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Stock Review: WIPRO


Wipro's has been the worst performing stock among the top four IT exporters listed on Indian bourses in the past 12 months. Its poor show reflects the gloomy trend in the financials of the third largest IT player over the past six quarters. And, if its latest quarterly results are any indication, then its investors may have to look somewhere else for gains in the next 9-12 months.


Wipro continued to underperform its closest peers yet again during the June 2011 quarter. Its volume growth of 1.8%, which includes revenue from the recentlyacquired oil and gas division of SAIC, was way below the jump reported by its peers, TCS (7.4%) and Infosys (4%).


What has also unsettled investors is the company's dollar-denominated revenue guidance of a 2-4% increase for the September 2011 quarter. At a time when the sector is experiencing a greater thrust on outsourcing from global clients, a guidance in low single digit looks too modest. Wipro's management has cited that its latest organisational restructuring, which took it back to the single-CEO leadership model, would take about two more quarters before yielding results and hence the cautious growth projections. What may bother investors is whether such a restructuring strategy will really resolve the current phase of deceleration in its performance. ET Intelligence Group's analysis reflects that sequential growth in incremental revenue has lagged behind the top two peers in each of the past four quarters. This is despite the addition of some key accounts by Wipro in the said period.


It also seems to be still facing attrition issues. While its peers have reported a moderation in attrition rate at around 15-16%, Wipro said nearly 23% of its employees left in the past 12 months. CEO TK Kurien ruled out a possibility of an interim salary hike, which may keep attrition rates firm in the second quarter as well. The management has, however, guided for a moderation in the trend. Wipro did clock large multi-year projects in the past two quarters, close on the heels with its peers. The integration with SAIC has a potential to add over 3% to its current revenue run rate. The company's ability to sustain the momentum amidst intense competition will be crucial.

 

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