In line with market expectations, information technology services and consumer goods company, Wipro posted a 31 per cent jump in net profit to Rs 1,319 crore in the quarter ended June 30, as against the year-ago period. The Bangalore-headquartered company, which also sells soaps, furniture and hydraulic equipment, saw its top line moving up by 16 per cent over the same period a year ago to Rs 7,236 crore, driven by steady volume growth during the last three quarters.
The company's flagship global IT services business — which accounted for 76 per cent of the company's total revenue and 93 per cent of the operating income for the quarter under review — achieved a revenue growth of 14 per cent to touch Rs 5,500 crore, as compared with the same quarter a year ago. Wipro’s IT services revenue stood at $1,204 million, a sequential (compared to the trailing quarter) increase of 3.2 per cent and year-on-year (YoY) increase of 16.6 per cent.
The management attributed the growth to steady business from existing clients, coupled with an all-round growth of the various business verticals and tax benefits of about 2 per cent for its IT services business. The company saw a volume growth of about 4.7 per cent.
Wipro Chief Financial Officer Suresh Senapaty said the company had a margin expansion of about 30 basis point on a quarter-on-quarter (QoQ) basis and about 3 per cent on a YoY basis. During the quarter under review, Wipro added 22 clients including nine from the US, nine from India and West Asia and the rest from the European and Asia Pacific region. Vertical wise, five new clients were added in the healthcare services space and three in financial services space.
Wipro has guided for revenue in the range of $1,253 million to $1,277 million for the quarter ending September 30, (Q2 FY11), a sequential increase of 4.1 to 6.1 per cent. The company’s stock closed at Rs 412.10, a dip of 0.84 per cent from the previous close of Rs 415.6. However, the stock was up 4 per cent during intra-day trading at Rs 433.
Results for the first quarter reported by the top three Indian IT majors reflect a rise in demand from the US market, and hence an increase in volume growth for all the three players.
| HANDSOME GAIN > Total revenues stood at Rs 7,236 crore ($1.56 billion), an increase of 16% over the same period last year > IT services revenues at Rs 5,500 crore, an increase of 14% over the same period last year > IT services added 22 new clients in the quarter > Net addition of 4,854 employees in the current quarter; Total: 112,925 > Consumer Care and Lighting revenue grew 23% over the same period last year and EBIT grew 11% |
Among the three, say analysts, India’s largest IT services firm, Tata Consultancy Services (TCS), has emerged as the best performer, with the highest volume growth of 8.1 per cent and a continued quarter-on-quarter improvement in margins. Bangalore-based Infosys Technologies and Wipro Technologies, while beating or meeting street expectations with a volume growth of 7.6 per cent and 4.7 per cent, respectively, saw pressure on margins due to salary hikes, and a dip in pricing.
More From This Section
“In terms of performance, I think TCS has been the best, both in terms of volume growth and QoQ margin improvement. The volume growth of 8.1 per cent by TCS is good, but going forward, we think it might go down to 6-7 per cent, which in itself is a good volume growth. But in the case of Infosys and Wipro, the margin pressure will continue. Going ahead, too, we think the margin pressure will continue especially in case of Infosys, which plans to hire more laterals. We were expecting attrition to go down in case of Wipro this quarter but this has not happened,” said Pralay Das, research analyst at Elara Capital.
Growth has come from across the sectors in case of all the three firms. Unlike in the last few quarters when verticals like manufacturing, hi-tech and telecom where under pressure. However, attrition is on the rise, too, and the managements of all the three top firms continue to be cautious about the crisis in Europe.
In terms of managing margins, TCS did a better job when compared to Infosys and Wipro, say analyst. In the case of TCS, which had a cross-currency impact and a forex loss of Rs 47 crore this quarter, its margin was down 36 basis points (bps) as compared to Infosys which reported a drop of 200 bps.
In the case of Infosys and Wipro, pricing was also a drag on the numbers. Infosys reported a decline of 1.6 per cent QoQ on blended pricing. For Wipro onsite and offshore pricing declined by 4.9 per cent and 1.4 per cent QoQ, respectively. In case of TCS, pricing has been flat, but the management has hinted at a price increase towards the end of the second half of this financial year.
“Wipro’s constant currency dollar revenue growth was in-line with our expectation at 4.4 per cent. A big positive surprise was margin expansion against expectation of sharp decline. However, in comparison to Infosys and TCS, Wipro’s headline performance is modest. Near-term concern for the company would be margin management in the face of RSUs issuance, implementation of promotions, declining utilisation and pricing pressure. Prefer TCS and Infosys over Wipro in large-cap IT space,” said Rajiv Mehta, assistant vice-president, India Private Client, IIFL.
| THE BIG THREE | ||||||||
| Revenue (in cr) | Net profit (in cr) | |||||||
| Q1’10 | Q1’11 | YoY (%) | QoQ (%) | Q1’10 | Q1’11 | YoY (%) | QoQ (%) | |
| TCS | 7,207 | 8,217 | 14.0 | 6.2 | 1,534 | 1,906 | 24.3 | -4.7 |
| Infosys | 5,472 | 6,198 | 13.3 | 4.3 | 1,488 | 1,525 | (2.4)* | -7.0 |
| Wipro | 4,827 | 5,500 | 14.0 | 4.6 | 1,070** | 1,350 | 26.0 | 6.0 |
| **represents EBIT numbers. Wipro does not provide net profit numbers for its IT services business. ( ): indicates dip in growth | ||||||||
Scourge for all
Meanwhile, with demand returning, all the three players reported a spike in attrition. In the case of TCS and Infosys, over 7,000 employees left the company in this quarter. Attrition at TCS touched 13.1 per cent (overall). Infosys attrition touched 16 per cent and Wipro reported it at 15.8 per cent for the quarter under review.
However, bad news from Europe continues to act as a dampener for the industry. “As far as the demand environment is concerned, we think the US is back on track for the present. Even in case of Europe — as far as commentary from the top management is concerned — they have not seen the macro issue percolate down to any major impact on corporate spending,” opined Pralay Das, research analyst at Elara Capital.
However, according to a recent TPI Index, even the US has not fully recovered. For instance, the total contract value for the second quarter of calendar year 2010, which measures commercial outsourcing contracts valued at $25 million or more, stood at $18.1 billion — down 13 per cent sequentially and 14 per cent, year-on-year. In terms of geography, second quarter 2010 performance in the US is down 9 per cent QoQ, but up 21 per cent YoY.