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Wipro underwhelms St, lags peers again

Saturday, 20 April 2013 - 8:52am IST | Place: Mumbai | Agency: dna

After upbeat results from TCS and HCL Technologies, Wipro, India’s third-largest software firm, on Friday squared off the week, reporting results as disappointing as Infosys.

Not only did it fail to meet Street estimates, but also gave out a cautious sales guidance for the year, citing unclosed deals and a volatile currency environment.

Wipro reported a 16.73% increase in net profit to Rs 1,728.7 crore for the quarter ended March, riding on a 13% jump in consolidated revenues to Rs 9,613.1 crore.

For the full fiscal, net profit was up 19.07% at Rs 6,635.9 crore, while revenues rose 17% to Rs 37,685.1 crore.

“Wipro’s March’13 quarter performance missed expectations across both revenues and margins,” Manik Taneja of Emkay Global said in a note, post-results. “A 0.5% quarter-on-quarter dollar revenue growth to $1,585 million (against a 2.5% increase estimated by the brokerage) coupled with a 60 basis points (bps) sequential decline in IT Services margins to 20.2% (against an estimated 40bps improvement) drove the miss on operational performance as higher than expected other income drove the slight profit beat.”

The brokerage retained its ‘reduce’ rating on the stock with a revised target price of Rs 340 (vs Rs 390 earlier), pointing out that its earlier target price incorporated Rs 40/share value for the demerged non-IT business. “Wipro continues to remain the least preferred pick in the Tier I space for us.”

During the quarter, Wipro’s IT Services revenues rose 13% to Rs 8,554 crore, while net profit was up 10% to Rs 1,727 crore.

This was less than even the company’s own guidance.

Adding to the Street’s chagrin, Wipro management gave a disappointing sales guidance of $1.575-1.610 billion for the current quarter despite announcing the successful completion of its demerger from the diversified group, making Wipro a pure-play IT firm.

Unlike its peers, which are seeing an uptick in the banking, financial services and insurance (BFSI) space, Wipro continued to see a fall in its BFSI, telecom and media segment during the quarter. The management also reported seasonal softness in India and the Middle East.

“While uninspiring growth in volumes has kept the multiple for Wipro in check, we see some traction in revenues going forward as the ramp-ups in signed deals accelerate. Wipro’s recent announcement of de-merger of non-IT business is a positive, given that it will improve RoCE of the business and increase the focus on IT Services. We reckon frontline Indian IT companies would be better placed to sail through the near-term challenges. Niche IT/ITeS companies with strong business models are also likely to be better placed to face uncertainties in the near term,” brokerage Motilal Oswal said in a note.

Wipro’s IT services segment added 2,907 employees in the quarter, taking the total headcount to 1,45,812, and added 52 new customers.

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