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Wipro Earnings: BPOs Continue To Outperform

Wipro Limited Sponsored ADR (NYSE:WIT) reports preliminary financial results for the quarter ended December 31, 2014.

Wipro reported an increase in revenue of 6% compared to the same quarter last year, led by its Healthcare and Life Sciences and Global Infrastructure businesses. Net income for the quarter rose 9% year-over-year, while IT Services revenue was up 3.7% in constant currency terms. Currency headwinds presented a challenge to the company in the quarter, and are a potential threat to performance going forward.

This earnings release follows the earnings announcements from the following peers of Wipro Limited Sponsored ADR – Accenture Plc (NYSE:ACN) and Infosys Limited Sponsored ADR (NYSE:INFY).


  • Summary numbers: Revenues of USD 1.92 B, Net Earnings of USD 352.60 million, and Earnings per Share (EPS) of USD 0.14.
  • Gross margins narrowed from 34.89% to 33.47% compared to the same quarter last year, operating (EBITDA margins) now 22.31% from 23.00%.
  • Ability to declare a higher earnings number? Change in operating cash flowof 14.35% compared to same quarter last year better than change in earnings.
  • Earnings growth due to contribution of one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income (See complete table at the end of this report):

Item 12/31/2013 3/30/2014 6/29/2014 9/29/2014 12/31/2014
Revenues $1820.31 $1897.19 $1860.79 $1916.14 $1928.46
Revenue Growth(Qtr YOY) -9.69% 6.56% 8.05% 12.22% 5.94%
Earnings $325.37 $362.47 $351.44 $341.91 $352.60
Earnings Growth (Qtr YOY) 2.97% 24.15% 22.32% 11.65% 8.37%
Net Margin 17.87% 19.11% 18.89% 17.84% 18.28%
EPS $0.13 $0.15 $0.14 $0.14 $0.14
Return on Equity 25.36% 26.07% 23.68% 22.46% 22.72%
Return on Assets 16.97% 17.89% 16.38% 15.64% 15.80%

Market Share Versus Profits

Companies sometimes focus on market share at the expense of profits or earnings growth.

Revenues Trend

Earnings Trend

Wipro’s change in revenue compared to the same period last year of 5.94% lagged its change in earnings, which was 8.37%. The company’s performance this period suggests an effort to boost profitability. While this is good to a point, the fact that the company’s revenue performance is lower than the average of the results announced to date by its peers does not bode well from a long-term market share perspective. Also, for comparison purposes, revenues changed by 0.64% and earnings by 3.13% compared to the immediate last quarter.

Revenues vs Earnings

Earnings Growth Analysis

The company’s earnings rose year-on-year. But this growth has not come as a result of improvement in gross margins or any cost control activities in its operations. Gross margins went from 33.47% to 34.89% for the same period last year, while operating margins (EBITDA margins) went from 22.31% to 23.00% over the same time frame.

Gross Margin vs EBITDA Margin

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. CapitalCube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin vs Working Capital Days

Wipro Limited Sponsored ADR’s decline in gross margins is compounded by issues on the balance sheet side. There has been deterioration in working capital levels. The company’s working capital days have risen to 187.96 days from 154.28 days for the same period last year.

Cash Versus Earnings – Sustainable Performance?

WIT’s year-on-year change in operating cash flow of 14.35% is better than its change in earnings. This suggests that the company might have been able to declare a higher earnings number. But, this change in operating cash flow is lower than the average of the results announced to date by its peer group.

Operating Cash Flow Growth vs Earnings Growth


The company’s operating (EBIT) margins contracted from 20.24% to 19.27%. In spite of this, the company’s earnings rose. This was influenced primarily by one-time items, which improved pretax margins from 23.36% to 23.56%.

Pretax Margin vs EBIT Margin

EPS Growth Versus Earnings Growth

WIT’s year-on-year change in Earnings per Share (EPS) of 8.10% is less than its change in earnings of 8.37%. This lower EPS growth suggests a likely larger dilution in the company’s shares this period. Moreover, the change in earnings is less than the average among the declared results thus far in its peer group suggesting that the company is losing ground in generating profits in this group.

EPS Growth vs Earnings Growth

Supporting Data

The table below shows the preliminary results along with the recent trend for revenues, net income and other relevant metrics:

Item 12/31/2013 3/30/2014 6/29/2014 9/29/2014 12/31/2014
Revenues $1820.31 $1897.19 $1860.79 $1916.14 $1928.46
Revenue Growth (Qtr YOY) -9.69% 6.56% 8.05% 12.22% 5.94%
Earnings $325.37 $362.47 $351.44 $341.91 $352.60
Earnings Growth (Qtr YOY) 2.97% 24.15% 22.32% 11.65% 8.37%
Operating Cash Flow $282.54 $451.19 $413.29 $257.90 $323.08
Gross Margin 34.89% 35.68% 35.12% 33.19% 33.47%
EBITDA Margin 23.00% 24.18% 22.91% 21.24% 22.31%
Net Margin 17.87% 19.11% 18.89% 17.84% 18.28%
EPS $0.13 $0.15 $0.14 $0.14 $0.14
EPS Growth (Qtr YOY) 2.80% 13.14% 22.17% 11.41% 8.10%
Peer Average EPS Growth (Qtr YOY) 6.44% 9.82% 14.80% 11.41% 12.17%
Return on Equity 25.36% 26.07% 23.68% 22.46% 22.72%
Return on Assets 16.97% 17.89% 16.38% 15.64% 15.80%

Company Profile

Wipro Ltd. is a global information technology, consulting and outsourcing company. The company develops and integrates solutions that enable clients to leverage Information Technology (NYSE:IT) in achieving their business objectives at competitive costs. It operates its business through two segments: Information Technology Services and Information Technology Products. The Information Technology Services segment provide a range of IT and IT-enabled services which include IT consulting, custom application design, development, re-engineering and maintenance, systems integration, package implementation, global infrastructure services, BPO services, cloud, mobility and analytics services, research and development and hardware and software design. This segment is organized into six strategic business segments: Banking, Financial Services and Insurance; Healthcare & Life Sciences; Retail, Consumer Goods, Transport and Government; Energy, Natural Resources and Utilities; Manufacturing and High-Tech; and Global Media & Telecom. The Information Technology Products segment provides a range of third-party IT products, which allows to provide comprehensive IT system integration services. These products include computing, storage, networking, security and software products, including databases and operating systems. The company was founded on December 29, 1945 and is headquartered in Bangalore, India.

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