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Financial Report Analysis

Wipro India Limited.








Date of submission:









Contents
Wipro India Limited ................................................................................................................................ 3
Analysis of the Auditors Report ............................................................................................................. 3
Analysis of the Directors Report ............................................................................................................ 3
Significant accounting Policies ................................................................................................................ 4
1. Basis of preparation of financial statements .................................................................................. 4
2. Use of estimates.............................................................................................................................. 4
3. Goodwill .......................................................................................................................................... 4
4. Fixed assets ..................................................................................................................................... 6
5. Depreciation of Assets: ................................................................................................................... 6
6. Impairment of assets ...................................................................................................................... 7
7. Investments ..................................................................................................................................... 7
8. Inventories ...................................................................................................................................... 8
9. Revenue recognition ....................................................................................................................... 8
10. Income tax and fringe benefit tax ................................................................................................. 9
11. Cash flow statement ................................................................................................................... 10
12. Provisions .................................................................................................................................... 11
Consolidated financial statements ....................................................................................................... 11
Ratio Analysis ........................................................................................................................................ 13
Liquidity Ratios: ................................................................................................................................. 13
Current Ratio: ................................................................................................................................ 13
Debtor Turnover Ratio: ................................................................................................................. 13
Profitablity Ratios: ............................................................................................................................ 14
Profit Margin: ................................................................................................................................ 14
Asset Turnover Ratio: .................................................................................................................... 15
Return on Equity ............................................................................................................................... 15
Return on Assets ........................................................................................................................... 16
Earnings Per Share ........................................................................................................................ 16
Solvency Ratios: ................................................................................................................................ 17
Debt-Equity Ratio .......................................................................................................................... 17
Interest coverage ratio .................................................................................................................. 17
Outlook and Concerns........................................................................................................................... 18


Wipro India Limited
Wipro Limited is the first PCMM Level 5 and SEI CMM Level 5 certified IT Services Company globally.
Wipro provides comprehensive IT solutions and services, including systems integration, Information
Systems outsourcing, package implementation, software application development and maintenance,
and research and development services to corporations globally.

Source: www.moneycontrol.com
Analysis of the Auditors Report
The following salient points of the financial report express the auditors opinion
No discrepancy being reported by the auditors in bookkeeping, financial statements, records
of fixed assets etc.
None of the directors is disqualified as at March 31, 2010 from being appointed as a director
Fixed assets disposed of during the year were not substantial, and therefore, do not affect
the going concern assumption
The Company has granted loans to 3 wholly owned subsidiaries
The rate of interest and other terms and conditions on which loans have been granted to
companies are not prejudicial to the interest of the Company
The auditors have acclaimed the internal control system commensurate with the size of the
Company and the nature of its business with regards to purchase of inventories and fixed
assets and sale of goods and services
The auditors have mentioned unpaid dues of Income tax, Excise duty, Customs duty, Sales
tax and Service tax by the Company on account of disputes
An instance of embezzlement of Rs 228 million has been reported by the auditors

The auditors report signifies the internal control system and internal audit system which are well in
place and also the adherence to Accounting Standards by the company. The auditors report does
not indicate any kind of shortfall or alarming situation in specific.
Analysis of the Directors Report
Salient points of the Directors Report are:
The outlook of the IT-ITeS industry is positive and as IDC forecasts a CAGR of 4.08%
spending and a CAGR of over 6.18% in offshore IT spending, for the period 2008-13.
In Rs. Millions
Company Market Cap Sales turnover Net Profit Total Assets
TCS 16741.1 2304.4 561.9 1515.2
Infosys 16250.9 2114.0 580.3 2203.6
Wipro 9926.6 2317.8 489.8 2322.2
HCL Tech 2757.3 507.9 105.7 400.2
Oracle Financ 1731.8 221.3 69.6 417.8
Mphasis 1365.1 340.5 83.7 215.1
Mahindra Satyam 1101.7 813.7 171.6 738.1
Tech Mahindra 873.4 448.4 74.3 500.2
Financial Tech 628.2 35.6 36.9 217.6
Patni Computer 591.0 175.1 54.3 320.5
Technology companies have been outsourcing software research and development and
related support functions to offshore technology service providers to reduce cycle time for
introducing new products and services.
Both Sales and the profits saw an upward trend for year 2010
A final Dividend of 300% (Rs. 6 per equity share of Rs. 2/- each) has been indicated by the
management subject to the approval of the shareholders
Company entered into partnership with Lavasa Corporation Limited, a joint venture with
Delhi International Airport Private Limited, a JV with GE Healthcare.
The company acquired the Yardley Brand business in Asia, Middle East, Australia and
certain African markets from UK based Lornamead Group.
The Company made acquisitions and investments of an aggregate of US$ 171 Million

