba

• ARM

• Artisan

• ATG

• Autonomy

• Axiom

• BEA

• Blue Titan

• Business Objects

• Cape Clear

• Cognos

• Cisco

• Computer Associates

• Data Flux

• Data Foundations

• DSPA

• Embedded Linux Consortium

• FileNet

• GXS

• HP

• Hyperion

• Subex

• Getronics

• TSMC

• UMC

• CEVA

• JDA

• Hyundai

• IBM

• Informatica

• Interwoven ITKO

• Magic Software

• Microsoft

• Nortel

• Obilcore

• OM Partners

• Oracle

• PeopleSoft

• Real Time Image

• RSA

• SAS

• SAP

• Siebel

• Sun

• Tibco

• Vignette

• Web Methods

• Zafin Labs

• Sterling Commerce

• ATG

• Selectica

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Subsidiaries

• Wipro Infrastructure Engineering Ltd.

• Wipro Inc.

• C Mango Pte Ltd.

• Wipro Japan KK.

• Wipro Shanghai Ltd.

• Wipro Trade Marks Holding Limited.

• Wipro Travels Services Ltd.

• Wipro Consumer Care Ltd

• Wipro Cyprus Private Ltd.

• Quantech Global Services Ltd.

• Wipro Austrial Pty Ltd.

• 3D Networks Pte Ltd.

• Spectra mind Inc.

• Wipro Chandrika Ltd.

• Infocrossing

Company Services

The company Services is divided into five. They are:

1. IT services

2. Product Engineering Solutions

3. Technology Infrastructure Services

4. Business Process Outsourcing

5. Consulting Services

Services

Consulting

Services

BPO Services

Technology

Infrastructure

Services

Product

Engineering

Solutions

IT Services

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Peer Group Comparison

Name of the company CMP

(As on

Nov.09,

2009)

Market

Cap.

(Rs. Mn.)

EPS

(Rs.)

P/E

(x)

P/BV

(x)

Dividend(%)

Wipro Technologies Ltd 602.00 881328.0 26.64 22.60 6.47 200

Infosys Technologies Ltd 2234.05 1280807.0 105.86 21.10 7.20 470

Tata Consultancy

Services

622.80 1218957.2 25.26 24.66 9.15 200

HCL Technologies Ltd 311.80 209507.9 15.54 20.06 5.02 450

Key Concerns

• Significant rupee appreciation Vis a Vis US dollar, Euro and Pound could lead to revision

in earning growth.

• Significant USD depreciation Vis- a- Vis Euro, Pound, and Australian dollar could lead to

revision in earning growth.

• A prolonged recession in the developed markets.

• A lower-than-anticipated cut in bonuses.

• Any adverse currency movement.

• Significant rupee appreciation Vis a Vis US dollar, Euro and Pound could lead to revision

in earning growth.

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Financials 12 Months Ended Profit & Loss Account (Consolidated)

Value(Rs.in million) FY08A FY09A FY10E FY11E

12m 12m 12m 12m

Description

Net Sales 200,195.00 256171.00 276408.51 304049.36

Other Income 3,775.00 4910.00 4811.80 5774.16

Total Income 203,970.00 261081.00 281220.31 309823.52

Expenditure -159,852.00 -205156.00 -216980.68 -238982.80

Operating Profit 44,118.00 55925.00 64239.63 70840.72

Interest -1,690.00 -3865.00 -2473.60 -2720.96

Gross Profit 42,428.00 52060.00 61766.03 68119.76

Depreciation -5,358.00 -6864.00 -7962.24 -8758.46

Profit before Tax 37,070.00 45196.00 53803.79 59361.30

Tax -4,550.00 -6460.00 -8205.08 -8904.19

Profit after Tax 32,520.00 38736.00 45598.71 50457.10

Minority Interest 309.00 -99.00 163.73 171.92

Net Profit 32,829.00 38999.00 45762.44 50629.02

Equity Capital 2,923.00 2928.00 2,928.00 2,928.00

Reserves 112,604.00 133356.00 179,118.44 229,747.46

Face Value 2.00 2.00 2.00 2.00

Total No. of Shares 1,461.50 1464.00 1,464.00 1,464.00

EPS 22.46 26.64 31.26 34.58

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Quarterly Ended Profit & Loss Account (Consolidated)

