Wipro Limited Benefiting From Exponential Growth in India's Domestic IT Market

| About: Wipro Limited (WIT)

When we talk about Wipro (NYSE:WIT) we think of IT outsourcing and start comparing it to other Indian IT outsourcing companies like Infosys Technologies (NASDAQ:INFY) and Satyam (SAY). The most unique aspect of Wipro's business is that its IT services are just 75% of its revenues. The remaining 25% is composed of services and products targeted at
Indian and Asian Pacific markets.

Its 2007 revenue breakup was as follows:

Global IT services $2,355 million
BPO services $219 million

India and Asia Pacific:

Services: $194 million
Products: $360 million
Consumer Care: $175 million
Others: $164 million

TOTAL $3,467 million (IT services $2,574 million, other businesses $893 million).

Since IT services have a greater profit margin, the following is breakup of its operating income for fiscal 2007:

IT services - 82%
BPO - 7%
India and AsiaPac IT services and products - 7%
Consumer care and lighting - 4%

Its Indian IT products and services have nothing to do with its IT exports to USA, so it is critical to analyze them and figure out the growth of this segment in Wipro's total revenues.

Indian Domestic IT Market

According to IDC, the domestic IT market in India grew by 22.4% in 2006. The estimated year-on-year growth in 2007 is estimated to be 21.5% in 2007, making it the fastest growing market in the Asia-Pacific region. The domestic Indian IT industry is primarily composed of hardware, packaged software and IT services.

The domestic IT packaged software market is expected to grow at a CAGR of 20.9% during the period of 2006-2010. Application software will continue to account for the largest portion of the packaged software market.

The hardware market is expected to grow at a CAGR of 17.5% during the same period. Within the hardware market, the PC market has grown to 5.5 million units in 2006. Desktops constitute the largest component of the market, followed by laptops and servers, in unit and value terms.

In unit terms, the PC market in India is estimated to grow at a CAGR of 19.9% over the next 5 years. The domestic IT services market in India has witnessed good growth in the last one year. According to IDC estimates, the domestic IT services market for the year 2006 is estimated at US$ 3.5 Billion. The market is estimated to grow at a CAGR of 16.6% over the next 5 years.

Wipro's revenues in this segment were as follows :

2007.............. $554 million
2006.............. $370 million
2005.............. $307 million
2004.............. $217 million

It can be seen that the revenues from IT services and products from India have more than doubled since fiscal 2004 a growth of 27% CAGR. This growth is completely shielded from any change in dollar to rupee rate.