Financial Reporting & Analysis

Term Project

Submitted by Section E Group C

Anurag Khemka (PGP26268)

Arant Agrawal (PGP26269)

Arijit Mookerjee (PGP26270)
Arunabha Pal (PGP26271)
Bharath Damodaran (PGP26273)
Chalil Arunlal (PGP26274)
 Agenda
 About Wipro
 Business Strategy
 Annual Report 2010 Analysis
› Financial Statements
› Ratio Analysis
 Competition Analysis
 Accounting Policies
 Confidence Building Measures
› Auditor’s Report
› Clause 49 compliance
› Quality of Earnings
 Investor Recommendations
About Wipro Ltd.

1945 ●
WIPRO Started operation

1980s ●
Transitioned to IT/ITeS

2000 ●
WIPRO ADR listed on NYSE

2001 Became PCMM Level 5 and SEI Maturity Model

●

2004 Company crossed $1Billion in revenues

●
Business strategy
 Business Segmentation

IT Services ●

●
Industry leader in the IT/ITeS sector
Among the top-3 in most of the leading
Business industry parameters

IT Services ●

●
Leading supplier of computer hardware in India
Diversified into Laptops and computer peripheral
Products segments

Consumer Care ●
Manufactures lighting equipment
Segment & ●
Also diversified into consumer care products
Lighting Segment
Wipro Sales Breakdown
 Projections by Segment

IT Services ●
IT & ITES segment is expected to grow at
4.08% worldwide with a CAGR of over 6.18%
Business
IT Services ●
Well positioned capture the hardware market
which is estimated to grow at about 3% in 2010
Products
Consumer Care ●
Indian domestic market for institutional lighting and office
modular furniture is estimated at U.S. $ 600 million
Segment & ●
Expected to grow at the rate of 10% to 15% for the period 2010-
Lighting Segment 2011.
SWOT ANALYSIS

WEAKNESS
WEAKNESS
1.
1. Low operating
Low operating margin
margin ofof
the
the other segments apart
other segments apart
from
from IT IT services
services just
just 4%
4% (IT
(IT
Products) and 13% (CC&L)
Products) and 13% (CC&L)
2.
2. Lowest
Lowest Return
Return onon net
net
Assets (RONA)
Assets (RONA) amongamong
sectoral
sectoral peers
peers
3.
3. IT Services contributes
IT Services contributes
92%
92% ofof the
the revenues
revenues

THREATS
THREATS
OPPURTUNITIES
OPPURTUNITIES 1.
1. Higher pricing
Higher pricing pressures
pressures
1.Has
1.Has maintained
maintained aa due to commoditization
due to commoditization
good
good corpus
corpus of
of cash
cash 2.
2. Liquidity
Liquidity andand interest
interest rate
rate
funds for acquisitions
funds for acquisitions risk
risk
and
and inorganic
inorganic growth
growth 3.
3. Forex
Forex Rate
Rate risk
risk
2.New 4.
4. Provision
Provision for
for D/d
D/d has
2.New areas
areas for
for growth
growth increased
has
have increased from
from RsRs 1,919
1,919
have been identified in
been identified in million
million to to Rs.
Rs. 2,327
2,327 million
million
this
this years
years annual
annual report:
report: in
in fiscal
fiscal 2010
2010
Annual report 2009-2010 analysis
Balance Sheet
WIPRO LTD Balance Sheet for the Year ended 31st March (in Rs. crores)

2010 2009 2008 2007 2006

Cash and Cash Equivalents 988.00 966.00 981.00 287.98 199.14
Account Receivables 945.00 909.00 972.00 660.47 462.97
Inventories 175.00 171.00 179.00 96.30 46.42
Other current assets 1205.00 1194.00 1074.80 1288.60 907.30
Total Current Assets 3400.00 3240.00 3206.80 2333.35 1615.83
Net Property, Plant and 1023.00 980.00 995.00 615.81 399.67
Equipment
Other long term assets 1542.00 1493.00 1378.00 440.26 239.48
Total Assets 5890.00 5713.00 5579.80 3389.42 2254.98
Current Liabilities 2249.00 2213.00 1912.00 993.55 474.53
Other long term liabilities 580.00 542.00 432.00 41.63 8.88
Stockholder’s Equity 3043.24 2958.00 3235.80 2354.24 1771.57
Total liabilities and 5803.45 5713.00 5579.80 3389.42 2254.98
stockholders’ equity
 Current Assets Analysis
4000

