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analysis.
OBJECTIVES OF THE STUDY: To understand the meaning of fundamental analysis To understand the strength and weakness of fundamental analysis. To make a fundamental analysis, economic analysis and industrial analysis of IT sector with specific reference to WIPRO. To recommend whether to buy, hold or sell the stock based on the analysis of p&l account, financial ratios and comparison with peer companies.
RESEARCH METHODOLOGY:This project is prepared by using secondary data obtained from various websites.
LIMITATIONS OF THE STUDY: The study was confined only to one particular sector and one company. The study was more confined with secondary data.
Value Spotting:
Sound fundamental analysis will help identify companies that represent good value. Some of the most legendary investors think long-term and value. Graham and Dodd, Warren Buffett and John Neff are seen as the champions of value investing. Fundamental analysis can help uncover companies with valuable assets, a strong balance sheet, stable earnings and staying power.
Business Acumen:
One of the most obvious, but less tangible, rewards of fundamental analysis is the development of a thorough understanding of the business. After such painstaking research and analysis, an investor will be familiar with the key revenue and profit drivers behind a company. Earnings and earnings expectations can be potent drivers of equity prices. Even some technicians will agree to that. A good understanding can help investors avoid companies that are prone to shortfalls and identify those that continue to deliver. In addition to understanding the business, fundamental analysis allows investors to develop an understanding of the key value drivers and companies within an industry. Its industry group heavily influences a stocks price. By studying these groups, investors can better position themselves to identify opportunities that are high-risk (tech),
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low-risk (utilities), growth oriented (computer), value driven (oil), non-cyclical (consumer staples), cyclical (transportation) or income oriented (high yield).
Industry/Company Specific:
Valuation techniques vary depending on the industry group and specifics of each company. For this reason, a different technique and model is required for different industries and different companies. This can get quite time consuming and limit the amount of research that can be performed.
Subjectivity:
Fair value is based on assumptions. Any changes to growth or multiplier assumptions can greatly alter the ultimate valuation. Fundamental analysts are generally aware of this and use sensitivity analysis to present a base-case valuation, a best-case valuation and a worst-case valuation. However, even on a worst case, most models are almost always bullish, the only question is how much so.
Analyst Bias:
The majority of the information that goes into the analysis comes from the company itself. Companies employ investor relations managers specifically to handle the analyst community and release information.
Overview of Wipro
Wipro Infotech is a leading manufacturer of computer hardware and provider of IT services in India and the Middle East region. Part of Wipro Ltd, the $6.98 billion conglomerate and global leader in technology enabled solutions, the company leverages on the parent's philosophy of 'Applying Thought' to enable business results by being a transformation catalyst. Backed by our strong quality processes and rich experience managing global clients across various business verticals, we align IT strategies to your business goals. From simple changes in process to innovative solutions, we help our customers harness the power of IT to achieve profitable growth, market leadership, customer delight and sustainability. Along with our best of breed technology partners, Wipro Infotech also helps you with your hardware and IT infrastructure needs.
Company Background
IndustryName: ComputersSoftware
FaceValue: 2.0
HouseName: WiproGroup
ISIN: INE075A01022
Market Lot: 1
Listing Information SECT: Information Technology Face Value2.0 Market Lot Of Equity Shares1 BSE Code507685 BSE GroupA NSE:WIPROEQ
trade deficit increased to US$ 147 billion during April-December 2012. The current account deficit (CAD) at 4.6 per cent of GDP in the first half of 2012-13 is a cause for concern. The widening of the trade and current account deficits has been accompanied by a decline in the value of the Rupee since August 2011. After attaining an all-time low of ` 57.22 per US$ on June 27, 2012 the Rupee rebounded and was in the range of 53-55 per US$ in the month of January 2013. WPI inflation, after remaining persistently high during 2010-11 and 2011-12, has shown signs of moderation since. December 2011. However, it has remained sticky at around 7 to 8 per cent over the last 12 months. With widespread reform measures initiated in recent months and the global economy poised for a moderate recovery in 2013-14, the Indian economy is expected to witness an improved outlook in 2013-14.
