WIPRO TECHNOLOGIES LTD.

SAPM PROJECT SUBMISSION SUBMITTED BY

MILIND PARIKH PRIYANKA RAJDEV PG-07-38 PG-07-43

Wipro Technologies Ltd.

WIPRO LTD.

A SUBDUED Q3FY09 GUIDANCE Wipro declared consolidated revenues of Rs 64bn (up 7.5% QoQ and up 35.6% YoY), EBITDA of Rs 10.4bn (flat QoQ and up 28.5% YoY), and PAT of Rs 8.2bn (up 1.0% QoQ and up 1.3% YoY). Key highlights Sales: Growth led by IT products (+31% QoQ). However, IT Services saw blended volume of 1.2% QoQ and a declining pace of pricing uptake QoQ (onsite: 1.8%; offshore: 1.9%). EBITDA: Currency depreciation and higher utilization rates (+2.6% QoQ) partly offset negative impact of offshore salary hikes (7-8%) leading to a flat EBITDA QoQ. PAT: Subdued performance due to forex loss & interest Q3FY09 guidance at ~1% QoQ growth, lower than expectations: Revenue guidance for IT Services at USD 1,121mn implies just a 1% QoQ growth in USD terms, below our expectations. A challenging macro-environment, bleak outlook on its core Telecom OEM segment and Dec quarter seasonality are key factors, which would lead to a lower growth in Q3FY09. Lower employee additions add to lower confidence on demand environment for H2FY09: H1FY09 saw 1,985 employee additions (1,877 in Q2FY09). The current quarter saw an impressive increase of 2.6% QoQ in net utilization rates and a decline in attrition rates (voluntary), which in turn contributed to EBITDA performance. But going ahead, a subdued topline performance would impact the critical operating lever of utilization rates leading to lower growth rates at PAT. Valuations: The combination of a subdued topline growth expectation and absence of major operating levers leads us to downgrade rating from sector Neutral to sector Underperformer at current valuations of 12.5x FY09E.

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Wipro Technologies Ltd.

ECONOMY ANALYSIS
Behind China, India is the second fastest growing economy. According to a survey by Goldman Sachs, India will become the 3rd largest economy by 2035. This is measured in $US. If we use PPP (purchasing power parity) which takes into account local purchasing power, India already has the 3rd largest economy. However, despite having a GDP of US $1.09 trillion (2007). This works out as an average GDP per capita of $964 ($4,182 at PPP - cost of living is relatively cheaper in India) Growth in 2007 is forecast to be 9.2%. Growth will slow slightly next year. The RBI estimates the economy to grow at 8.5% in the financial year ending March 2008. Furthermore, despite the rapid growth, poverty remains a real problem, especially in rural India. In 2008 and beyond India faces the real challenge of making sure that all sections of the population continue to benefit. Current estimates suggest that 27% of the Indian population live below the poverty line. 77% of Indians live on less than half a dollar a day. Most of these low wages are in the informal sector, working in agriculture on doing odd jobs Strengths of Indian Economy

FDI. India is one of the worlds largest recipients of FDI. India has become the favored location of outsourcing labor intensive work such as call centers. India benefits from a well educated middle class, fluent in English. The economy is reaping some of the benefits of greater market liberalization and privatisation Rich in Natural resources such as gold, Coal, iron, diamonds. (However a net importer of oil. only produces 25% of its energy demands.

The sectoral analysis of Indian economy is a summary of the factors and industry sectors that were reformed or added in the economic growth report of India covering different Indian industries. The sectoral analysis of Indian economy focuses on the key points of the latest reforms of Indian economy as made in the latest Government of India economic policy statement. The sectoral analysis of Indian economy quantifies key parameters of Indian economy. Further, the analysis of different sectors of Indian economy facilitates the government to use it as the reference guide for the enactment of the future Indian economy policy. 18

Wipro Technologies Ltd.

