Tuesday, July 10, 2012

Wipro Ltd. - 2009 Analysis and Information

Wipro Ltd.

Wipro Ltd.

Disclaimer: Assignment of Learner. For the purpose of demonstrating the method only. E. & O.E.

 
 
25.7.2011
 
Net profit of Wipro dropped 3% to Rs. 1,335 cr for the April - June 2011 quarter.
 
 
 
 
______________________________________________________________________________________
 
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...
 

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

_____________________________________________________________________________________

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  


______________________________________________________________________________________

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.
Mr Azim H Premji Azim H Premji
Chairman
Wipro Limited
Executive Directors     Independent Directors
  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. 
___________________________________________________________________________

 

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
 
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.  
    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


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   Ratio
Oct 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   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

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 2009

Fine. 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.

Narayana Rao - 09 Aug 2009

Sir, i have already incorporated the changes u suggested..

Vicky Gosar - 07 Aug 2009

Where is DDM Model

Where is DDM model.

Even Graham model full details of each criterion are not shown

Narayana Rao - 07 May 2009

Good. You are including the DDM model.

Narayana Rao - 07 May 2009

Growth 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.

Narayana Rao - 07 May 2009

Untitled

How much of this is copied from outside?

Hemanshu Desai - 20 Feb 2009

We 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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