GDP Growth
As per the Advance Estimates released by the Central Statistics Office (CSO), the Indian economy is estimated to register a growth rate of 5.0 per cent in 2012-13 in terms of GDP at factor cost as against 6.2 per cent in 2011-12 and 9.3 per cent in 2010-11. The growth is on the lower side not only as compared to the recent past but also in the context of growth trends witnessed since 2003-04. The slowdown in the growth of the economy in 2012-13 is mainly on account of the slowdown in the industrial sector which is estimated to grow at 3.1 per cent in 2012-13 as against 3.5 per cent in 2011-12 and significantly lower growth of 1.8 per cent in agriculture sector on top of a growth rate of 3.6 per cent achieved in 2011-12. Services sector is estimated to grow at a rate of 6.6 per cent in 2012-13, which is also lower than that achieved in 2011-12. The slowdown in 2011-12 and 2012-13 has been precipitated by domestic factors as well as factors emanating from the rest of the world,particularly advanced
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economies and Indias major trading partners. The crisis in the Euro-zone area and slow growth in many other advanced economies have affected growth in India through dynamic linkages. Domestic factors, including the tightening of monetary policy, in order to control inflation and rein in inflationary expectations, resulted in slowing down of investment and growth, particularly in the industrial sector. As per the quarterly data released by CSO, growth in the economy was 5.3 per cent in the second quarter of the current year. This growth has been the lowest since fourth quarter of 2008-09. The growth of agriculture, industry and services sectors is estimated to be 1.2 per cent, 2.8 per cent and 7.2 per cent respectively in the second quarter of 2012-13 as against 3.1 per cent, 3.7 per cent and 8.8 per cent respectively in the corresponding quarter of 2011-12. Cumulative growth in the first two quarters of the current year put together works out to 5.4 per cent as against 7.3 per cent in the corresponding period last year.
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1. Growth since Q4 of 2012-13 is expected to stage a gradual recovery aided by some revival in investment demand and the favourable effect of some moderation in inflation on consumption. Inflation in Q3 of 2012-13 has trended down, though upside risks remain from suppressed inflation which could impart stickiness to inflation trajectory in 2013- 14. Core inflation pressures have receded markedly and are unlikely to re-emerge quickly on demand considerations. However, high food and fuel inflation still remain a concern and this in part is reflected in high CPI inflation.
2. Since the beginning of 2012, the Reserve Bank has worked towards easing monetary and liquidity conditions in a calibrated manner so as to not jeopardise the trend of moderating inflation. The strategy yielded dividends, as headline and core inflation moderated during Q3 of 2012-13. However, monetary policy needs to continue to be calibrated in addressing growth risks as inflation remains above the Reserve Banks comfort level and macroeconomic risks from twin deficits persists.
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Global Economic Conditions Fiscal Adjustments Likely To Keep Global Recovery Muted In 2013
3. Though the US registered high growth in Q3 of 2012 and the pace of economic contraction moderated in the euro area, growth prospects for advanced economies (AEs) in 2013 remain subdued. While the immediate risk of the fiscal cliff in the US has been averted due to a hurried deal on tax rate hikes, the debt ceiling limit and the sequester issue pertaining to expenditure reduction are still unsettled. Growth in emerging market and developing economies (EMDEs) may have bottomed out, but an enduring recovery hinges on global headwinds.
Global commodity price inflation likely to remain soft, although with some risks from QE
4. Inflation in AEs is likely to remain moderate as demand remains weak, leaving the global inflation scenario benign in the near term. As a baseline case, improved supply prospects in key commodities such as oil and food are also likely to restrain commodity price pressures. However, upside risks persist, especially on the back of some recovery in EMDEs and large quantitative easing (QE) by AE central banks. In the presence of significant excess global liquidity, triggers for supply disruptions or incremental news flow on reduced slack could exacerbate price volatility and become a source of inflationary pressure.
