NAME: MEENAKSHI SHARMA

SMS-ID: 2212376

BATCH: PGCBM-14

CENTRE: SEC-14, GURGAON

NAME OF THE TOPIC: CALCULATION OF ADR WIPRO TECHNOLOGIES

COURSE: INTERNATIONAL FINANCIAL MANAGEMENT

FACULTY: DR. H.K PRADHAN

CALCULATION OF ADR WIPRO TECHNOLOGIES

A depository receipt or a DR is a type of negotiable (transferable) financial security that is traded on a local stock exchange but represents a security, usually in the form of equity that is issued by a foreign publicly listed company. The DR, which is a physical certificate, allows investors to hold shares in equity of other countries. The issue of such instruments involves the delivery of ordinary shares of an Indian company to a domestic custodian bank in India, which in turn instructs an overseas depository bank to issue GDR (global depository receipt) on a predetermined ratio. The GDR can be sold outside India in their existing form. The underlying shares (arising after redemption of GDR) can also be sold in India While ADRs are listed on the US stock exchanges; the GDRs are usually listed on a European stock exchange. A GDR may evidence one or more GDS(global depository share). Each GDS represent underlying share of Issuing company. A GDR or ADR means any instrument in the form of a Depository receipt or certificate by whatever name it is called, created by the Overseas Depository Bank (ODB) outside India and issued to non-resident investors against the issue of ordinary shares or foreign currency convertible bonds of issuing company. These are negotiable instruments denominated in US $ representing a non-US company's publicly traded, local currency equity shares. One of the most common types of GDRs is the American depositary receipt (ADR), which has been offering companies, investors and traders global investment opportunities since the 1920s.While ADRs are listed on the US stock exchanges, the GDRs are usually listed on a European stock exchange. ADRs are bought and sold on American markets just like regular stocks, and are issued/sponsored in the U.S. by a bank or brokerage. ADRs were introduced as a result of the complexities involved in buying shares in foreign countries and the difficulties associated with trading at different prices and currency values. For this reason, U.S. banks simply purchase a bulk lot of shares from the company, bundle the shares into groups, and reissues them on either the New York Stock Exchange(NYSE), American Stock Exchange(AMEX) or the Nasdaq. In return, the foreign company must provide detailed financial information to the sponsor bank. In brief, an ADS is a Common stock (ordinary shares) of a foreign corporation, held by a US bank in a custodial account on behalf of a stockholder and American Depository Receipts (ADRs ) are issued against ADS.

There are three different types of ADR issue:-level 1, level 2 and level 3. Level 1 - This is the most basic type of ADR where foreign companies either don't qualify or don't wish to have their ADR listed on an exchange. Level 1 ADRs are found on the over-thecounter market and are an easy and inexpensive way to gauge interest for its securities in North America. Level 1 ADRs also have the loosest requirements from the Securities and Exchange Commission (SEC). Level 2 - This type of ADR is listed on an exchange or quoted on Nasdaq. Level 2 ADRs have slightly more requirements from the SEC, but they also get higher visibility trading volume. Level 3 - The most prestigious of the three, this is when an issuer floats a public offering of ADRs on a U.S. exchange. Level 3 ADRs are able to raise capital and gain substantial visibility in the U.S. financial markets. There are four main parties that come to play with ADRs: (1) The issuing corporation is the first party. This is typically a large foreign-based corporation that is already listed on a major foreign exchange. Rather than dual list its shares on its home exchange and on a U.S. exchange, the issuer sells a bulk amount of its shares to a trusted U.S. party - a recognized bank. (2) A U.S. bank is the second party in this process; by accepting the issuing company's shares and selling representative certificates to investors, the bank is said to sponsor the security, making it accessible to investors in the ADR's local market. Essentially, the bank accepts the shares from the foreign corporation, stores all of them in its vault, and prints a bunch of certificates that represent the shares. Those certificates are then issued to investors via an exchange. (3) A major U.S. exchange (i.e. NYSE or Nasdaq) then lists the banks certificates for trading, allowing investors to buy and sell ADR units just as they would normal shares. Investors set market prices for the ADRs through the bidding process, pricing and freely trading the units back and forth in U.S. dollars. Because they are ADRs, investors avoid the problem of converting into foreign currency each time the units are bought and sold. They also don't have to deal with foreign trading rules or laws; however, the appropriate Securities and Exchange Commission (SEC) rules do apply. (4) The SEC is the fourth major party involved in ADRs. While it plays no direct role in the issuance and trading of the ADR units, the SEC requires ADR issuers to file certain documents

with the SEC before allowing the proposed ADR units to be issued and traded in the U.S. markets.