All these points are indicating the positive outlook for the industry. The investments in Subsidiaries,
acquisition of Yardley group are some facts strengthening the companys view for the same.
Significant accounting Policies

1. Basis of preparation of financial statements

The financial statements are prepared in accordance with Indian Generally Accepted Accounting
Principles (GAAP) under the historical cost convention on the accrual basis, except for certain
financial instruments which are measured on a fair value basis. GAAP comprises Accounting
Standards specified in the Companies (Accounting Standards) Rules, 2006, Accounting Standards
issued by the Institute of Chartered Accountants of India (ICAI) and other generally accepted
accounting principles in India.

2. Use of estimates

The preparation of financial statements in accordance with the generally accepted accounting
principles requires management to make judgments, estimates and assumptions that affect the
application of accounting policies and the reported amounts of assets and liabilities, income and
expenses. Estimates and underlying assumptions are reviewed on an on-going basis. Revision to
accounting estimate is recognised in the period in which the estimates are revised and in any future
period affected.

3. Goodwill

The goodwill stated for the year 2009 amounted to Rs. 56521 Million. The goodwill policy is
stated from the excerpt of the annual report:-

The excess of consideration paid over the book value of assets acquired has been recognised
as goodwill in accordance with Accounting Standard (AS) 21 Consolidated Financial
Statements. Goodwill arising on account of acquisition of subsidiaries and affiliates is not
amortised but reviewed for impairment if there are indicators of impairment. Upon review
for impairment, if the carrying value of the goodwill exceeds its fair value, goodwill is
considered to be impaired and the impairment is charged to the income statement for the
year.


(In Rs. Million)
Asset As of March 10 As of March 09 Net change in Goodwill
Goodwill 53,346 56521 (3,175)

There is a net decrease in Goodwill by Rs. 3,175 million during the year.

The decrease of Rs. 4,877 million is due to impact of reinstating goodwill relating to non-
integral overseas operations.

In December 2009, the Company has entered into a purchase agreement with Lornamead
Group Limited to acquire the entire share capital of Lornamead FZE and Lornamead
Personal Care Private Limited for cash amounting to Rs. 1,766 Million.
The Company has also paid Rs. 348 Million for acquisition of Yardley Trademark, which has
been recorded as an intangible asset. The Company has recorded goodwill of Rs. 1,712
million in respect of this acquisition.

Thus the change is goodwill is as accounted:-
(In Rs. Million)
Goodwill as on March09 56,521
Amortization of goodwill during the year relating to overseas operation (4,877)
Increase in goodwill due to acquisitions during the year 1,712
Goodwill as on March 10 53,356*
*The difference of 10 Million goodwill is however, not explicitly mentioned in the annual
report
4. Fixed assets

Fixed assets are stated at historical cost less accumulated depreciation. Costs include expenditure
directly attributable to the acquisition of the asset. Borrowing costs directly attributable to the
construction or production of qualifying assets are capitalized as part of the cost.

