Stock Review: WIPRO

With over a dozen small and large acquisitions in the last 10 years, Wipro has pursued inorganic growth more aggressively than its peers. The latest acquisition of the US-based SAIC's oil and gas business is a testimony that Wipro's new CEO TK Kurien will continue with the company's 'string of pearls' philosophy.

But has the inorganic strategy helped the country's third-largest IT exporter to score over its peers? The past financial performance suggests that Wipro has lagged behind its bigger peers TCS and Infosys, who have largely relied on organic growth. And with Cognizant, a relatively smaller player, closing in fast, Wipro's top brass may be forced to rethink its strategy.

More than a decade ago, Wipro had planned to enhance its deliverables faster than its peers by acquiring niche players across verticals and geographies. The strategy, however, has not propelled Wipro's growth; the company still languishes at the third place in the IT pecking order.

Wipro is yet to report a rebound in its growth despite revival in the global outsourcing demand. In each of the last two quarters, growth in its trailing 12-month revenue was lower than its bigger peers.

The acquisition of SAIC's oil and gas division would give Wipro a headroom in the$19-billon US market for upstream IT solutions. The SAIC's management has pegged FY12 revenue from the segment at $200 million, which is less than 5% of Wipro's current IT revenue.

In its analyst call two weeks ago, SAIC had revised its FY12 total revenue guidance downwards after adjusting for the discontinuing oil and gas vertical. It, however, left the earnings guidance untouched, which suggests that its oil and gas business, which is now acquired by Wipro, is not profitable enough. SAIC's CFO Mark Sopp stated during the call that the division has shown high margin volatility in the past. With offshoring component, Wipro may be able to stabilise margins of the new business.

A major turnaround in Wipro's growth momentum in the immediate future is less likely as Wipro has guided for a modest 3-5% sequential growth in its dollar denominated revenue for the March 2011 quarter. Its peers are expected to grow at a higher single digit rate.
ranjit.shinde@timesgroup.com