Company fails to impress market with 10% rise in net
Wipro Chairman Azim Premji’s dual helmsmanship model has failed. In a tacit admission of the fact, T K Kurien was today appointed Wipro’s new CEO, replacing incumbents Girish Paranjpe and Suresh Vaswani. The development comes even as the company announced third-quarter financials that not only disappointed the markets, but also lagged its Indian IT services sector competitors.
Wipro, which derives over two-thirds of its revenues from IT services and has interests in consumer care and heavy engineering, posted a 9.9 per cent increase in net profit to Rs 1,325.9 crore for the period ended December 31, compared with the same quarter a year earlier. Revenues at Rs 7,820.2 crore were up 12.71 per cent.
Compared with the trailing quarter, the company’s net profit was up 3.2 per cent, whereas revenue growth was nearly flat, showing a marginal increase of 1.15 per cent. Wipro’s flagship IT services business posted a little over than 15 per cent growth in revenues at Rs 5,949 crore, compared with the corresponding quarter of the previous year.
Operating profit for the business grew by 7.8 per cent to Rs 1,321.1 crore. On sequential quarter basis, IT services revenues went up by 3.51 per cent and the operating profit went up by about 3.6 per cent.
Industry watchers feel that numbers such as these prompted the rejig at the top, after a three-year dual-CEO structure. Although Premji did not acknowledge performance as prompting the exit of Paranjpe and Vaswani, he made an oblique reference to Wipro lagging behind peers TCS, Infosys, HCL and Cognizant.
“Organisational changes are determined by strategy, which is the foremost in any company. The changes don’t go in front and strategy follows. As we see, the strategy we have set for the organisation is fundamentally right. We believe it requires to be executed more rapidly, more quickly and with more thoroughness — and done in the short term,” said Premji.
The sudden change at India's third-largest IT services firm has taken many by surprise. While the company said Paranjpe and Vaswani volunteered to step down after the board realised the need for a “simpler organisation structure” with the economic crisis over, company observers are not quite convinced.
Premji acknowledged that Wipro has been found wanting in financial services and healthcare, the fastest growing segments in the market that have helped haul up competing companies. "Though we are strong in the financial services area, relative to the total share of our topline, its contribution is 27 per cent, whereas most of our competitors have done far better,” he said.
The banking, financial and insurance sector accounted for 50-55 percent of Cognizant’s revenue and in excess of 35 per cent at Infosys and TCS. “So, they have got the advantage of extremely high turbocharged growth, which has happened in the financial services sector, an advantage we did not get,” Premji noted.
There are murmurs within the industry that today’s move makes way for Premji’s son and Chief Strategy Officer, Rishad, to take the mantle, even though Premji has insisted that Wipro is a professionally-run company. "Management and ownership are two different things. For Rishad to become CEO, he needs to prove his capability. As do others," Premji has said.
Kurien, who is currently president of Wipro EcoEnergy, the clean technology business division, will take charge from February 1. He has been with the company for only a decade, but has grown very quickly. Kurien was instrumental is putting in order Wipro’s BPO operations after the acquisition of Spectramind.
Vaswani, who has been Wipro for almost 25 years, said he is yet to decide on his next course of action. This was echoed by Paranjpe, who has worked at Wipro for almost 20 years. They will continue with the company until March 31 to ensure a smooth transition.
Their departure could prompt several other changes in senior management. Anand Sankaran, senior vice-president & business head for India & Middle East, is understood to have been asked to move to Wipro Technologies. Anil Jain, who heads the professional services and telecom business, is likely to head the India business. This could not be confirmed independently.
However, senior management leaving is not new to Wipro. Vivek Paul, Ashok Soota, Arun Thiagarajan and Ashok Narsimhan exited at the height of their careers. Others like Sudip Banerjee (now CEO of L&T Infotech), P R Chandrasekar (Hexaware), Sudip Nandi (Aricent) and others left as they were sidelined.
“We have high regard for Kurien, who helped restructure the BPO operations in 2005. But we are concerned at the departure of the present joint-CEOs, long-time Wipro stalwarts. While the IT spending environment remains strong and we have a positive view on the sector, we believe Wipro could lag peers, as the new CEO relooks strategy and given possible churn in BU heads. Q3 was weak, as expected, and we see risk to Q4 guidance being achieved,” stated a source at Bank of America Merrill Lynch.
Wipro has underperformed most of its competitors on many parameters, including volume growth, utilisation and growth of key business lines and geographies. This was acknowledged by Premji. "I don’t think we should try making excuses about our performance. We have underperformed in the third quarter relative to our competitors and as relative to our potential as a company. We are trying to improve performance in Q4 and also significantly improve performance going forward,” he said.
Wipro’s IT business saw a volume growth of 1.5 per cent, compared with 6.6 per cent in the previous quarter. Utilisation also dropped to 79.9 per cent, about 2.5 per cent lower than the previous quarter. Attrition went up by more than 2 per cent in the quarter and stood at 21.6 per cent -- the highest in the last six quarters.
The market was not too kind on the performance. Wipro stock fell around 5 per cent to close at Rs 456.06 at the end of the day’s trading on the BSE. Dipen Shah, senior VP (PCG research) at Kotak Securities, said: “There was no surprise in the numbers. Wipro has effected management changes. We expect the stock to be range-bound.”