Value(Rs.in million) 31-Mar-09 30-Jun-09 30-Sep-09 31-Dec-09E

3m 3m 3m 3m

Description

Net Sales 64821.00 62891.00 69402.00 71692.27

Other Income 1011.00 994.00 1,172.00 1,190.75

Total Income 65832.00 63885.00 70574.00 72883.02

Expenditure -51330.00 -49498.00 -54358.00 -56565.20

Operating Profit 14502.00 14387.00 16216.00 16317.82

Interest -848.00 -606.00 -561.00 -569.42

Gross Profit 13654.00 13781.00 15655.00 15748.41

Depreciation -1872.00 -1,798.00 -2,016.00 -2,056.32

Profit before Tax 11782.00 11983.00 13639.00 13692.09

Tax -1667.00 -1864.00 -2085.00 -2026.43

Profit after Tax 10115.00 10119.00 11554.00 11665.66

Minority Interest -50.00 36.00 63.00 68.04

Net Profit 10100.00 10155.00 11617.00 11733.70

EPS 6.90 6.93 7.93 8.01

E=Estimated

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Charts

1) Net Sales & PAT Chart 2) P/E Chart

3) EV/EBIDTA Chart 4) P/BV Chart

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1 Year Comparative Graph

Wipro Ltd BSE SENSEX

Outlook and Conclusion

• At the current market price of Rs.602.00 the stock is trading at a P/Ex of 19.26x for

FY10E and 17.41x for FY11E.

• The EPS of the stock is expected to be at Rs.31.26 and Rs.34.58 for FY10E and FY11E

respectively.

• On the basis of price to book value, the stock trades at 4.84x and 3.79x for FY10E and

FY11E respectively.

• Global IT Services and Products business added 37 new clients during the quarter taking

the total active clients to 840 clients up from 830 at the end of sequential quarter.

• Wipro has entered into a multi-year contract with an iconic beverage company based in

Australia for managing, supporting and provisioning the customer's IT infrastructure,

data centers, providing Disaster Recovery Services and support of different business

applications across Australia, US and Europe.

• Wipro Technologies has entered into a 5 year agreement with BP to provide IT

Applications Development and Maintenance (ADAM) services for BP's Fuels Value Chain

and Corporate businesses globally.

• Wipro will take over the global responsibility for providing Nokia Siemens Networks with

application management services for SAP, delivery, marketing and sales, and product

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data management applications. In addition, over 50 employees are planned to transfer

to Wipro.

• Wipro entered into a 10 year Total Outsourcing agreement with Delhi International

Airport Limited (DIAL) to provide world class IT Infrastructure and Services for Indira

Gandhi International Airport (IGIA), New Delhi.

• Despite the weakness in demand, the healthcare, energy & utility & communication

media service segments have experienced double-digit growth in the last six quarters.

This will help the Company in offsetting the impact of the slowdown in the other

verticals.

• Infocrossing, a Wipro subsidiary signed a significant and large multi-year IT

Infrastructure outsourcing contract with a large outsourcer of data processing services

in the US.

• A large UK based food retailer has chosen Wipro, as its IT partner, to deliver a new and

robust operating model that supports the retailer’s strategic and commercial objectives.

• The Net sales and PAT of the company is expected to grow at a CAGR of 15% and 16%

respectively over FY08 to FY11E.

• We recommend a “BUY” on the stock with a target price of Rs.662.00 for medium to

long term.

Industry Overview

Sector structure/Market size

The Indian information technology industry has played a key role in putting India on the global

map. Thanks to the success of the IT industry, India is now a power to reckon with. According

to the National Association of Software and Service Companies (NASSCOM), the apex body for

software services in India, the revenue of the information technology sector has risen from 1.2

per cent of the gross domestic product (GDP) in FY 1997-98 to an estimated 5.8 per cent in FY

2008-09.

India's IT growth in the world is primarily dominated by IT software and services such as

Custom Application Development and Maintenance (CADM), System Integration, IT Consulting,

Application Management, Infrastructure Management Services, Software testing, Service-

oriented architecture and Web services.

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As per NASSCOM's latest findings:

• Indian IT-BPO sector grew by 12 per cent in FY 2009 to reach US$ 71.7 billion in aggregate

revenue (including hardware). Of this, the software and services segment accounted for

US$ 59.6 billion.

• IT-BPO exports (including hardware exports) grew by 16 per cent from US$ 40.9 billion in

FY 2007-08 to US$ 47.3 billion in FY 2008-09.

Moreover, according to a study by Springboard Research, the Indian IT services market is

estimated to remain the fastest growing in the Asia-Pacific region with a CAGR of 18.6 per

cent.

Despite the uncertainty in the global economy, the top three IT majors— Infosys, TCS and

Wipro—have seen revenue growth from all important sources of income: from the North

American and European regions, in the financial services vertical and from application

maintenance and development (ADM) offerings between fiscal years 2008 and 2009.

At present, there are 60 million Internet users in the country. According to Manufacturer’s

Association of IT (MAIT), the number of active Internet entities rose to 8.6 million by March

2009 from 7.2 million units in March 2008.

MAIT has outlined 'Goal 511', an ambitious target that talks about 500 million Internet users,

100 million broadband connections, and 100 million connected devices by 2012.

