Wipro Ltd.
Disclaimer: Assignment of Learner. For the purpose of demonstrating the method only. E. & O.E.
Authors
25.7.2011
Net profit of Wipro dropped 3% to Rs. 1,335 cr for the April - June 2011 quarter.
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Assignment of Vicky Gosar
PGDIE-38, NITIE
2008-2010
Disclaimer: Assignment of Learner. For the purpose of demonstrating the method only.
E. & O.E.
Watch Wipro Executive Board Talk about their Quarterly results... E. & O.E.
Here are some exceprts: - Wipro Top Management Speaks
- Provisions made for Losses from Nortel bankruptcy, Margins Negatively Impacted: Wipro
- Muting of expectations in terms of development projects in Financial Services & Technology
- Sectors, due to sharply lower set budgets by clients in 2009: Wipro
- Likely to grow 5-6% in constant currency terms in Q4 FY08: Wipro
- Clients asking for price cuts, mitigating price cuts via innovative cost transformation solutions: Wipro
- Values of deals signed in Q3 FY08 about $600 million: Wipro
Quarterly Results:
(in Rs. Crores) (except EPS & Face Value)
Mar 08 Jun 08 Sep 08 Dec 08
Sales Turnover 5,275.10 4,704.60 5,405.00 5,397.00
Other Income 93 102.8 146.6 137.2
Total Income 5,368.10 4,807.40 5,551.60 5,534.20
Total Expenses 4,232.50 3,934.70 4,322.30 4,362.40
Operating Profit 1,042.60 769.9 1,082.70 1,034.60
Gross Profit 1,135.60 872.7 1,229.30 1,171.80
Interest 33.2 67.2 99.1 163.9
PBDT 1,102.40 805.5 1,130.20 1,007.90
Depreciation 127 124.8 131.1 135.1
PBT 975.4 680.7 999.1 872.8
Tax 148.1 134.7 146.6 139.8
Net Profit 827.3 546 852.5 733
Earnings Per Share 5.66 3.73 5.83 5.01
Equity 292.3 292.4 292.6 292.7
Face Value 2 2 2 2
Source : Asian CERC
Half Yearly Results
(in Rs. Crores) (except EPS & Face Value)
Mar '07 Sep '07 Mar '08 Sep '08
6 mths 6 mths 6 mths 6 mths
Sales Turnover 7,356.90 7,829.00 9,632.10 10,109.60
Other Income 168.6 192.7 165.6 249.4
Total Income 7,525.50 8,021.70 9,797.70 10,359.00
Total Expenses 5,629.00 6,155.60 7,621.40 8,257.40
Operating Profit 1,727.90 1,673.40 2,010.70 1,852.20
Gross Profit 1,896.50 1,866.10 2,176.30 2,101.60
Interest 4.5 35.9 80.8 166.1
PBDT 1892 1830.2 2095.5 1935.5
Depreciation 189.9 216.8 239.4 255.8
PBT 1702.1 1613.4 1856.1 1679.7
Tax 144.3 181.7 224.7 281.2
Net Profit 1,557.80 1,431.70 1,631.40 1,398.50
EPS(Rs) 10.68 9.81 11.16 9.56
Equity 291.8 291.9 292.3 292.6
Face Value(Rs) 2 2 2 2
Source : Asian CERC
Important News
- Wipro scouts for more buys (30 December 2008, The Economic Times, P.9 )After buying Citi Technology Service (Citos), Wipro is now scouting for IT firms servicing oil, telecom and healthcare industries. Mr. Lakshminarayana, who leads teh M&A efforts for IT arms said, last quater we had a billion dollars in cash. We can take debt also for acquiring companies. He commented that they will do more intensive due diligence due to overall market conditions before acquiring any company.Wipro appointed Punit Sood, CEO and MD of Citos to oversee its entire Citigroup business. Citigroup gave a minimum commitment of $500 million for infrastructure services, and applications development and maintenance (ADM).
- Technology major Wipro reported 3.51 per cent rise in net profit to Rs 1,003.90 crore for the Oct-Dec quarter 2008 compared with Rs 969.8 crore in Jun-Sept quarter 2008, while on a year-on year basis, net profit rose 18 per cent. Wipro Limited Revenue increased by 25 per cent (YoY) to Rs. 6,618 crore. IT Services business added 31 new clients during the quarter. Wipro Consumer Care and Lighting business Revenue grew 21% YoY and PBIT grew 17% YoY.
