For 1QFY2017, Wipro posted a 2.6% sequential growth in its IT services revenues
to US$1,930.8mn (V/s our expectation of US$1,925mn), while in constant
currency (CC) terms the growth was of 2.2% qoq. In terms of geography, the
growth was driven by the USA, which contributed ~53.5% of sales V/s 52.7% in
4QFY2016. On the operating front, EBIT margins came in at 16.1% (V/s 17.1%
expected), a dip of 210bp qoq. The PAT for the quarter, at Rs2,052cr, came in
lower than our expectation of Rs2,174cr, and declined by 8.2% on a sequential
basis. The company has given a revenue guidance of US$1,901-1,939mn for
2QFY2017, which translates into a qoq CC growth of 0%-1.0%. We recommend
an Accumulate on the stock.
Quarterly highlights: For 1QFY2017, the company posted a 2.6% sequential
growth in its IT services revenues to US$1,930.8mn (V/s our expectation of
US$1,925mn), while in constant currency (CC) terms the growth was of 2.2%
qoq. In terms of geography, the growth was driven by the USA, which contributed
~53.5% of sales V/s 52.7% in 4QFY2016. In terms of industries, growth was led
by Healthcare and Life Sciences & Services which contributed 15.3% of sales V/s
12.0% in 4QFY2016. On the operating front, the EBIT margin came in at 16.1%
(V/s 17.1% expected), a dip of 210bp qoq. Consequently, the PAT came in at
`2,059cr (V/s `2,174cr expected), posting a qoq de-growth of 8.2%.
Outlook and valuation: The Management has set a target of US$15bn of revenue
and an EBIT margin of 23% by 2020. The company achieving the revenue target
would imply a CAGR of 20% in sales over the next four years. However the near term
guidance suggests a moderate organic growth. We expect USD and INR revenue
CAGR for IT services to be at 8.4% and 7.9%, respectively, over FY2016-18E. We
recommend an Accumulate on the stock, given the valuations.
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