The key developments as per the sectoral analysis of Indian economy, 2007-2008 are as follows

Gross domestic capital formation in 2005-06 grew by 23.7% FDI amounted to US$12.5 billion and outpaced portfolio investment of US$6.8 billion Central Public Sector Enterprises to invest Rs.165,053 crore in 2007-08 New 162 production sharing contracts awarded to Petroleum and Natural Gas sector SMEs has witnessed increase in outstanding credit Foreign trade and merchandise exports expected to cross US$125 billion by the end of the current fiscal Provision for tourist infrastructure increased to Rs.423 crore Bank's differential rate of interest scheme providing finance at the rate of 4% to weaker sections Regional rural banks to open at least one branch in 80 uncovered districts in 2007-08 PAN made sole identification number for all participants of capital market Seven ultra mega power projects are under process Provision for national highway development programme to be increased to Rs.9,945 crore Farm credit target of Rs.225,000 crore for 2007-08 has been set with an addition of 50 lakh new farmers to the banking system 35 projects have been completed in 2006-07 and additional irrigation potential of 900,000 hectares to be created and training of farmers arranged A pilot programme for delivering subsidy directly to farmers have been arranged Loan facilitation through Agricultural Insurance and NABARD has also been facilitated

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Wipro Technologies Ltd.

INDUSTRY ANALYSIS
Growth in Indias IT software & services exports.

IT spending in the US has grown unabated during the last few years. As per IDC (a global technology research agency) and NASSCOM (Indias industry body for the tech sector), revenues of the Indian IT industry have grown by 33% to US$ 64 bn in FY08. The IT-BPO industry has estimated to have grown at a CAGR of 31% since FY04, much faster than the global IT services industry. The Indian domestic market for technology is also growing as robustly as the export of IT services from India. Indias IT industry can be divided into five main components, viz. software products, IT services, engineering and R&D services, ITES (IT-enabled services) and hardware. Export revenues continue to drive growth. Amongst the export revenues, project-based services accounted for more than 50% of the Indian IT services exports. Multi-year annuity based outsourcing agreements are expected to increase going forward. However, the majority share of the project based revenues is going to continue on the back of custom application development and application management. Cost leadership has been the competitive edge of the Indian software sector over the last few years. However, this seems to be threatened now by MNCs who are replicating the Indian outsourcing model and setting up bases in the country. Going forward, the advantage of low employee costs could peter out and the sector could get commoditised. Increased competition within the segment could lead players to ramp up selling and marketing expenses in order to acquire new customers and improve the market share, which in turn will lead to further pressure on margins. 18

Wipro Technologies Ltd.

Increasing competition, pressure on billing rates and increasing commoditisation of lower-end application development and maintenance (ADM) services are among the key reasons forcing the Indian software industry to make a fast move up the software value chain. IT companies have to move up the value chain to provide higher value-added services as consulting, product development, R&D and end-to-end turnkey solutions. The software services segment of the industry continues to grow by leaps and bounds. However, growth in the domestic market has been relatively staid. Given that India is among the fastest-growing economies in the world and the burgeoning IT budgets of India Inc., focusing on the domestic market will definitely be an opportunity to take advantage of.

Porters 5 force Model

Supply Abundant supply across segments, mainly lower-end, such as ADM. Lower in higher-end areas like IT/business consulting, but competition is very tough. Demand IT is spending expected to grow at 6% CAGR over the next 3-4 years, and growth is buoyant in fast-growing economies such as India and China. Europe also shows promise. Demand largely depends upon the state of the global economy and willingness of corporations to go in for new software services and greater discretionary spending rather than consolidating existing systems. Barriers to Entry Low in the ADM segment, which is prone to relatively easy commoditisation. In high-end services like IT/business consulting, where domain expertise creates a barrier. The size of a particular company/scalability also creates barriers to entry, as these firms have built up longterm relationships with major clients and to take business away from them is not easy. Bargaining power of suppliers Low, due to intense competition (oversupply), particularly in the lower-end ADM space. Low differentiating power is also another reason. High, at the higher end of the value chain. Bargaining power of customers High, mainly due to intense competition among suppliers/vendors. However, it is lower in higher-end services like consulting and package implementation.

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Wipro Technologies Ltd.

Competition Competition is global in nature and stretches across boundaries and geographies. It is expected to intensify due to the attempted replication of the Indian off shoring model by MNC IT majors. COMPARISION OF SALARIES IN THE SOFTWARE INDUSTRY

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Wipro Technologies Ltd.

