Wipro Fundamental Analysis: Beneath the Surface

In this blog post, we will delve beneath the surface and explore the key elements of Wipro fundamental analysis. By examining its financial health, competitive position, and growth prospects, we aim to provide a comprehensive understanding of this global technology giant.

Wipro Ltd- About The Company

A leading provider of outsourcing, consulting, and information technology services, Wipro Ltd. develops and integrates solutions. Information technology services, India State Run Enterprise services, and information technology products make up its three main operating segments. Digital strategy consulting, customer-centric design, technology consulting, IT consulting, custom application design, development, reengineering and maintenance, systems integration, package implementation, global infrastructure services, analytics services, business process services, research and development, and hardware and software design are all services offered to businesses around the world by the Information Technology Services segment.

It is the 4th largest Indian player in the global IT services industry behind TCS, Infosys and HCL Technologies.

Assessing Wipro’s Growth Prospects

The Indian software product market is likewise projected to have remarkable growth, with a target value of $100 billion by 2025. This sector demonstrates India’s capacity to create and deploy cutting-edge software solutions that satisfy the changing demands of international markets. Indian software businesses are taking advantage of potential markets and driving the expansion of the sector with a concentration on quality and innovation.

In the fiscal year 2022, the IT industry constituted 7.4% of India’s GDP. However, it is projected that by 2025, the IT industry will make an even more significant contribution, reaching 10% of India’s GDP. This growth demonstrates the expanding role and impact of the IT sector on India’s overall economic landscape.

India‘s IT and business services market is projected to reach US$ 19.93 billion by 2025. In the Union Budget 2023-24, the allocation for IT and telecom sector stood at Rs. 97,579.05 crore (US$ 11.77 billion).

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Wipro Fundamental Analysis- Essentials and Financials

On a trailing 12-month basis, Wipro’s operating revenue stands at Rs. 90,487.60 Cr. The company has achieved a commendable annual revenue growth rate of 14%, indicating its positive performance. Moreover, Wipro maintains impressive profitability ratios, with a ROCE of 17.7% and ROE of 15.9%. These figures signify the company’s potential for further growth.

In terms of valuation, Wipro’s average stock P/E TTM of 19.15 is relatively low, indicating a potentially undervalued stock. Comparatively, the sector PE stands at 29.05, further highlighting the favorable valuation of Wipro. The basic EPS TTM of 20.68 reflects a slight decrease of 7.30% compared to the previous year. However, the company’s debt-to-equity ratio of 8% suggests a healthy balance sheet and prudent financial management.

In terms of shareholding, the promoters’ holdings in Wipro have slightly decreased from 72.94% to 72.92% in the March 2023 quarter. On the other hand, FII/FPI or institutions have increased their shareholding from 6.30% to 6.38%, indicating their confidence in the company. Mutual funds have also increased their holdings from 2.75% to 2.79%, while institutional investors have increased their holdings from 16.51% to 16.78% in the same quarter.

Lastly, Wipro offers a dividend yield of 0.25%, providing a return to shareholders. These factors collectively portray Wipro’s financial strength, growth potential, and the confidence shown by various stakeholders.

Evaluating Wipro’s Financial Statements

Profit & Loss | Income Statements

It appears from analysing Wipro’s income statement over the previous ten years that the business has seen outstanding growth in its sales revenue. The revenue was 37,430 crores in March 2013, and it was 90,488 crores in March 2023. This is an impressive increase of almost 2.416 times throughout this time span. It’s also important to note that over the past 10 years, Wipro’s expenses have remained lower than its revenue.

Wipro’s Operating profit which is the profit from its core business, that is, the amount of profit generated by a company before deducting interest, taxes, and non-operating expenses has also increased from 7,657 crores in March 2013 to 16,848 crores in March 2023 which is an increase of approximately 2.199 times from March 2013 to March 2023. Net profit has rose generously in the span of 10 years. That is, from 6,182 crores in March 2013 to 11,366 crores in March 2023.

Another crucial indicator of the company’s performance is its EPS, which demonstrates the consistency of its earnings. Wipro’s EPS has seen significant growth, increasing from 9.36 Rs per share to 20.68 Rs per share. This consistent upward trend in EPS reflects the company’s good financial health and performance.

Lastly, it is important to mention in the Wipro fundamental analysis there has been a reduction in the Dividend payout history of the company in last 10 years. It was 28% In FY 2013 and has reduced to just 5% in FY 2023.

Cash Flows Statements

Cash Flows statements provides the information about the inflow and outflow of cash in a company over a specific period of time. Now, Cash flows from the Operating activities is an important aspect as it tells about cash flows from the company’s core operations, such as cash received from customers and cash paid to suppliers and employees. A positive and growing cashflows is expected from a company for healthy growth.

Over the span of 10 years, that is March 2013 to March 2023, the Cash flow from operating activities of Wipro has been rising consistently from 6,394 crores to 13,060 crores. A rise of approximately 6,666 crores, that is, approximately 2.04 times over the 10-year period. This demonstrates the company’s ability to generate more cash from its core operations, which is a positive trend indicating healthy growth.

Net cash flow, which represents the overall change in cash for that period has been declining and is in negative figures. This indicates that the company had higher cash outflows than inflows during that period. It’s essential to analyze additional factors like investments, financing activities, and capital expenditures, which could have contributed to the negative net cash flow.

