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Investment Analysis CIA II Report

An analysis of Wipro Ltd


By
Samyukta Venkatraman, SYBA
Roll No: 067 UID No: 131315

Wipro Ltd
Wipro Ltd is the flagship company of the Azim Premji group. It was incorporated in 1945 and is
today reckoned as one of Indias leading firms in the IT service industry. The company provides
IT services and solutions to corporations, both global and Indian. The company is divided into 5
divisions- namely, Wipro Technologies, Wipro Infotech, Wipro Consumer Care and Lighting,
Wipro Infrastructure Engineering and Wipro GE Medical Systems.
Methodology of Analysis
Wipro Ltd.s performance in the Financial Year 2013- 14 has been reviewed using the techniques
of Fundamental Analysis followed by Comparative Analysis and lastly Technical Analysis. The
fundamental analysis has been evaluated by preparing Balance Sheet and Revenue Statement
Ratios over a period of 4 financial years from 2011-2014. This is followed by a comparative
analysis which has been done in two ways- Trend Analysis and Inter-firm Analysis. Finally, the
movements of Wipros shares have been utilized to formulate the Technical Analysis.
A] Fundamental Analysis
Ratio Analysis
1) Balance Sheet Ratios
Liquidity and Solvency Ratios- Creditors, bankers, Employees, Investors are very
interested with the solvency capacity of the business concern. Accordingly, a firm which
is able to meet its liabilities is considered to have favorable solvency and liquidity
position. The liquidity can be assessed by calculating the current and quick ratios.

Current Ratio- It depicts the short-term financial soundness of the business. A


higher ratio implies a better capacity to meet its current obligation. The current
ratio is given by Current Assets/Current Liabilities
Current Ratio

March14
1.98

March13
1.55

March12
1.94

March 11
1.72

Therefore, it can be seen from the above ratio that at 1.98:1 and 1.55:1 in 2014 and 2013
respectively, the company is in a comfortable solvency position. It is seen that the companys
solvency position has improved in 2013-14 period. Although the ideal ratio stands at 2:1, it
can be seen that the company has the capacity to meet its liabilities. Note: Short Term loans
have been included as Current Liabilities.

Quick/Liquid Ratio- the Quick ratio is a fairly stringent measure of liquidity. It is


based on those current assets which are highly liquid. The ideal quick ratio is 1:1.
The higher the quick ratio, the better the short term financial position of the
company. The Quick ratio is given by Quick Assets/Quick Liabilities, where
Quick Assets= Current Assets-Stock- Prepaid Expenses and Quick
Liabilities= Current Liabilities Bank Overdraft
Quick Ratio

March14
2.53

March13
2.02

March 12
2.50

March 11
2.22

Therefore, it is seen that when calculating quick ratios, the part of current assets which not
liquid are eliminated, enhancing the quality of the companys ability to discharge current
liabilities as and when required. It is seen that the Company is more than capable of
discharging its current liabilities and is a highly solvent firm.

Debt to Equity Ratio- This ratio judges the long-term financial position and
soundness of the long-term financial policies of the firm. In general, lower the
Debt to Equity ratio, higher the degree of protection enjoyed by the lenders. It is
given by Long-Term Debt/Shareholders Funds, where Shareholders Funds is
given as Share Capital + Reserves and Surplus.
Debt to
Equity Ratio

March14

March13

March 12

March 11

0.03

0.09

0.09

Therefore, the low values of Debt to equity ratio signify that there are fewer creditors, the
financial structure is sound and the relative position of the creditors is safe and secure.
3

Proprietary Ratio - The Proprietary ratio shows the extent to which the total
assets have been financed by the proprietor. Therefore, the higher the ratio, the
greater the satisfaction for lenders and creditors on whom the burden is lessened.
It is given by Shareholders Funds/ Total Assets(Less fictitious assets), where
Shareholders Funds is given as Share Capital + Reserves and Surplus.
Proprietary Ratio

March 14

86.8 %

March 13
85.69

March 12
82.28%

March 11
81.90%

The trajectory of change in the ratio is an upward trend, which implies a large part of asset
formation is built using Owned funds. This may however lead to overcapitalization and lower
dividends to shareholders.

