Business Context and Reporting Period
Company: Wipro Limited (Wipro)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Nine months ended December 31, 2009 (Interim)
Accounting Standards: International Financial Reporting Standards (IFRS)
Currency: Indian Rupees (Rs.) with US Dollar ($) convenience translation at Rs. 46.40 = $1.00
Wipro is a leading global provider of IT services, including Business Process Outsourcing (BPO), IT products, and consumer care/lighting products. The company is headquartered in Bangalore, India.
Key Financial Metrics (Nine Months Ended Dec 31, 2009)
| Metric | Amount (Rs. Millions) | Amount (US$ Millions) |
|---|---|---|
| Revenues | 202,185 | 4,357 |
| Gross Profit | 63,651 | 1,372 |
| Operating Income | 38,149 | 822 |
| Profit for the Period | 33,981 | 732 |
| Profit Attributable to Equity Holders | 33,842 | 729 |
| Net Cash from Operating Activities | 39,972 | 861 |
| Cash and Cash Equivalents (Dec 31, 2009) | 42,563 | 917 |
| Total Debt (Loans & Borrowings) | 54,928 | 1,184 |
Margins (Nine Months 2009):
- Gross Margin: 31.22% (up 189 bps YoY)
- Operating Margin: 18.94% (up 215 bps YoY)
- Effective Tax Rate: ~16.7% (adjusted for tax write-backs)
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased by 5.55% year-over-year (YoY) to Rs. 202,185 million. Growth was driven by IT Products (+14.85%), Consumer Care and Lighting (+14.21%), and IT Services (+5.33%).
- Profitability: Profit attributable to equity holders rose 17.72% YoY to Rs. 33,842 million. Operating income increased 19.05% to Rs. 38,149 million.
- Segment Performance:
- IT Services: Revenue grew 5.33% (Rs. 149,894 million). Gross margin improved 150 bps to 34.41% due to higher onsite price realization and improved employee utilization (71.33%).
- IT Products: Revenue grew 14.85% (Rs. 29,305 million) driven by demand in India and the Middle East. Operating income increased 40.43%.
- Consumer Care & Lighting: Revenue grew 14.21% (Rs. 16,500 million). Gross margin expanded 512 bps to 48.44% due to lower input costs and favorable product mix.
- Acquisitions: The company acquired Citi Technology Services Limited (WTS) in January 2009 and Lornamead Personal Care (Yardley brand) in December 2009, adding goodwill of Rs. 3,581 million and Rs. 1,011 million respectively.
- Cash Flow: Net cash provided by operating activities increased significantly by Rs. 13,597 million YoY, aided by a non-cash charge of Rs. 4,397 million related to cash flow hedge roll-overs and improved receivable days in IT Services.
Guidance, Outlook, Risks, and Unusual Items
- Outlook: Management anticipates IT spending to stabilize and grow as the global economic slowdown eases. The company expects increased competition and pricing pressure, particularly in IT Services and IT Products.
- Strategic Initiatives: Focus on the "Performance And Capital Efficiency" (PACE) program to reduce client IT spends, cost containment, and driving higher employee productivity.
- Tax Contingencies: Significant ongoing disputes with Indian tax authorities regarding Section 10A deductions.
- Demands for FY 2001-2004 (Rs. 11,127 million) were largely upheld in the company's favor by appellate authorities.
- New demands received for FY 2005 (Rs. 5,388 million) and FY 2006 (Rs. 6,757 million). The company has filed appeals/objections and believes the outcome will be favorable with no material impact.
- Foreign Exchange Risk: A significant portion of revenue is in USD, EUR, and GBP, while costs are primarily in INR. Appreciation of the rupee adversely affects results. The company uses derivatives to hedge exposures.
- Non-GAAP Measures: The company reports "Adjusted Non-GAAP Profit" excluding accelerated amortization of stock options. For the nine months ended Dec 31, 2009, this was Rs. 33,741 million.
Key Facts for Investor Verification
- IFRS Transition: This is the first interim report prepared under IFRS. Investors should review the reconciliation tables (Notes 2 and 25) to understand differences from Previous GAAP and US GAAP, particularly regarding revenue recognition, goodwill, and deferred taxes.
- Stock Compensation: Under IFRS, stock compensation for graded vesting options is amortized on an accelerated basis, impacting reported earnings compared to the straight-line method used internally and in non-GAAP measures.
- Debt Structure: Total loans and borrowings are Rs. 54,928 million. A significant portion (Rs. 35,016 million) is an unsecured external commercial borrowing in Japanese Yen, hedged via cross-currency swaps.
- Liquidity Position: As of Dec 31, 2009, the company held Rs. 82,418 million in cash, cash equivalents, and short-term investments, with net cash (cash minus debt) of Rs. 27,490 million.
- Acquisition Earn-outs: Future cash outflows are contingent on the performance of acquired entities (e.g., WTS, Lornamead), which may impact future liquidity.