Wipro Q1 net up 12% YoY

But IT services' revenue down 2% QoQ.

Beating analyst expectations, Wipro Ltd, India’s third-largest software services exporter, posted a 12 per cent increase in net profit to Rs 1,016 crore for the first quarter of the current financial year ended June 30 (Indian GAAP), against the corresponding period of the previous fiscal. The top line of the firm, which also sells soaps, furniture and heavy engineering equipment, moved up by 5 per cent to Rs 6,274 crore.

Revenue from the flagship IT services stood at Rs 4,825 crore — a 10 per cent growth YoY and a sequential dip of 2 per cent. The company’s IT services business accounted for 77 per cent of the company’s total revenue and 93 per cent of the PBIT (gross profit). Operating profit was Rs 1,078 crore, a growth of 17 per cent on a yearly basis, even as it added 26 new clients, taking the number of active clients to 830, but a decline from 863 during Q4 2009. Wipro does not provide net profit figures for its IT services business.

In dollar terms, the company’s IT services revenues declined 3.3 per cent on a yearly basis to $1,033 million, which was also a sequential decline of 1.3 per cent, as volumes fell 1.5 per cent.

The company said its second quarter revenue growth from the IT services business would be flat to 2 per cent at the upper band.

Wipro’s peers — Infosys and Tata Consultancy Services (TCS) — on the other hand, have been more cautious on the outlook and saying their second quarter revenues will be flat to negative.

Analysts agree that the top three IT software and services exporters — Tata Consultancy Services (TCS), Infosys and Wipro have reasonably well in challenging times (see table). TCS, experts say, has been able to rationalise its costs well and is an example for its peers, though it was too early to uncork the champagne bottle.

On a QoQ basis, for instance, all these three IT firms saw revenue either flat or decline. And while TCS did well to post a 15 per cent QoQ growth in net profit, Infosys showed a decline of 5.3 per cent. Wipro Technologies does not provide comparable figures.

Wipro’s billionaire chairman, Azim Premji, said: “We are starting to see the first signs of stability in the business as ramp-downs start to taper off and volumes start to stabilise.”

The optimism stems from having have built a healthy pipeline across industry verticals, strengthening presence across geographies by winning strategic deals and launching new solutions.

Company officials are banking on volume growth during the second quarter even as they are bracing for a 0-4 per cent drop in pricing. Suresh Senapaty, CFO, Wipro Limited added that the number of deals the company was pursuing has grown 10 per cent since the start of the financial year and the deal sizes are also bigger.
 

COMPARISON OF IT COS IN Q1
Company	Revenue (Rs cr)			Net Profit (Rs cr)
	Q1 FY10	% YoY	% QoQ	Q1 FY10	% YoY	% QoQ
TCS	7,207	12	0.5	1,534	19	15
Infosys	5,472	12.7	-2.9	1,527	17.2	-5.3
Wipro*	6,274	5.0	-2.8	1,016	12	-0.6
* Wipro’s IT services’ revenue stood at Rs 4,825 crore — a growth of 10 per cent YoY, and a sequential dip of 2 per cent. In dollar terms, the division’s revenue stood at $1,033 million (around Rs 4,960 crore) — a QoQ decline of 1.3% and YoY decline of 3.3%. The company does not provide net profit figures for its IT services business                                           (Indian GAAP)

“We improved on several operating parameters to deliver margin expansion of 0.6 per cent to 22.3 per cent in the IT services segment,” said Senapaty.

Though pricing declined 1.1 per cent during Q1, the company was able to offset it by better foreign currency realisation and better utilisation which was at 70 per cent, an increase of 1.6 per cent from the fourth quarter. The offshore – onsite mix during the quarter was 50.4 — 49.6 from 48.8 — 51.2 per cent during Q4.

The IT services business, which employs close to 99,000 people, will not be effecting salary hikes which usually kick in during August for its offshore employees, which account for the major chunk of its base. 

Wipro has hedged $1.6 billion on a gross basis at Rs 42.62 to the US dollar for the next three years.

“The Q2FY10E guidance and management commentary suggests likely relative comfort with respect to demand and early signs of pick up in certain verticals,” said Dipen Shah, IT analyst and Vice President-PCG- Research, Kotak Securities.

“Although the worst appears to be over, till such time as the key markets of the US and Western Europe recover, there is still some pain left for the Indian IT industry,” said Diptarup Chakraborti, Principal Analyst, Gartner.