2) Revenue Statement Ratios

Gross Profit Ratio- This ratio indicates the relationship between gross profit and
net sales. A higher ratio indicates a lower cost of goods, which implies higher
profitability. The Gross Profit ratio is given by Gross Profit/Net Sales and is
given in percentage terms.
Gross Profit
Margin

March 14

March 13

March 12

March 11

21.60%

18.75%

16.71%

19.62%

The Gross profit is reasonably high. This indicates efficiency of trading activities and selling
prices. It is adequate to cover administrative, marketing and fixed expenses.

Net Profit Ratio- This ratio indicates overall efficiency of the business. It
indicates the operational efficiency of the firm. An increase in the ratio over the
previous period indicates improvement in operational efficiency. It is also used to
compare the firm with industry standards. The Net Profit ratio is given by Net
Profit/Net Sales and is given in percentage terms.
Net Profit
Margin

March 14

March 13

March 12

March 11

18.29%

16.35%

14.23%

17.95%

The Net Profit Margin indicates an increase in the operational efficiency over the previous
financial year.

Operating Profit Margin- The main objective of computing this ratio is to


determine the operational efficiency of the management. It too determines the
operating efficiency and is used widely as measure of efficiency. It is given by
Operating Profit/Net Sales and is given in percentage terms.
Operating
Profit Margin

March 14

March 13

March 12

March 11

23.50%

20.86%

19.07%

21.90%

The Operating Margin has increased post the dip in the financial year of 2012-13. Thereafter,
operational efficiency has increased.

Earnings Per Share- The ratio of EPS helps investors evaluate the prevailing
market price of the share in the light of profit earning capacity. The more the EPS,
the better the performance and prospects of the company. It is given by Net Profit
after Interest and Taxes( Less Preference Dividend)/ Number of Equity
Shares
Earnings Per
Share(Rs.)

March 14

March 13

March 12

March 11

29.95

22.94

19.05

19.73

Having evaluated the change in the Earnings per Share over a period of four years, it can be
seen that the EPS has gone on rising which will motivate the investor to purchase Wipros
shares.

Interest Coverage Ratio- The ratio identifies the safety margin available to
lenders/creditors of long- term credit. It ascertains the amount of profit available
to cover the interest charge, since interest is a charge on profits. A high ratio is
better because it indicates a higher safety margin for the lenders. It is given by
Profit before Interest and Taxes/ Interest
Interest
Coverage
Ratio(Times)

March 14

March 13

March 12

March 11

26.64

21.45

10.77

42.95

A close inspection of the Interest Coverage Ratio sees a downward trend which is a cause for
concern to lenders or creditors whose safety margin is lower than previous years. Creditors
must lend carefully.

3) Balance Sheet and Revenue Statement Ratios

Debtors Turnover Ratio- This ratio indicates economy and efficiency in the
collection of amount due from the debtors. The higher the ratio, the better it is,
since it indicates that debts are being collected more quickly. It indicates the
number of times the receivables are turned over in a year with relation to sales. It
is given by Net Credit Sales/ Average Debtors + Average Bills Receivable
Debtors
Turnover

March 14

March 13
6

March 12

March 11

Ratio (Times)
4.55

4.04

4.61

4.87

.
It is seen that although there has been a dip since 2012, the DTR has risen over the last couple
of years.

