Wipro losing grip to rivals in US market

Written by Debojyoti Ghosh | Debojyoti Ghosh | P P Thimmaya | Bangalore | Updated: Jan 21 2013, 09:17am hrs
Even as US and Europe, which account for close to 80% of India's IT export revenue, keep their budget on a tight leash, earnings of top-tier Indian IT firms have managed to show an uptick in demand from their largest markets. