Wipro Q1 profit beats Street estimate; co declares Rs 11,000-cr buyback

IT services revenue grew 0.9% on reported dollar basis to $1.97 billion over the March 2017 quarter

Wipro, the country’s third-largest software exporter, said its first quarter profits rose 1.2 per cent to Rs 2,077 crore and revenues rose 0.2 per cent to Rs 13,626 crore. The company beat Street expectations, as it saw improving business from clients in banking, energy and utilities.

The Bengaluru-based firm bettered its own guidance to report information technology (IT) services revenue, calculated in dollar (the currency in which it bills majority of its customers), of $1.97 billion, a 0.3 per cent growth over the previous quarter. Wipro had forecast revenue to be negative 2 per cent to flat growth of $1.95 billion.

IT services' operating profit margin for the quarter was 16.8 per cent, a drop of 100 basis points, compared to 17.8 per cent in the year-ago period and also lower than 18.3 per cent in the March quarter. It attributed the decline in margins to appreciation of the rupee against the dollar and impact of wage hikes that it gave in June.

“On the back of a quarter of good execution, we expect the momentum to continue. While the core business continues to improve, regulatory uncertainties in the healthcare payer market are causing headwinds. We continue to build momentum towards Q4 and aim to be at industry level growth rates in Q4,” said Abidali Z Neemuchwala, chief executive officer of Wipro.

Wipro also announced a share buyback of Rs 11,000  crore, or $ 1.7 billion, at a price of Rs 320 or $4.95 a share, which is 24 per cent higher than the average price of the stock for the past six months.

Wipro is the fourth Indian IT services firm to announce a buyback after TCS, Infosys and HCL Technologies as there have been sluggish return on IT stocks. While the largest Indian IT firm TCS announced a buyback of shares worth Rs 16,000 crore last week to repurchase 56.1 million shares at Rs 2,850 each, Infosys said it would spend as much as $2 billion in either share buyback or dividends to shareholders this financial year.

Wipro’s buyback announcement lifted its American Depositary Receipt (ADR) by 5.1 per cent on the NYSE on Thursday.

The first quarter has been a mixed bag for large IT companies as they struggled with technology shifts towards digital and cloud, automation of low-end tasks and growing protectionism in the developed markets. Wipro’s growth lags both larger rivals Infosys and Tata Consultancy Services (TCS).

Infosys saw its first quarter profits grow 1.4 per cent to Rs 3,483 crore and revenue by 1.8 per cent to Rs 17,078 crore on the back of improved efficiency and marginal growth from customers, prompting it to raise its dollar guidance for the year ahead. TCS had reported muted numbers on the back of slower growth from clients in banking and financial services and retail. Its first quarter profit dropped 5.82 per cent to Rs 5,950 crore and margins got hit due to currency fluctuations and impact of wage hikes in the quarter.

Revenue grew 1 per cent to Rs 30,543 crore in the quarter to June, on the back of volume growth of 3.5 per cent, the highest in four quarters.

While Wipro performed better, it has forecast IT services revenue to the range of $1.96-2 billion for the second quarter ending September. This would be negative 0.5 per cent to 1.5 per cent.

Analysts are disappointed with the forecast for the coming quarter.

“The quarter was better than expected on all fronts, mainly driven by better-than-expected volume growth. However, the company expects the growth to come by only in 4Q of FY18, while 2Q of FY18 is again expected to be weak with an almost a flattish quarter,” Sarabjit Kour Nangra, vice-president (research-IT) at brokerage Angel Broking, said in a note. “However, unless the company’s client addition becomes strong the company is unlikely to witness sustained growth which most of the large-cap IT companies deliver.”

Harit Shah, sector analyst at Reliance Securities, also said that second quarters are seasonally strong so the guidance was quite disappointing. “The results, however, were decent and above expectations. Buybacks are a positive sign,” said Shah. 

Jatin Dalal, chief financial officer, Wipro, however, said the company has been able to avoid an “adverse” impact. “We had 130 basis points impact of adverse forex of the total 150 basis points (impact) on the operating margin. Effectively we have been able to restrict the adverse movement. We have been able to accommodate people hiring, salary increase and having people on the bench all that within 20 basis points.”