Stock Turnover Ratio- This ratio measures how fast the stock is moving through
the firm and generating sales. It has been observed that higher the ratio, the more
the efficient management of inventories. It is given by Cost of Goods Sold/
Average Stock.
Stock
March 14
Turnover
Ratio (Times)
169.76

March 13

March 12

March 11

103.67

40.36

36.28

The Stock Turnover Ratio has been increasing since 2011. This indicates that the stock moves
extremely quickly and is efficiently creating sales. This indicates efficient management of
inventories

Return on Equity- For any investor, this is a very important ratio to be analyzed
as it depicts the efficiency of usage of equity shareholder funds. It is seen that
higher the ratio, higher the higher the efficiency. It is given by Net Profit after
Tax and Preference Dividend/ Equity Shareholders Fun. It is given in
percentage form.
Return on
Equity

March 14

March 13

March 12

March 11

24.3%

23.05%

19.47%

22.04%

The ideal long term ROE is 15% and above. Therefore, it is seen that Wipro has been
consistently above that average. This is a positive feature, especially for potential Equity
Shareholders.

Overall Performance

B] Comparative Analysis

Trend Analysis of Balance Sheet YoY( 2013-14) A Comparative Financial


Statement has been prepared which compares the performance of Wipro over 2
consecutive Financial years and is a Trend Analysis or an Inter-period
Comparison.

Sources Of Funds

Mar '14

Mar '13

Absolute Change

% Change

Total Share Capital

493.2

492.6

0.6

0.12180268

Equity Share Capital

493.2

492.6

0.6

0.12180268

Share Application
Money

Preference Share
Capital

Reserves

28,862.70

23,736.90

5,125.80

21.5942267

Networth

29,355.90

24,229.50

5,126.40

21.1576797

106

50.4

55.6

110.31746

4,404.30

3,995.60

408.7

10.2287516

Secured Loans
Unsecured Loans
Total Debt
Total Liabilities

4,510.30

4,046.00

464.3

11.4755314

33,866.20

28,275.50

5,590.70

19.772241

Mar '14

Mar '13

Absolute Change

% Change

9,034.60

8,312.50

722.10

8.69

Less: Accum. Depreciation

5,059.60

4,403.10

656.50

14.91

Net Block

3,975.00

3,909.40

65.60

1.68

275.1

378.9

-103.8

27.3950911

11,036.00

10,904.20

131.80

228.3

320.5

-92.2

8,550.90

8,499.40

51.50

1.21
28.7675507
0.61

Application Of Funds
Gross Block
Less: Revaluation
Reserves

Capital Work in Progress


Investments
Inventories
Sundry Debtors
Cash and Bank Balance

10,554.90

7,800.40

2,754.50

35.31

Total Current Assets

19,334.10

16,620.30

2,713.80

16.33

Loans and Advances

11,116.70

8,893.80

2,222.90

24.99

30,450.80

25,514.10

4,936.70

19.35

Fixed Deposits
Total CA, Loans &
Advances
Deferred Credit

Current Liabilities

7,992.60

8,792.80

-800.20

-9.10

Provisions

3,878.10

3,638.30

239.80

6.59

Total CL & Provisions

11,870.70

12,431.10

-560.40

-4.51

Net Current Assets

18,580.10

13,083.00

5,497.10

42.02

Miscellaneous Expenses
Total Assets

33,866.20

28,275.50

5,590.70

19.77

It can be seen from a thorough analysis of the Trend Analysis that the growth in all aspects
has been positive and follows an upward trajectory.

Inter Firm Comparative Analysis- Analyzing Wipro with respect to


competitors ( Industry Standards)

Name
TCS
Infosys
Wipro
HCL Tech
Tech
Mahindra
Oracle Fin
Services
Mindtree

Last
Price

Market Cap(Rs.
Crore)

Sales
Turnover

Net
Profit

Total
Assets

2,512.90

492,208.75

64,672.93

18,474.92

44,141.57

2,248.90

258,279.87

44,341.00

10,194.00

42,092.00

647.8

159,939.61

39,133.30

7,387.40

33,866.20

1,994.30

140,101.04

16,497.37

5,984.62

15,809.96

2,820.45

67,696.86

16,295.13

2,685.47

9,825.50

3,277.00

27,724.99

3,159.47

1,148.36

8,455.27

1,371.90

11,493.65

3,031.60

451.2

1,643.60

The top 7 Companies in the IT Sector were analyzed on the basis of certain parameters like
Market Capitalization, Sales Turnover, Net Profit and Total Assets. Therefore, by industry
standards, Wipro ranks 3rd in India. Furthermore, a comparative analysis has been prepared
of the Balance Sheets of the Top 3 IT firms- TCS, Infosys and Wipro.
Wipro