The organisation has to evaluate its cash management procedures and other aspects of cash flow, even if the cash flow from operational operations has been increasing. Analysis of the underlying reasons of the negative net cash flow along with evaluation of its impact on the business as a whole are essential.

Comparison Between Income Statements And Cash Flows Statements.

When analyzing Wipro’s financial statements, a significant parameter for assessing the stock’s growth potential is the comparison between Cash Flows from Operating Activities and Net Income or Profit. This comparison provides valuable insights into the company’s financial health.

In March 2023, Wipro’s Cash Flows from Operating Activities amounted to 13,060 crores, while the Net Income or profit stood at 11,366 crores. It is noteworthy that the Cash Flows from Operating Activities exceeded the Net Income or profit. This is a positive and healthy indicator for the company’s growth.

Having higher Cash Flows from Operating Activities than Net Income indicates that the company is generating substantial cash from its core operations. This suggests that Wipro’s operational activities are strong and efficient, resulting in a robust cash flow generation. It demonstrates the company’s ability to convert its profits into actual cash inflows, which is crucial for sustaining growth and meeting financial obligations.

Overall, this comparison highlights Wipro’s healthy financial performance and underscores its growth potential in the market.

Wipro fundamental analysis: Key Performance Indicators

Profitability Ratios

Wipro has maintained a strong Return on Equity over the last 3 years, with an average ROE of 18.77%. This indicates that the company has been efficiently utilizing its shareholders’ equity to generate profits. A higher ROE signifies a favorable performance in generating returns for shareholders.

Similarly, the company’s Return on Capital Employed has also been healthy, averaging at 20.94% over the past 3 years. A higher ROCE indicates that Wipro has been effectively utilizing its capital to generate profits.

Key Metrics

Wipro has shown an impressive cash conversion ratio of 114.90, indicating its ability to efficiently convert profits into cash flow. This reflects the company’s strong financial management.

Furthermore, the book value per share has consistently improved over the past 2 years. This signifies that Wipro’s assets are growing in value, which is a positive development for shareholders.

In conclusion, while Wipro exhibits positive aspects such as a strong cash conversion ratio and improving book value per share,

Highlighting Some Important Aspects

Company has delivered a profit growth of 7% CAGR over last 5 years and a profit growth of -7% trailing twelve months. Over the last 3 years, the IT giant’s share price is up by 21%. And over the last one year, it is down by -6%. Share price has moved down from Rs 420.5 to Rs 396.1, registering a Loss of Rs 24.35.

The TTM PEG Ratio is -2.7, indicating a negative value, which may raise concerns for investors. A negative PEG ratio suggests that the company’s earnings growth is not keeping up with its stock price performance, potentially leading to an overvalued stock.

In terms of stock performance, the crossing of the 30-day Simple Moving Average over the 200-day SMA suggests a positive trend, possibly indicating upward momentum in the stock price. Additionally, the current stock price being higher than the opening price reflects a favorable market sentiment towards Wipro.

Although there has been a decrease in promoter shareholding, mutual funds have increased their shareholding in the last quarter. This demonstrates institutional investors’ confidence in Wipro’s growth prospects.

However, there are concerns regarding the inefficient use of assets to generate profits, as indicated by the declining ROA over the past 2 years. Wipro should focus on addressing this issue to enhance its profitability.

Moreover, Wipro has witnessed a decline in quarterly net profit along with falling profit margins on a year-on-year basis. This highlights the importance of cost management and efforts to improve profit margins for sustainable growth.

A Closer Look At Company’s Annual Income Statement

In our next step of Wipro fundamental analysis, let’s learn the annual performance of the stock. Annual Revenue rose 14%, in the last year to Rs 92,753.3 Crores. Annual Net Profit fell 7.2% in the last year to Rs 11,350 Crores. Stock Price fell 5.8% and underperformed its sector by 15.6% in the past year.
Price to Earning Ratio is 19.1, lower than its sector PE ratio of 57.9 and Promoter Pledges are zero.

WIPRO earnings for the last quarter are 4.12 INR whereas the estimation was 5.74 INR which accounts for -28.16% surprise. Company revenue for the same period amounts to 231.90B INR despite the estimated figure of 234.10B INR.

Estimated earnings for the next quarter are 5.47 INR, and revenue is expected to reach 229.34B INR. 

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BOTTOM LINE

In conclusion, delving into Wipro fundamental analysis uncovers valuable insights beneath the surface. The company has showcased impressive growth in key areas such as revenue, operating profit, and cash flows from operating activities. Additionally, indicators like ROE and ROCE highlight Wipro’s strong performance and potential for future success. However, there are areas of concern, including declining ROA and net profit, which warrant attention.

By conducting a thorough fundamental analysis, one can gain a deeper understanding of Wipro’s prospects and make informed investment choices.

That’s all for today’s post. Hope you get some valuable insight from here.

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Disclaimer

The blog is meant for informational purposes and serves the general analysis of the stocks. Contents provided here are based on careful research and analysis utilizing the fundamental and technical indicators over a period of time. The post does not consist any direct recommendation about Investing or trading in the securities market. Thorough research and careful consideration are necessary for individuals to fulfill their personal responsibility in making financial decisions. Seeking professional advice before making any financial decisions is always advisable.