Q2 boost for Wipro

Written by Darlington Jose Hector | Darlington Jose Hector | Updated: Nov 11 2013, 07:16am hrs
TK Kurien is finally under some shade, after spending two years out in the sun. He has always said that his team had put its head down in the past eight quarters trying to iron out the chinks and the September quarter has showed us how.

Indias third-largest IT-services exporter has not been a consistent performer as far as the IT earnings season had gone in the past 2 yearsso expectations were muted even this time around. But there was a surprise in store. Wipro posted a 2.7% dollar revenue growth for the July-September period, the highest sequential rise in the last seven quarters, backed by demand growth in major markets of US and Europe. While it may be said that one swallow does not make a summer, the IT major seems to have crawled its way back into some kind of form.

Like the CEO himself said after the earnings, Wipro still has plenty of work to do. He referred the September quarter performance as the beginning of a journey. The key was the bettering broad based growth. Wipro was able to grow its key verticals, something it has not been able to do in recent times.

Infrastructure services grew 2.8%, business application services 4.6% and product engineering moved up 3.5%. In terms of geographical revenues, Americas grew 3% sequentially while Europe showed a 0.7% growth quarter-on-quarter. India and Middle Eastern markets showed a growth of 5.5%. The company has also bettered its OPM during the quarter, up 2.5% sequentially to 22.5%, the highest in the last three years.

So it was a fine all round performance, some thing that would have made a Jacques Kallis proud. As company chairman Azim Premji said the improved performance was reflective of the global economy. There is improved client confidence and the momentum is showing. Its top 10 clients continued to drive growth, with improvement in discretionary spending.

Wipro has given a wider guidance range of 1.8-3.6% growth for the December quarter, which analysts felt did not match up to expectations, considering the uptick in momentum. The IT major is looking to see how it rise above the challenges posed by the US Immigration Bill. The company is planning to hire big in the United States. The plan is to invest more in local talent.

Still the growth lagged the 34% growth posted by TCS and 64% registered by HCL. There is considerable room for improvement. Wipros 2.7% qoq growth remains slowest among large peers despite strong deal announcements in the recent past and 3Q guidance also does not suggest a strong ramp up, Goldman said in a note.

Antique Broking has said Wipros growth rates is likely to lag peers. Unlike its peers, who reported strong growth across key verticals and services, growth for Wipro were led by few services/verticals. For instance, both TCS and Infosys reported above average growth rates for most verticals, excluding telecom. We think strong growth in key verticals like BFSI, manufacturing and media/telecom is a prerequisite for the company to match its peer growth rates. Consequently, we feel growth rates are likely to lag its peers, it said in a note.

Wipro leans heavily into hi-tech with regard to manufacturing and some more focus on auto could help. The biggest leap may have to come in the crucial BFSI space but thats easier said than done considering the intense competition.