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Wipro surges 6 per cent as net grows 116 per cent

NetScribes/Rajiv Banerjee

Shares of Wipro Ltd rose 6 per cent on Tuesday on the Bombay Stock Exchange (BSE) after the company reported a 116 per cent growth in net profits for the quarter ended September 30, 2000.

On the BSE, the scrip closed at Rs 2,381.80, up Rs 133 from the previous close of Rs 2,248.80. A total of 0.7 million shares were traded at the counter. On Monday, ahead of the results announcement, the scrip had slipped on concerns of overvaluation.

In fact, these concerns are prompting analysts to predict that the Wipro scrip could shed its gains during the next couple of trading sessions despite the good results posted by the company.

"At its current market price of Rs 2,381.80, the scrip is overvalued in comparison to its peers like Infosys and Satyam," said a fund manager with a Bombay-based brokerage house. He expects the scrip to decline by Rs 200-300 and settle at the Rs 1,900 level in the next few trading sessions.

Wipro is currently trading at a price-earnings multiple of 100 times its annualised FY01 earnings, while Infosys is trading 77 times its FY01 earnings. On a market capitalisation to FY01 software revenues, Infosys is discounted 26 times, while Wipro is discounted 35 times.

For the quarter just ended, Wipro's net profit grew to Rs 1.54 billion from Rs 712 million in the year-ago quarter. Analysts attribute the growth to the increased contribution of the software services business and the e-commerce business to the bottomline.

"Wipro is currently operating in the high-end technology solutions business, where the billing rates are very high. This has directly helped the company's bottomline," said the fund manager.

Analysts say software development and exports will continue to be the main driver of the company's future growth. "Wipro's growth in software exports continues to be robust with 90 per cent of the revenues coming from software development," said an analyst at HSBC Securities. The high-margin offshore development projects have helped the company post healthy profits, he added.

With its recent listing on the New York Stock Exchange, Wipro's inorganic growth plans have also received a boost. The acquisitions, when they happen, are seen fuelling the company's growth.

For the quarter ended September 30, 2000, the company's sales were to the tune of Rs 7.40 billion, a 31 per cent jump from Rs 5.65 billion in Q2 2000. Compared to the quarter ended June 30, 2000, sales have risen 19 per cent, while profits have jumped 42 per cent.

The current quarter also saw a huge extraordinary income of Rs 1,095 million. This does not include the proceeds from the sale of 4.6 million shares of Wipro Net Ltd in FY2000, analysts point out.

While the software revenues are growing every quarter, analysts are concerned about the falling revenues from the hardware business, which accounts for about 29 per cent of the total revenues, and the Rs 810 million extraordinary loss, which it incurred during the quarter due to sale of its holdings in Wipro Finance.

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