Results in line; valuations expensive
Wipro Technologies Ltd’s Q1FY08 results were in line with our expectations, with the global IT revenue declining 1.1% QoQ to Rs30bn and net profit declining by 17.5% QoQ to Rs7.1bn. The company’s consolidated revenue declined 3.5% QoQ to Rs41.8bn.
We are increasing our FY08E and FY09E EPS estimates by 2.8% and 4.3% to Rs21.6 and Rs26.8 respectively, implying a two-year EPS CAGR of 15.7%. However, we haven’t taken into account revenue from Unza Holdings, the most recent acquisition by Wipro in the consumer care space.
Currently, the stock is quoting at FY08E and FY09E PER of 23.3x and 18.9x, which is at 6.4% and 12.4% discount to Infosys’ PER respectively. We believe that the discount is likely to be maintained, given lower growth estimates in Wipro and increasing contribution from other low margin and low PE businesses of Wipro. We therefore downgrade Wipro from ‘Buy’ to ‘Reduce’ with a target price of Rs493, which is 22.8x and 18.4x FY08E and FY09E earnings.
WIPRO Q1FY08 result update (Reduce)