Continuing the journey since its restructuring almost a year ago, Wipro reported a 10 per cent increase in net profit on a year-on-year basis in the quarter ended December 31 at Rs 1,456 crore.
The revenues of the Bangalore-based soaps-to-software company, on the back of strong demand for its information technology (IT) services business and consumer care products, grew 28 per cent over the year to Rs 9,997 crore.
The flagship IT services business, 76 per cent of total revenue, posted an operating profit (earnings before interest and tax) of Rs 1,583 crore, an increase of 20 per cent over the same quarter a year ago (Wipro does not provide net profit numbers of its IT business). Azim Premji, Chairman while cautious about the global environment, stated that 2012 would be a far better year than 2008. He also said uncertainty in the macro environment had not impacted the IT industry.
Revenues of the IT services business went up 28 per cent on a year-on-year basis to Rs 7,608 crore, primarily boosted by a depreciating rupee and also reaffirming that the restructuring was working well. In US dollar terms, IT services revenues went up 12 per cent from a year ago period and 2.2 per cent sequentially to $1.51 billion.
The company says it expects IT services revenue to be in the range of $1,505 million to $1,550 million with a sequential growth of one-three per cent in constant currency. Much better than peer Infosys, which expects a flat sequential revenue growth.
The better outlook, higher pricing in its IT business, and results in line with market expectations saw Wipro’s stock going up by 5.1 per cent during intra-day trading. The share price closed at Rs 413.7 per share, up 2.4 per cent.
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“We expect uptick in the stock, as performance finally met the consensus expectation,” said Shashi Bhusan, senior research analyst at Prabhudas Lilladher, in his note on Wipro. “We believe a better than peers’ guidance indicates restructuring working well for Wipro.”
As for Wipro’s volume growth of 1.8 per cent for the third quarter ended December 31, 2011, the company said it was low compared to peers as it has seen a marked improvement in its fixed-price projects. Almost 46 per cent of its total projects are under fixed price model, it added.
Sequentially (compared with the trailing quarter), Wipro’s IT services business’ operating profit went up by 16 per cent and the revenues went up by over 11 per cent. “Wipro’s results were in line with estimates, both on the IT services revenues and PAT front,” said Dipen Shah, Head- Fundamental Research at Kotak Securities. “The improvement in average realisations was a surprise, though it was led by better efficiency in fixed priced and not absolute increases. Thus, this improvement may not sustain over the long term.”
The company’s operating margins could not benefit from a depreciating rupee due to a higher hedging position. Wipro’s reported an improvement of 80 basis points in its operating margins to 20.8 per cent as compared to 10 per cent sequentially. Its hedge book at the end of the quarter stood at $1.8 billion.
“Our hedge book position of $1.8 billion does not allow to reap the maximum benefit,” pointed out Jatin Dalal, the CFO of Wipro’s IT business. “For, the rupee depreciates or affects much when it appreciates. So, on net basis, our operating margin had a benefit of 70 basis points because of the rupee depreciation.”
Wipro’s IT services business added 39 customers which took the total number of clients to 953 from 930 a quarter ago and 880 a year ago. “We saw broad-based growth with 5 of the 6 verticals growing upwards of 4 per cent in constant currency,” said T K Kurien, executive director and CEO of Wipro’s IT Business. “Revenues in constant currency exceeded the guidance range. We have seen positive feedback from customers and employees on our restructuring approach.”
Suresh Senapaty, executive director & CFO of Wipro, said the company’s client mining strategy continued to show progress with 6 customers contributing more than $100 million of revenues. “We have improved operating margins through improved revenue productivity and currency benefits,” he added.
A look at its peers
The street’s reaction to Wipro’s number was different from its peer. While a disappointing guidance for the full year and Q4 pulled Infosys stock by over 8 per cent the day its announced its results, TCS saw its shares slip by over 3 per cent despite giving an in-line result.
Wipro also did well in terms of pricing due to higher realisation. Its price realisation onsite was up 2.9 per cent and offshore was 2.3 per cent. Infosys saw a pricing improvement of 80 basis point on constant currency basis, and onsite pricing was up 2.3 per cent.
“Wipro, though, has not reported a great set of numbers,” said Pralay Das of Elara Capital. “But, when compared to peers like TCS and Infosys, they look better. Also the commentary of the other two players was much more cautious. Going ahead what works for Wipro is that it has always performed well in a tight situation. Even in 2008 slowdown they did well.”
The company added 5,004 people for IT services business on gross basis, taking the total number of IT employees to 136,734 from 131,730 quarter ago and 119,491 year ago. Attrition of IT employees declined marginally to 19 per cent as against 21.1 per cent quarter ago.
An analyst said the numbers of the top IT firms reiterate his position that the sector would do well in the future. “From company perspective, TCS has under-performed and we some sluggishness in terms of operations. Wipro. on the other hand, seems like the dark horse in the race. After hitting a low the company seems to be turning around,” he said. “In the case of Infosys, while the company might emerge as the best performing firm in FY12, we would like to focus on the future.”