An update has recently come out on Wipro, Limited (WIT), in which Zacks software industry analyst Abdul Saleh is restating his Hold rating on the company. We excerpted the following details:
'Wipro is expected to report its fiscal Q2:08 results on October 19. The outlook for the quarter is neutral, mainly due to a strong rupee. The company experienced solid growth across all its product segments in the first quarter, although the strength in the Indian rupee and offshore wage hikes during the quarter continued to pressure operating margins. We remain concerned that near-term margins may continue to be pressured for strength of the rupee.
'The other area of concern is the company's product engineering segment, which contributes roughly 25% of its revenues and has not seen any pricing increases due to consolidation in the international markets. However, the company's acquisition strategy is on track and should provide leverage for making other larger acquisitions. We believe that as growth rates come down, the companies that have to acquire for growth will garner lower valuations. Also, WIT is trading at a higher P/E than most of its peers, which makes the company more risky on a relative valuation.
'Earnings estimates for 2008 in dollar terms are unchanged while rupee estimates have declined. For 2009, we expect dollar earnings to come down and both rupee revenue and earnings to decline from our previous estimates. This because of the new expected rupee/dollar exchange rate of 39.82 for 2008 and 40.88 for 2009, which are lower due to the strength of the rupee after the U.S. Fed cut rates in September.
'We believe that the company's business from USA could slow down in 2008 and the company will be forced to look to non-dollar geographies for maintaining growth. We continue to rate WIT a Hold, and maintain our target price of $16.50. Wipro is currently trading at 29.7x our fiscal 2008 earnings estimate, which is slightly below its historical range of 35x to 40x and median of 37.1x its forward EPADR estimates.'
Read the full analyst report on WIT
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