Disappointing writ all over

July 20, 2011

IT svcs rev at US$ 1,408 mn (+0.5% QoQ) missed est with Previous Reco Reduce Target Price Rs 420
(1)/(1) (4.5) 5,567 18,502

Reco Reduce CMP Rs 399

profit beat driven by higher than exp IT Svcs EBIT mgns (flat QoQ at 22%) helped by hedging gains recorded in the top line
Op metrics mixed with top 5 clients declining by ~4% QoQ.

EPS change FY12E/13E (%) Target Price change (%) NiftySensex -

Growth was muted across verticals/ geographies with pricing declining in constant currency terms a s well
Sep11 qtr revenue guidance remains disappointing (a

Price Performance
(%) Absolute Rel. to Nifty
Source: Bloomberg

modest 0-2% organic revenue growth, in stark contrast to expectations of growth pick up in Sept/Dec11 qtrs) est. as we pare down organic rev growth assumptions to 13/17.5%. REDUCE, TP Rs 420( V/s Rs 440 earlier)

1M (1) (6)

3M (9)

6M 12M (2) (6) (14)

(12) (16)

Cut FY12/13E EPS by ~1% to Rs 22.9/23.9 despite lower tax

Relative Price Chart

500 Rs % 10 470 4

Another quarter of disappointment

Wipro reported IT svcs rev at US$ 1,408 mn (+0.5% QoQ, +17% YoY) missing lower than peers est of ~2.6% QoQ growth at US$ 1,436 mn. IT svcs EBIT mgns at 22%, were flat QoQ (V/s est of ~140 bps decline) driven by significant hedging gains (which drove US$/INR rate higher by ~1.3% QoQ to Rs 45.5).Profits at Rs 13.3 bn (2.9% QoQ) beat est led largely by better mgn performance. Vol growth was tepid at ~1.8% QoQ (continues to lag behind peers for several quarters now) with constant currency onsite/offshore pricing decline of 1.7%/1.2% QoQ. Growth remained muted across verticals/geographies with Energy and Utilities (+14.3% QoQ) and Emerging geographies (+11.3% QoQ) being the only bright spots in the results. Net addition came in at ~4,100 with qtrly attrition increasing further to 25.2% in June11 qtr ( up by ~180 bps QoQ). No of US$ 100 mn+ clients increased further to 4(V/s 3 in March11 qtr and 1 in Dec11 qtr) along expected lines and we see further increase on this count. While top client rev growth continues to be impressive and significantly ahead of co. , top 5 client rev declined by ~4% sequentially as top 2-5 client revenues declined by ~8% QoQ.

440

-2

410

-8

380

-14

350 Jul-10

-20 Sep-10 Nov-10

Wipro (LHS)

Jan-11

Mar-11

May-11

Rel to Nifty (RHS)

Source: Bloomberg

Stock Details
Sector Bloomberg Equity Capital (Rs mn) Face Value(Rs) No of shares o/s (mn) 52 Week H/L Market Cap (Rs bn/USD mn) Daily Avg Volume (No of sh) Daily Avg Turnover (US$mn)

IT Services WPRO@IN 4912 2 2456 500/384 979/22,007 169684 1.7

Sept 11 quarter revenue guidance remains modest

We (along with street) expected a strong Sep11 qtr rev guidance from Wipro (given the full impact of SAIC acquisition), however are disappointed by ~2-4% QoQ growth outlook (implies a modest 0-2% QoQ organic growth) and only dents confidence on Wipro playing catch up on rev growth with peers starting Sep/Dec11 qtr and thus an easy valuation convergence play. We believe that Wipro will continue to lag peers on rev growth atleast through FY12. Further we believe that Wipro continues to face more mgn headwinds (given attrition still remains very high, though mgmt expects this to trend down through FY12 as it still runs a very tight ship driving need to build bench

Shareholding Pattern (%)