COMPANY ANALYSIS

DETAILS Sector Industry Full Time Employees Year Of Foundation Technology Business Software & Services 90,000 1945

Wipro is India's third-largest IT-services exporter and a conglomerate that also produces soaps, baby products, lighting and computer hardware. Its global IT business, which forms around 90% of total revenue, has undergone significant restructuring in early 2008. Two business leaders have taken over as joint CEOs, with far-reaching changes across sales and delivery organizations, driving a more industry-focused business approach. Wipro now has a separate global programmes team to look after large-deal wins, an area it believes it could have done better in the past. The company will also acquire a distinct consulting identity; with the creation of a 1,000- consultant unit (consulting is, so far, "embedded" within each industry unit). Wipro will leverage its traditional strengths in technology and product development in more industries other than telecoms and high tech, with aerospace and automotive being the first stops. Wipro has faced positioning challenges versus peers for nearly three to four years. While keeping pace overall, its revenue and earnings growth have not topped industry comparables for some years. A middling performance, together with a smaller free float, has kept the stock from becoming a mainstream investment holding in the Indian IT sector. The company aims to solve the former problem by restructuring, with a more coordinated focus on winning large accounts. Wipro has 14 clients with above-US$50m annual revenue bookings, up from nine two quarters ago, but still lags peers Tata Consultancy (19) and Infosys (18). It has also been more active in acquisitions: US$600m for Infocrossing in 2007 the largest acquisition yet by any Indian IT company. It has proven its service quality, width of portfolio and management quality, but the last mile has been missing in the past few years. 18

Wipro Technologies Ltd.

SHAREHOLDING DETAILS OF WIPRO Quarter Ending 30-Sep-2008

VALUATION MEASURES Market Cap (intraday): Enterprise Value (2-Nov-08): Trailing P/E (ttm, intraday): Forward P/E (fye31-Mar-10): PEG Ratio (5 yr expected): Price/Sales (ttm): Price/Book (mrq): Enterprise Value/Revenue (ttm): Enterprise Value/EBITDA (ttm): 11.26B 11.13B 16.47 12.09 0.81 2.52 4.39 2.36 11.955

FINANCIAL HIGHLIGHTS Fiscal Year Fiscal Year Ends: Most Recent Quarter (mrq): Profitability Profit Margin (ttm): Operating Margin (ttm): Management Effectiveness Return on Assets (ttm): Return on Equity (ttm): Income Statement Revenue (ttm): 4.72B 10.36% 26.87% 14.39% 16.56% 31-Mar 30-Sep-08

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Wipro Technologies Ltd. Revenue Per Share (ttm): Revenue Growth (lfy): Gross Profit (ttm): EBITDA (ttm): Net Income Avl to Common (ttm): Diluted EPS (ttm): Earnings Growth (lfy): Balance Sheet Total Cash (mrq): Total Cash Per Share (mrq): Total Debt (mrq): Total Debt/Equity (mrq): Current Ratio (mrq): Book Value Per Share (mrq): Cash Flow Statement From Operations (ttm): Free Cashflow (ttm): 604.00M 147.88M 1.22B 0.839 1.09B 0.403 1.393 1.86 3.25 35.60% 1.47B 931.21M 678.27M 0.47 1.30%

TRADING INFORMATION

Dividends & Splits Annual Dividend: Dividend Yield: Dividend Date: Ex-Dividend Date: Last Split Factor (new per old): Last Split Date: Mutual Funds Invested In WIPRO
Scheme Franklin Infotech Fund - Growth Franklin Infotech Fund - Dividend UTI Growth Sector Fund - Software - Growth UTI Growth Sector Fund - Software - Dividend Franklin India Taxshield 99 - Growth % of scheme asset size 9.02 9.02 8.21 8.21 5.90

0.10 NaN% 18-Aug-08 N/A 2:1 02-Sep-05

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Wipro Technologies Ltd.

FUNDAMENTAL ANALYSIS
IMPORTANT DETAILS OF WIPRO PE ratio EPS (Rs) Sales (Rs crore) Face Value (Rs) Net profit margin (%) Last bonus Last dividend (%) Return on average equity 12.98 20.96 5,405.00 2 9.43 1:1 200 41.23 31/10/08 Mar, 08 Sep, 08 Mar, 99 22/04/05 21/04/08 Mar, 99