Determining the price of an ADR:-

Let's use an example to give you a better idea of how the ADR process works. Suppose a recent boom in the popularity of Bloody Mary drinks has increased the prospects for the vodka industry. Russian Vodka Inc. wants to list shares on the NYSE to gain exposure to the U.S. market and to tap into the growing demand for vodka. Russian Vodka already trades on the Russian Stock Exchange at 127 Russian roubles, which, at this time, is equivalent to US$4.58. Let's say that a U.S. bank purchases 30 million shares from Russian Vodka Inc. and issues them in the U.S. at a ratio of 10:1. This means each ADR share you purchase is worth 10 shares on the Russian Stock Exchange. Thus the new ADR should have an issue price of around US$45.80 each (10 times $4.58). Once an ADR is priced and sold on the market, its price is determined by supply and demand, just like an ordinary stock. However, if the U.S. price varies too far from the Russian price after taking the currency exchange rate and the ratio of ADRs to home country shares into account, an arbitrage opportunity may arise. ADRs tend to follow the general trend of the home country shares, but this is not always the case. There are several factors that determine the value of the ADR beyond the performance of the company. (1) Political Risk - Ask yourself if you think the government in the home country of the ADR is stable? For example, you might be wary of Russian Vodka Inc. because of the characteristic instability of the Russian government. (2) Exchange Risk - Is the currency of the home country stable? Remember the ADR shares track the shares in the home country. If a country's currency is devalued, it will trickle down to your ADR. This can result in a big loss, even if the company had been performing well. (3) Inflationary Risk - This is an extension of the exchange rate risk. Inflation is the rate at which the general level of prices for goods and services is rising and, subsequently, purchasing power is falling. Inflation can be a big blow to business because the currency of a country with high inflation becomes less and less valuable each day.

With globalization dissolving borders, it only makes sense that we have the ability to invest in foreign entities. Many nations who are striving to become industrialized are undervalued compared to the levels they will eventually reach. Many people, therefore, consider ADRs an undiscovered gem in the financial markets. Diversification does not stop at just investing in different types of stocks or bonds. By investing in different countries, you gain the potential to capitalize on emerging economies, which hopefully leads to more green in your pocket

The Company
Wipro Technologies About Company and its history of ADR Wipro Limited is a $5 billion Indian conglomerate. It is one of the top IT industries in India. Wipro Ltd. has interests varying from information technology, consumer care, lighting, engineering and healthcare businesses. Billionaire Azim Premji leads the group. History Wipro started as a vegetable oil trading company in 1947 from an old mill founded by Azim Premji's father. When his father died in 1966, Azim, a graduate in Electrical Engineering from Stanford University, took on the leadership of the company at the age 21. He repositioned it and transformed Wipro (Western India Vegetable Products Ltd) into a consumer goods company that produced hydrogenated cooking oils/fat company, laundry soap, wax and tin containers and later set up Wipro Fluid Power to manufacture hydraulic and pneumatic cylinders in 1975. At that time, it was valued at $2 million. In 1977, when IBM was asked to leave India, Wipro entered the information technology sector. In 1979, Wipro began developing its own computers and in 1981, started selling the finished product. This was the first in a string of products that would make Wipro one of India's first computer makers. The company licensed technology from Sentinel Computers in the United States and began building India's first mini-computers. Wipro hired managers who were computer savvy, and strong on business experience.. In 1980 Wipro moved in software development and started developing customized software packages for their hardware customers. This expanded their IT business and subsequently developed the first Indian 8086 chip. Since 1992 Wipro began to grow its roots off shore in United States and by 2000 Wipro Ltd ADRs were listed on the New York Stock Exchange.

The company's revenue grew by 450% from 2002 to 2007. This success has led to higher salaries (wages have been growing by more than 14% per year since 2005), which puts pressure on the company's margins.

