Ashish Chopra ([email protected]); +91 22 3982 5424 Sagar Lele ([email protected]); +91 22 3982 5585
17 December 2015
Update | Sector: Technology
Wipro CMP: INR555 TP: INR600 (+8%) Neutral
Investors are advised to refer through important disclosures made at the last page of the Research Report. Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Designing Digital prowess
Takeaways from our meeting with Mr Rajan Kohli – Head, Wipro Digital
We met Mr Rajan Kohli, who heads WPRO’s Digital initiatives, to understand the addressable opportunity for WPRO, its strategic approach and capabilities in the segment.
While Digital is a big opportunity for service providers, success in Digital is a function of combining capabilities in: [1] strategic and technical consulting, [2] designing, and [3] agile and iterative development.
WPRO’s holistic approach in Digital is substantiated by acquisition of DesignIt, which helps complete the “Imagination to Execution” loop, as WPRO’s technical capabilities drive implementation of the ideas and strategy laid out by DesignIt.
If we include Digital-related (which are not accounted in Wipro Digital), the larger piece contributes ~14% to WPRO’s revenues today
While the scale may be small today, its capabilities harbor potential to drive revival in growth for the company in due course.
Raison d’etre: Three-pronged need for a separate entity The carving out of Wipro Digital as a separate entity is a function of three main factors: 1. In terms of talent, Digital projects require engineers capable of developing
technology at the front end as well as backend (or in other words, full stack developers). Such personnel have strong algorithmic capabilities in addition to knowledge of multiple open source technologies, and have to be sourced amidst competition from start-ups.
2. Digital requires selling to stakeholders beyond the CIO. WPRO’s Design team (courtesy DesignIt acquisition) and Strategy team bring on the table the skill sets that enable foot-in-the-doors of CXOs other than the CIO.
3. Digital is more than a technology, and requires a change in the organizational DNA. At the very core, it needs the teams to be agile. Delivery to clients happens in one-to-two week stints through iterative models using agile / dev-ops based methodologies.
What does Wipro Digital address? According to WPRO, ~80% of the clients’ incremental IT budgets are being
allocated towards Digital. This is coming at the cost of (spending cuts in) legacy areas. Through Wipro Digital, the company’s endeavor is to grow this 80% incremental piece faster than the decline in traditional services. Wipro Digital addresses this incremental / new areas of client spending, which can be classified as follows: 1. Spends that fall under the Chief Marketing Officer (CMO) – these are
broadly categorized into: User Experience – this is an area where multiple technology companies
have built capabilities, from start-ups to large organizations, and
BSE Sensex S&P CNX 25,494 7,751
Stock Info Bloomberg WPRO IN
Equity Shares (m) 2,462.4 M.Cap.(INR b)/(USD b) 1,423/20.6 52-Week Range (INR) 677/513
1, 6, 12 Rel. Per (%) 1/6/8 AvgVal (INR m) 1034 Free float (%) 26.6
Financial Snapshot (INR Billion) Y/E Mar 2015 2016E 2017E Sales 469.5 513.6 585.7 EBITDA 104.6 114.8 135.3 PAT 86.6 93.0 105.5 EPS (INR) 35.1 37.8 42.8 EPS Gr. (%) 10.9 7.6 13.5 BV/Sh. (INR) 166.1 181.7 208.9 RoE (%) 23.0 21.8 22.0 RoCE (%) 20.2 19.0 20.4 P/E (x) 16.5 15.3 13.5 EV/EBITDA (x) 12.2 10.9 9.0
Wipro
17 December 2015 2
Campaign Management – this is a totally new area where Accenture has built capabilities through multiple acquisitions (avVenta and AD.Dialeto)
2. Internet of Things, which today holds immense promise for Enterprises to lower operational expenses, generate new revenue streams, and provide desired customer experience.
3. Higher level Analytics with cognitive and prescriptive capabilities, which are much more complex than Descriptive and Diagnostic Analytics.
4. Cloud – which is simplifying the real estate for customers. Cloud remains a double-edged sword, as revenue pie for service providers will reduce. That said, there will be a lot of spending and business opportunity in cloud migration over the next five years.
Wipro’s Digitization offering is a broader category and spans beyond Wipro Digital. It includes work that falls in four broad categories: 1. Digitization process of clients starts with Re-imagination of existing
processes / strategies / technology landscape. In the case of customers who are well entrenched as far as traditional IT Services are concerned, proposition at this layer can facilitate opportunity to gain incremental share of the budgets.