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Unconventional Monetary Policies Reduce Global Financial Stress in The Interim, But Risks Remain Ahead
5. International financial market stress moderated greatly following aggressive monetary easing measures by the central banks of AEs, as also recent policy initiatives on fiscal consolidation in the euro area economies, encouraging capital flows into EMDEs. However, in the absence of credible long-term fiscal consolidation in the US, and generally reduced fiscal space in AEs, the efficacy of monetary policy actions may get subdued. Risks to the global financial sector, although moderating, are likely to persist
Indian Economy: Developments and Outlook Output Growth Remains Below Trend, Recovery Likely In 2013-14
6. The Indian economy further decelerated in the first half (H1) of 2012-13, with moderation in all three sectors of the economy. The weak monsoon dented agricultural performance. Policy constraints, supply and infrastructure bottlenecks and lack of sufficient demand continued to keep industrial growth below trend. Subdued growth in other sectors and weak external demand pulled down the growth of services as well. Though a modest recovery may set in from Q4 of 2012-13 as reforms get implemented, sustaining recovery through 2013-14 would require allround efforts in removing impediments to business activity.
Aggregate Demand
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External Sector Widening Of CAD and Its Financing Remains a Key Policy Challenge
8. The current account deficit (CAD) to GDP ratio reached a historically high level of 5.4 per cent in Q2 of 2012-13. Low growth and uncertainty in AEs as well as EMDEs continued to adversely impact exports in Q3 of 2012-13. This, combined with continuing large imports of oil and gold, resulted in a deterioration of the trade balance. For the time being, strong capital flows have enabled financing of CAD without a significant drawdown of foreign exchange reserves. However, the possibility of volatility in these flows, which may put further pressure on the external sector, cannot be ruled out. A two-pronged approach, of lowering CAD in the medium term while ensuring prudent financing of CAD in the interim, is necessary from the policy perspective.
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Monetary and Liquidity Conditions With tightening cycle gradually impacting inflation, the Reserve Bank takes measures to combat tight liquidity conditions
9. Monetary policy in India has sought to balance the growth-inflation dynamics that included a frontloaded policy rate cut of 50 basis points (bps) in April 2012 and several liquidity enhancing measures. These included lowering of the cash reserve ratio (CRR) by 50 bps on top of a 125 bps reduction in Q4 of 2011-12 and the statutory liquidity ratio (SLR) by 100 bps in a bid to improve credit flows. The Reserve Bank also infused liquidity of over `1.3 trillion through outright open market operation (OMO) purchases during 2012-13 so far. However, growth in monetary aggregates remains below the indicative trajectory.
Financial Markets Domestic Reform Initiatives and Surging Capital Flows Improve Market Sentiment and Revive the IPO Market
10. Improved global sentiments along with recent policy reforms by the government beginning September 2012, and market expectations of a cut in the policy rate in the face of moderation in inflation, aided FII flows into the domestic market. The equity markets showed significant turnaround, while the rupee remained range-bound. In addition, revival is witnessed in the IPO segment. Although Indian financial market sentiments improved significantly in Q3 of 2012-13, some macroeconomic concerns persist, as witnessed in the inverted yield curve. Sustained
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commitment to curtail twin deficits and nurture growth without fuelling inflation is critical to support investor confidence.
Price Situation Headline and Core Inflation Moderated, But Suppressed Inflation Poses Risks
11. Headline inflation moderated in Q3 of 2012-13 with significant moderation in nonfood manufactured products inflation. Both weakening domestic demand and lower global commodity prices contributed to the softening of headline inflation. Though the recent hike in diesel prices will put some pressure on the overall price level, the near-term inflation outlook indicates that the moderation may continue through Q4 of 2012-13. While the pressure from generalized inflation remains muted at the current juncture, risks from suppressed inflation, pressure on food prices and high inflation expectations getting entrenched into the wage-price spiral need to be reckoned with. The inflation path for 2013- 14 could face downward rigidity as some of the risks from suppressed inflation materialize.
to fiscal consolidation is needed to generate monetary space. Widening CAD, which is at historically high level, remains a constraint on monetary easing. Against this backdrop, while growth can be supported by monetary policy if inflation risks recede, credible fiscal correction with improved execution in infrastructure space to boost investment would be needed for a sustained revival. The balance of macroeconomic risks suggest continuation of the calibrated stance while increasingly focussing on growth risks
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B. Company analysis
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PBT Tax % PBT Reported Profit After Tax Minority Interest Net Profit afer Minority Int. Extra-ordinary Items Adjusted Profit Equity Face Value EPS (Unit Curr.) EPS TTM (Unit Curr.)