Wipro Technologies deals in following businesses

IT Services: Wipro provides complete range of IT Services to the organization. The range of services extends from Enterprise Application Services (CRM, ERP, e-Procurement and SCM) to e-Business solutions. Wipro's enterprise solutions serve a host of industries such as Energy and Utilities, Finance, Telecom, and Media and Entertainment. Product Engineering Solutions: Wipro is the largest independent provider of R&D services in the world. Using "Extended Engineering" model for leveraging R&D investment and accessing new knowledge and experience across the globe, people and technical infrastructure, Wipro enables firms to introduce new products rapidly. Technology Infrastructure Service: Wipro's Technology Infrastructure Services (TIS) is the largest Indian IT infrastructure service provider in terms of revenue, people and customers with more than 200 customers in US, Europe, Japan and over 650 customers in India. Business Process Outsourcing: Wipro provides business process outsourcing services in areas Finance & Accounting, Procurement, HR Services, Loyalty Services and Knowledge Services. In 2002, Wipro acquiring Spectra mind and became one of the largest BPO service players. Consulting Services: Wipro offers services in Business Consulting, Process Consulting, Quality Consulting, and Technology Consulting.

Wipro's Sister Concerns (Business Units)

Wipro Infrastructure Engineering: It has emerged as the leader in the hydraulic cylinders and truck tipping systems market in India. Wipro InfoTech: It is one of the leading manufacturers of computer hardware and a provider of systems integration and infrastructure services in India. Wipro InfoTech is more focused on the manpower services and is not at the cutting edge of technology. Wipro Lighting: It manufactures and markets the Wipro brand of luminaries. Wipro Lighting offers lighting solutions across various application areas such as commercial lighting for modern work spaces, manufacturing and pharmaceutical companies, designer petrol pumps and outdoor architecture.

Timeline

1980 - Diversification into Information Technology 1990 - Incorporation of Wipro-GE medical systems 1992 - Going global with global IT services division 1993 - Business innovation award for offshore development 1995 - Wipro gets ISO 9001 quality certification, re-certified twice for mature processes 1997 - Wipro gets SEI CMM level 3 certification, enterprise wide processes defined o Start of the Six Sigma initiative, defects prevention practices initiated at project level. 1998 - Wipro first software services company in the world to get SEI CMM level 5 [4] 1999 - Wipro's market capitalization is the highest in India 2000 - Start of the Six Sigma initiative, defects prevention practices initiated at project level. Wipro listed on New York Stock Exchange. 2001 - First Indian company to achieve the "TL9000 certification" for industry specific quality standards. o Wipro acquires American Management Systems global energy practice o Becomes world's first PCMM Level 5 Company. o Premji established Azim Premji Foundation, a not-for-profit organization for elementary education. Wipro becomes only Indian company featured in Business Weeks 100 best-performing technology companies. 2002 o Worlds first CMMi ver 1.1 Level 5 company. o Wipro acquires Spectramind. o Ranked the 7th software services company in the world by BusinessWeek (Infotech 100, November 2002). 2003 o Wipro acquires Nervewire. o Wipro Technologies Wins Prestigious IEEE Award for Software Process Excellence. o Wipro Technologies awarded prestigious ITSMA award for services marketing excellence. o Wipro wins the 2003 Asian Most Admired Knowledge Enterprise Award. 2004 o Crossed the $1 Billion mark in annualized revenues. o Wipro launches Indias first RFID enabled apparel store. o Wipro Technologies named Asian Most Admired Knowledge Enterprise second year in a row. o IDC rates Wipro as the leader among worldwide offshore service providers 2005 - Wipro acquires mPower to enter payments space and also acquires European System on Chip (SoC) design firm NewLogic 2008 - Wipro acquires Gallagher Financial Systems to enter mortgage loan origination space

