Wipro Ltd. - Growth & Income

Wipro Ltd. (WIT) recently beat the Zacks Consensus Estimate by an impressive 20%. The company has been seeing strong demand for its high-margin IT services and has been hiring rapidly and increasing guidance as a result.

Wipro operates in three segments: IT Services, IT Products, and Consumer Care & Lighting. Revenues are divided as follows:

IT Services: 79%
IT Products: 12%
Consumer Care & Lighting: 9%

The company is based in Bangalore, India and has a market cap of $35.8 billion.

Solid Growth Across the Board

On July 22, Wipro reported first quarter 2011 earnings per share of 12 cents, beating the Zacks Consensus Estimate of 10 cents. It was the company's fifth consecutive EPS surprise.

Total revenue increased 16% from the same period in 2009. Wipro saw strong growth in its IT Services division, with revenue increasing 14% year-over-year. Its IT Products division increased 13%, while the Consumer Care & Lighting segment grew 23%.

Gross profit as a percentage of revenue stayed even at 32.3%.

The overall operating margin improved from 17.9% in the same period in 2009 to 20.2%. The operating margin for IT Services was an outstanding 24.5%. Meanwhile, the IT Products division had an operating margin of 4.0%, while the Consumer Care & Lighting segment was 13.7%.

Outlook

Wipro hired its largest number of employees in the second quarter in anticipation of the growing demand for its services. Management expects revenue to increase 4.1% to 6.1% from the previous quarter to $1.253 billion to $1.277 billion.

The Zacks Consensus Estimate for 2011 is 46 cents per share, representing 10% growth over 2009. The 2012 estimate is currently 51 cents, or 11% higher than 2011.

Fundamentals

The stock trades at 32x forward earnings, a premium to the industry average of 24x. Its price to book ratio of 7.9 is well above the average of 2.4.

Wipro's superior profitability helps justify its higher valuations. Return on equity over the last 12 months was 27.1%, compared with the industry average of 8.1%. Its net profit margin of 17.6% trumps the average of 4.6%.

Wipro recently became a Zacks #2 Rank (Buy) stock. It has a dividend yield of 1.4%.
 
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