Wipro looks to break linear biz model to increase margins

Written by fe Bureau | Bangalore | Updated: Jul 28 2013, 10:39am hrs
Wipro, Indias third-largest IT services exporter, is planning to further automate its processes to improve operating profit margins in the medium to long term to close the gap with peers TCS and Infosys.

Wipros IT services earnings before interest and tax were R1,785 crore on a revenue of R8,936 crore, showing an operating margin of 20%. Margins declined 0.2% on a sequential basis.

Talking to FE, Suresh Senapaty, Wipro CFO, said, Our endeavour is to hold and increase the operating margins as we go forward and we think it is sustainable with an upward bias in the medium to long term.

The IT major has consistently held its operating margins around the 20-21% level, which is lower than its peers TCS and Infosys.

For Q1 FY14, Wipros operating margins were flat on a sequential basis due to impact of salary increase and hike in sales and marketing expense, though there was some relief due to currency depreciation. Senapaty said in the near term, the company expects the margins to move in the narrow range without significant change.

However, in the long term, Wipro expects to usher in significant amount of productivity in its operational structure to improve profitability margins.

He said they have enough levers in the outcome-based pricing model, higher number of fixed price projects, reusable tools, etc, to bring about this change.

Even customers want non-linear growth and mere headcount addition will not be competitive, he said.