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IT servicesí Ebit margin increase of 50 bps was a positive surprise in Wipro's 3QFY14 numbers. Revenue growth and guidance were broadly in line with our estimates. Results of the last two quarters and guidance indicate operational stability that was missing over the past three years. Wipro missed out on seasonally strong periods in the past due to internal factors and as a result struggled to catch up on growth. There are no such constraints now; hence 1HFY15 will be the acid test of the turnaround strategy.
Three years of turnaround efforts appear to be collectively yielding results in focus areas. These results do not indicate Wipro will start growing in line with the best but they do enough to indicate operational stability has returned, which was sorely missing earlier. This shows in the quarterly performance; revenues grew 2.9% to US$1,678 mn, Ebit margin increased 50 bps to 23%, largely due to productivity gains. Guidance for the next quarter is steady as well at 2-4% on a reported basis and 1.4-3.4% excluding the Opus acquisition. Net profit of R20.15 bn was 1% ahead of our estimate.
We work with a base assumption of acceleration growth (12.8% for FY2015 versus 6.5% in FY2014) though still lower than the leaders.
We raise FY2015 revenue growth estimate to 12.8% (including Opus), consolidated Ebit margin assumption by 70 bps and EPS by 3.8% to R37.4. We maintain our add rating with target price of Rs 610 (Rs 590 earlier) valuing the company at ~16X FY2015E earnings, a 10-20% discount to Infosys and TCS.
Kotak Institutional Equities