2. This is followed by Application rationalization – modifying the existing codes to enable them in the new environments. This can be handled by separate set of vendors, and hence, acts as the second entry point in the clients’ Digital cycles – although with relatively lower value add.
3. Digitization also involves straight through processing and Cognitive intelligence – which deals with providing the next level of efficiencies by taking out manual processes wherever feasible.
4. Lastly, putting applications / systems of the cloud and offering flexibility of use-basis payments are other components of the journey.
Exhibit 1: Elements of Digitization
Source: Company, MOSL
If we include Digital-related services (which are not accounted in Wipro Digital)
like Ecommerce work in Retail, High performance computing, Business Intelligence, Business process management and customer process transformation, the larger piece contributes ~14% to WPRO’s revenues today.
Re-imagine process / business / technology
Application rationalization
Cognitive intelligence
Cloud migration & flexi-pricing models
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17 December 2015 3
What is the organization structure of Wipro Digital? Given the small size of team as on date, the structure will evolve gradually at
Wipro Digital, but it will definitely not be a pyramid structure. The structure is relatively flat.
Sales organization: Digital from customer’s perspective can be classified into three segments, and the sales organization at Wipro is accordingly aligned: 1. Digital for Business: This is where the stakeholders are the likes of CEOs,
CMOs, etc, and re-imagination business strategy is carried out by them. 2. Digital for Technology: Where Wipro Digital would extend capabilities in
Digital architecture, cloud, dev-ops, agile development, etc. 3. Digital for Operations: Which caters to a COO, for example, and helps drive
efficiencies within the business by using Digital capabilities. What differentiates Wipro Digital from peers? The unique capability that WPRO Digital now possesses compared to its peers is
the design side of Digital – thanks to the acquisition of DesignIt. DesignIt empowers WPRO with the ability to design experiences and consequently business models for end customers. Only Accenture boasts of a similar capability through its acquisition of Fjord. Design capabilities help the customers define end-user experiences and their product journey.
Strategic designers are a very different talent breed that cannot be trained. The segment is all about innovation, which goes towards generating ideas to change the business, and the resulting design is brought to life by technology – which is where WPRO comes in.
WPRO now has marquee references through DeisgnIt of delivering cutting edge design solutions. It is already in the process of cross-selling to its clients. Early experience suggests potential of not only successful cross-sell but also significant downstream opportunity arising out of the same.
CUSTOMER PROFILE SHOWCASED ON DEISGNIT’S WEBSITE
Source: DesignIT
Wipro
17 December 2015 4
What are the new opportunities spawned by Digital for Wipro? Spend in the Business segment of Digital is significantly incremental, expanding
the addressable market for WPRO. WPRO’s readiness here is absolute, given two key factors: 1. Its ability to address the urgency and criticality of Digital spend by the CXOs 2. Its relevance in the customers’ “Imagination to Execution” cycle by bringing
“Experience” capabilities in conjunction with technology capabilities Security spend is also seeing a significant increase. Cloud adoption and size of
database/transactions as well as IOT are big drivers for the same. WPRO claims to have among the strongest capabilities in Security, and its end-to-end Security and Compliance Solution has enabled over 300 organizations across the globe.
Exhibit 2: DesignIt helps complete the “Imagination to Execution” cycle by focusing on all bits that matter
What is the biggest challenge in Digital? One of the key challenges is talent acquisition. Talent is not only restricted to
domain and design capabilities, but also the relatively adept Engineering resources with a programming / algorithmic bent of mind; and not simply be qualified in certain languages. Also, those who can deliver the full stack (front end and backend legacy) are most useful. However, within India, most of such talent is getting cornered by start-ups and organizations like Google and FB. Training is a long-term solution that WPRO is actively driving within the
organization. Another route taken by WPRO is hiring selectively from smaller campuses. Thirdly, for domain / design capabilities, WPRO has also been hiring from
end enterprises. Higher qualification programming engineers are available in US / UK and that is
also part of the reason why the nature of Digital work will be onsite heavy. WPRO has changed the incentive structure for its technology stars as well – to disproportionately reward technical talent irrespective of seniority and designation. WPRO had created a 'fellow' program, offering privileges usually given to vice president level executives to the selected few, who will be part of Wipro's Distinguished Members of Technical Staff.
interaction
insight integration
STRATEGY
DESIGN
TECHNOLOGY
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17 December 2015 5
How is Wipro addressing the Digital talent situation? Competence in Digital requires technology capabilities that are significantly
different from those that go into serving customers’ needs in traditional IT Services. The full-stack developers that are needed in Digital are typically employed by start-ups. These employees know enough open source tools and have an algorithmic bent of mind to keep pace with the changing landscape.