- Wipro, banned for four years from doing business with the World Bank for offering improper benefits to bank staff.
- Wipro Technologies, denied any significant impact of Nortel’s bankruptcy on their revenues, citing low exposure to the business from the troubled telecom equipment maker. Wipro, which is India’s third-biggest software firm, said that Nortel owes around $15 million to the company.
- Expressing solidarity, country's top IT majors such as Infosys and Wipro said they will not proactively approach clients of Satyam but made it clear that they will not say 'no' if clients approach them.
- Wipro Technologies on Tuesday said it is buying the IT arm of Citigroup in India for around $127 million. This deal could yield contracts worth up to $1 billion for India’s third-largest software exporter from the global financial services provider.
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Awards and Appreciation
Wipro has made a name for itself as a company providing reliable services worldwide. The technological expertise and service skills exhibited by Wipro have been appreciated by its list of clients scaling various industry sectors. The media has been quick to document the impressive work, milestones and awards achieved by Wipro.
| Wipro Technologies: Winner of Indian MAKE Award, 2008 | ||
| Wipro Wins International Institute for Software Testing’s Software Testing Best Practice Award | ||
| Wipro tops Global MAKE Award 2007 | ||
| Wipro wins Verizon’s 2006 Supplier Excellence Award | |
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Background Information (Updated January 2009)
Major Shareholders
Auditors
Board of Directors
| With Chairman Azim H Premji, senior executives of Wipro and external members who are global leaders & visionaries form the Wipro Board which provides direction & guidance to the organization. | |||||||||||||||||||||
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Girish S Paranjpe
Suresh C Senapaty
Suresh Vaswani
Ashok S Ganguly
William Arthur Owens
B C Prabhakar
P M Sinha
Jagdish N Sheth
N Vaghul
Company Background
Wipro Limited (Wipro) is an information technology (IT) services company. The Company provides a
range of IT services, software solutions, IT consulting, business process outsourcing (BPO) services, and research and development services in the areas of hardware and software organized in segments, which include Global IT Services and Products (comprising of IT Services and BPO Services segments), India and AsiaPacific IT Services and Products; Consumer Care and Lighting, and Others.
Wipro Technologies is a global services provider delivering technology-driven business solutions that meet the strategic objectives of our clients. Wipro has 55+ ‘Centers of Excellence’ that create solutions around specific needs of industries.
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Analysis
QUALITY CRITERIA
1) The company should have paid dividends for the last 10 years. -
--- Wipro has dividends for the last 10 years
2) The company should have earned profits for the last 10 years.
---- Wipro has also earned profits for 10 years
--- Wipro has dividends for the last 10 years
2) The company should have earned profits for the last 10 years.
---- Wipro has also earned profits for 10 years
3) There should be atleast 10% EPS growth in the last seven years.
---- The EPS growth for EPS has been 21.5% for the last seven years (as per the calculations shown below)
4) Current assets should be atleast twice that of current liabilities.
---- The EPS growth for EPS has been 21.5% for the last seven years (as per the calculations shown below)
4) Current assets should be atleast twice that of current liabilities.
Mar 07 - Current assets/Current Liabilities = 12000cr/4742cr = greater than 2:1
Mar 08 - Current assets/Currentt Liabilities = 6360cr/3832 = close to 2:1, but not quite 2:1
5) Debt-Equity ratio should not be greater than 1.
As on March 2007, Debt/Equity ratio = 238cr/291cr = less than 1:1
As on March 2008, Debt/Equity ratio = 3822cr/292cr = much greater than 12:1
6) The companies should have atleast sales of Rs.100 crores.
