Soaps to software major Wipro Ltd on Monday closed its second quarter ended September 30 with a consolidated net profit of Rs 1,301 crore, an increase of one per cent over the same quarter a year before. Consolidated revenues grew 18 per cent to Rs 9,094 crore in the quarter when compared with the corresponding one a year earlier, on the back of strong volume growth by its flagship information technology (IT) services business.
The IT services business, which accounted 75 per cent of overall revenue, posted a seven per cent increase in earnings before interest and tax at Rs 1,364 crore in the quarter, year-on-year (yoy). The Bangalore-headquartered company said its revenues from IT services in the quarter was Rs 6,829 crore, a growth of 19 per cent when compared with the corresponding one last year. Sequentially (compared with the trailing quarter), the IT services business’ operating profit came down about three per cent, whereas its revenue rose seven per cent.
The operating margin in the quarter came down by 200 basis points (bps) to 20 per cent, from 22 per cent in the previous one. The company said this was primarily due to the pay rise it gave all its offshore and onshore employees with effect from June, reflected in its balance sheet for two months (August and September). Besides, it said the operating margin was impacted negatively by 50 basis points after adjusting the operating margin of the oil & gas IT practice of SAIC, which got acquired by Wipro this April.
On the positive side, the company saw its volume (billable manhours) in the quarter touching six per cent, after hovering around two per cent for last many quarters.
It kept the net utilisation level (excluding trainees) close to 81 per cent. Attrition came down 470 bps to 18.5 per cent from 23.2 per cent in the previous quarter, reflecting a better sense of stability after the restructuring.
IT business growth in the quarter was driven by the BFSI (financial solutions) division, which grew 16.6 per cent yoy and 6.3 per cent quarter-on-quarter (qoq), one of the highest among its other Indian peers. The energy and utility practice, strengthened after the acquisition of SAIC’s oil & gas IT practice, grew the fastest (78 per cent yoy and 22.9 per cent qoq), as the company leveraged the latter’s front-end capability to cross-sell offerings to their existing clients.
There was strong growth in the Asia-Pacific and other emerging markets, with yoy and sequential growth of 42.9 per cent and 12 per cent, respectively. Among the matured markets, Europe grew the fastest with a yoy growth of 25.5 per cent and sequential growth of 5.3 per cent.
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Analysts tracking the company said they were a bit worried about the drop in offshore realisation. “Wipro’s results were marginally below estimates. Organic volumes grew 4.6 per cent, but offshore realisations were sharply lower by about four per cent qoq. This is the second successive quarter of fall in realisation,” said Dipen Shah, head--fundamental research, Kotak Securities.
Wipro added 44 clients in its IT business during the quarter, including 12 from the US and five from Europe, beside growing an existing client to the over $200 million (annualised revenue) revenue bracket.
Though the company management echoed the concerns of its industry rivals about the global economic uncertainties, they said its deal funnel looked healthy and it was chasing 25-26 deals of about $50 million each.
“Macroeconomic sentiments continue to remain uncertain. We have seen growth momentum building up in our IT business with healthy volume growth. Our focused investment strategy will get the business to a higher growth trajectory,” said Azim Premji, chairman.
In the quarter ending December 31, Wipro says it expects IT services revenues to be $1,500-1,530 million, a sequential growth of two to four per cent.
Its shares closed at 366.45, down 1.7 per cent from the previous close on the Bombay Stock Exchange.