WPRO conducts a codility test in line with practices followed across the identify globe to hire such developers. Even internally, WPRO has used this test to select high potential talent that is undergoing rigorous three-month training process to get Digital-ready. Apart from internal training, WPRO is also hiring in the market, and will start visiting campuses next year.
The engineers in WPRO digital have a different career trajectory – instead of moving on to become managers, employees are rewarded for their seniority while remaining technical developers even after 5-7 years of coding.
Where is the client skew – old or new? There are obvious opportunities where there is a significant trust that existing
customers have and want help with newer opportunities in digital. The basic premise of these engagements from WPRO’s perspective is helping them think through in a disruptive manner.
However, there is limited benefit in knowing the legacy when it comes to Digital. Many a time, clients are using Digital to identify newer suppliers who are willing to think disruptively for the benefit of the client and are not tied to legacy revenue streams, which may see cannibalization as a consequence.
Certain businesses have higher spend in Digital than the others. Financial Services, Retail & CPG, Media & Telecom are leading the way. Now WPRO is starting to see Healthcare and Life Sciences adopting Digital too. With IoT, even Manufacturing is coming to the fore.
How do some of the operating metrics stack up in Digital? Revenue model is largely T&M still, given the non-specific nature of
requirements. The velocity of time-to-market is more important than the certainty of delivery. This has also prompted WPRO to change the quality assurance processes to levels that understand the Digital delivery better.
Billing rates in Digital are higher. That gets compounded with onsite centricity of the projects. This skew in favor of onsite is likely to remain over the foreseeable future.
OUR VIEW: In Summary – How is Wipro positioned? WPRO ran us through some of the successful case studies of both Wipro Digital
and its acquired entity, DesignIt. It showcased how a number of marquee customers are participating in their Digital journey with WPRO.
While Wipro Digital’s scale may not move the needle on revenue growth yet, its capabilities harbor potential to drive revival in growth for the company in due course. As spending in some of these areas becomes mainstream, the company appears to be well placed to capitalize on the same.
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17 December 2015 6
Examples of engagements won by Wipro in Digital Chosen by Chelsea Football Club as its official digital and IT partner. WPRO will
support Chelsea FC in its transformation by bringing together strategy, design and technology.
Awarded a strategic Application Development and Management contract by Allied Irish Bank to manage and transform their Digital and Online Channels, Data and Enterprise support services & Applications estate over a period of five years.
Selected by a North American bank to redesign and implement a transformational B2B payment portal.
Appointed by Lawn Tennis Association of the UK as their official Digital Technology Services Partner.
DesignIt wins: Scandinavian Airlines has selected Designit to help the airline rethink and
redesign the future customer experience for its large base of over 4 million frequent flyers.
Appointed by a major European automotive brand to rethink and redesign its entire service experience for customers that visit the brand’s dealerships for maintenance and service work.
Appointed by a global Pharmaceutical brand to work on reimagining and improving its innovation process and to rethink the business offering beyond the core pharmaceutical products of today and drive the digital business transformation of tomorrow.
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17 December 2015 7
Valuation and view WPRO has been actively investing over the last few years to revive its growth
closer to industry average. Lower utilization, higher S&M, and investments in capability building absorbed more than the tailwind from currency, and were potential levers as revenue growth came through. But growth has underperformed peers. As a result, since 4QFY13, even though utilization is up ~550bp and INR has depreciated 17%; EBIT margin in IT Services at 20.7% is only 70bp higher.
Growth at WPRO has been driven by select segments – Healthcare and Energy & Utilities among verticals and IMS among services. Healthcare grew around 20% CC in FY15 and Energy & Utilities grew 10.2% CC, despite pressure in the vertical in the last two quarters. IMS, even after factoring the impact of cross currencies, grew 19%.
WPRO’s broad-based traction of 2QFY16 was encouraging. With only Energy & Utilities sluggish, there is visibility of that turning around in CY16, as the deals won in vendor consolidation exercise ramp up. On the flip side, its guidance of 5.1-7.2% YoY CC in 3Q implies loss of momentum from 8.3-8.4% of the last three quarters. That limits conviction around growth recovery to industry average in the near term. Consequently, the relatively low valuation multiple may not re-rate anytime soon.