3500
3400
3206.8 3240

3000

2500
2333.35

2000

1615.83
1500

981
972 966 1000
988
945
909

660.47
462.97 500
287.98
199.14 179 171 175
46.42 96.3
0
2006 2007 2008 2009 2010
Current Liabilities Analysis
7000

6000
5713 5803.45
5579.8

5000

4000

3389.42
3235.8
2958 3043.24
3000

2254.98 2354.24 2249

2213
1912 2000
1771.57

993.55 1000

474.53 542 580

432
8.88 41.63 0
2006 2007 2008 2009 2010
 Income statement (Common Size)
Wipro Ltd Income Statement for the Year ended 31st March(in Rs. crores)

2010 2009 2008 2007 2006

Revenue 100% 100% 100% 100% 100%

Cost of sales 62.30% 68.00% 70.52% 64.39% 62.52%

Other expenses 11.50% 14.32% 11.17% 9.62% 10.30%

Interest expense 0.06% 0.04% 0.01% 0.00% 0.00%

PBT 26.14% 17.65% 18.29% 24.99% 27.18%

Income tax 3.23% 2.13% 1.96% 2.49% 3.08%

Net Income 22.91% 15.52% 16.33% 22.50% 24.10%

 Trends in Net Income and Profits
80.00%

70.52% 70.00%
68.00%
64.39%
62.52% 62.30%
60.00%

50.00%

40.00%

30.00%
27.18% 26.14%
24.99%

20.00%
18.29% 17.65%
14.32%
11.17% 11.50%
10.30% 9.62% 10.00%

3.08% 2.49% 2.13% 3.23%

1.96%
0.00%
2006 2007 2008 2009 2010
Financial Ratio Analysis
Liquidity, efficiency and solvency
Ratios 2010 2009 2008 2007
Current Ratio(times) 1.51 1.46 1.68 2.35
Quick Ratio(times) 1.43 1.39 1.58 2.25
Debt-Equity Ratio(times) 0.35 0.37 0.19 0.02
Days Inventory 11.17 9.89 9.12 --
Average Collection Period 72.45 70.37 65.1 --
Days payable 36.88 34.31 25.22 21.12
Profitability Ratios
ROE(%) 22.23 27.24 20.92 19.36
DuPont Formula
Profitability 0.14 0.16 0.2 0.19
Turnover 1.47 1.52 1.08 1.02
Leverage 1.12 1.1 0.99 0.99
ROE(%) 22.23 27.24 20.92 19.36
 Financial Ratio Analysis: Liquidity
and Solvency Ratio 2.5

2.35
2.25

1.68
1.58
1.51
1.5
1.46 1.43
1.39
Axis Title

0.5
0.37 0.35

0.19

0.02 0
2007 2008 2009 2010
 Efficiency Ratios
140

36.88
120
34.31

25.22 100

72.45
70.37 80
65.1
Axis Title

60

40

21.12 20

9.89 11.17
9.12

0 0
2007 2008 2009 2010
Competition analysis
 Balance Sheet Comparison

P/E
Market Cap ROE
Net Net Total (TTM)
Company
Sales Profit Assets
(In Rs. cr.) (x) (%)

Infosys
Technologies 21,140 5,803 22,036 164,818.34 29.88 29.1

TCS 23,044 5,619 15,152 151,585.14 31.42 39.5

Wipro 23,178 4,898 23,222 98,086.22 20.67 32.4

P&L Account Comparison
Profit & Loss account of Wipro Ltd and competitors
  Wipro TCS Infosys
Mar '10 Mar '10 Mar '10
Net Sales 100% 100% 100%
Cost of Sales 62% 40% 48%
Other Expenses 11% 30% 14%
Interest Expenses 0% 0% 0%
PBT 26% 29% 38%
Less: Income Tax 3% 3% 8%
Extra Ordinary Items 0% 0% 0%
Net Income 23% 26% 30%
Ranking against IT sector peers

Parameters Wipro ranking compared

to IT sector peers
Net Sales 1
Net Profit: 3
P/E ratio 1
Total Assets 1
Market Cap 3
ROE 2
WIPRO’S Financial accounting
policies
 Revenue Recognition Policy

Products

●
Revenue recognized in accordance with sales contract
●
On dispatch from the factories/warehouse
●
Revenues from product sales are shown as net of excise duty, sales tax separately charged and
applicable discounts

