Wipro posted lower than expected numbers on all fronts for 3QFY2016. IT
Services posted a 0.3% sequential growth in USD revenues to US$1,838mn (V/s
an expected US$1,841mn). In constant currency (CC) terms, IT Services posted a
1.4% QoQ growth. On the operating front, the EBITDA margin came in at 20.6%
V/s 21.8% in 2QFY2016, ie a downtick of 121bp QoQ. Consequently, the PAT
came in at Rs2,234cr (V/s an expected Rs2,318cr), a de-growth of 0.1% QoQ. For
4QFY2016, the company has guided for revenue of US$1,875-1,912mn, a QoQ
growth of 2.0-4.0%. We maintain our Buy recommendation on the stock with a
price target of Rs670.
Quarterly highlights: During 3QFY2016, the company posted lower than
expected numbers on all fronts. IT Services posted a 0.3% sequential growth in
USD revenues to US$1,838mn (V/s an expected US$1,841mn). In CC terms, IT
Services posted a 1.4% QoQ growth. On the operating front, the EBITDA margin
came in at 20.6% V/s 21.8% in 2QFY2016, ie a downtick of 121bp QoQ.
Consequently, the PAT came in at Rs2,234cr (V/s an expected Rs2,318cr) a degrowth
of 0.1% QoQ. Among other operating matrix, the gross utilization levels
dropped to 66.4% V/s 69.5% in 2QFY2016. Net utilization (excl support) dropped
to 73.8% V/s 77.2% in 2QFY2016. In terms of client addition, it added one client
US$50mn+ and some other major ones in small order sizes. Overall, 39 clients
were added during the quarter.
Outlook and valuation: The Management remains confident of revenue growth
pick-up, citing momentum in large deal closures and win rates, uptick in
discretionary spending, its strong business pipeline and with demand from the US
sustaining. We expect USD and INR revenue CAGR for IT services to be at 7.0%
and 11.5%, respectively, over FY2015-17E. We recommend a Buy.
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