The stock trades at 15.3x FY16E and 13.5x FY17E EPS. WPRO’s valuation discount to peers like TCS and INFO suggests attractive upside potential in the event of growth revival. There have been flashes of broad-based traction at WPRO, but guidance suggests that consistency in the same may yet take some time. We see a combination of Digital and revival in Energy as potential turnaround agents for the company. Our target price of INR600 discounts FY17E EPS by 14x. Maintain Neutral. We would be buyers into: [1] further price correction, and [2] signs of revenue momentum from ramp-ups beginning January 2016.
Key triggers Material uptick in YoY CC growth guidance for 4QFY16 Broad-basing of growth across verticals Uptick in margins from automation and productivity initiatives
Key risk factors Prolonged weakness in Energy & Utilities vertical Rapid appreciation in INR Lopsided growth from few segments
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17 December 2015 8
Exhibit 3: 1-year forward PE band
Exhibit 4: 1-year forward PB band
Exhibit 5: Comparative valuation Company MCap Rating TP Upside EPS (INR) P/E (x) RoE (%) FY15-17E CAGR (%) USDb (INR) (%) FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E USD rev. EPS TCS 70.7 Neutral 2550 6.3 110.8 123.7 141.8 21.7 19.4 16.9 38.5 38.7 36.5 11.2 13.1 Infosys 37.6 Buy 1225 11.9 53.9 57.3 67.6 20.3 19.1 16.2 26.0 24.0 25.0 10.3 12.0 Wipro 20.6 Neutral 600 8.1 35.1 37.8 42.8 16.5 15.3 13.5 23.0 21.8 22.0 7.5 10.5 HCL Tech 18.0 Buy 1000 17.6 50.4 53.2 62.5 16.9 16.0 13.6 31.7 28.0 27.8 12.8 11.4 TechM 7.5 Neutral 570 8.6 29.6 33.1 40.5 17.7 15.8 13.0 24.5 22.1 22.9 13.1 17.0 Cognizant 37.0 Not Rated
2.3 2.7 3.1 25.8 22.8 19.3 20.7 19.1 18.8 18.2 15.5
Source: Company, MOSL
13.3
25.1
15.7
15.4
6.0 4
11
18
25
32
Dec-
05
Mar
-07
Jun-
08
Sep-
09
Dec-
10
Mar
-12
Jun-
13
Sep-
14
Dec-
15
PE (x) Peak(x) Avg(x)Median(x) Min(x)
2.8
7.0
3.6
3.4 1.4
0.5
2.5
4.5
6.5
8.5
Dec-
05
Mar
-07
Jun-
08
Sep-
09
Dec-
10
Mar
-12
Jun-
13
Sep-
14
Dec-
15
PB (x) Peak(x) Avg(x)Median(x) Min(x)
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17 December 2015 9
Story in charts
Exhibit 6: Growth guidance not picking up materially…
Source: Company, MOSL
Exhibit 7: …limiting confidence of growth closer to industry average
Source: Company, MOSL
Exhibit 8: Utilization fell during the quarter
Source: Company, MOSL
Exhibit 9: S&M spend acting as a lever (indexed at 100)
Source: Company, MOSL
Exhibit 10: Lever of FPP continues to play…
Source: Company, MOSL
Exhibit 11: …and gradual improvement in offshore proportion is a potential lever
Source: Company, MOSL
1.0 1.2
2.2 1.8
0.6
3.0 2.7
3.0
0.9
2.9 3.0
2.0
0.3
2.5
1.5
1QFY
13
2QFY
13
3QFY
13
4QFY
13
1QFY
14
2QFY
14
3QFY
14
4QFY
14
1QFY
15
2QFY
15
3QFY
15
4QFY
15
1QFY
16
2QFY
16
3QFY
16E
Midpoint of QoQ CC growth guidance (%)
5,221 5,921 6,218 6,618 7,082 7,426 8,183
18.9
13.4
5.0 6.4 7.0
4.9
10.2
FY11
FY12
FY13
FY14
FY15
FY16
E
FY17
E
Revenue (USD m) Grwoth (%)
