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Wipro Q3 net seen doubling on higher margins

NetScribes/Ganesh Ramamoorthy

Software services major Wipro Ltd is expected to report a near-100 per cent growth in net profit for the December quarter on the back of increased billing rates and higher margins. The company is slated to announce its results on Friday.

Analyst estimates indicate a 96-100 per cent growth in net profit and a 34-38 per cent growth in net sales for the December quarter -- a growth of 8-9 per cent and 10-12 per cent, respectively, over the September quarter.

"We expect a topline of about Rs 7.75 billion and a bottomline of about Rs 1.65 billion for the quarter," said a software analyst at Pranav Securities. For the quarter ended December 31, 1999, Wipro reported a net profit of Rs 840 million on net sales of Rs 5.70 billion.

Analysts expect the growth during the quarter to come mainly from increased operating margins and billing rates.

"We expect a marked improvement in Wipro's operating profit margins and billing rates during the quarter," an analyst at Asit C Mehta Brokerage said.

"Contrary to the fear that billing rates are declining for Indian software companies, we expect Wipro's rates to improve by at least 5-8 per cent during the quarter."

Analysts expect Wipro's software division's growth to continue during the quarter, aided by increased contribution from the telecom business. "Wipro has got some good orders during the quarter for its telecom business and has added new clients in that segment," the Pranav Securities analyst said. New clients for the quarter included Nortel Networks, Cisco Systems, NEC and Thomas Cook.

"The important thing is that Wipro is in software development for embedded systems, telecom and other high-end technology solutions, where the margins are higher and the even the billing rates are higher. On that count, Wipro has an advantage even over Infosys," the analyst at Asit C Mehta Brokerage said. Analysts also expected the share of Wipro's global R&D business to increase during the quarter.

Despite the optimistic outlook, analysts are awaiting the Wipro management's comments on business outlook for the next two quarters.

"Wipro's telecom business grew well during the last four quarters, mainly because US telecom spending during 2001 was higher. But given the slowdown in the US economy and an anticipated slowdown in telecom infrastructure spending, Wipro's telecom business could be exposed in the next two quarters," said the analyst at Asit C Mehta. "Therefore, the management needs to clarify exactly what its gameplan is for the next six months."

In Friday early trading, Wipro surged to a high of Rs 2,595, up nearly 3 per cent from its previous close. At 12:00 noon, the scrip was trading at Rs 2,572, up Rs 53.40, with volumes of over 350,000 shares on the BSE.

Analysts said the surge in the share price was in anticipation of the results. At its current price, the scrip is trading at a forward earnings multiple of 99 and an annualised EPS of Rs 25.37 for FY01.

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