A latest study by MAIT estimated that the total PC sale in India is likely to grow by 7 per cent in

2009-10, with total sales expected to cross 7.3 million units.

Outsourcing

A research by Gartner forecasts India as the undisputed leader in the outsourcing space in the

year 2008. India's most prized resource is its readily available technical work force. India has

the second largest English-speaking scientific professionals in the world, second only to the US.

It is estimated that India has over 4 million technical workers, over 1,832 educational

institutions and polytechnics, which train more than 67,785 computer software professionals

every year. The enormous base of skilled manpower is a major draw for global customers.

According to NASSCOM, software and services exports (including exports of IT services, BPO,

engineering services and R&D and software products) reached US$ 47 billion in FY 2008-09,

contributing nearly 78 per cent to the total software and services revenue of US$ 59.6 billion.

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India continues to be the most preferred destination for companies looking to offshore their IT

and back-office functions. It also retains its low-cost advantage and is among the most

financially attractive locations when viewed in combination with the business environment it

offers and the availability of skilled people, according to global management consultancy AT

Kearney.

India has retained its numerous Uno position even as some other well-established outsourcing

hubs dropped in their attractiveness to be replaced by new emerging destinations in AT

Kearney’s latest ranking of the top outsourcing destinations across the globe. The top three

countries in the 2009 Global Services Location Index (GSLI) remain the same — India, China

and Malaysia.

Domestic Markets

India's domestic market has also become a force to reckon with, as the existing IT

infrastructure evolves both in terms of technology and depth of penetration.

According to NASSCOM, domestic IT market (including hardware) reached US$ 24.3 billion in

FY 2008-09 as against US$ 23.1 billion in FY 2007-08, a growth of 5.3 per cent.

India Inc's demand for IT services and products has bolstered growth in the domestic sector

with deal sizes going up remarkably and contracts worth US$ 50 million-US$ 100 million up for

grabs.

The market for enterprise networking equipment in India is estimated to grow from US$ 1

billion in 2008 to US$ 1.7 billion by 2012, recording a compounded annual growth rate (CAGR)

of 15 per cent during this period, according to a study by Springboard Research.

Investments

• Infosys Technologies Ltd will invest US$ 70 million over the next three quarters of the

current financial year towards increasing its sales and marketing staff overseas, building

new capabilities and hiring local resources for its international centres.

• The Andhra Pradesh Government expects the IT-related SEZs and Software Technology

Parks of India (STPI) in the State to receive about US$ 3.27 billion investments in the next

five years.

• HCL Technologies has entered into a strategic partnership with South Africa’s UCS Group.

As part of the all-cash deal, HCL will acquire UCS’s enterprise solutions SAP practice

focused on the retail sector for US$ 7.7 million.

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Rural Penetration

According to a report of the Internet and Mobile Association of India (IAMAI), rural India has

3.3 million active internet users. Since rural India was mapped for the first time, the year-on-

year growth of internet users in rural India could not be estimated.

The research also notes there are 5.5 million people who claim to have used Internet at some

point in time.

Government Initiatives

• The government set up the National Taskforce on Information Technology and Software

Development with the objective of framing a long term National IT Policy for the country.

• Enactment of the Information Technology Act, which provides a legal framework to

facilitate electronic commerce and electronic transactions.

• The government-led National e-Governance Programme, has played an important role in

increasing internet penetration in rural India.

Road Ahead

The Indian information technology sector continues to be one of the sunshine sectors of the

Indian economy showing rapid growth and promise.

According to a report prepared by McKinsey for NASSCOM, the exports component of the

Indian industry is expected to reach US$ 175 billion in revenue by 2020. The domestic

component will contribute US$ 50 billion in revenue by 2020. Together, the export and

domestic markets are likely to bring in US$ 225 billion in revenue, as new opportunities

emerge in areas such as public sector and healthcare, and as geographies including BRIC and

Japan opt for greater outsourcing.

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___________________________________________________________

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation for

the purchase or sale of any financial instrument or as an official confirmation of any transaction.

The information contained herein is from publicly available data or other sources believed to be

reliable but we do not represent that it is accurate or complete and it should not be relied on as

such. Firstcall India Equity Advisors Pvt. Ltd. or any of its affiliates shall not be in any way

responsible for any loss or damage that may arise to any person from any inadvertent error in

the information contained in this report. This document is provide for assistance only and is not

intended to be and must not alone be taken as the basis for an investment decision.

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Firstcall India Equity Research: Email – [email protected]

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Wipro Ltd Sep09 Results Updated Detailed Report.im.sify.com/sifycmsimg/nov2009/Finance/14918943_Wipro_Sep09Results_Report.pdfWipro Limited is the first PCMM Level 5 and SEI CMM Level

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