76.9
76
.1
73.5
74
.1
75.5
73
.7
71.7
71
.7
71.4
73
.0
72.9
74
.9
76.0
77
.5
75.9
78
.0
79.4
77
.2
81.0
80
.7
77.5
76
.1
77.9
77
.9
74.8
74
.6
73.3
74
.3
74.3
76
.5
77.9
79
.4
78.8
80
.5
81.9
82
.3
1QFY
122Q
FY12
3QFY
124Q
FY12
1QFY
132Q
FY13
3QFY
134Q
FY13
1QFY
142Q
FY14
3QFY
144Q
FY14
1QFY
152Q
FY15
3QFY
154Q
FY15
1QFY
162Q
FY16
Utilization % (incl. trainees) Utilization % (excl. trainees)
100
120
140
160
1801Q
FY11
2QFY
113Q
FY11
4QFY
111Q
FY12
2QFY
123Q
FY12
4QFY
121Q
FY13
2QFY
133Q
FY13
4QFY
131Q
FY14
2QFY
143Q
FY14
4QFY
141Q
FY15
2QFY
15
S&M (IT Serv) USD revenues
45.6
45.8
46.2
48.1
47.4
48.2
50.6
51.3
52.1
53.1
55.1
55.5
54.5
53.4
1QFY
13
2QFY
13
3QFY
13
4QFY
13
1QFY
14
2QFY
14
3QFY
14
4QFY
14
1QFY
15
2QFY
15
3QFY
15
4QFY
15
1QFY
16
2QFY
16
Revenue proportion fron Fixed price contracts (%)
46
53
49
45
48
Wipro TCS Infosys HCL Tech(last
reported)
TechMahindra
Revenue proportion from offshore (%)
Wipro
17 December 2015 10
Exhibit 12: Operating metrics
3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16
Services Composition (%) IMS 24.9 25.0 25.5 27.2 27.7 27.9 28.0 28.0
BPO 8.7 9.5 9.7 9.2 9.5 9.4 9.3 9.8 Product Engg and Mobility 7.6 7.6 6.9 7.0 7.1 7.6 7.7 7.9 Wipro Analytics
7.1 7.2 7.0 7.1 7.5 7.5
Application Services
50.8 49.4 48.7 48.0 47.5 46.8 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 R&D 10.1 9.8 9.5 9.7 9.8 10.2 10.3 10.5 Consulting 2.4 2.2 2.0 2.0 1.9 1.8 1.7 1.9 Verticals (%)
Global Media & Telecom 13.7 13.9 14.3 13.9 13.8 13.5 13.2 13.4 Finance Solutions 26.4 26.8 26.7 26.0 25.7 26.5 26.8 26.7 Manufacturing & Hitech 18.6 18.0 18.2 18.2 18.3 18.3 18.6 18.7 Healthcare Lifescience 10.6 10.6 10.8 11.2 11.7 11.7 11.2 11.4 Retail & Transportation 14.6 14.5 14.0 13.9 14.1 14.5 15.0 15.1 Energy, Natural Resources & Utilities 16.1 16.2 16.0 16.8 16.4 15.5 15.2 14.7 Geography (%)
Americas 49.9 50.0 49.8 51.0 51.4 51.7 52.5 53.0 Europe 29.6 30.0 29.6 27.8 27.6 26.3 25.6 25.2 India & Middle East business 8.5 8.8 9.1 9.2 9.6 10.7 10.6 10.6 APAC and Other Emerging Markets 12.0 11.2 11.5 12.0 11.4 11.3 11.3 11.2 Customer size distribution (TTM)
> $100M 11 10 10 10 10 11 10 10 > $75M 15 14 14 15 16 15 17 17 > $50M 28 29 29 30 31 31 30 31 > $20M 80 82 84 85 84 86 86 85 > $10M 136 143 143 150 153 150 151 154 > $5M 218 220 224 225 226 231 244 244 > $3M 280 278 293 292 300 311 314 321 > $1M 495 501 511 524 526 542 537 533
Customer metrics
Revenue from Existing customers % 98.1 97.0 99.6 98.6 97.7 96.7 99.6 98.5 Number of new customers 42 59 35 50 44 65 36 67 Total Number of active customers 966 986 1022 1018 1018 1054 1071 1100 Customer Concentration (%)
Top customer 3.7 3.7 3.7 3.5 3.8 3.8 3.3 3.1 Top 5 14.2 13.9 13.4 12.9 12.7 12.6 12.2 11.7 Top 10 23.0 22.6 21.8 21.5 21.0 20.6 20.1 19.8
Source: MOSL, Company
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17 December 2015 11
Exhibit 13: Operating metrics
3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16
