Large Cap Stock Analysis - Wipro Limited

Here are stock research notes based on 3QFY13 results of large cap stock Wipro.

3QFY13 USD services revenue went up 2.4% qoq and it is slightly better than market estimates. IT services EBIT margin was up 16 bps as productivity gains and forex gains offset lower utilization and promotion costs. This and higher other income led to an EPS beat.

Company's 4QFY13 services growth guidance of 0.5 – 3.00% qoq is not very exciting but it does not derail the growth prospects.

Volumes declined 1% qoq but offshore – onsite realizations grew 3.0 – 3.2% qoq, continuing the trend of productivity gains in fixed price contracts that started last year.

The company noted that its pipeline had expanded 1.7 times since 3QFY12 and pointed out improved deal closures and a perceptible change in client sentiment over the past quarter.

Analysts are not overly worried about Wipro’s poor volumes as 3Q is seasonally weak and peers also saw a drop in volume growth.

It looks like that 4Q guidance factors in macro headwinds like US debt ceiling etc, delays in some project starts and about 20 tail accounts that Wipro plans to de-emphasise.

USD revenue growth is expected to pick up to 12.9% in FY14 from 5.6% in FY13.

Positives in 3Q: the top 10 accounts continued to grow ahead of the company’s average on sales investments; realization was up 4-5% yoy; and attrition was much lower yoy at 14.2% vs 19%.

In medium term, more upsides are expected in Wipro’s margins when the growth picks up.One may buy stocks of Wipro with a target price of Rs.460.