Wipro financial analysis


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Wipro financial analysis

  1. 1. FORTUNE INSTITUTE OF INTERNATIONAL BUSINESS Page 1 WIPRO LTD Detailed Financial Analysis of Wipro Ltd Submitted By Monika Bansal 119 Batch- 2012-14 Submitted To Prof. Vijayeta James Lall FIIB
  2. 2. 1. About the company Incorporated on 29 December 1945 in Mumbai by Mohamed Hasham Premji as Western India Vegetables Products Limited, later abbreviated to Wipro.Wipro Limited (Wipro) is a global information technology (IT), Services Company. Wipro provides a range of IT services, software solutions and research and development services in the areas of hardware and software design to companies worldwide. It uses its development centers located in India and worldwide, quality processes and global resource pool to provide IT solutions and deliver time-to-market and time-to-development advantages to its clients. It also provides business process outsourcing (BPO) services. The Company operates in three segments: IT Services business segment, IT Products business segment and Consumer Care and Lighting business segment. On June 10, 2011, it acquired the global oil and gas information technology practice of the Commercial Business Services Business Unit of Science Applications International Corporation Inc. along with 100% interest in SAIC Europe Limited and SAIC India Private Limited. In June 2013, the Company acquired a minority stake in Axeda Corp. 2. Key Non Performance Indicators During the fiscal year just completed, Wipro achieved revenues of ₹377 billion in IT business and continuing operations, recording a year on year growth of 17%. On this Revenue, Net Income was ₹ 61 billion, recording an annual growth of 17%. Wipro enhanced gender diversity with 30% of their employees being women. Wipro have more than 25,000 employees’ onsite in customer locations and are having employees of 98 nationalities on their rolls. Their employee base is young with 64% of employees aged less than 30 years and the average age of 29 years. 3. Industry Overview NASSCOM Strategic Review Report 2013 estimates worldwide technology spending to exceed $1.9 trillion in 2012, a growth of 4.8% over 2011. The shift towards global sourcing continues, which grew at 9% growth in 2012 over 2011.Over the past two decades, India has risen to become the leading destination for global sourcing of IT, BPO and research and development services. Established Indian IT services companies have a proven track record for providing business and technology solutions, offering a large, high quality and English-speaking talent pool, and a friendly regulatory environment. These factors, coupled with strong existing client relationships have facilitated India’s emergence as a global outsourcing hub.
  3. 3. IT/ITeS industry has led India's economic growth and this sector's contribution to the national GDP has risen from 1.2 per cent in 1997-98 to an estimated 7.5 per cent in 2011-12.The market size of the industry is expected to rise to USD 225 billion by 2020 considering India's competitive position, growing demand for exports, Government policy support, and increasing global footprint. The IT/ITeS sector has led to employment opportunities, both direct and indirect, of nearly 2.8 million and around 8.9 million respectively. This growth is expected to increase to more than 14 million (direct and indirect) by 2015 and to around 30 million by 2030. IT and ITeS sectors lead the economic growth in terms of employment, export promotion, revenue generation and standards of living. As per NASSCOM estimates, IT/ITeS sector (excluding hardware) revenues are estimated at USD 87.6 billion in FY 2011-12; and the industry is expected to grow by 19 per cent during FY 2012-13. Share Holder Value Maximization Four factors as shown in the table below have been considered while evaluating the value of the company from the shareholders point of view. Rating is on a three point scale (-ive, neutral, +ive) Profitability Risk Growth Capital Market Conditions -ive -ive neutral +ive Basis for the ratings Profitability – The gross profit margin of the company have declined from 19.62% in 2010-11 to about 17.29% in 2011-12. Risk- A negative rating has been given due to following reasons.