EMPLOYEE METRICS Closing Headcount - IT Services 146,402 146,053 147,452 154,297 156,866 158,217 161,789 163,396
Sales & Support staff - IT Services (average) 11,225 11,172 11,174 11,328 11,603 11,629 12,517 13,068 Utilization (IT Services excl. BPO, IFOX and I&ME)
Gross Utilization (%) 66.0 67.7 68.7 70.0 68.5 70.5 71.3 69.5 Net Utilization (excl support) (%) 72.9 74.9 76.0 77.5 75.9 78.0 79.4 77.2 Net Utilization (excl trainees) (%) 74.3 76.5 77.9 79.4 78.8 80.5 81.9 82.3 Attrition
IT Services excluding BPO and I&ME
Voluntary TTM 14.3 15.1 16.1 16.5 16.5 16.5 16.4 16.4 Voluntary Quarterly Annualized 16.3 15.7 17.0 16.9 16.4 15.6 16.4 16.8 Involuntary Quarterly Annualized 4.2 4.2 - - - - - - BPO - Quarterly 12.6 11.6 11.8 12.0 13.1 13.3 12.0 10.2 BPO - Post training 9.3 8.9 10.1 10.0 9.1 9.6 9.3 8.5 IT SERVICES (EXCL INFOX, BPO, I&ME)
Service Delivery
Revenue from FPP 50.6 51.3 52.1 53.1 55.1 55.5 54.5 53.4 % of onsite revenue 54.1 54.1 54.3 53.7 54.3 53.7 54.6 53.9 % of offshore revenue 45.9 45.9 45.7 46.3 45.7 46.3 45.4 46.1 IMS 5.9 2.9 3.2 8.6 3.2 -0.5 1.5 2.1 BPO 4.1 11.9 3.3 -3.4 4.7 -2.2 0.0 7.6 Product Engg and Mobility 2.9 2.5 -8.2 3.3 2.8 5.8 2.4 4.8 Wipro Analytics
0.0 3.2 -1.5 0.2 6.8 2.1
Application Services
0.0 -1.0 -0.1 -2.6 0.1 0.6
R&D 6.7 -2.0 -0.6 -1.9 3.9 2.4 2.9 4.1 Consulting 2.7 -1.2 -6.1 -8.0 1.8 -3.7 -6.4 14.1 Vertical wise
Global Media and Telecom 1.4 4.0 4.1 -1.0 0.6 -3.3 -1.1 3.7 Finance Solutions 2.9 4.0 0.8 -0.9 0.2 1.9 2.2 1.7 Manufacturing and Hi-Tech 0.7 -0.8 2.3 1.8 1.9 -1.2 2.8 2.7 Healthcare, Life Sciences and Services 8.0 2.5 3.1 5.6 5.9 -1.2 -3.2 3.9 Retail and Transportation 1.5 1.8 -2.3 1.1 2.8 1.6 4.6 2.8 Energy and Utilities 4.9 3.1 -0.1 6.9 -1.1 -6.6 -0.9 -1.3 Geography wise
US 3.1 2.7 0.8 4.3 2.1 -0.6 2.7 3.1 Europe 5.4 3.9 -0.2 -4.4 0.6 -5.8 -1.6 0.5 India & Middle East business 5.4 6.1 4.6 2.9 5.8 10.2 0.2 2.1 Other Emerging markets -5.0 -4.3 3.9 6.2 -3.7 -2.0 1.1 1.2 Client Concentration
Top client 0.2 2.5 1.2 -3.7 10.0 -1.2 -12.2 -4.1 top 2-5 clients 7.0 -0.4 -3.8 -1.3 -4.0 -2.3 2.3 -1.3 Top 6-10 clients 1.7 1.3 -2.3 4.2 -2.2 -4.7 -0.2 4.7 Non top 10 clients 2.6 3.0 2.2 2.2 2.0 -0.7 1.7 2.5
Source: MOSL, Company
Wipro
17 December 2015 12
Financials and valuations
Key Assumptions
Y/E March 2010 2011 2012 2013 2014 2015 2016E 2017E INR/USD Rate 46.1 45.0 48.0 54.3 60.4 62.2 65.8 67.5 Revenues (USD m) 4,391 5,221 5,921 6,218 6,618 7,082 7,426 8,183 Offshore Revenue (%) 50.2 48.3 46.2 46.4 45.9 46.0 46.1 46.8 Total Headcount 108,071 122,385 135,920 145,812 146,053 158,217 176,876 194,876 Net Addition 10,261 14,314 13,535 9,892 241 12,164 18,659 18,000 Per Capita Productivity (USD) 40,630 42,658 43,563 42,643 45,312 44,759 41,982 41,990 Gross Utilization (%) 74.3 71.6 69.0 66.7 66.4 68.7 69.8 70.9 IT Services EBIT Margin (%) 23.4 22.7 20.8 20.5 22.6 22.0 21.2 21.7
Income Statement (INR Million) Y/E March 2010 2011 2012 2013 2014 2015 2016E 2017E Sales 271,242 310,986 318,747 374,256 434,269 469,545 513,643 585,705 Change (%) 5.6 14.7 2.5 17.4 16.0 8.1 9.4 14.0