Improved price realization but poor margin improvement:Considering the present scenario, most IT companies have seen de-growth in their pricing. However, Wipro has been successful in getting better price realizations as compared to its peers. This has been a result of negotiations undertaken by the company with its customers in Q408. Thus, onsite billing rates go up 3.9% sequentially and offshore billing rates go up 3%. In spite of higher price realization, the company showed improvement of just 30 bps (Q-o-Q) in EBIT margin in Q1. This was a little disappointing given the fact that the same would be impacted in Q209 due to annual offshore salary hikes. Robust growth in revenue from stressed sectors:In contrast to its peers, the company had indicated good traction in the BFSI and retail space inQ408. Continuing with this commentary the management saw healthy sequential growth in revenue from sectors like BFSI and retail in Q109 (5.5%in revenue from BFSI space and 7.8% growth from retail space). This segmental performance was the best among its peers in spite of the fact that these were the sectors, which were the most affected by a slowdown in the US. The company has indicated good traction for transactional process outsourcing and in KPO services like HRO and financial accounting services with a dip seen in voice side BPO. The company expects strong growth from emerging markets like India and the Middle East. Bagged 7 multi-year multi-million dollar deals:The company managed to bag seven multi-year multi-million dollar deals in Q1 out of which three deals are around $ 50-$100 million while the rest are around $20-$ 50 million. The cumulative deal win for the quarter was $500 million.

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Wipro Technologies Ltd.

Hedging Status:The company currently has hedges of about $ 2.6 billion, which is for cash flows over the next four to six quarters. Out of this, one-third of it is for the current year. This quarter, the company reported forex loss of around Rs 68.9 crore on the back of translation loss on ECB loans. Valuations:The management had made 14,000 offers for FY09 out of which 2500 joined at the end of Q4FY08 while 800 more joined in Q1FY09. The rest are expected to join in the coming quarters .Wipro has also made 6,500 campus offers for FY10 till date. The company is cautious about the slowdown in spending by clients seen across the industry. Wipro has guided for revenues from IT services for Q2FY09 at $1.09 billion, that is, with growth expectation of 2.1% (in dollar terms), which we believe is very much muted. We have valued Wipro using a DCF-based valuation methodology, which gives us a target price of Rs 470, discounting our EPS for FY09E and FY10E of Rs25.5 and Rs29.2 by 18.5x and 16.1x, respectively.

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Wipro Technologies Ltd.

RATIOS
(Rs.in Millions)
Particulars Operational & Financial Ratios Reported EPS(Rs) Adjusted EPS(Rs) CEPS(Rs) DPS(Rs) Book NAV/Share(Rs) Tax Rate(%) Margin Ratios EBIT Margin(%) Pre Tax Margin(%) Performance Ratios ROA(%) ROE(%) ROCE(%) Asset Turnover(x) Sales/Fixed Asset(x) Working Capital/Sales(x) Efficiency Ratios Receivable days Inventory Days Payable days Valuation Parameters PER(x) PCE(x) Price/Book(x) Yield(%) EV/Net Sales(x) EV/Core EBITDA(x) EV/EBIT(x) EV/CE(x) Growth Ratio Net Sales Growth(%) Core EBITDA Growth(%) EBIT Growth(%) PAT Growth(%) Adj PAT Growth(%) Adj EPS Growth(%) Financial Stability Ratios Total Debt/Equity(%) Current Ratio(x) Quick Ratio(x) Interest Cover(x) Mar 2008 20.96 20.96 24.08 6.00 79.05 11.71 20.31 19.65 19.85 26.52 23.24 0.87 7.74 0.41 63.98 7.12 0 20.29 17.66 5.38 1.41 3.56 15.40 17.36 4.03 27.83 14.09 12.66 7.78 7.78 7.60 33.09 3.57 3.44 30.71 Mar 2007 19.48 19.48 21.95 6.00 63.86 10.52 23.14 23.09 29.73 30.50 33.30 0.69 8.36 0.18 59.85 5.16 0 28.66 25.44 8.74 1.07 5.84 22.54 25.08 8.35 33.80 34.43 35.84 40.66 40.66 37.46 2.55 2.07 2.00 442.14 Mar 2006 14.17 14.17 16.22 5.00 45.03 13.67 22.83 22.80 31.19 31.47 36.18 0.63 9.18 0.12 59.65 4.91 93.10 39.41 34.43 12.40 0.90 7.71 29.92 33.65 12.17 41.39 35.27 32.96 35.17 35.17 -33.30 0.78 2.27 2.19 748.03 Mar 2005 21.25 21.25 23.89 5.00 69.54 14.92 24.22 24.15 30.16 30.55 35.57 0.68 8.01 0.12 61.42 5.76 93.79 15.79 14.05 4.83 1.49 3.20 11.87 13.12 4.67 40.92 79.46 62.33 63.39 63.39 -45.95 1.27 2.21 2.10 316.56

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Wipro Technologies Ltd.

