Whipped into Shape
WIPRO TECHNOLOGIES, LONG THE WEAK SISTER in India’s crowded information technology space, finally has a shot at playing Cinderella. The New York- and Mumbai-listed company (tickers: WIT and 507685.India), whose clients include Honeywell and Cisco, is on a tear, with revenue of $5.4 billion in the Indian fiscal year ended March 2009, up 9% in U.S. dollars over 2008.
Analysts once wary of a firm with a dominant shareholder — Chairman Azim Premji owns more than 80% of Wipro’s stock — are adding Buy and Outperform ratings where Sells and Underperforms once ruled. Chief Financial Officer Manish Dugar says that several strong financial quarters have helped the firm overtake Infosys (INFO.India) and Tata Consultancy Services (TCS.India) in terms of organic revenue growth, after years in their wake. “We are now the value performer,” Dugar asserts. “We are the best and the first in Indian IT. We’re leading in financial performance, and on a par with Infosys in corporate governance and management. It has taken several quarters to show we can provide consistently strong earnings and margins.”
WIPRO’S REVENUE JUMPED BY 17%, year-over-year, in the quarter ended in March, and by 25%, 36% and 43%, respectively, in the three previous quarters. Infosys, in contrast, posted revenue of just $4.7 billion in fiscal 2009 and sees sales dipping by 6.7% in dollars in fiscal 2010.
Soaring: Asian stocks rallied sharply last week, led by Hong Kong (up 12%) and Japan (up 5%).
The change hasn’t come easily. Wipro boosted revenue from fixed-price projects. In mid-2008, it suspended new hiring even as TCS and Infosys boosted headcount. Analysts, initially suspicious, changed their tune as the global economy slowed. “In hindsight, [Wipro’s] decision was a tactical masterstroke,” said an April 23 report by Edelweiss Capital.
Wipro also boasts a more diversified revenue base, relative to its peers and an IT services operating margin that’s both lower than its peers (20.8% under U.S. GAAP reporting in Q4 2009, versus 23.7% at TCS and 29.4% at Infosys) and less vulnerable to a future drop.
That’s making some industry observers take notice. “Wipro could be the one Indian IT company that global competitors such as IBM worry about most, based on the breadth of its service offering and an ambitious global acquisition program,” says Ashish Thadhani, an analyst at New York-based Gilford Securities. That’s a big step for a firm whose name is still mispronounced (it’s “Whip-Row,” not “Why-Pro”) and which started life 64 years ago as Western India Vegetable Products.
Wipro’s resurgence hasn’t gone unnoticed. Investors have piled in, more than doubling the value of its American depositary receipts, which closed at $10.42 Friday. Yet analysts see hope in the form of India’s weak currency. Wipro has been hurt by some of its currency hedges. But Gilford Securities’ Thadhani says that the rupee should strengthen against the greenback, helping Wipro to “surprise on the upside as headwinds stemming from its currency hedges turn into tailwinds.”
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