Revenue from contracts “Percentage of Completion” method

Services
Revenue from maintenance services Accrued over the period of the contract

Revenue from customer training, As the related services are performed

support and other services
Services yet to be rendered Not recognized as revenues
Accounting Policies
 Tangible Assets:
o Wipro states fixed asset at historical cost less

accumulated depreciation
o Interest on borrowed money for qualifying fixed

assets is capitalized
o Assets acquired on direct finance lease are

capitalized at the gross value and interest is charged

to profit and loss account
 Depreciation Policies (Fixed

Assets)
Fixed assets individually Rs. 5,000 or Nature of asset Life of asset

less are depreciated at 100% over a Building 30 – 60 years

period of one year
Plant and machinery 5 – 21 years
 Assets under capital lease are
Office equipment 3 - 10 years
amortized over their estimated
useful life or the lease term, Office equipment 5 years
whichever is lower. Vehicles 4 years
 Depreciation as a percentage of sales
remained at 2% in FY 2009-10.
 Total depreciation increased 9.8%
YoY from INR 6.8 billion to INR 7.5
billion
 Depreciation Policies (Intangible
Assets)
 Intangible assets are amortized over their estimated useful
life on a straight line basis.
 Based on relevant factors, the Company amortizes brands
acquired through their estimated useful life of between 20
to 25 years.
 No significant changes in policies over last 5 years
 Inventory Valuation
 Conservative Policy
o Inventory carried at lower of the historical cost and net realizable value.
o Policy has remained the same over the past 5 years
 Very little inventory on its books of accounts.
o Consistent with general practices followed across the IT services sector.
o Computers and spares of IT Products and raw material
o Finished stocks of Wipro Consumer Care
 Increased from Rs. 7.5 billion to Rs. 7.9 billion as on March 31, 2010.

2010 2009 2008 2007 2006

Inventory Valuation (Rs Cr.) 7926 7,586 6,664 4,150 2,065

 Analysis of Auditor’s report
 The auditors have given a clean chit to the company all
Financial Statements
o Balance sheet
o Profit and Loss account
o Cash flow statement
 In accordance with book of accounts and IAS
 Satisfied with inventory verification and the records
maintained for the inventory
 Obtained all details solicited from the company for a clean
audit
 Compliance under Clause 49(Non-
mandatory requirements)
 Compensation committee
 AGM held regularly and the yearly as well as half yearly results have been
published in all leading dailies
 A copy of the Annual Report has been sent to all shareholders.
 Unqualified Audit report issued on the statutory Financial Statements
 Extensive trainings provided to directors
 A committee headed by the Chairman of the board of Governance
evaluates the performance of the Board members on an annual basis to
avoid governance issues
 Follows the disclosures recommended by NYSE
 All Directors and management personnel of the company have reaffirmed
their compliance with the WIPRO Code of Business Conduct & Ethics for FY
2009-10
 Quality of earnings
 Depreciation policies in line with industry standards
 No indication of any creative accounting
 Revenue recognition is done following the bounds of GAAPs
 They are able to generate sustainable cash from their operations
 Earnings also have been a good estimator of cash flows
 Strong cash flows have been observed over the years
 Goodwill calculated is not aggressive
 Reduction of liability is also as expected
 The transparency and completeness of disclosures are satisfactory

Reported earnings reflect the cash that the company’s businesses generates and
their balance sheet reflects true economic position.
 Investor Recommendation - Buy
 WIPRO has been a stable player over the past 10 years
 Strong Financial Outlook
o Stable cash position

o low debt equity ratio ~0.35

o High Current Ratio and Quick Ratio to meet Current Liabilities

o High Profit Margin ~23%

o Ranked among top-3 sectoral peers on almost all parameters

 Other Strengths
o Industry leading profit margins in BPO segment

o Strong position in the consumer lighting segment

o Diversified into the Consumer care segment which is growing inorganically

We recommend an investment for the medium to long term in WIPRO Ltd. for consistent returns
 References
 WIPRO Annual reports for the periods 2005-2010
 WIPRO Corporate website www.wipro.com/investors
 CRISIL Research on IT/ITeS sector in India
 Infosys Corporate website www.infosys.com
 TCS Corporate Website www.tcs.com
 Data Monitor
 Capitaline
Thank You