Wednesday, October 27, 2010

Wipro - Buy Sell or Hold ?

Read what leading brokerages recommend on Wipro

Kotak Securities has maintained ‘Buy’ recommendation on Wipro even as the company reported disappointing quarterly results. The brokerage has a price target of Rs 521 on the stock.

Wipro's 2QFY11 results were disappointing. The volume growth at about 6.5% was lower than all large peers, though being decent in absolute terms. However, margins in IT services & products business dipped significantly due to RSU expenses, promotions and currency volatility.

“We modify earnings modestly to account for the Q2FY11 results- expect FY11E EPS at Rs.22.1 (Rs.22.4). Our FY12 EPS estimate, which we now introduce, stands at Rs 24.3, impacted by higher tax rates. Maintain BUY rating with a price target of Rs 521 based on FY12E earnings (Rs.489 earlier based on FY11E).

We maintain BUY but, prefer TCS and Infosys over Wipro and our exit multiple for Wipro is at a discount to peers. Lower success in driving incremental growth from large accounts, relatively lower margins and a more subdued revenue growth profile warrant the same, in our opinion

IIFL has maintained ‘market performer rating on Wipro after the IT major announced disappointing second quarter results.

“More than 100bps decline (expected 60 bps) in operating margin and net profit de-growth by 1.9% (expected 4.2% growth) came as negative surprises in this quarter. While employee retention measures (promotion and stock units) impacted margin by 130 bps, there was an unanticipated currency impact of 120 bps due to unfavorable hedges.

The company was able to offset the impact of increased sales & marketing expenses by productivity and operational levers. The de-growth in bottomline was driven by forex loss of Rs 414 mn (as opposed to a gain of Rs 458 mn in last quarter).

Management expects to recover the margin fall over the next few quarters through steady volume growth, price uptick (expected from end of year) and utilization among other operating levers

Emkay Global Financial Services has retained ‘Reduce’ rating on Wipro after the company missed street expectations for the quarter ended September. However, the brokerage has maintained its price target of Rs 420 on the stock.

“We tweak our earnings model for marginally higher US$ revenue estimates (note that we build in ~19%/18.4% YoY revenue growth for FY11/12 V/s 28%/23% for Infosys and 29%/21% for TCS) and reset currency assumptions resulting in marginal 2%/1% cut in our earnings estimates to Rs 21.1 and Rs 23.1 for FY11E/FY12E.

Wipro’s recent underperformance V/s peers appears justified in the back drop of financial performance trailing peers. Retain REDUCE with an unchanged target price of Rs 420,” the report said.

Edelweiss has downgraded Wipro to ‘Hold’ with ‘Sector Underperformer’ rating after the company’s second quarterly results. Wipro’s Q2FY11 revenues and net profits, though in line with estimates, lagged growth reported by large peers. Global IT revenues, at $1,273, grew a modest 5.7% Q-o-Q, while operating margins declined 240 bps to 22.2%.

Promotions, RSU charges and foreign currency impacted margin performance for the quarter. Net profit was reported at INR 12.85bn, down 2.5% Q-o-Q and up 9.8% Y-o-Y. Further, the next quarter (Q3FY11) constant currency revenue growth guidance, at 3.5-5.5%, seems a tad lower.

“Wipro is currently trading at P/E of 20.6x and 17.7x FY11E and FY12E earnings. This is at 18% discount to TCS’ valuations, which we see continuing given Wipro’s moderate growth outlook and slow pace of margin improvement, going forward. We, thus, downgrade the stock to ‘HOLD’ from ‘BUY’ and rate it ‘Sector Underperformer’ on relative basis,” the report said.

Sharekhan has maintained ‘Buy’ recommendation on Wipro despite the IT major’s below expectations second quarter results. The brokerage has also maintained price target of Rs 528 on the stock.

“For the quarter gone by, Wipro’s performance was below our expectation on the IT services volume front and the margin front.

In the last one year, Wipro has languished on the volume growth front as compared to its peers as the company’s key industry verticals like technology, manufacturing and telecom are still not entirely out of the woods and are still lagging behind the strong growth witnessed in the financial services sector where Wipro has lower contribution to revenues (27%), as compared to its peers.

As the demand environment becomes broader going forward, we expect Wipro to catch up on the volume front in the coming quarters

Credit Suisse on Monday downgraded India's third-largest outsourcer, Wipro, to neutral from outperform and cut its target price to Rs 475 from Rs 489 earlier.

"We were pretty surprised by the weak revenues, as peers have been rather bullish," Credit Suisse said in a note. It said Wipro' performance has lagged Infosys in topline growth both in the near term and also in the longer term, despite nearly a dozen acquisitions by the company in the past seven years.

Last week, Wipro missed quarterly profit estimates as higher wages cut margins, underperforming rivals and sending its shares down

Our Recommendation :

Use rallies to exit the counter and buy TCS for a target price of 1250

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