ICICIdirect.com is bullish on Wipro and has recommended buy rating on the stock with a target of Rs 600 in its July 25, 2014 research report.
"Wipro reported an in line quarter with IT services constant currency (CC) revenues growing 0.3% QoQ and $ revenue growing 1.2% QoQ to $1,740.2 million ($1,737.6 million, 1% QoQ growth estimate). IT services EBIT margins declined 170 bps QoQ to 22.8%, below our 23.5% and 103 bps decline estimate, led by wage hikes. Reported PAT of Rs 2,103 crore was also in line with our Rs 2,100 crore estimate. Wipro gave Q2FY15E revenue guidance of $1,770 million to $1,810 million (1.7% to 4% QoQ growth)."
"Wipro's Q2 guidance including Atco's contribution (undisclosed) appears a tad softer than anticipated and can be attributed to continued weakness in a top 10 US retail customer. As for Q1, though revenue growth was inline with guidance and our estimate, softness was led by unexpected softness in the same retail customer vs. India, envisaged at the start of Q1. Finally, though Q1 revenues grew 9.6% YoY, highest since Q4FY12, and the midpoint of Q2 guidance implies (YoY growth of 10%) modest acceleration, growth could still be lower than industry average. Wipro IT services EBIT margins declined 170 bps QoQ and improved 287 bps YoY to 22.8% led by impact of wage hikes (one month) and restricted stock unit grants. Current margin profile is higher than its FY09-14 average of 22% and represents improvement of 160 bps in the same period (22.6% in FY14 vs. 21% in FY09) primarily led by automation and rupee (utilisation is up 460 bps to 76% in Q1FY15 vs. 71.4% in Q1FY14). However, sequentially it declined higher than expected. We expect FY15E margins to improve 10 bps primarily led by efficiency while Q2 margins may be impacted led by wage hikes and Atco-related transition cost."
"We estimate Wipro will report revenue, EPS CAGR of 8%, 11% during FY14-16E (average 22.9% IT services EBIT margins in FY15-16E), vs. 14% each, reported during FY09-14 (average 21.9% margins) led by large deal ramp ups, client mining initiatives and pick-up in discretionary spending. We continue to value Wipro at Rs 600 (15.5x our FY16E EPS estimate of Rs 38.8) and maintain our BUY recommendation," says ICICIdirect.com research report.
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