Operating Costs 179,373 204,639 215,665 250,015 284,383 308,460 336,036 378,316 SG&A 32,822 40,467 36,369 46,245 52,787 56,476 62,800 72,088 EBITDA 66,581 74,091 66,713 77,996 97,099 104,609 114,807 135,301 % of Net Sales 24.5 23.8 20.9 20.8 22.4 22.3 22.4 23.1 Depreciation & Amort. 7,534 8,211 10,129 10,650 11,106 12,823 14,304 15,858 EBIT 59,047 65,880 56,584 67,346 85,993 91,786 100,503 119,442 Margins 21.8 21.2 17.8 18.0 19.8 19.5 19.6 20.4 Other Income 3,369 4,718 8,939 11,250 15,012 19,897 19,341 16,841 PBT 62,946 71,246 65,523 78,596 101,005 111,683 119,844 136,283 Tax 9,293 9,896 12,955 16,912 22,601 24,594 26,567 30,592 Rate (%) 14.8 13.9 19.8 21.5 22.4 22.0 22.2 22.4 PAT 53,653 61,350 52,568 61,684 78,404 87,089 93,277 105,691 Minority Interest -184 -345 -243 -322 -438 -531 -318 -216 Net Income 53,469 61,187 52,325 61,362 77,966 86,558 92,959 105,475 Change (%) 17.2 14.4 -14.5 17.3 27.1 11.0 7.4 13.5
Balance Sheet
(INR Million) Y/E March 2010 2011 2012 2013 2014 2015 2016E 2017E Share Capital 2,936 4,908 4,917 4,926 4,932 4,937 4,940 4,940 Reserves 193,176 234,772 280,397 278,886 338,567 403,045 441,362 508,226 Net Worth 196,112 239,680 285,314 283,812 343,499 407,982 446,302 513,166 Minority Interest & others 8,339 13,710 10,492 10,324 11,440 15,315 18,725 18,725 Loans 62,511 52,802 58,958 63,816 51,592 78,913 92,311 80,298 Capital Employed 266,962 306,192 354,764 357,952 406,531 502,210 557,338 612,189
Gross Block 89,499 99,346 113,369 115,556 127,586 143,166 190,302 226,160 Less : Depreciation 36,041 44,252 54,381 65,031 76,137 88,960 103,264 119,122 Net Block 53,458 55,094 58,988 50,525 51,449 54,206 87,038 107,038 Investments 30,420 49,282 41,961 69,171 63,233 54,644 64,931 64,931 Intangible Assets 57,813 58,369 72,166 56,470 65,358 76,009 83,986 83,986 Other non current assets 13,143 22,682 27,897 25,332 28,135 32,590 33,126 35,146 Curr. Assets 175,094 186,016 234,989 238,232 294,129 382,584 397,749 444,542 Debtors 67,636 85,776 110,353 108,623 124,726 133,869 143,604 163,424 Inventories 7,926 9,707 10,662 3,263 2,293 4,849 2,535 2,890 Cash & Bank Balance 64,878 61,141 77,666 87,869 117,862 164,017 191,658 212,868 Adv., Other Current Assets 34,654 29,392 36,308 38,477 49,248 79,849 59,952 65,360 Current Liab. & Prov 62,966 65,251 81,237 81,778 95,773 97,823 109,492 123,454 Net Current Assets 112,128 120,765 153,752 156,454 198,356 284,761 288,257 321,088 Application of Funds 266,962 306,192 354,764 357,952 406,531 502,210 557,338 612,189 E: MOSL Estimates
Wipro
17 December 2015 13
Financials and valuations
Ratios
Y/E March 2010 2011 2012 2013 2014 2015 2016E 2017E Basic (INR)