Mar11 Dec10 Sep10 Promoters FII/NRI Institutions Private Corp Public
Source: Capitaline

79.3 8.0 3.7 2.9 6.1

79.3 8.1 3.6 2.9 6.2

79.4 7.9 3.5 3.0 6.2

Pare organic growth expectations further, REDUCE, TP Rs 420

We pare our organic revenue growth expectations further to ~13%/17% for FY12/13 (V/s 17%/18% earlier) driving a 1.3/1.2% cut in earnings to Rs 22.9/25.9 despite a lower tax assumption. We retain REDUCE with a revised TP of Rs 420 (V/s Rs 440 earlier). Valuations appear inexpensive, however a pick up in growth V/s peers needs to preclude any valuation convergence play Consolidated Financial Snapshot
Y/E Mar FY10 Net Sales 271,574 310,985 360,396 417,732 EBIT 51,845 57,668 63,283 71,282 EBIT % 19.1 18.5 17.6 17.1 PAT 45,934 52,976 56,205 63,503 EPS (Rs) 18.7 21.6 22.9 25.9 ROE % 26.8 26.2 23.7 21.4 P/E (x) 21.3 18.5 17.4 15.4

Manik Taneja manik.taneja@emkayglobal.com +91 22 6612 1253 Priya Gajwani priya.gajwani@emkayglobal.com +91 22 6612 1385

Rs Mn
EV/ EBITDA (x) 15.9 13.9 11.9 10.1 P/B (x) 5.0 4.7 3.7 3.0

FY11 FY12E FY13E

Emkay Global Financial Services Ltd

Result Update

Wipro Ltd

Wipro Ltd. Quarterly performance

Rs mn Revenue Operating Expenditure Cost of revenues as % of sales SG&A expenses as % of sales EBIT Other Income PBT Total Tax Adjusted PAT (Profit)/loss from JV's/Ass/MI APAT after MI Extra ordinary items Reported PAT Reported EPS Q1FY11 72,364 57,872 48,647 67.2 9,225 12.7 14,492 1,105 15,597 2,345 13,252 -67 13,185 0 13,185 5.4 Q2 FY11 77,304 63,272 53,270 68.9 10,002 12.9 14,032 1,147 15,179 2,183 12,996 -148 12,848 0 12,848 5.3 Q3 FY11 78,293 63,936 53,530 68.4 10,406 13.3 14,357 1,485 15,842 2,582 13,260 -71 13,189 0 13,189 5.4 Q4 FY11 83,024 68,237 57,403 69.1 10,834 13.0 14,787 1,630 16,417 2,604 13,813 -59 13,754 0 13,754 5.6 Q1 FY12 85,640 70,688 60,021 70.1 10,667 12.5 14,952 1,542 16,494 3,096 13,398 -49 13,349 0 13,349 5.4 1.2 1.3 (2.9) (2.9) 1.2 (2.9) 3.2 39.5 5.8 32.0 1.1 1.1 (5.4) 0.5 18.9 (3.0) 15.6 (1.5) YoY (%) 18.3 22.1 23.4 QoQ (%) 3.2 3.6 4.6 YTD '12 85,640 70,688 60,021 70.1 10,667 12.5 14,952 1,542 16,494 3,096 13,398 -49 13,349 0 13,349 5.4

Result Update

YTD '11 72,364 57,872 48,647 80.0 9,225 12.7 14,492 1,105 15,597 2,345 13,252 -67 13,185 0 13,185 5.4

YoY (%) 18.3 22.1 23.4

15.6

3.2 39.5 5.8 32.0 1.1 (26.9) 1.2 na 1.2 1.3

Margins (%) EBIT EBT PAT Effective Tax rate

Source: Company, Emkay Research

(bps) 20.0 21.6 18.2 15.0 18.2 19.6 16.6 14.4 18.3 20.2 16.8 16.3 17.8 19.8 16.6 15.9 17.5 19.3 15.6 18.8 (256.7) (229.4) (263.3) 373.6

(bps) (35) (51) (98) 290.9 17.5 19.3 15.6 18.8 20.0 21.6 18.2 15.0

(bps) (256.7) (229.4) (263.3) 373.6

March'10

June'10

Sep'10

Dec'10

March'11

June'11

While Infosyss quarterly revenue guidance has tended to be conservative in the recent quarters (albeit for March11 quarter), Wipros revenue growth guidance has been more realistic.

