Earning Release

Siemens AG's (NYSE:SI) top-line exceeded our expectations given better-than-expected performance of its Industry and Energy Sector. Adjusted net earnings were above our estimates given lower-thananticipated deprecation costs. Going forward, we expect weak demand in Siemens's end markets to result in the order backlog remaining weak over our 6-12 month investment horizon. Hence we maintain our HOLD rating over our investment horizon until we reassess the stock fully in our 4Q 09 and FY 2009 update report. Although we continue to anticipate a positive currency impact on the ADR over our 6-12 month investment horizon, based on our fundamental outlook, we maintain our HOLD rating for the ADR. We will reassess our target price and rating in our 4Q 09 and FY 2009 update report.

New Valuations

Wipro's (NYSE:WIT)2Q 10 performance surpassed rival companies Infosys Technologies (Infosys) and Tata Consultancy Services (TCS). The company reported sequential revenue growth of 10.3% compared to Infosys' 2.1% and TCS' 3.2%, although it can be argued that the company's diversified business lines, apart from IT Services and Products make direct comparison difficult. The robust growth witnessed is testament to improving business conditions in the Information Technology sector. Wipro expects 3Q 10 IT services revenues to increase in the range of 2.5% and 4.5% q-o-q, higher than the growth expected by its peers. We expect this growth to be driven by volume pick-up supported by improved decision taking ability by corporates and stable pricing as although the pressure on pricing seems to have eased off, large deals are still very competitive and involve pricing discounts. Wipro expects strong growth momentum in the BFSI vertical, going forward supported by project ramp-ups. Service lines such as package implementations, infrastructure services, and BPO are also expected to show improved performance, led by increased IT spending. Pick-up in volume growth in the Enterprise vertical – Energy and Utilities, Healthcare & Services and Retail and Transportation also adds to the healthy 3Q 10 revenue growth guidance offered by the company. The company's recent acquisition of Yardley's businesses in Asia, Middle East, Australia and certain African regions for US$45.5 mn is expected to add approximately US$24 mn to revenues for FY 2010. This acquisition, coming after the company's acquisition of a south-east Asian personal care products company, Unza in July 2007, solidifies Wipro's Consumer Care and Lighting business (+7.4% q-o-q, +11.3% y-o-y in 2Q 10) strategy to expand its presence in the Middle-east and Asian regions. Overall for FY 2010, we now estimate revenue growth to be in mid single digits, up from our earlier expectations of low single digit growth. Margins are expected to expand y-o-y for FY 2010, mainly due to strong cost management efforts displayed in 1H 10. With our revised estimates we now expect an approximately 12.4% revenue CAGR and 14.6% EPS CAGR over FY 2009-2012E. We believe long-term prospects for Wipro remain strong post recovery in economic conditions the world over, as demand for IT outsourcing remains and business conditions for its consumer care business improves. However, after the significant run-up in stock price, current levels do not augur well for an attractive investment opportunity presently as upside seems limited.

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