The break-up of the Companys investment Rs. 10,900 million on Fixed Assets is shown as:
(Rs. in Million)

Business Unit 2010
IT services & products 9,774
Consumer Care and Lighting 711
Others 417

5. Depreciation of Assets:
Salient points from the companys depreciation policy are

The Company has provided for depreciation using straight line method
Fixed assets individually costing Rs. 5,000/- or less are depreciated at 100%over a period of
one year. Assets under capital lease are amortized over their estimated useful life or the
lease term, whichever is lower
Intangible assets are amortized over their estimated useful life on a straight line basis.
For various brands acquired by the Company, estimated useful life has been determined
ranging between 20 to 25 years. Accordingly, such intangible assets are being amortized
over the determined useful life.
Payments for leasehold land are amortized over the period of lease

Comparing with Infosys depreciation policy, the depreciation policy of both Wipro and Infosys are
same. Wipro has been consistently following the same depreciation policy over last few years.

Below table compares the estimated useful life of assets of Wipro and Infosys:


6. Impairment of assets

The impairment of assets policy followed by the company can be adjudged from the following
excerpt in their annual report:-
Financial assets:

If any indication of impairment exists at the end of year the impairment of financial assets is
done and impairment loss is recognized in P&L account
If at the balance sheet date there is any indication that if a previously assessed impairment
loss no longer exists, the recognised impairment loss is reversed, subject to maximum of
initial carrying amount of the short-term receivable

Other than financial assets:

If there is any indication that a non-financial asset including goodwill may be impaired, the
Company estimates the recoverable amount of the asset.
If such recoverable amount is less than its carrying amount, the reduction is treated as an
impairment loss and is recognised in the profit and loss account

Analysis:-

In the year 2010, there was NO impairment loss being observed for the financial assets.
For non-financial assets, the company saw an impairment of their goodwill to the amount of Rs.
4877 million. This impairment is attributed to impact of reinstating goodwill relating to non-integral
overseas operations at the exchange rates prevailing on March 31, 2010
7. Investments

Long term investments are stated at cost less any other than temporary decline in the value of such
investments. Current investments are valued at lower of cost and fair value determined by category
of investment. The fair value is determined using quoted market price/market observable
information adjusted for cost of disposal
8. Inventories

Excerpts from Wipros accounting policy on inventory valuation:

Inventories
Inventories are valued at lower of cost and net realizable value, including necessary provision for
obsolescence. Cost is determined using the weighted average method.


The following exhibit summarizes the changes in inventories of March, 2010 against March 2009.



Excerpts from Annexure to Auditors report on inventory related accounting practices by Wipro:
2. a) The inventory, except goods-in-transit and stocks lying with third parties, has been physically
verified by the management during the year. In our opinion, the frequency of such verification is
reasonable. For stocks lying with third parties at the year-end, written confirmations have been
obtained.
b) The procedures for the physical verification of inventories followed by the management are
reasonable and adequate in relation to the size of the Company and the nature of its business.
c) The Company is maintaining proper records of inventory. The discrepancies noticed on physical
verification between the physical stocks and the book records were not material.

9. Revenue recognition

Policies of revenue recognition are:
Services 1. Revenue from Software development services

Time and material contracts - as related services are performed
Fixed- price, fixed-time frame contracts - Percentage of Completion method

2. BPO services are derived from both time- based and unit-priced contracts-as the
related services are performed
3. Revenue from application maintenance services is recognised over the period of
the contract
4. Revenue from customer training, support and other services is recognised as the
related services are performed
5. Unbilled revenues represent cost and earnings in excess of billings
6. Unearned revenues represent billing in excess of revenue
Product 1. Revenue from sale of products - when the product has been delivered, in
accordance with the sales contract.
Other
income
1. Agency commission - when shipment of consignment is dispatched by the principal.
2. Profit on sale of investments - upon transfer of title by the Company
3. Interest earned - time-proportion method, based on rates implicit in the
transaction.
4. Dividend income - when the Companys right to receive dividend is established

Analysis:
1. From the different policies, the company can be considered conservative enough as evident
from percentage of completion method, for contracts revenues are being recognized as
services are performed. Probable losses for incomplete projects are recognized in the same
year only.
2. The only concern here is that the unbilled revenues are growing whereas the unearned
revenues are decreasing.

