Wipro recorded 5.6% quarter-on-quarter (q-o-q) growth in topline in Q1FY2009, driven primarily by impressive pricing-related increases and rupee depreciation.
In terms of billing rates, offshore rates clocked a 3% increase, while onsite rates grew by 3.9%.
EBITDA margins surged 39 bps despite the restricted stock unit (RSU) grants made. This was on account of the improved pricing achieved, higher utilization rates as also benefits gained on account of the currency depreciation.
In dollar terms, the company hit revenues of $1,067.5 million in its IT Services Business, implying q-o-q growth of 3.5%.
In terms of the previous segmental break-up, while the erstwhile Global IT Services is not reported separately, management has indicated that this segment touched $996mn in revenues this quarter, implying around 4% q-o-q growth.
The IT Products Business de-grew by 7.8% q-o-q, which was along expected lines, as this tends to be a seasonally weak quarter for this business.
Valuation and concerns
Going forward, over FY2008-10E, we expect Wipro to record a 24.2% CAGR growth in topline, while bottomline is expected to record a 19% CAGR growth in the mentioned period.
At the CMP, the stock is trading at 11.5x FY2010E EPS. These valuations are quite reasonable and point to relatively low downside risk.
However, the business outlook remains cautious, given the current global economic uncertainty. The company’s Q2FY2009 guidance for the IT Services Business is a clear reflection of this underlying caution in the business environment.
Further, with growth also expected to be back-ended, any delay in a recovery in the US economy could pose a risk to this assumption. While we maintain a BUY on the stock, with a target price of Rs477, our top picks in the sector remain Infosys Technologies and Satyam Computer.