Wipro: Margin surprise

Revenue growth was below most peers’, but margins held up.

Wipro reported a 6 per cent rise in gross revenues for 2009-10 at Rs 27,124 crore. Revenues during the fourth quarter ended March 2010 rang in at Rs 6,983 crore, up 8 per cent year-on-year (y-o-y), but flat sequentially. In terms of revenues, the company has underperformed its peers, Infosys and HCL Technologies, but is at par with TCS.

In constant currency terms, the information technology (IT) services revenues grew 7.8 per cent y-o-y and 4.7 per cent sequentially to $1.18 billion on 4.1 per cent volume growth. Sequential revenue growth in the fourth quarter of 2009-10 for the financial services vertical came in at 5 per cent, while technology and telecom verticals saw traction in revenue growth (6 per cent and 7 per cent, respectively). Healthcare segment revenues surged 9 per cent, while manufacturing and technology, media and telecom verticals revenues saw a muted growth of about 1.5 per cent collectively.

Operating profits surged 14 per cent y-o-y to Rs 6,423 crore in 2009-10 and were 16 per cent higher (y-o-y) at Rs 1,588 crore in the March quarter. Earnings before interest, tax, depreciation and amortisation (Ebitda) margins surged 170 basis points y-o-y. “The margin increase was a little surprising, as it happened in the backdrop of rupee appreciation and additional headwinds from wage hikes,” states Ambit Research.

Wipro instituted wage hikes for offshore (8-10 per cent) and onsite (2-3 per cent) employees in the fourth quarter. However, this did not dent margins much as it was reflected for a part of the quarter. The company is unlikely to do another round of hikes, but will react to market requirements.

Going ahead, the management suggests unless there are huge currency swings, operating margins will stay within a narrow range to these numbers. For the first quarter of FY11, Wipro pegs the revenue at $1,190-1,215 million, up 2.1-4.2 per cent sequentially.

The stock surged after the announcements of results and 2:3 bonus issue, but ended down 1.42 per cent on Friday. It recovered some lost ground on Monday, ending a per cent higher at Rs 699.10 and trades at about 20x consensus analyst FY11 earnings per share estimates.

With contributions from  Priya Kansara Pandya & Sunaina Vasudev