The Offer and Listing Price History Wipros equity shares are traded on The Stock Exchange, Mumbai or BSE and the National Stock Exchange of India Limited, or NSE. During the year the company has obtained approval for de-listing its equity shares from the Kolkata Stock Exchange Association Limited. Its American Depositary Shares, as evidenced by American Depositary Receipts, or ADRs, are traded in the U.S. on the New York Stock Exchange, or NYSE, under the ticker symbol WIT. Each ADS represents one equity share. Its ADSs began trading on the NYSE on October 19, 2000. As of March 31, 2009, Wipro had 1,464,980,746 issued and outstanding equity shares. As of March 31, 2009, there were approximately 14,945 record holders of ADRs evidencing 23,692,051 ADSs (equivalent to 23,692,051 equity shares). As of March 31, 2009, there were approximately 228,457 record holders of its equity shares listed and traded on the Indian Stock Exchanges. The following tables set forth for the periods indicated the price history of our equity shares and ADSs on the BSE, NSE and the NYSE. The stock prices for the prior periods are restated to reflect stock dividend issued by the Company from time to time.

Track of last 6 months of ADR on exchange showing % deviation from Fair Value in India
Wipro nasdaq 15.24 15.12 14.52 14.39 14.14 14.15 14.16 14.08 13.95 13.56 13.48 13.64 13.06 12.67 12.21 11.27 11.22 11.49 11.3 10.93 11.12 11.26 11.75 11.7 11.8 11.85 11.89 11.46 11.11 10.72 10.66 11.35 11.47 11.52 11.53 11.95 12.28 12.91 12.63 Wipro BSE 482.35 491.05 490.65 488.55 466.7 464 459.75 459.4 456.25 451 457.95 460.05 429.4 416.45 412.85 400.25 389.7 384.7 372.15 373.3 376.4 371.1 385.55 381.25 378.45 377.65 378.65 383.7 374.6 381.25 376.6 378.3 380.7 377.75 378.65 397 401.75 409.95 423.25

Date 8/4/2009 8/3/2009 7/31/2009 7/30/2009 7/29/2009 7/28/2009 7/27/2009 7/24/2009 7/23/2009 7/22/2009 7/21/2009 7/20/2009 7/17/2009 7/16/2009 7/15/2009 7/14/2009 7/13/2009 7/10/2009 7/9/2009 7/8/2009 7/7/2009 7/6/2009 7/3/2009 7/2/2009 7/1/2009 6/30/2009 6/29/2009 6/26/2009 6/25/2009 6/24/2009 6/23/2009 6/22/2009 6/19/2009 6/18/2009 6/17/2009 6/16/2009 6/15/2009 6/12/2009 6/11/2009

INR/USD 47.57995 47.59002 48.06196 48.30997 48.42598 48.21491 48.16525 48.23013 48.45035 48.52019 48.43985 48.20497 48.73031 48.67021 48.63014 48.96505 49.0898 48.79002 48.70979 48.89001 48.23026 48.57523 47.87993 47.94505 47.89515 47.76992 48.05022 48.10017 48.60258 48.53019 48.55273 48.42979 48.01034 48.10991 47.98988 47.59971 47.7148 47.60354 47.61472

ADR Value 725.118438 719.5611024 697.8596592 695.1804683 684.7433572 682.2409765 682.01994 679.0802304 675.8823825 657.9337764 652.969178 657.5157908 636.4178486 616.6515607 593.7740094 551.8361135 550.787556 560.5973298 550.420627 534.3678093 536.3204912 546.9570898 562.5891775 560.957085 565.16277 566.073552 571.3171158 551.2279482 539.9746638 520.2436368 517.5721018 549.6781165 550.6785998 554.2261632 553.3233164 568.8165345 585.937744 614.5617014 601.3739136

% deviation from Fair Value 50.33% 46.54% 42.23% 42.29% 46.72% 47.03% 48.35% 47.82% 48.14% 45.88% 42.59% 42.92% 48.21% 48.07% 43.82% 37.87% 41.34% 45.72% 47.90% 43.15% 42.49% 47.39% 45.92% 47.14% 49.34% 49.89% 50.88% 43.66% 44.15% 36.46% 37.43% 45.30% 44.65% 46.72% 46.13% 43.28% 45.85% 49.91% 42.08%