---- Wipro has sales in thousands of crores
---- Wipro has sales in thousands of crores
Data for last 10 Years
| Annual (Rs. Crores) | Annual (nos) | Annual (Rs.) | Annual (Rs. Crores | Annual (Rs.) | Adjustment factor | Annual (Rs.) | ||
| Year | Issued equity capital | Outstanding shares | Face Value | Latest 12 months PAT | EPS | Adj EPS | ||
| Mar-97 | 15.28 | 15277090 | 10.00 | 57.73 | 37.79 | 0.011111111 | 0.42 | |
| Mar-98 | 45.83 | 45831270 | 10.00 | 107.9 | 23.54 | 0.033333333 | 0.78 | |
| Mar-99 | 45.83 | 45831270 | 10.00 | 170.2 | 37.14 | 0.033333333 | 1.24 | |
| Mar-00 | 45.83 | 229156350 | 2.00 | 300.6 | 13.12 | 0.166666667 | 2.19 | |
| Mar-01 | 46.49 | 232433019 | 2.00 | 666.4 | 28.67 | 0.166666667 | 4.78 | |
| Mar-02 | 46.49 | 232465689 | 2.00 | 866.1 | 37.26 | 0.166666667 | 6.21 | |
| Mar-03 | 46.51 | 232563992 | 2.00 | 839.5 | 36.1 | 0.166666667 | 6.02 | |
| Mar-04 | 46.55 | 232759152 | 2.00 | 914.9 | 39.31 | 0.166666667 | 6.55 | |
| Mar-05 | 140.71 | 703570522 | 2.00 | 1494.8 | 21.25 | 0.5 | 10.63 | |
| Mar-06 | 285.2 | 1425754267 | 2.00 | 2020.5 | 14.17 | 1 | 14.17 | |
| Mar-07 | 291.8 | 1458999650 | 2.00 | 2833.63 | 19.42 | 1 | 19.42 | |
| Mar-08 | 292.3 | 1461453320 | 2.00 | 3063.3 | 20.96 | 1 | 20.96 |
Reasons for adjustment
Bonus date RatioOct 1997 2:1
Jun 2004 2:1
Aug 2005 1:1
Dividends
Year Dividend % & Date
Mar 1998 15 Final 1-Jun-98
Mar 1999 15 Final 5-Jul-99
Mar 2000 15 Interim 8-May-00
Mar 2001 25 Final 18-Jun-01
Mar 2002 50 Final 28-Jun-02
Mar 2003 50 Final 1-Jul-03
Mar 2004 200 Final 6-May-04
Mar 2004 200 Final 6-May-04
Mar 2004 1250 Special 6-May-04
Mar 2005 250 Final 29-Jun-05
Mar 2006 250 Final 29-Jun-06
Mar 2007 250 Interim 26-Mar-07
Mar 2007 50 Final 28-Jun-07
Mar 2008 100 Interim 25-Oct-07
Mar 2008 200 Final 27-Jun-08
FAIR VALUE CRITERIA
1) Fair P/E is equal to 7 years past growth rate in EPS but the higher limit is 20
2) The multiple is applied on past 7 year average EPS
1) Fair P/E is equal to 7 years past growth rate in EPS but the higher limit is 20
2) The multiple is applied on past 7 year average EPS
Seven Year Adjusted EPS Average = 11.99
Average EPS / Beginning EPS = 11.99 / 6.21 = 1.9312
Growth Rate = 21.5% = (Fitting Geometric Series on Seven year EPS values)
Fair P/E = 20 (Max Value allowed by model = 20)
Fair Value = Fair P/E * Seven Year Adjusted EPS Average = 20 * 11.99 = 239.866 (Based on FY 2008 results)
Book Value Criterion: 1.5 times book value:
Last reported Book value = Rs.99.06, 1.5 times book value comes to = Rs. 148.59
CMP(as on 7th may 2009) = 380, CMP/Book Value = 3.83
As a rule for Graham Rao - The current price should also not be more than 1.5 times the book value last reported.
