Wipro reports 11.0% Net Income growth and almost no change in EBITDA Margin of 22.3%

21-04-2015 • About Wipro ($WIPRO) • By InTwits

Wipro reported FY2015 financial results today. Overall the company's long term financial model is characterised by the following facts:

Wipro has low CAPEX intensity: 5 year average CAPEX/Revenue was 3.0%. At the same time it's in pair with industry average of 3.6%.
CAPEX is quite volatile: 17,250 in FY2015, 6,347 in FY2014, 3,884 in FY2013, 6,397 in FY2012, 4,041 in FY2011
The company has highly profitable business model: ROIC is at 20.8%

Below you can find a comprehensive analysis of the key data driving the company's performance and stock price.

Wipro ($WIPRO) key annual financial indicators

mln. INR	2011	2012	2013	2014	2015	2015/2014
P&L
Revenue	310,542	371,971	374,256	434,269	469,545	8.1%
Gross Profit	97,734	108,798	113,591	138,781	148,261	6.8%
SG&A	40,511	48,063	46,245	52,786	56,475	7.0%
EBITDA	65,434	70,864	78,181	97,101	104,609	7.7%
Net Income	52,977	55,730	66,359	77,967	86,528	11.0%
Balance Sheet
Cash	61,141	77,666	84,838	114,201	158,940	39.2%
Short Term Debt	33,043	36,448	62,962	40,683	66,206	62.7%
Long Term Debt	19,759	22,510	854	10,909	12,707	16.5%
Cash flow
Capex	12,211	12,977	10,616	8,913	12,661	42.1%
Ratios
Revenue growth	-56.9%	19.8%	0.6%	16.0%	8.1%
EBITDA growth	10.0%	8.3%	10.3%	24.2%	7.7%
Gross Margin	31.5%	29.2%	30.4%	32.0%	31.6%	-0.4%
EBITDA Margin	21.1%	19.1%	20.9%	22.4%	22.3%	-0.1%
Net Income Margin	17.1%	15.0%	17.7%	18.0%	18.4%	0.5%
SG&A, % of revenue	13.0%	12.9%	12.4%	12.2%	12.0%	-0.1%
CAPEX, % of revenue	3.9%	3.5%	2.8%	2.1%	2.7%	0.6%
ROIC	21.3%	19.1%	19.6%	23.2%	20.8%	-2.5%
ROE	25.1%	21.2%	23.3%	24.9%	23.0%	-1.8%
Net Debt/EBITDA	-0.1x	-0.3x	-0.3x	-0.6x	-0.8x	-0.1x

Revenue and profitability

The company's Revenue increased on 8.1% in FY2015. Having declining revenue the company managed to increase EBITDA margin. EBITDA Margin increased slightly on 0.58 pp from 5.1% to 5.7% in FY2015.

Gross Margin showed almost no change in FY2015. SG&A as a % of Revenue showed almost no change in FY2015.

Net Income marign showed almost no change in FY2015.

Capital expenditures (CAPEX) and working capital investments

The company's CAPEX/Revenue was 2.7% in FY2015. Wipro showed small CAPEX/Revenue decline of 0.79 pp from 3.5% in FY2012 to 2.7% in FY2015. Average CAPEX/Revenue for the last three years was 2.5%.

Return on investment

The company operates at high and attractive ROIC (20.77%) and ROE (23.03%). ROIC decreased on 2.5 pp from 23.2% to 20.8% in FY2015. ROE decreased slightly on 1.8 pp from 24.9% to 23.0% in FY2015.

Leverage (Debt)

Debt level is -0.8x Net Debt / EBITDA and 0.8x Debt / EBITDA. Net Debt / EBITDA dropped on 0.1x from -0.6x to -0.8x in FY2015. Debt jumped on 53.0% in FY2015 while cash surged on 39.2% in FY2015.

Valuation

The company's trades at EV/EBITDA 12.9x and P/E 16.5x while industy averages are 10.5x and 26.1x. The company's EV/(EBITDA-CAPEX) is 14.7x with the industry average at 4.7x.

Appendix 1: Peers in IT Consulting & Software

Below you can find Wipro benchmarking vs. other companies in IT Consulting & Software industry. It's shown for the period of 5 years for the key financial metrics. Each table has median value for all the companies in the industry together with individual financial data of the top-5 companies in the industry by particular financial metric.

Top companies by Revenue growth, %


Top 5	FY2011	FY2012	FY2013	FY2014	FY2015
Tech Mahindra ($TECHM)	-85.8%	6.8%	25.2%	174.0%
Tata Consultancy Services ($TCS)		31.0%	28.8%	29.9%	15.7%
Mindtree ($MINDTREE)		26.6%	23.2%	28.8%	17.0%
Infinite Computer Solutions (India) ($INFINITE)	-57.9%	19.5%	31.7%	24.6%
Infosys ($INFY)	20.9%	22.7%	19.6%	24.2%
Median (21 companies)	-41.6%	22.9%	20.6%	14.0%	16.3%
Wipro ($WIPRO)		19.8%	0.6%	16.0%	8.1%