6/10/2009 6/9/2009 6/8/2009 6/5/2009 6/4/2009 6/3/2009 6/2/2009 6/1/2009 5/29/2009 5/28/2009 5/27/2009 5/26/2009 5/25/2009 5/22/2009 5/21/2009 5/20/2009 5/19/2009 5/18/2009 5/15/2009 5/14/2009 5/13/2009 5/12/2009 5/11/2009 5/8/2009 5/7/2009 5/6/2009 5/5/2009 5/4/2009 4/30/2009 4/29/2009 4/28/2009 4/27/2009 4/24/2009 4/23/2009 4/22/2009 4/21/2009 4/20/2009 4/17/2009 4/16/2009 4/15/2009 4/14/2009 4/9/2009 4/8/2009 4/7/2009 4/6/2009 4/3/2009 4/2/2009 4/1/2009 3/31/2009 3/30/2009

47.33017 47.48979 47.55517 47.11222 47.20468 47.0599 47.01643 46.96273 47.11732 47.6097 47.66995 47.86022 47.30478 47.10993 47.28001 47.42001 47.78504 47.89017 49.39266 49.71024 49.71005 49.3174 49.51009 49.28268 49.09975 49.59015 49.30016 49.91001 49.91488 50.03468 50.51724 50.24762 49.77479 49.93487 50.32981 50.47247 50.1797 49.85986 49.7575 49.67509 49.57517 49.98493 50.18971 50.02037 50 50.0797 50.35021 50.56998 50.64022 51.5152

12.81 12.24 12.41 12.38 12.2 12.51 12.46 11.8 11.55 11.25 11.17 10.96 10.87 11.08 11.16 11.49 10.69 10.38 10.1 10.52 9.92 10.42 10.23 10.6 10.9 10.61 9.47 9.38 9.26 9.09 9.16 9.12 9 8.52 8.16 8.01 8.47 8.32 8.06 8.44 8.75 8.85 8.89 8.03 8.34 8.45 7.99 7.29 7.11 7.12

432.7 423.75 406 392.8 390.9 395.9 391.35 397.7 381.55 368.4 378.55 372.3 366.65 368.7 375.6 394.8 385.9 377.75 364.35 374.75 375.25 349.4 355 380.05 359.2 368.4 364.6 330.5 315.4 324.75 311.9 312.95 281.65 274.25 273.6 274.3 276.65 269 274.2 282.1 269.45 270.25 251.6 245.4 241.1

606.2994777 581.2750296 590.1596597 583.2492836 575.897096 588.719349 585.8247178 554.160214 544.205046 535.609125 532.4733415 524.5480112 514.2029586 521.9780244 527.6449116 544.8559149 510.8220776 497.0999646 498.865866 522.9517248 493.123696 513.887308 506.4882207 522.396408 535.187275 526.1514915 466.8725152 468.1558938 462.2117888 454.8152412 462.7379184 458.2582944 447.97311 425.4450924 410.6912496 404.2844847 425.022059 414.8340352 401.04545 419.2577596 433.7827375 442.3666305 446.1865219 401.6635711 417 423.173465 402.2981779 368.6551542 360.0519642 366.788224

40.12% 37.17% 45.36% 48.49% 47.33% 48.70% 49.69% 39.34% 42.63% 45.39% 40.66% 40.89% 40.24% 41.57% 40.48% 38.01% 32.37% 32.06% 43.53% 31.59% 36.95% 44.96% 47.15% 40.82% 46.48% 26.73% 28.40% 37.61% 46.71% 41.11% 43.63% 35.95% 45.82% 47.41% 55.34% 51.23% 44.96% 55.86% 61.33% 58.17% 54.76% 48.86% 46.52% 46.72% 52.13%

3/27/2009 3/26/2009 3/25/2009 3/24/2009 3/23/2009 3/20/2009 3/19/2009 3/18/2009 3/17/2009 3/16/2009 3/13/2009 3/12/2009 3/11/2009 3/10/2009 3/9/2009 3/6/2009 3/5/2009 3/4/2009 3/3/2009 3/2/2009 2/27/2009 2/26/2009 2/25/2009 2/24/2009 2/23/2009 2/20/2009 2/19/2009 2/18/2009 2/17/2009 2/16/2009 2/13/2009 2/12/2009 2/11/2009 2/10/2009 2/9/2009 2/6/2009 2/5/2009