Consolidated Results Wipros Sales and other income for the current: year grew by 34% to Rs. 203,970 million and Profit for the year was Rs. 32,829 million, an increase of 12% over the previous year. Over the last 10 years, the Sales have grown at a Compounded Annual Growth Rate (CAGR) of 31% and Profit after Tax at 41%. The Directors at Wipro declared an Interim Dividend of Rs. 2 per equity share of Rs. 2 each on October 19, 2007. The record date for the purpose of payment of Interim Dividend was fixed as October 26, 2007. The Directors have recommended a final Dividend of Rs. 4 per equity share of Rs. 2 each to be appropriated from the profits of the year 2007-08 subject to the approval of the shareholders at the ensuing Annual General Meeting. The Dividend will be paid in compliance with applicable regulations. During the year 2007-08, unclaimed dividend of Rs. 54,725 was transferred to the Investor Education and Protection Fund, as required by the Investor Education and Protection Fund (Awareness and Protection of Investor) Rules, 2001. If the Company were to amortize the cost on an accelerated basis, profit before taxes fot the year ended March 31, 2008 would have been lower by Rs. 218 million. Similarly, the profit before taxes for the year ended March 31, 2007 would have been lower by Rs. 348 million. Acquisitions and Joint Ventures of WIPRO 1. Acquired 100% shareholding in Unza Holdings Limted ("Unza"), a Singapore based Fast Moving Consumer Goods (FMCG) company together with its subsidiaries for an all cash consideration of approximately USD 246 million. 2. Acquired Infocrossing, Inc., a NASDAQ listed US-based provider of IT infrastructure management, enterprise application and business process outsourcing services, for an acquisition price of about USD 600 million in an all cash deal. This acquisition created one of the world leaders in end-to-end IT infrastructure management solutions. 3. Wipro acquired OKI Techno Centre Singapore Pte. Ltd. (now called as Wipro Techno Centre Singapore Pte. Ltd.) in an all cash deal of USD 2.5 million. This acquisition facilitated a strategic partnership in the area of design services for the semiconductor market. 18

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4. Wipro partnered with DAR Al-Riyadh Holding Co. Limited to form a joint venture namely Wipro Arabia Limited. The purpose of this Joint Venture is to provide software application development, implementation and maintenance services, systems integration and data storage services in the Kingdom of Saudi Arabia.

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TECHNICAL ANALYSIS INDICATORS

Daily chart of Wipro from 01/08/2005 to 31/10/2008

Trendlines
Daily chart of Wipro from 01/08/2005 to 31/10/2008

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Chart for WIPRO for last 10 days

Support & Resistances

The Supports and Resistances are obtained by PIVOT POINT ANALYSIS, where PIVOT POINT= (HIGH+LOW+CLOSE)/3
DAILY For Next Day RESISTANCE 1 RESISTANCE 2 RESISTANCE 3 SUPPORT 1 SUPPORT 2 SUPPORT 3 290.03 307.42 321.88 258.18 243.72 226.33 WEEKLY For Week Ending (Fri-07/11/2008) 316.93 361.22 429.48 204.38 136.12 91.83 MONTHLY For Month Ending (Sun-30/11/2008) 364.57 456.48 548.57 180.57 88.48 0.0

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MOVING AVG. DETAILS FOR WIPRO

DAYS
SIM.MOV. AVG EXP.MOV. AVG HIGH LOW VOL AVG. RETURNS

TODAY
272.65 272.65 292.95 261.1 2,952,310 15.65 -6.09%

5
244.68 244.58 292.95 31/10/08 180.4 27/10/08 2,526,434 0.5 -0.18%

20
280.28 283.64 364.4 03/10/08 180.4 27/10/08 2,011,999 -67.25 (-19.79%)

30
312.45 316.41 447.7 22/09/08 180.4 27/10/08 1,953,184 -118.9 (-30.37%)

50
358.04 361.23 458 02/09/08 180.4 27/10/08 1,484,779 -159.35 (-36.89%)

100
397.07 399.4 499 09/06/08 180.4 27/10/08 1,234,145 -232.95 (-46.07%)

200
421.67 422.76 535 06/06/08 180.4 27/10/08 1,108,677 -218.15 (-44.45%)

The Close Price has crossed the 10 Days Simple Moving Avg. from BELOW (+VE Break Out).

Where OW - Overweight N - Neutral

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