Wipro Upper end Actual 5.0 3.5 4.2 3.2 6.1 5.8 5.5 5.6 5.0 4.2 1.6 0.6

Infosys Upper end Actual 1.5 5.2 3.4 4.8 5.1 10.2 4.4 5.9 2.0 1.1 3.6 4.3

Source: Companies, Emkay Research

US$ revenue growth YoY (%)

40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% March'11 Sep'11 E June'10 Dec'10 Sep'10 June'11

Expect Wipro to lag Tier 1 peers on revenue growth despite inorganic aid through FY12 at the least

Dec'11 E

Infosys
Source: Companies, Emkay Research

TCS

Wipro

Emkay Research

20 July 2011

March'12E

Wipro Ltd. Operating Metrics

Q1 FY12 (% contri to revenue) Practices: Technology Infrastructure Services Analytics and Information Mngmt Business App services BPO Product Engg and Mobility ADM R&D business Consulting Verticals: Global Media & Telecom Finance Solutions 16.8% 26.7% 19.7% 10.2% 15.0% 11.6% 21.7% 6.4% 30.4% 9.3% 8.3% 23.9% 12.5% 3.1%

Result Update

Growth % QoQ 1.0% 7.2% 2.9% -4.6% 1.8% -2.7% -3.3% 0.5% % YoY 20.8% 33.6% 16.9% 7.7% 12.9% 15.0% -2.6% 39.4%

-1.8% 0.5% 0.5% -2.3% -3.9% 14.3%

14.9% 16.1% 7.1% 11.5% 17.7% 52.4%

Energy & Utilities vertical remains bright spot

Manufacturing & Hitech Healthcare, Life Sciences & Services Retail & Transportation Energy & Utilities Revenue Split-Geographical Split US Europe Japan India and Middle East Business Other emerging Markets Customer Concentration

53.0% 28.6% 1.1% 9.0% 8.3%

-1.1% 2.7% -26.3% -0.6% 11.3%

8.2% 31.7% -14.3% 16.9% 42.7%

While top client rev growth continues to be impressive and significantly ahead of co. , top 5 client rev declined by ~4% sequentially as top 2-5 client revenues declined by ~8% QoQ

Top customer Top 5 customers Top 10 customers Non Top 10 Revenue by Delivery Types Onsite revenues, % Offshore Revenues, % Utilisation Global IT services ex IFOX -Gross Global IT services ex IFOX-Net Global IT services ex IFOX-Net ex trainees India/Middle East IT services BPO(Productive FTE's/Total HC) Attrition Voluntary Attrition TTM Global IT services -Voluntary Global IT services -Involuntary Quarterly
Source: Company, Emkay Research

3.3% 10.9% 19.4% 80.6%

7.0% -3.9% -1.0% 0.9%

33.1% 16.9% 14.6% 17.5%

52.4% 47.6% Q1 FY12 69.7% 76.9% 81.0% 80.0% 67.0%

4.8% -0.2% Q4 FY11 68.9% 76.1% 79.7% 80.0% 67.0%

17.6% 16.4% Q1 FY11 71.3% 78.4% 81.6% 80.0% 72.0%

22.6% 23.2% 2.0%

22.7% 20.9% 2.5%

15.8% 23.0% 1.4%

Emkay Research

20 July 2011

Wipro Ltd.