Item 2010 2009 Change
Unbilled revenue 16708 14108 2600
Unearned
revenue 7462 8734 -1272

3. The revenue recognition policies of the company are consistent in all the recent years and
there is no change in policies in last 4 years.
4. The competitor like Infosys adopts the same policies so the policies are consistent with
competitors also.

10. Income tax and fringe benefit tax

Income tax:

The current charge for income taxes is calculated in accordance with the relevant tax regulations.

Deferred tax:

Deferred tax assets and liabilities are recognised for the future tax consequences
attributable to timing differences
The reversal of timing difference is determined using first in first out method.
The effect of a change in tax rates is recognised in the period that includes the
enactment/substantive enactment date.
Deferred tax assets on the timing differences due to unabsorbed depreciation and losses are
carried forward only to the extent that there is virtual certainty that sufficient future taxable
income will be available against which such deferred tax assets can be realized.
Deferred tax assets are reassessed for the appropriateness of their respective carrying
amounts at each balance sheet date.


Item 2010 2009
Tax expense 7908 5741
Current tax 7679 5395
FBT 0 406
Deferred tax asset -229 60
Deferred tax asset Rs. (in million)
Balance at end of 2009 577
Deferred tax during year -229
Balance at end of 2010 348
11. Cash flow statement

Cash flows are reported using the indirect method. The cash flows from regular revenue generating,
investing and financing activities of the Company are segregated.

Summarised Cash flow statement for 5 years

CASH FLOW Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06
Profit before tax 5,688.80 3,547.90 3,469.70 3,176.20 2,340.43
Net cash flow operating activity 4,477.40 4,344.50 715.9 2,674.60 1,912.25
Net cash flow in investing activity -3,064.60 -3,662.70 -1,127.50 -1,881.90 -1,694.42
Net cash used in financing activity -96.2 -70.7 2,290.90 238.5 59.8
Net cash flow 1,316.60 611.10 1,879.30 1,031.20 277.63

Cash flow comparison of standalone and consolidated statements

CASH FLOW Standalone Consolidated
Profit before tax 5,688.80 55095
Net cash flow operating activity 4,477.40 50998
Net cash flow in investing activity -3,064.60 -33815
Net cash used in financing activity -96.2 -164
Net cash flow 1,316.60 17,019.00

The negative cash flow in investing activities is due to purchase of investments, investments in
subsidiaries, investment in deposits etc. It indicates that company is on a growing path which is also
evident from increase in cash flow due to depreciation in operating activities
Sale of financial assets

During the year ended March 31, 2010, the Company transferred financial assets of Rs. 1,666
Million (2009: Rs. 539)
Proceeds from transfer of receivables on non-recourse basis are included in operating activities
Proceeds from transfer of receivables on recourse basis are included in financing activities

Income tax dispute
The Company had received tax demands from the Indian income tax authorities aggregating to
Rs. 11,127 Million (including interest of Rs. 1,503 Million) for years 2001 to 2004
The tax demand was primarily on account of denial of deduction claimed by the Company in
respect of profits earned by its undertakings in Software Technology Park at Bangalore
In December 2008, the Company received, on similar grounds, an additional tax demand of Rs.
5,388 Million (including interest of Rs. 1,615 Million) for year 2005
The company received a demand of Rs. 6,757 Million (including interest of Rs. 2,050 Million) for
the financial year ending March, 2006.
Considering the facts and nature of disallowance and the order of the first appellate authority
upholding Companys claims for earlier years, the Company expects the final outcome of the
above disputes in Wipros favour

These disputed tax demand is a huge sum which company would be liable to pay in case the order
is upheld and in that case there will be a huge impact on companys profitability

12. Provisions
Provision for warranty represent cost associated with providing sales support services which are
accrued at the time of recognition of revenues and are expected to be utilized over a period of 1 to 2
year. Other provisions primarily include provisions for tax related contingencies and litigations. The
timing of cash outflows in respect of such provision cannot be reasonably determined. The activity in
the provision balance is summarized below:


Particulars

For the year ended
March 31, 2010
For the year ended
March 31, 2009
Provision for
Warranty
Others
Provision for
Warranty
Others
Provision at the beginning of
the year
685 1387 671 802
Additions during the year, net

