RK Global Shares & Securities has re-iterated 'Buy' on Wipro with (Q,N,C,F)* a price target of Rs 413 as compared to current market price (CMP) Rs 358 in its report dated Nov. 19, 2012. The broking firm gave following investment rationale on the stock:
Wipro posted results, 7% lower than our estimates. The company's revenue were flat on QoQ but grew by 17% YoY in Q2FY'13 to Rs 1,05,840 million on the back of muted volume growth despite the pricing improvement. Whereas the onsite price realization was up 1.9% and offshore realization was up by 1.5% but the volume growth is mere 0.2% on QoQ basis. The IT services (79% of sales) grew by 0.7% QoQ to Rs 83,730 million in rupee terms and grew by 1.7% to USD 1,541 million in dollar terms. The Non-GAAP constant currency IT Services Revenue in dollar terms was USD 1,535 million, within the guidance range of USD 1,520 million to USD 1,550 million. Improvement Foreseen.
The financial services industry, especially banking, is in the midst of massive upgrade of existing IT set ups to cope with future regulatory and customer-driven online and mobile services. The management has guided that the financial services industry, especially banking, is in the midst of massive upgrade of existing IT set ups to cope with future regulatory and customer-driven online and mobile services. The company has guided towards a stronger Q3FY'13 performance with IT services USD revenue growth expected at 1.6% (USD 1,560 million) to 3.6% (USD1,590 million) against Q2 range of 0.34% to 2.32%.
However, we do not feel too optimistic on this guidance as we believe that all the three pillars (volume, pricing [pricing saw a good uptick] & utilization) aren't mature yet, but will likely take 2Qs more to enter the growth arena. We have not changed our estimation as we would like to one Q more for any such estimation change for FY'13E/14E. However, if we do it would be solely on the basis of INR appreciation and S&M investments.
At CMP, the stock trades at a P/E of 11.2x and P/BV of 2.8x , using FY'13E EPS and BVPS & P/E of 9.2x and P/BV of 2.2x FY'14E EPS and BVPS. We re-iterate a BUY on Wipro stock with a revamped TP of Rs 413 (15% potential return from CMP). Our TP is arrived at, by using P/E of 12.9x and 3.2x of FY'13E EPS and BVPS of Rs 32 and Rs 127 respectively and P/E of 10.6x and 2.3x of FY'14E EPS of Rs 39 and BVPS of Rs 157.
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