Result Update

(in Rs mn,

FY12E Old 6,296 368,315 64,081 57,049 23.2 New 6,038 360,396 63,283 56,205 22.9 change -4.1 -2.2 -1.2 -1.5 -1.3 Old 7,411 429,570 74,839 64,351 26.2

FY13E New 7,099 417,732 71,282 63,503 25.9 change -4.2 -2.8 -4.8 -1.3 -1.2

Pare down organic growth assumptions further to 13%/17% (V/s 17%/18% earlier driving marginal cuts in below consensus EPS estimates despite a lower tax assumption now

except EPS) Revenues(US$ mn) Revenues EBIT Net Profits EPS

Source: Emkay Research

Emkay Research

20 July 2011

Wipro Ltd.

Result Update

Financials
Income Statement
Y/E, Mar (Rs. m) Net Sales Growth (%) Total Expenditure Growth (%) EBIDTA Growth (%) EBIDTA % Other Income Depreciation EBIT Interest EBT Tax EAT Growth (%) EAT (%) Minority Interest Net Profit after MI 16.5 (184) 45,934 54,033 (9,293) 44,740 59,754 (9,714) 50,040 12 16.1 (345) 52,976 63,623 (13,113) 50,510 1 14.0 (229) 56,205 71,722 (15,936) 55,787 10 13.4 (240) 63,503 19.1 2,188 51,845 51,845 FY10 271,574 FY11 310,985 15 15 57,668 11 18.5 2,086 57,668 FY12E 360,396 16 17 63,283 10 17.6 340 63,283 FY13E 417,732 16 17 71,282 13 17.1 440 71,282

Balance Sheet
Y/E, Mar (Rs. m) Equity share capital Reserves & surplus Minority Interest Networth Secured Loans Unsecured Loans Loan Funds Deferred Tax Liability Total Liabilities Goodwill Gross Block Less: Depreciation Net block Capital WIP Investment Current Assets Inventories Sundry debtors Cash & bank balance Loans & advances Other current assets Current Liab & Prov Current liabilities Provisions Deferred Tax Assets Net current assets Total Assets FY10 2,936 193,176 437 196,549 41,840 20,671 62,511 380 259,440 57813 81,594 (40,494) 41,100 12,358 32,765 174,146 7,926 67,636 64,878 9,112 24,594 70,488 63,171 7,317 11,746 103,658 259,440 FY11 4,908 234,772 691 240,371 33,043 19,759 52,802 301 293,474 58369 94,554 (46,708) 47,846 7,248 52,275 190,044 9,707 85,776 61,141 13,676 19,744 77,969 75,564 2,405 15,661 112,075 293,474 FY12E 4,908 290,977 691 296,576 33,043 19,759 52,802 301 349,679 58369 110,554 54,349 7,248 52,275 258,541 10,861 97,751 110,433 15,798 23,697 96,764 91,827 4,937 15,661 161,777 349,679 FY13E 4,908 354,480 691 360,079 33,043 19,759 52,802 301 413,182 58369 126,554 60,769 7,248 52,275 334,451 12,589 113,303 161,636 18,312 28,612 115,592 109,869 5,722 15,661 218,860 413,182

(219,729) (253,317) (297,113) (346,449)

(56,205) (65,785)

Cash Flow Y/E, Mar (Rs. m) Net Profit before Tax Add : Depreciation Add : Misc exp w/off Net changes in WC Operational Cash Flows Capital expenditure Investments Investing Cash Flows Borrowings dividend paid Issue of shares Share Premium Financing Cash Flows changes in cash Opening balance Closing balance 1,908 (9,703) 15,761 49,117 64,878 936 (21,168) (3,737) 64,878 61,141 (40,750) 30,327 (11,485) (11,485) 5,619 (17,230) (10,376) (9,709) (12,395) (8,417) 61,104 (10,376) (49,702) 65,521 (16,208) (16,208) (13,151) (13,151) 49,292 61,141 110,433 (57,082) 67,443 (16,000) (16,000) (14,858) (14,858) 51,203 110,433 161,636 FY10 55,411 7,624 FY11 63,035 8,206 FY12E 69,547 9,497 FY13E 79,678 9,580