Top companies by Gross margin, %


Top	FY2011	FY2012	FY2013	FY2014	FY2015
Tata Consultancy Services ($TCS)				47.4%	42.4%
Mindtree ($MINDTREE)	32.8%	31.5%	36.2%		34.8%
Median (2 companies)	36.7%	33.8%	67.1%	41.6%	38.6%
Wipro ($WIPRO)	31.5%	29.2%	30.4%	32.0%	31.6%

Top companies by EBITDA margin, %


Top 5	FY2011	FY2012	FY2013	FY2014	FY2015
Oracle Financial Services Software ($OFSS)	37.4%	35.3%	35.2%	37.4%
Tata Consultancy Services ($TCS)	29.9%	29.5%	28.6%	30.7%	26.1%
Infosys ($INFY)	32.5%	31.6%	27.9%	26.3%
Tech Mahindra ($TECHM)	19.5%	16.7%	20.7%	22.2%
Mindtree ($MINDTREE)	11.8%	15.1%	19.8%	20.6%	20.3%
Median (18 companies)	18.0%	15.1%	16.5%	18.3%	19.5%
Wipro ($WIPRO)	21.1%	19.1%	20.9%	22.4%	22.3%

Top companies by CAPEX/Revenue, %


Top 5	FY2011	FY2012	FY2013	FY2014	FY2015
Ramco Systems ($RAMCOSYS)	16.4%		22.1%	15.3%	12.4%
Niit Technologies ($NIITTECH)	4.1%	5.9%	4.6%	6.1%
Infosys ($INFY)	4.7%	4.9%	5.2%	5.5%
Mindtree ($MINDTREE)	5.6%	2.5%	4.5%	5.0%	5.6%
Tech Mahindra ($TECHM)	3.0%	5.4%	2.6%	5.0%
Median (17 companies)	4.2%	3.9%	3.5%	3.5%	4.4%
Wipro ($WIPRO)	3.9%	3.5%	2.8%	2.1%	2.7%

Top companies by ROIC, %


Top 5	FY2011	FY2012	FY2013	FY2014	FY2015
Tata Consultancy Services ($TCS)	47.1%	48.6%	48.4%	50.2%	40.5%
Tech Mahindra ($TECHM)	19.2%	15.4%	20.1%	43.0%
Geometric ($GEOMETRIC)	19.6%	29.9%	46.4%	41.1%
Mindtree ($MINDTREE)	14.9%	24.9%	34.6%	36.2%	32.0%
Cmc ($CMC)	31.5%	26.2%	33.2%	35.3%	26.0%
Median (30 companies)	16.0%	19.6%	21.4%	22.9%	29.0%
Wipro ($WIPRO)	21.3%	19.1%	19.6%	23.2%	20.8%

Top companies by Net Debt / EBITDA


Top 5	FY2011	FY2012	FY2013	FY2014	FY2015
3I Infotech ($3IINFOTECH)	3.5x	8.5x	20.3x	27.7x
Ramco Systems ($RAMCOSYS)	4.0x	8.8x		27.6x	4.2x
Starcom Information Technology ($STARCOM)				17.4x
Onward Technologies ($ONWARDTEC)	2.7x	2.4x	2.2x	4.1x
Kpit Technologies ($KPIT)	-0.7x	0.3x	0.5x	0.7x
Median (23 companies)	-0.2x	-0.0x	-0.2x	-0.2x	-0.4x
Wipro ($WIPRO)	-0.1x	-0.3x	-0.3x	-0.6x	-0.8x

Wipro stock price chart

Wipro financials

mln.	FY2010	FY2011	FY2012

Revenue	720,146	310,542	371,971
EBITDA	59,494	65,434	70,864
Net income	46,310	52,977	55,730
CAPEX	11,029	12,211	12,977
Debt	62,513	52,802	58,958
Cash	64,878	61,141	77,666

About Wipro

Wipro Limited provides information technology (IT) products and services worldwide. It operates in two segments, IT Services and IT Products. The IT Services segment offers software application development services; application maintenance services; research and development services for hardware and software design; analytics and information management services, such as business analytics, business intelligence and performance management, and information management; and business process outsourcing (BPO) services, including pre-built process asset based solutions, industry focused and platform based solutions, driving predictable business outcomes, investing in industry leading BPO platform, and integrated IT BPO services. It also provides consulting services; product engineering solutions; managed services; application services, such as enterprise applications, connected enterprise services, enterprise security solutions, cyber security consulting, enterprise architecture, and testing services; cloud services; eco energy services; infrastructure management services; and mobility services. This segment serves banking, financial services, and insurance; healthcare and life sciences; retail, consumer, transport, and government; energy, natural resources, and utilities; manufacturing; and global media, as well as telecom industries. The IT Products segment sells a range of Wipro personal desktop computers, Wipro servers, and Wipro notebooks; and resells desktops, servers, notebooks, storage products, networking solutions, and packaged software for international brands. This segment also offers platforms and storage, enterprise information security, emerging technologies, enterprise management, and contact centre infrastructure products; and delivers hardware, software products, and other related products. It has collaboration agreement with Red Hat, Inc. to develop and deliver cloud solutions. Wipro Limited was founded in 1945 and is headquartered in Bengaluru, India.