Wipro Q2 profit dips 13.8% YoY to Rs 18.86 bn, misses Street estimates

Revenues in line backed by Alight deal

Wipro’s second quarter earnings missed Street estimates on the profit and margin front, even though it was able to meet revenue projections on the back of accretion from its recent multi-billion dollar Alight deal win. The IT services firm reported a dip in its net profit with contraction in its operating margin, as it had to provide for Rs 5.14 billion towards a one-time settlement with one of its key clients.

In the quarter ended September, Wipro’s consolidated net profit fell 13.8 per cent year-on-year (YoY) to Rs 18.86 billion, while on a sequential basis, it dropped 9.9 per cent. This was below Bloomberg estimates of Rs 20.31 billion, for the quarter.

  

However, clinching of the Alight deal, worth around $1.6 billion, during the quarter helped the IT services firm to grow its consolidated revenue by 8.3 per cent to Rs 145.4 billion. Sequentially, it grew 4.1 per cent. The company said, it saw one month of revenue contribution from Alight this quarter.

Wipro’s IT services revenue, which constituted more than 98 per cent of its consolidated revenue after hiving off its product businesses, grew 9.7 per cent to Rs 143.8 billion in the quarter. The revenue growth in sequential term stood at 5 per cent. 

However, the company said its adjusted IT services revenue grew 10.4 per cent YoY and 6.2 per cent sequentially, as the company had adjusted the impact of divestment of its data centre business on the revenue numbers.

When compared to other industry peers, Wipro’s revenue growth lagged competitors, while in revenue terms, Noida-headquartered HCL Technologies also maintained its lead over Wipro. 

In the September quarter, HCL Technologies reported Rs 148.61 billion, which is Rs 3.2 billion higher than Wipro in the same quarter. 

In the quarter under review, both TCS and Infosys reported revenue growth of 7.7 per cent in reported currency, on a QoQ basis, while for HCL Tech, it was 7.1 per cent. 

In dollar terms, Wipro’s revenue stood at $2.04 billion, a sequential growth of 1.9 per cent. The figure also took into account the impact of divestment of the data centre business. In constant currency terms, revenue grew 5.1 per cent YoY and 2.8 per cent sequentially. The company’s management exuded confidence of improving its performance in the coming quarters on the back of strong deal pipeline. 

“Wipro has delivered a strong quarter in both revenue and margin growth. We won our largest deal to date and four of our business units grew over 4 per cent sequentially in constant currency term. The demand environment is robust, especially for digital transformation and enterprise scale modernisation services,” said Abidali Neemuchwala, CEO of Wipro.

The firm witnessed good traction in the Americas and APAC, with sequential growth rates of 3.7 per cent and 7.9 per cent, respectively. Wipro’s digital business grew 13.4 per cent sequentially to constitute 31.4 per cent of its overall revenues in the September quarter.

In Q2, Wipro witnessed 260 basis points drop in operating margin sequentially to 14.6 per cent as it had to provide for the loss arising from one of its clients. However, it said that excluding this one off, the margin for the IT services segment stood at 18.1 per cent.

For the third quarter ending December 31, 2018, Wipro has given a revenue outlook of $2,028 million to $2,068 million which translates to a growth of 1-3 per cent.

The company added 10,687 employees in the second quarter of this fiscal taking its total employee count to 175,346. Its attrition was at 17.4 per cent, 40 bps higher than the previous quarter.

Meanwhile, the company has appointed former State Bank of India chairman Arundhati Bhattacharya as an independent director on its board for a period of five years. Presently Wipro’s board strength stands at 10 including three executive directors.  

The Bengaluru-headquartered firm's share price fell 0.01 per cent to settle at Rs 309.25 at the BSE at the end of trading on Wednesday.