The June quarter results for Wipro, the country’s third- largest information technology (IT) services exporter, disappointed the market and showed a demand environment still under pressure.
The Bangalore-based company, which is also in the businesses of consumer care, lighting and infrastructure engineering, reported a net profit of Rs1,580 crore in the quarter, a year-on-year growth of 18 per cent. Revenue at Rs10,653 crore grew 24 per cent over the corresponding quarter last year.
The IT services business, which accounted for 78 per cent of total revenue, saw 24 per cent year-on-year growth in operating profit, at Rs1,744 crore. IT services revenues grew 30 per cent to Rs8,314 crore when compared with the same quarter a year before, backed by a foreign exchange gain of Rs170 crore. On a sequential quarter basis, operating profit went up 11 per cent, while revenues increased 9.5 per cent.
Wipro said its IT services revenues were expected to be $1,520-1,550 million, an increase of 0.3 to 2.3 per cent for the second (July-September) quarter, traditionally a boom one for the company. It said the revenue expectation reflected the softness of its India business, which declined 9.9 per cent in the first quarter over a year.
Revenue for the quarter was below market expectations and the muted expectation has come as a surprise. “Wipro’s reported numbers were below consensus estimates and more disappointment came from the 2Q guidance (expectation for the September quarter) of 0.3-2.3 per cent QoQ growth, which was below estimate,” said Rikesh Parikh, vice-president, markets strategy and equities, at Motilal Oswal Securities Growth.
According to analysts, the performance of the key divisions and regions, and the management outlook indicates the company might have to wait a bit longer to see the positive results of the restructuring it did last year.
“Wipro has been restructuring its business and this, along with the uncertain demand scenario, has impacted revenue growth. The performance will improve in line with the improvement in the macro scene,” said Dipen Shah, head of private client group research, Kotak Securities. Added Ankita Somani, research analyst–IT, Angel Broking; “Wipro is still in the process of realigning its capabilities and positive results from the organisation restructuring exercise are yet to be seen.”
In the quarter under review, Wipro improved its operating margin by about 30 basis points (bps) to 21 per cent, despite getting a 300-bps gain from forex. Suresh Senapaty, chief financial officer, said the forex gain got offset because of the impact of increase in personnel costs, sales & marketing and the pricing decline in certain segments.
| HOW THE INFOTECH MAJORS STACK UP | |||||||||
| Net profit | Revenue | Ebit | |||||||
| Company | Q1 (Rs cr) | Growth (%)YoY | Growth (%) QoQ | Q1 (Rs cr) | Growth (%)YoY | Growth (%) QoQ | Q1 (Rs cr) | Growth (%)YoY | Growth (%) QoQ |
| TCS | 3,318 | 37.4 | 14.6 | 14,869 | 37.7 | 12.1 | 4,077 | 44 | 10.8 |
| Infosys | 2,289 | 32.9 | -1.2 | 9,616 | 28.5 | 8.6 | 2,693 | 38 | 1.7 |
| Wipro* | 1,580 | 18 | 6.6 | 8,314 | 30 | 9.5 | 1,744 | 24 | 10.8 |
| *PAT numbers for Wipro include consumer care and lighting divison Source: Companies | |||||||||
Offshore pricing declined about 100 bps. The pricing decline is limited to clients in investment banking, according to the company. An issue of concern for it is the volume (person-months billed in a quarter) growth of just 0.8 per cent, lower than its bigger competition, Tata Consultancy Services and Infosys. Senapaty, however, said the company was not much worried on volume growth, as the “focus is on increasing the wallet share from existing clients”.
On the divsional areas, banking and financial services continued to be a laggard, with a sequential decline of two per cent, though the company claimed to have added clients in consumer and retail banking. Retail and transportation, which accounts for 15 per cent of its IT business’ overall kitty, declined 3.9 per cent sequentially.
The company saw a marginal growth in Europe and a 2.2 per cent sequential decline in the Americas. Wipro’s consulting, application development and maintenance practices, which have high dependency on discretionary spending, declined about 15 per cent and 6.3 per cent, respectively.
In the quarter under review, Wipro added 2,632 employees on a net basis, which took its headcount to 138,552. The attrition rate came down to 15.6 per cent, as against 17.5 per cent in the previous quarter. The company has given a wage rise of eight per cent to all offshore employees and three per cent to onsite ones, with effect from July 1.
The stock closed at Rs 346 on the Bombay Stock Exchange, down 2.9 per cent from yesterday’s close.