469 394 621 585
Utilised during the year

(622) (18) (607) -
Provision at the end of the year

532 1763 685 1387
Consolidated financial statements
Wipro is a global corporation having operations in more than 35 countries through 80 subsidiary
companies, a few joint ventures and associate companies.
As per the Companies Act, 1956 the annual report of the company should contain balance sheet and
P&L Account of all the subsidiaries of the company. However, since Wipro limited has more than 80
subsidiaries, they have been granted a special exemption from the Ministry of Corporate affairs in
presenting the detail financial analysis of each subsidiary. This can be inferred from the following
excerpt
We believe that the Consolidated Financial Statements present a more comprehensive picture rather
than the standalone financial statements of Wipro Limited and each of its subsidiaries. We,
therefore, applied to the Ministry of Corporate Affairs, Government of India and sought an
exemption from the requirement to present detailed financial statements of each subsidiary.

Hence, we have given the stand-alone and consolidated financial statements as follows:-

Balance sheet comparison (Standalone and conslolidated)
Year(2010) Consolidated Stand-Alone
SOURCES OF FUNDS :
Total Shareholders Funds 1,82,443.00 1,76,922.00
Total Debt 62,513.00 55,302.00
Total Liabilities 2,45,393.00 2,32,224.00
APPLICATION OF FUNDS :
Gross Block 1,39,599.00 67,613.00
Less: Accumulated Depreciation 42,314.00 31,050.00
Net Block 97,285.00 36,563.00
Capital Work in Progress 12,355.00 9911
Investments 34,060.00 89,665.00
Total Current Assets 1,82,129.00 1,65,105.00
Less: Total Current Liabilities 80,690.00 69,368.00
Net Current Assets 1,01,439.00 95,737.00
Net Deferred Tax 254 348
Total Assets 2,45,393.00 2,32,224.00

Analysis of data
The increase in total liabilities by Wipro ltd. on account of investment in its subsidiaries is to the tune
of Rs. 13,169 millions. The gross block amount on account of subsidiaries increases by amount of Rs.
60,722 millions. Capital work in progress is increased by Rs. 2,444 millions. Accordingly, investments
in subsidiaries turn out to be Rs. 55,605 millions.
Profit & Loss Account
Year (2010) Consolidated Stand-alone
INCOME :
Total Income 2,77,543.00 2,39,083.00
EXPENDITURE :

Total Expenditure 2,13,673.00 1,75,315.00
Operating Profit 63,870.00 63,768.00
Less: Interest 1232 1084
Gross Profit 62,638.00 62,684.00
Depreciation 7543 5796
Minority Interest(before tax) 0 56,888.00
Profit Before Tax 55,095.00 7679
Tax 8665 0
Deferred Tax 498 229
Net Profit 45,932.00 48,980.00
As per the Companies Act, 1956 the annual report of the company should contain balance sheet and
P&L Account of all the subsidiaries of the company. However, since Wipro limited has more than 80
subsidiaries, they have been granted a special exemption from the Ministry of Corporate affairs in
presenting the detail financial analysis of each subsidiary.

Ratio Analysis
Liquidity Ratios:
Current Ratio:
Current ratio = Current Assets/Current Liabilities
The higher the current ratio, the company can repay its obligations. If the ratio is under 1, then the
company would be unable to pay its liabilities.

The current ratio of 2.1 for Wipro is a very healthy ratio but comparatively higher than the
competitors. But Infosys has got a very high Current Ratio of 4.47. All the companies have enough
short term assets to cover their short term debt. Infosys with its very high current ratio is not
investing its excess assets. The industry average is 2.67
Debtor Turnover Ratio:
Debtor Turnover Ratio = Sales/Average Debtors
2.1
4.47
1.63
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
Wipro Infosys TCS
Current Ratio

The industry average is 5.42. The debtors are high in the IT industry, as the bills are collected only
after certain period of time. The debtors turnover ratio is poor for Wipro, as it is for its peers.
The following table shows a trend for last 5 years of the liquidity ratios for WIPRO ltd.
Liquidity ratio Mar-10 Mar-09 Mar-08 Mar-07 Mar-06
Current Ratio 2.1 2.11 2.15 1.57 1.46
Debtors turnover ratio 5 5.34 5.7 6.1 6.12
Profitablity Ratios:
Profit Margin:
Profit after Margin or Return on Sales measures the amount of net profit earned by each rupee of
revenue and is given by Profit After Sales/Tax.

