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Result Review: Wipro

Result Review: Wipro
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First Published: Thu, Apr 23 2009. 10 38 AM IST

Updated: Thu, Apr 23 2009. 10 38 AM IST
Dollar revenues in IT services segment of Wipro declined by 4.9% q-o-q to $1,046 million. In constant currency, revenues stood at $1,058 million, marginally higher than management’s guidance.
The reported 4.9% de-growth in topline could be de-composed into:
1) A weaker-than-expected 6.3% volume decline
2) 1.1% negative impact of cross-currency movements
3) 1.8% growth from integration of CITOS
4) 0.7% positive impact from pricing improvement despite a 200bps offshore shift.
Excluding CITOS, the organic revenue growth was negative 6.7%. Sequential pricing improvement (in constant currency terms) both onsite and offshore came as a big positive surprise as the other large software companies have reported material deterioration in pricing.
Management attributed resilient pricing to revenue shift towards fixed price projects – 890bps over the past four quarters. IT products revenues grew 4% q-o-q while Consumer Care revenues declined 2% q-o-q in rupee terms in Q4 FY09.
Dollar revenues in Europe and Japan declined by 7% and 9% respectively. Amongst verticals, telecom and energy de-grew by 8.4% and 10.5% respectively while manufacturing and retail clocked better-than-company growth.
There was a sharp decline in revenues from ADM and product-engineering services at 11.5% and 14.8% respectively while company recorded strong growth in TIS and package implementation offerings.
In Q4 FY09, Wipro’s OPM improved by significant 220bps to 21.4%, contrary to market expectations of 100bps+ contraction.
The outperformance was driven by a surprisingly strong pricing performance and higher than anticipated offshore movement. Rupee depreciation also aided margin by 40bps.
Outlook and valuation
Management has guided for IT services revenues of $1,009-1,025mn implying a decline of 2-3.5% q-o-q and stable margins in Q1 FY10.
On pricing front, Wipro has expressed confidence about faring better than peers in FY10 with projected decline of 0-5%.
Given the macro headwinds, we doubt whether the company would be able to sustain a strong operational performance like Q4 FY09 in the coming few quarters.
We maintain SELL on Wipro with a target of Rs220 implying a downside of 22% from current levels.
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First Published: Thu, Apr 23 2009. 10 38 AM IST
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