TCS

Infosys

Mar '14

Mar '14

Mar '14

Total Share Capital

493.2

195.87

286

Equity Share Capital

493.2

195.87

286

Share Application
Money

Preference Share
Capital

28,862.7
0

43,856.0
1

41,806.0
0

29,355.9
0

44,051.8
8

42,092.0
0

106

88.64

Unsecured Loans

4,404.30

1.05

Total Debt

4,510.30
33,866.2
0

89.69
44,141.5
7

0
42,092.0
0

Sources Of Funds

Reserves
Revaluation Reserves
Networth
Secured Loans

Total Liabilities

10

Wipro

TCS

Infosys

Mar '14

Mar '14

Mar '14

Gross Block

9,034.60

11,220.11

10,374.00

Less: Accum.
Depreciation

5,059.60

5,290.92

4,642.00

Net Block

3,975.00

5,929.19

5,732.00

275.1

3,047.53

954

11,036.00

5,832.42

6,717.00

228.3

8.57

Sundry Debtors

8,550.90

14,471.89

7,336.00

Cash and Bank


Balance

10,554.9
0

12,566.26

24,100.00

Total Current Assets

19,334.1
0

27,046.72

31,436.00

Loans and Advances

11,116.70

15,748.33

7,873.00

30,450.8
0

42,795.05

39,309.00

Current Liabilities

7,992.60

7,355.18

4,503.00

Provisions

3,878.10

6,107.44

6,117.00

Total CL & Provisions

11,870.70

13,462.62

10,620.00

Net Current Assets

18,580.1
0

29,332.43

28,689.00

33,866.2
0

44,141.57

42,092.00

Application Of
Funds

Capital Work in
Progress
Investments
Inventories

Fixed Deposits
Total CA, Loans &
Advances
Deferred Credit

Miscellaneous
Expenses
Total Assets

Thus, Wipros position in the Industry is measured using the above tools of Comparative
Analysis.
C] Technical Analysis
Current price BSE

648.30

Current price NSE

647.80

Market Capitalization

160045.54

Face value

Rs. 2

EPS (TTM)

Rs. 23.79

11

27.25

P/E
Sector

IT Consulting & Software

No of shares

2468695721

BSE 52 week high

654.45

BSE 52 week low

475.35

NSE 52 week high

654.70

NSE 52 week low

474.70
28227.39

BSE Sensex

8526.35

Nifty
Average Volume BSE

160016.70

Average Volume NSE

2229112.00

BSE Code

507685

NSE Symbol

WIPRO

The current Beta stands at 0.25


Simple Moving Averages
Days

BSE

NSE

30

581.90

582.22

50

573.21

573.41

150

566.84

567.04

200

555.18

555.42

12

It is seen from a thorough


Fundamental and Technical
Analysis that the share price
movement, the profitability and
the standing in the Industry is highly desirable. The Company being in the IT sector has been
growing consistently. There was a short term fall due to the 2008 Global Crisis. However,
recovery has been strong and smooth.

References
Moneycontrol.com,. 'Wipro Balance Sheet, Wipro Financial Statement & Accounts'. N.p., 2015.
Web. 7 Feb. 2015.
Profit.ndtv.com,. 'Wipro: Balance Sheet Of Wipro, Profit & Loss, Cash Flow, Ratios, Quarterly,
Half-Yearly, Yearly Financials - Ndtvprofit.Com'. N.p., 2015. Web. 8 Feb. 2015.
Techpaisa.com,. 'Technical Analysis, Charts, Support, Resistance Of WIPRO'. N.p., 2015. Web. 5
Feb. 2015.
Wipro Ltd,. Annual Report 2013-13. Wipro Ltd, 2015. Web. 6 Feb. 2015.

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