4.98
6.37
6.54
0
1
2
3
4
5
6
7
Wipro Infosys TCS
Debtors Turnover Ratio
20.97
26.31
24.13
0
5
10
15
20
25
30
Wipro Infosys TCS
Profit Margin
Wipros profit margin is low when compared to its peers. The profit margin has decreased by 3.4%
when compared to last year.
Asset Turnover Ratio:
Asset Turnover Ratio = Sales/Assets
This ratio indicates how effectively the firms use their assets.

Companies with high profit margins usually have low asset turnover. The trend is similar in case of
Wipro. Among the peers, Infosys has the highest asset turnover ratio.
Return on Equity
Return on Equity = Profit after Tax/Shareholder's Equity
This measures the profit generated by a company with the money from Shareholders.

3.47
5.59
4.74
0
1
2
3
4
5
6
Wipro Infosys TCS
Asset Turnover Ratio
16.7
20.2
28.7
0
5
10
15
20
25
30
35
Wipro Infosys TCS
Return Equity
The Return on equity for Wipro is low when compared to its peers. This gives an indication for the
prospective shareholders on where to invest.
Return on Assets
Return on Assets = Profit After Tax/Total Assets
This gives an idea of how effectively the management is using its assets to generate earnings.

This ratio is a good indicator of the financial performance of the company. Though Infosys is leading
here, Wipros return on assets has been consistently increasing over the past few years and
continuing at the same levels the company can increase the revenues much higher.
Earnings Per Share


EPS of Wipro has steadily increased over the past few years. This indicates that the company is on a
growth path.
120.49
384.69
76.72
0
50
100
150
200
250
300
350
400
450
Wipro Infosys TCS
Return on Assets
33.36
101.3
28.62
0
20
40
60
80
100
120
Wipro Infosys TCS
Earnings Per Share
Solvency Ratios:
Debt-Equity Ratio

Due to volatile nature of the software business, companies do not normally take debt. The
industry average for debt equity ratio is zero. But Wipro seems to be an exception in this case.
Wipros last 5 years data for the same shows that there has been a considerable increase in debt-
equity ratio from 1% to a present value of 35% in last 5 years.
Interest coverage ratio


The lower interest coverage ratios are bad for a company. Wipros interest coverage ratio is lower
than that of the industry average of 439.59.


0.35
0 0
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
Wipro Infosys TCS
Debt Equity Ratio
53.48
3761
668.75
0
500
1000
1500
2000
2500
3000
3500
4000
Wipro Infosys TCS
Interest Coverage Ratio
Analysis of DU-Pont ratios
DU-Pont Ratios Mar-10 Mar-09 Mar-08 Mar-07 Mar-06
PAT/Sales 0.21 0.14 0.17 0.21 0.20
Sales/Assets 0.99 1.23 1.14 1.44 1.59
Assets/Equity 1.31 1.4 1.34 1.03 1.01
ROE 0.28 0.24 0.26 0.31 0.32

ROE is almost stable for the company. The DU- Pont break up gives:
1. Here gross margin is increasing which is a good sign
2. Assets turnover is decreasing which is a point of concern
3. Assets/Equity ratio is almost stable over the years.
Outlook and Concerns
After the global recession, Wipro following the trend of the Indian IT industry has been winning new
deals. The company is also seeing stability in fees for services after brutal slide in the previous two
years.
Wipro hopes to maintain or improve profit margins for the current fiscal year.
A firm rupee has been denting the profit margins of the IT companies and Wipro is no exception to
it. With demand picking up in the IT job market, the rising wages remains the other concern for the
company.