Key Ratios Y/E, Mar EPS (Rs) CEPS (Rs) Book Value Per Share (Rs) Dividend Per Share (Rs) Valuations Ratios (x) PER P/CEPS P/BV EV/EBIDTA EV/Sales M-Cap/sales Profitability Ratios (%) RoCE RoNW EBITA Margin EBIT Margins Net Profit Margin 22.3 26.8 19.1 19.1 16.9 22.1 26.2 18.5 18.5 17.0 21.8 23.7 17.6 17.6 15.6 20.3 21.4 17.1 17.1 15.2 21.3 18.3 5.0 15.9 3.5 3.5 18.5 16.0 4.7 13.9 3.0 3.1 17.4 14.9 3.7 11.9 2.4 2.7 15.4 13.4 3.0 10.1 2.0 2.3 FY10 18.7 21.8 79.9 6.0 FY11 21.6 24.9 85.1 4.3 FY12E 22.9 26.8 108.0 4.6 FY13E 25.9 29.8 133.8 5.2

Emkay Research

20 July 2011

Wipro Ltd.

Result Update

Recommendation History: Wipro Limited WPRO IN

Date 27/04/2011 21/01/2011 19/11/2010 22/10/2010 Reports Wipro Q4FY11 Result Update Wipro Q3FY11 Result Update Wipro Company Update Wipro Q2FY11 Result Update Reco Reduce Reduce Reduce Reduce CMP 451 478 418 450 Target 440 440 420 420

Recent Research Reports

Date 20/07/2011 19/07/2011 18/07/2011 15/07/2011 Reports NIIT Tech Q1FY12 Result Update Persistent Q1FY12 Result Update NIIT Technologies Initiating Coverage TCS Q1FY12 Result Update Reco Accumulate Accumulate Accumulate Accumulate CMP 203 373 209 1,125 Target 250 430 250 1,300

Emkay Global Financial Services Ltd. Paragon Center, H -13 -16, 1st Floor, Pandurang Budhkar Marg, Worli, Mumbai 400 013. Tel No. 6612 1212. Fax: 6624 2410

DISCLAIMER: This document is not for public distribution

and has been furnished to you solely for your information and may not be reproduced or redistributed to any other person. The manner of circulation and distribution of this document may be restricted by law or regulation in certain countries, including the United States. Persons into whose possession this document may come are required to inform themselves of, and to observe, such restrictions. This material is for the personal information of the authorized recipient, and we are not soliciting any action based upon it. This report is not to be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. No person associated with Emkay Global Financial Services Ltd. is obligated to call or initiate contact with you for the purposes of elaborating or following up on the information contained in this document. The material is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon. Neither Emkay Global Financial Services Ltd., nor any person connected with it, accepts any liability arising from the use of this document. The recipient of this material should rely on their own investigations and take their own professional advice. Opinions expressed are our current opinions as of the date appearing on this material only. While we endeavor to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. Prospective investors and others are cautioned that any forward-looking statements are not predictions and may be subject to change without notice. We and our affiliates, officers, directors, and em ployees world wide, including persons involved in the preparation or issuance of this material may; (a) from time to time, have long or short positions in, and buy or sell the securities thereof, of company (ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company (ies) discussed herein or may perform or seek to perform investment banking services for such company( ies)or act as advisor or lender / borrower to such company(ies) or have other potential conflict of interest with respect to any recommendation and related information and opinions. The same persons may have acted upon the information contained here. No part of this material may be duplicated in any form and/or redistributed without Emkay Global Financial Services Ltd.'s prior written consent. No part of this document may be distributed in Canada or used by private customers in the United Kingdom. In so far as this report includes current or historical information, it is believed to be reliable, although its accuracy and completeness cannot be guaranteed.

Emkay Research

20 July 2011

www.emkayglobal.com