50.64536 50.15507 50.66993 50.72037 50.37911 50.56978 50.31015 51.29018 51.41014 51.40009 51.49477 51.89016 51.15986 51.55996 51.87027 51.69537 51.76981 51.53485 51.96988 51.88473 51.07007 50.39509 49.83978 49.91773 49.82497 49.62513 49.68501 49.68006 49.43486 48.61966 48.42471 48.59035 48.65976 48.66507 48.60009 48.52532 48.66007

7.4 7.82 7.5 7.46 7.69 6.6 6.79 6.66 6.34 6.3 6.24 6.07 5.79 5.98 5.38 5.56 5.53 5.74 5.36 5.14 5.69 5.93 6.04 6.11 5.99 6.17 6.32 6.25 6.32 6.77 6.84 6.67 6.77 7.17 7.28 6.81

253.1 254.6 242.4 242.3 239.05 231.45 232.7 230.65 227.3 228.25 224.55 212.1

205.75 213.2 206.25 205.85 200.5 202.85 207.35 215.95 217.45 212.2 215.3 220.35 209.05 209.7 215.8 223.9 222.3 221.95 225.55 226.2 223.95 219.7

374.775664 392.2126474 380.024475 378.3739602 387.4153559 333.760548 341.6059185 341.5925988 325.9402876 323.820567 321.3273648 314.9732712 296.2155894 308.3285608 279.0620526 287.4262572 286.2870493 295.810039 278.5585568 266.6875122 290.5886983 298.8428837 301.0322712 304.9973303 298.4515703 306.1870521 314.0092632 310.500375 312.4283152 327.8352867 332.357994 324.5605992 329.4625239 348.4626453 353.2643296 331.3750767

48.07% 54.05% 56.78% 56.16% 62.06% 44.20% 46.80% 48.10% 43.40% 41.87% 43.10% 48.50%

35.63% 34.82% 38.81% 43.70% 38.93% 31.47% 40.14% 38.39% 38.44% 43.73% 42.21% 42.50% 48.53% 48.99% 46.42% 49.51% 46.23% 46.07% 54.05% 57.74% 50.83%

Calculation of ADR on 5th Feb 2009 Wipro Technologies on 5th Feb 2009 Trades on Bombay Stock Exchange at 219.7 Indian Rupees. This is equal to US$ 219.7/48.66 = 4.51 Now the ratio at which Wipro Technologies shares are priced in U.S is 1:1 This means that each ADR you purchase is worth 1 share on the Bombay stock exchange.

A quick calculation tells us that each ADR should have an issue price of US$ 4.51 (US$ 4.51 per share X 1 shares)-since 1 share equal to 1 ADR Once an ADR is priced and sold, its subsequent price is determined by supply and demand factors, like any ordinary share. Inference We see that on 5th Feb 2009 ADR is priced at US$ 6.81, while it should ideally be 4.51. Hence, there is a percentage deviation of 50.83.

Graphical Representation of the movement of shares on BSE and NASDAQ

800 700 600 500 400 300 200 100 0 1 8 15 22 29 36 43 50 57 64 71 78 85 92 99 106 113 120 BSE NASDAQ

Graphical Representation of the Percentage Deviation of ADR for last 6 months

% deviation from Fair Value 70.00% 60.00% 50.00% 40.00% % deviation from Fair Value 30.00% 20.00% 10.00% 0.00% 1 11 21 31 41 51 61 71 81 91 101 111 121

Graphical Representation of the movement of Infy NASDAQ w.r.t movement of INR & US$

60 50 40 30 20 10 0 1 9 17 25 33 41 49 57 65 73 81 89 97 105 113 121 INR/USD Wipro NASDAQ

Inferences
Fluctuations in the exchange rate between the Indian rupee and the U.S. dollar will affect the U.S. dollar equivalent of the Indian rupee price of our equity shares on the Indian stock exchanges and, as a result, will likely affect the market price of our American Depositary Shares, or ADSs, listed on the New York Stock Exchange, and vice versa. Though once an ADR is priced and sold, its subsequent price is determined by supply and demand factors, like any ordinary share. But, we see here that somewhat the movement of ADR is similar to the value of price at BSE. This means that, both ADR and share value at BSE are governed by some common factors.