Wipro: Another outperformer

Software star Wipro raises revenue guidance, but wage pressures are strong

Wipro's results for the June quarter continued the tradition of IT companies beating their guidance. More significantly, the Wipro management was very upbeat about pricing "" in the company's global IT services business, sequential revenues rose by 8.4 per cent, helped by a 3 per cent rise in offshore realisations and a 2.8 per cent increase in onshore realisations.

One reason was a better business mix, with more high-end work, but the management also said that new accounts were being brought in at a higher price. Higher volumes and realisations, taken together with flat selling, general and administrative (SG&A) expenses resulted in operating margins moved up for the fourth consecutive quarter.

Also important was the fact that the bulk of the 35 new clients signed up during the quarter from the US, in spite of the outsourcing controversy.

A key change in accounting for the gains and losses from hedging forex income has resulted in profits after tax being higher by Rs 35.5 crore in the June quarter.

Adjusting for this increase, the company's sequential growth in profits after tax vanishes. The company management says that, under the new rules, if the dollar remains at Rs 46, the hit to the bottomline for the rest of the year could be Rs 200 crore.

Going forward, the company has signalled that revenues in Q2 will be $318 million, well above the June quarter's $300 million. However, the company management acknowledge that wage pressures could pose a challenge.

Also, intellectual property sales accounted for 0.6 per cent of global IT services revenues""-this revenue stream is lumpy and may not be available every quarter. The management is accordingly cautious about Q2.

Also, unlike the IT services business, Wipro's BPO operations have had another lacklustre quarter, with both lower volumes and pricing.

Cipla

No doubt Cipla has grown its June quarterly net profits before exceptional items by 18 per cent to Rs 79.26 crore, but that has been aided by other income jumping by 78 per cent to Rs 11.8 crore.

Other income has increased mainly on account of foreign exchange gains. Excluding other income, profits would have grown merely 11.3 per cent.

Sales in the domestic market have grown by 15.6 per cent backed by rising sales of anti-asthmatics, cardiovascular and anti-diarrhoeals medications.

And its efforts have not gone unnoticed, with ORG's statistics pointing out that the company is the leading player in the domestic market, although its rival GlaxoSmithKline disputes that.

Total exports too have shown an encouraging trend and have grown by 40.4 per cent to Rs 203.13 crore in the June quarter 04. However, the company like its peers has had to face a rising cost base ""- staff costs and raw material costs have gone up.

Nevertheless, a larger revenue base offset this rise in input costs and operating profits of the company have grown by 15 per cent to Rs 78 crore in the June quarter 04.

Going forward, exports of the company are expected to grow significantly with the Bill Clinton Foundation extending its program to provide cheap generic Aids drugs to the whole of the developing world.

More significantly, with the company gearing up for product registration in the US markets in the next few months, exports could rise substantially.

ICICI Bank's solid growth

ICICI Bank's June quarter results show that it has been successful in growing both its net interest income and its fee income fast enough to completely offset the reduction in treasury income. Operating profit, accordingly, rose 10 per cent YOY.

The bank's ongoing programme of repaying higher cost liabilities and focusing on savings and current accounts has led to the average cost of deposits falling to 4.5 per cent. The bank management says that with short-term interest rates stable, any rise at the long end will not affect the cost of funds.

Thanks to lower provisions and a deferred tax adjustment, growth was much higher at the PAT level, at 26.6 per cent. But Rs 29 crore of those profits have come from marking to market the bank's derivative portfolio, a practice adopted from the June quarter. Adjusting for this, PAT growth works out to 18 per cent.

ICICI Bank's transfer of impaired loans has done a lot to bring down NPAs, and asset quality continued to improve, despite lower provisions. As at end-June, net non-performing assets constituted 2.7 per cent of customer assets, compared to 2.87 per cent as at end-March.

A small amount was transferred to an asset restructuring company in the June quarter as well. However, the bank's net restructured assets rose to Rs 7,264 crore, substantially higher than the Rs 6,629 crore at the end of March.

The bank management points out that several restructured assets are awaiting upgradation after the mandatory one-year waiting period is over.

With the bank continuing to aggressively grow retail assets, keeping costs in check and with lower provisioning requirements, the bank should have no difficulty in showing growth.

With contributions from Amriteshwar Mathur