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Mar- Mar- Mar- MarPraticulars 13 Valuation Ratios: (x) P/E EV/Total 3.46 Assets P/BV EV/Sales 5.31 2.90 5.55 2.98 6.58 3.61 8.69 4.12 DPS BookValue Dividend EV/EBITDA 14.16 15.75 17.37 18.83 (%) Growth:(%) Solvency Ratios: Interest Coverage Sales Growth 1.00 20.00 14.00 6.00 (EBIT / Interest) EBITDA 9.00 Growth Net Profit 7.00 6.00 9.00 8.00 22.00 EBITDA 15.00 20.00 Net Debt Net debt to Yield 3.32 3.95 4.56 Cash EPS 12 11 10 Per Data:(Rs.) 18.79 20.08 21.26 24.37 EPS(Basic) share Particulars
7.00
6.00
6.00
6.00
1.63
1.31
1.31
0.78
-0.51
-0.21
-0.05
-0.04
to -0.15
-0.05
-0.01
-0.01
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Growth
Margins:(%) EBITDA
Returns:(%)
20.00 19.00 21.00 22.00 Angel ROIC * Margin PBT Margin Net Margin Profit 16.00 15.00 17.00 17.00 ROE 21.00 19.00 20.00 20.00 ROCE
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Quarterly Ratios: Growth yoy:(%) YOY EBITDA 1.46 Growth YOY Growth YOY Net Profit 3.00 Growth 17.00 18.00 24.00 Growth Sales 5.00 13.00 -4.00 17.00 Growth QoQ Net Profit -6.00 1.00 7.00 2.00 7.18 3.32 22.90 Growth QoQ Sales 1.00 0.00 10.00 15.00 rate Jun13 Mar13 Dec12 Sep12 Growth qoq:(%) QoQ EBITDA 3.00 -5.00 -4.00 7.00 rate Jun13 Mar13 Dec12 Sep12
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C. Industry Analysis
Peer Comparison:-
P/E Market Cap Company (Rs. in Cr.) (x) TCS Infosys Wipro HCL Technologis 382,211.80 172,016.46 117,156.70 74,047.05 28.84 19.88 19.83 20.51
(TTM) (TTM) (x) (x) 11.77 4.77 4.84 7.24 18.37 10.93 12.83 11.74 44.6 27.7 23.3 31.3 53.7 37.5 25.0 32.3 0.00 0.00 0.23 0.17
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TCS:
TCS is the bell weather in IT sector and has maintained to be the large cap stock among all the IT stocks on the Indian Bourses. Recently TCS has earned the Xclent customer base award 2012 for its TCS BaNCS banking software.
It sees better IT spends, ramp-up in its clients in the US as compared to earlier and the fact that TCS has 8% wage hike is showing that the company is expecting more revenue growth compared to its peers.
This is the company that was affected by the recession during 2008-09 because of its diversified network, at that point of time it decreased its cost by firing 300000 employees and maintained 46.7 EPS higher compared to other years.
TCS is allocating 15% of its income to its contingent liability which shows the ability of the company to maintain its growth even in its aggressive acquisitions.
It has maintained good reserves and decreasing debt which will be the safest parameters for the investor to look at to invest.
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Debt to Equity ratio is 0.01 this means TCS has one paisa of debt to equity which shows it has low debt and the PAT is 415 times higher than the interest paid by the company.
It is a low beta stock which means it will not be affected by the market forces, rather its performance is the key, it has shown a consistent EPS growth rate of 6% and the PE growth rate of 10%, using this parameter it is projected that the share price may stand at Rs.1372 in a year if the company maintains to continue its exports which inversely gain revenues from the dollar appreciation.
The return on net worth is 37% which is the highest in the sector.
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INFOSYS:
Indias second-largest software services exporter by Revenues and which is another Bellwether IT stock, has been weak in keeping its financials than other IT companies and also Analysts estimates., In spite of the initiative of leading a government effort to give every Indian citizen an ID number, a crucial initiative in a country where most people have no drivers li cense, passport or even birth certificate.
Apart from this the other factor that drove Infosys share price by 10% decrease in share price over the last year was due to Visa fraud charges leveled in the United States. It has continued to maintain the name of company with politics and bad reputation in the eyes of employees with regards to the salary hikes and work pressure.
The company has been good to give employee appraisal rather than rewards, on the other side of the coin it has the ability to make any employee proficient to work in another company.