Criterias not matched by Wipro:
1) Debt-Equity ratio as on March 08
2) Book value criterion not met
Dividend Discount Model (DDM)
| Year | Equity Shares (Millions) | Dividend (Rs. Million) | Dividend Per share (DPS) (Rs.) | Adjustment Factor | Adjusted DPS (Rs.) |
| Mar-02 | 232.47 | 232.46 | 1.00 | 0.16666 | 0.17 |
| Mar-03 | 232.56 | 232.50 | 1.00 | 0.16666 | 0.17 |
| Mar-04 | 232.76 | 6750 | 29.00 | 0.16666 | 4.83 |
| Mar-05 | 703.57 | 3518 | 5.00 | 0.5 | 2.5 |
| Mar-06 | 1425.75 | 7129 | 5.00 | 1.00 | 5.0 |
| Mar-07 | 1459 | 8737 | 5.99 | 1.00 | 5.99 |
| Mar-08 | 1461.45 | 8765 | 6.00 | 1.00 | 6.00 |
Average adjusted DPS (last 7 years) = Rs. 3.52 / share
Average / Beginning = 3.52/0.17 = 21.13
Geometric Growth rate for DPS = 81%
Geometric Growth rate for EPS = 21.5%
Average Growth Rate = (Growth rate for EPS +Growth Rate for DPS) / 2
= (21.5 + 81) / 2
= 51.25%
On lower side due slowdown in economy we take it on lower side = 45% growth rate
Mature Growth Rate:
Wipro has been for many years in the top five companies in IT industry
Therefore longterm mature growth rate taken as 6%
Risk Free Rate of Return
364-T-bill rate is = 3.59% as on 7th May 2009
Risk Premium
Risk premium for Indian markets can be taken as 9.7% - for BSE-30, and 11.3% based on BSE-100,
Prof.J.R. Verma and Barua have estimated risk premium at 8.75% -geometric mean,
12.5% - arithmetic mean. ("A First Cut Estimate of Equity Risk Premium in India" - IIM Ahmedabad Working paper number W.P. Mo. 2006-06-04)
Also, since presently the volatility in market is very high, investor's risk premium should be 11%
Beta Value for Wipro = 0.93 , r2 = 0.52
Required Rate of Return = Risk free rate + Beta*Risk Premium
= 0.0359 + (0.93)*0.11 = 0.139 = 13.9% = 14%
Average Rate of growth = 45%
Assume that 45% continues for 2 years (2008-2009)
then for next 2 yrs, a growth rate of 30% (2010-2011)
then for next 2 yrs, a growth rate of 20% (2012-2013)
for next 3 years, growth rate of 15% (2014-2016)
for next 3 years, growth rate of 10% (2017-2019)
Next 2 yrs, growth rate of 8% (2020-2021)
and finally reaching the mature rate of return of 6% (2022)
| Sr.no | Year | Growth | Dividend |
| 0 | 2008 | 45% | 3.52 |
| 1 | 2009 | 45% | 5.10 |
| 2 | 2010 | 30% | 7.4 |
| 3 | 2011 | 30% | 9.62 |
| 4 | 2012 | 20% | 12.51 |
| 5 | 2013 | 20% | 15.01 |
| 6 | 2014 | 15% | 18.01 |
| 7 | 2015 | 15% | 20.71 |
| 8 | 2016 | 15% | 23.82 |
| 9 | 2017 | 10% | 27.39 |
| 10 | 2018 | 10% | 30.13 |
| 11 | 2019 | 10% | 33.14 |
| 12 | 2020 | 8% | 36.46 |
| 13 | 2021 | 8% | 39.19 |
| 14 | 2022 | 6% | 42.13 |
Calculating the value for perpetuity = 42.13(1+0.06) / (0.14 - 0.06) = 316.32
Current Market Price = 380 (as on 7th May 2009)
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Comments
Untitled
No reply to earlier comment. Have you corrected
Narayana Rao - 09 Aug 2009Fine. A comment on what adjustment or correction you made would make my life easier to understand the report once again. Otherwise I have to once go through things right from the first.
Also I will not be sure whether my comment makes sense at all.
Sir, i have already incorporated the changes u suggested..
Vicky Gosar - 07 Aug 2009Where is DDM Model
Where is DDM model.
Even Graham model full details of each criterion are not shown
Good. You are including the DDM model.
Narayana Rao - 07 May 2009Growth rate in Dividends
You calculated value is 66%. Why have you taken 81% for average.
As you are estimating growth in DPS and as well as EPS make sure that DPS is not more than 50% of EPS. Adjust DPS growth rate accordingly.
Untitled
How much of this is copied from outside?
Hemanshu Desai - 20 Feb 2009We respect your comment. But please note that we are the originators of the method of analysis
Narayana Rao - 20 Feb 2009
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