Wipro's Q1FY14 numbers were in line with our and Streetís estimates as revenue at $1,588m grew a mere 0.2% quarter-on-quarter) and 1.2% in constant currency. The key positive is the Q2FY14 revenue growth guidance of 2.0-3.9%óthe highest over the past seven quarters. The enhanced guidance reflects the improved demand scenario, particularly in the traditional IT services of IMS (infrastructure management services) and ADM (application development and maintenance) .Also, the company is witnessing an uptick in discretionary spend, albeit in specific pockets. The management stated that deal closures have improved and so have win rates. We reiterate our thesis of an improvement in Wiproís margin as growth returns, led by a surge in utilisation and higher offshoring. We are revising up our FY15e EPS (earnings per share) by 3.9% due to change in INR/USD assumption from R53 to R56. Maintain Buy with revised TP (target price) of R460 (14x FY15e EPS).
* Revenue, at R97.3 bn rose 1.3% q-o-q and 6.9% y-o-y, and was below our R100.1 bn estimate. IT services revenue at $1,588m rose 0.2% q-o-q.
* Gross profit at R30.1 bn rose 3.5% q-o-q. Gross margin at 30.9% jumped 60bps q-o-q. While operating profit (Ebit) stood at R17.7 bn, Ebit (earnings before interest and taxes) margin at 18.1% surged 30bps q-o-q primarily due to currency benefit, which offset one-month wage hike impact.
*l Wiproís net margin, at 16.8%, rose 30bps q-o-q. Net profit stood at R16.3 bn, up 3.0% q-o-q. The company reported foreign exchange gain of R52m (R62m in Q4FY13).
* Q2FY14 guidance: For IT services, Wipro has given a guidance of $1,620-1,650m (implied growth of 2.0-4.0% q-o-q).
* IT products business revenue at R8.2 bn dipped a sharp 24.0% q-o-q largely driven by lower India revenues.
* Ebit stands at R131m, down 51.1% q-o-q. Ebit margin increased 10bps q-o-q to 2.5%.
* As for service line performance: Analytics and information management (AIM) posted good sequential growth of 6.5%, while technology infrastructure services (TIS) declined 0.9% q-o-q. Product engineering and mobility (PE&M), ADM declined 0.2% while BPO grew by 0.5%. Consulting too posted a growth of 3.5%.
* Wipro added 28 clients
during the quarter (52 in Q4FY13). Active client count stood at 946 versus 978 in the previous quarter.
* Vertical-wise performance: Financial services and energy & utilities (E&U) led growth during the quarter by reporting sequential growth of 0.8% and 3.7%, respectively.