EPS 18.8 21.6 21.3 24.9 31.7 35.1 37.8 42.8 Book Value 80.7 98.2 116.5 115.6 139.9 166.1 181.7 208.9 DPS 2.4 4.4 6.0 7.0 8.0 12.0 12.0 13.0 Payout % 12.8 20.3 28.2 28.1 25.3 34.2 31.8 30.3 Valuation (x) P/E 18.3 16.5 15.3 13.5 EV/EBITDA 13.3 12.2 10.9 9.0 EV/Sales 3.0 2.7 2.4 2.1 Price/Book Value 4.1 3.5 3.2 2.8 Dividend Yield (%) 1.4 2.1 2.1 2.2 Profitability Ratios (%) RoE 31.2 28.0 19.9 21.6 24.9 23.0 21.8 22.0 RoCE 24.8 23.0 17.1 18.9 22.5 20.2 19.0 20.4 Turnover Ratios Debtors (Days) 88 90 112 107 98 101 99 96 Asset Turnover (x) 5.3 5.8 5.7 7.0 8.8 9.3 7.5 6.2 Leverage Ratio Debt/Equity Ratio(x) 0.3 0.3 0.2 0.2 0.2 0.2 0.2 0.2
Cash Flow Statement (INR Million) Y/E March 2010 2011 2012 2013 2014 2015 2016E 2017E
CF from Operations 53,172 68,827 70,711 80,868 97,042 80,015 123,564 143,104
Cash for Wkg. Capital -25,743 -12,374 -16,462 7,501 -11,909 -40,250 24,145 -11,621
Net Operating CF 27,429 56,453 54,249 88,369 85,133 39,765 147,709 131,484
Net Purchase of FA -11,198 -9,847 -14,023 -2,187 -12,030 -15,580 -47,136 -35,858
Net Pur. of Investments -12,742 -28,775 -11,691 -8,949 -5,753 41,476 -18,800 -2,020
Net Cash from Invest. -23,940 -38,622 -25,714 -11,136 -17,783 25,896 -65,936 -37,878
Issue of Shares/Other adj 24,047 3,386 10,663 -42,436 4,919 0 -18,707 0
Proceeds from LTB/STB 8,742 -4,592 2,780 4,368 -11,324 30,937 16,518 -12,013
Dividend Payments -13,678 -25,079 -34,393 -40,212 -45,964 -70,340 -71,283 -77,224
Net CF from Finan. 19,111 -21,568 -12,010 -67,030 -37,357 -19,506 -54,132 -72,396
Free Cash Flow 16,231 46,606 40,226 86,182 73,103 24,185 100,573 95,625
Net Cash Flow 22,600 -3,737 16,525 10,203 29,993 46,155 27,641 21,210
Opening Cash Bal. 42,278 64,878 61,141 77,666 87,869 117,862 164,017 191,658
Add: Net Cash 22,600 -3,737 16,525 10,203 29,993 46,155 27,641 21,210
Closing Cash Bal. 64,878 61,141 77,666 87,869 117,862 164,017 191,658 212,868 E: MOSL Estimates
Wipro
17 December 2015 14
Corporate profile
Exhibit 14: Shareholding pattern (%) Sep-15 Jun-15 Sep-14
Promoter 73.4 73.4 73.4
DII 4.6 4.9 4.6
FII 12.6 12.2 11.0
Others 9.4 9.5 11.0
Note: FII Includes depository receipts
Exhibit 15: Top holders Holder Name % Holding
LIC of India 1.9
Exhibit 16: Top management
Name Designation
Azim H. Premji Chairman
T K Kurien CEO
Suresh C Senapaty CFO
Saurabh Govil Global Head, HR
Satishchandra D COO
Exhibit 17: Director Name Name
Azim H. Premji T K Kurien
Suresh C Senapaty Dr. Ashok S. Ganguly*
Dr. Jagdish N. Sheth* Ireena Vittal*
Narayanan Vaghul* M. K. Sharma*
William Arthur Owens* Vyomesh Joshi*
*Independent
Exhibit 18: Auditors
Name Type
BSR & Co LLP Statutory
Exhibit 19: MOSL forecast v/s consensus EPS
(INR) MOSL
forecast Consensus
forecast Variation
(%) FY16 37.8 37.2 1.5 FY17 42.8 40.9 4.8
Company description Wipro is the third largest Indian IT services company and the largest third-party BPO operator in India. It is the largest third-party R&D services provider globally, employing over 156,000 employees. It offers among the widest range of IT and ITeS services and its corporate governance and transparency are at the highest level in the industry.
Exhibit 13: Sensex rebased
WPRO
OTHER COMPANIES
SECTOR UPDATES
WPRO GALLERY
Wipro
17 December 2015 16
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