  4. 4. Factor Description Effect Industry Rivalry No huge capital investment is required to start a new company, leading to very large numbers of small and medium-size companies. It is becoming increasingly difficult for players to differentiate, which has led to a decrease in margins. However, a few top and niche players still enjoy pricing power. Thus, the competition in the sector is HIGH. Bargaining Power of Suppliers Knowledgeable human resource is the largest requirement for the IT Sector. Large supply of this human source, at low cost is available from around the world. Also, a lot of matured education and training is easily available. As there exist many competitive suppliers in the supplier has very LOW or NO power in the IT sector. Bargaining Power of Buyers The Indian IT sector has a large number of players and few entry barriers for new entrants. Thus, the buyer has many options to choose from and can clearly articulate their needs. However, the bigger companies also enjoy the advantage of switching costs. It means that once a particular client selects a particular company as its partner, it becomes dependent on that company for all its upgrades and technology requirements, making it difficult for the client to switch. Thus, the buyers have a MEDIUM bargaining leverage. Economic Growth India’s growth has declined over the past few years; falling from around 6.5% for the fiscal year 2011-12 to about 5% for fiscal 2012-13.The slowdown has been marked by a sharp drop in investment growth resulting from political uncertainties, a tightening of macroeconomic policies aimed at addressing a high fiscal deficit and high wage inflation, attrition rate, high dependency on US economy and volatile currency
  5. 5. movements. Growth- The growth of Industry is expected to increase by seeing the trend but as a company, Wipro has been overtaken by Cognizant making it 4th largest IT Company of India from the previous position of third. After the news of Wipro joint CEO Girish Paranjape and Suresh Vaswani leaving the organization citing personal reasons in previous year was also a difficult pill to swallow. The results of Wipro haven’t been impressive. The tough competition leading to loss of market share poses a high risk to the growth of Wipro. Considering these factors the Growth is given neutral rating. Capital Market Conditions- The company’s stock has been consistently performing well and they are easily came out from recession in 2008 and till then their stocks are performing good and this trend is likely to continue in the near future. Hence the capital market conditions are given a positive rating. Inference from Stock price movement: An overall increase in stock price can be clearly seen and also, company was able to survive in 2009 inspite of economic downturn and had managed to increase its stock price to around 179% after 2009 which shows the strength of the company and its ability to increase its revenue and in comparison to 2008, it has managed well which results in substantial increase in stock price i.e. 200% in 5 years of duration. Yearly Stock Price Movement Source – www.markets.ft.com
  6. 6. III. Peer Group Analysis The closest Indian competitors of Wipro Ltd in the ‘IT service Industry’ by business description and revenue are: HCL Technologies- HCL Technologies Limited (HCL) is a global technology company. The Company’s operations consist of providing Software services, infrastructure services, including sale of networking equipment and business processing outsourcing services, which are in the nature of customer contact centers and technical help desks. HCL is a provider of business transformation, enterprise and custom applications, infrastructure management, business process outsourcing (BPO), and engineering services. The Company delivers solutions across a range of verticals, such as financial services, manufacturing, consumer services, public services and healthcare. The principal geographical segments include America, Europe and others. During the fiscal year ended June 30, 2011 (fiscal 2011), the Company sold certain portion of its Telecom Expense Management Services business. In March 2013, it divested its entire (49%) stake in NEC HCL System Technologies (NHST). TCS- Tata Consultancy Services Limited (TCS) is engaged in providing information technology (IT) services, business solutions and outsourcing. The Company’s services portfolio consists of application development and maintenance, business intelligence, enterprise solutions, assurance, engineering and industrial services, IT infrastructure services, business process outsourcing, consulting and asset leveraged solutions. TCS also services several other industries, such as life sciences and healthcare, hi-tech, energy, resources and utilities, media and entertainment and travel, transportation and hospitality. On August 31, 2010, Diligenta Limited acquired Unisys Insurance Services Limited (UISL). On October 4, 2010, Tata America International Corporation acquired MS CJV Investments Corporation. On October 8, 2010, the Company acquired SUPERVALU Services India Private Limited. Infosys- Infosys Limited (Infosys), formerly Infosys Technologies Limited, provides business consulting, technology, engineering and outsourcing services. Its end-to-end business solutions include consulting and systems integration comprising consulting, enterprise solutions, systems integration and advanced technologies; business information technology (IT) services consisting application development and maintenance, independent validation services, infrastructure management, engineering services comprising product engineering and life cycle solutions and business process management; products, business platforms and solutions, including Finacle, its banking product, which offers solutions to address core banking, mobile banking and e-banking needs of retail, corporate and universal banks globally, and areas, such as cloud computing,
  7. 7. enterprise mobility and sustainability. On January 4, 2012, Infosys BPO Limited acquired Portland Group Pty Ltd. In October 2012, it acquired Lodestone Holding AG. The comparison have been carried out on ratios calculated for the month ending June, 2013 for Wipro Ltd and its competitors
  8. 8. Valuation Ratios In comparison to peers, Wipro Ltd has the lowest Earning per share, but in comparison the decent P/E Ratio and the future growth potential of the company also looks great as Industry is having Financial Health Ratios
  9. 9. Operating Ratios Profitability Ratios 25 53.7 37.5 32.3 0 20 40 60 Wipro TCS Infosys HCL Tech ROI ROI
  10. 10. IV. Financial Statement Analysis (FSA) –Ratio Analysis Profitability Ratio’s Profitability Ratio’s FY 10-11 FY 11-12 FY 12-13 Profit Margin 16.96 17.06 14.98 ROA 14.86 15.11 13.80 Net profit of the company stand reduced due to the impact of Interest, Depreciation, and Tax. Short Term Solvency Ratio’s Short Term Solvency Ratio/Liquidity Ratio FY 10-11 FY 11-12 FY 12-13 Current Ratio 1.90 2.31 2.32 Quick Ratio 1.38 1.71 1.95 Long Term Solvency Ratio’s Long Term Solvency Ratio/Financial Leverage Ratio FY 10-11 FY 11-12 FY 12-13 Debt/Equity Ratio 0.09 0.08 0.08 Financial Leverage 1.68 1.55 1.53 Asset Utilization Ratio Asset Utilization Ratio FY 10-11 FY 11-12 FY 12-13 Receivables Turnover 5.47 5.41 5.24 Inventory Turnover 22.43 24.14 25.84