Wipro Ltd ( ) missed our revenue?forecasts but exceeded earnings estimates in the first quarter of 2010. The company reported total revenues of $1.3 billion and earnings of $0.16 per ADS in the quarter. We believe that as growth rates come down, the companies that have to acquire for growth will garner lower valuations. Also, Wipro is trading at a higher price multiple than most of its peers, which makes the company more risky on a relative valuation basis. Revenues came in below our estimates. Revenues were supported by large deal wins, geographic expansion, alliances and partnerships. On the profitability front, higher other income resulted in higher-than-expected net income.
We are slightly reducing our revenue estimates based on the guidance for the second quarter of 2010 primarily because of difficult market conditions. We are however increasing our earnings estimates for fiscal 2010. Our fiscal 2010 estimates are preliminary and subject to further review. The company is encountering weaknesses in the U.S. economy in general and financial services sector in particular. It is focusing on driving growth through mega and gamma accounts, by increasing investments in Australia, France, Germany, Middle East and Canada as well as by forging partnerships with large technology providers.
We expect that the annual total revenue growth rate for fiscal 2010 in rupee terms will be 10.27% and 3.81% in dollar terms.? We believe that the company’s business from USA could slow down in fiscal 2010 and the company will be forced to look to non-dollar geographies for maintaining growth. Looking at it from another angle, the diversification of the company into other non-dollar regions could well be an effective hedging route for the company to manage over-exposure to a single currency.
We continue to rate shares of Wipro a Hold, as we see a sustained improved performance even under recessionary conditions and also because the stock price is not likely to jump convincingly given the market turmoil. Wipro continues to acquire small companies at an accelerated rate, which should give some upside to our revenue estimates, but may have more impact on its margins due to acquisitions related expenses. Overall, the company’s ability to win large-value total-outsourcing deals as exhibited in the most recent quarter and its resilience in the face of economic slowdown, adds to its capability of executing large deals on a global scale in a cost effective manner.
Wipro is a global provider of IT services, software solutions, and research and development (R&D) services, and is the third largest in India. It has development centers in India and abroad, which utilize its global resource pool and quality processes to provide cost-effective IT solutions to its clients around the world.