There is a perception among the accountants and the investors that in the presentation of the financial statement by Infosys is the best with its Zero Debt, increased revenues and reserves.
Infosys has an average income growth rate of 19% and it has allocated 4% of its income to its contingent liability which is higher than past year and has been increasing YOY.
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Among all the other giants in the IT sector Infosys has the highest FII holding of 37.36% (as on 1 May 2012), If the company gives high growth rate in the next quarter it can become a good stock after HCL Technologies.
Infosys is a low beta stock. Infosys has 10% average EPS growth rate and 6% P/E over the years.
If the company continues to maintain the same momentum in generating more revenues and along with the continuity in its reserves and income, it is projected that the share price could be at Rs.3772 in a year with its current average growth rate.
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Wipro:
The company that started with the innovation and integrity in the consumer product business is now the 3rd largest IT services company in India and entered into the Forbes top 500 companies list.
Wipros IT services and Hardware accounted for 75% of its total revenues till the year 2011 and its results has come in line with the expert expectations.
After tasting sweet success with its Glucose Powder Brand Glucovita, Wipro Consumer Care & Lighting (WCCL) now plans to launch the product in the tablet form as well, where an individual can have two tablets and get instant energy.
WCCLs first major overseas acquisition was the Singapore-based Unza Holdings for around Rs 1,000 crore in 2007, through which it operates in 40 countries.
The consolidated result takes into account all the segments, in which the Consumer Care and Lighting accounted for more than the IT services during the year ended 2012.
Wipro has 1% of its income as its contingent liability which is a good parameter for investment, it has good reserves, it has negative cash flows, and company is going to invest 100 crores this fiscal to increase the capacity in various categories, be it lighting, soaps or personal care, to meet demand.
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Looking at WiprosRatios
Wipro is a low beta stock. Wipro has 22 Paisa debt for every rupee of its equity.
The average growth of EPS is 4% and P/E is 5% the estimated price stood at Rs.527, company has PAT 82 times to its interest cost.
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HCL Technologies:
It occupied 4th place in the top IT companies in INDIA and it is after the Giant TCS in generating revenues, HCL consistently has been increasing its quarterly performance, through better revenue visibility and winning the market share.
The share price has gained around 25% over the past and they won about USD 2.5 billion of deals over the last couple of quarters, it is expected that in the next two quarters HCL is going to outperform in the industry over the others.
According to the Technical Analysis the resistance is at 519-521 now it is trading at 512(as on 30 April 2012) which can shoot up in the future.
It is the hot stock in the IT sector of INDIA. It granted employee stock options of around 206.70crores which is the different treatment of employees in the entire sector.
It is maintaining 4% of its income as contingent liability which is the average of the industry, it has shown good income, reserves and the company have high debt when compared to the other companies so, compare with the return on the investment it has Rs.10 return on every one rupee it spends.
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Return on net worth is 22% which shows that the company has good managerial abilities.
It maintained average EPS growth rate of 15% and P/E of 26% which is highest in the sector, using these parameters it can be said that the price of the share will stand at Rs.687 in the future, keeping a look on its financials and ratios it is for a short term investment until and unless it decreases it debt.
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CONCLUSION:
The IT sector earns income in dollars as they are mainly the exporters. In past 4 months rupee depreciated against dollar. So the entire it sector specially WIPRO has made good amount of profit in last quarter.
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Among the top four companies of the IT sector in India, TCS is the good going stock and it has ability to double its share price in the near future by its outstanding numbers.
It is a stock for long term holding, next is the HCL technologies which is in the race to occupy the top rank in the sector though it is a short term investment stock and can generate more revenues in the near future with its upcoming deals and it continued in paying dividends.
Wipro is expected to grow in the near future by its investment activities and it is better to dont step onto Wipro and Infosys till they show big numbers like TCS.
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BIBLIOGRAPHY
www.stockmarketinstitute.org http://stockmarketinstitute.org/blog/?tag=wipro-fundamental-analyis
http://www.rbi.org.in/scripts/PublicationsView.aspx?id=14923#top
http://www.slideshare.net/sivapriya28/wipro-technologies-ltd?from_search=4
http://indiabudget.nic.in/ub2013-14/frbm/frbm1.pdf
http://www.angelbroking.com/
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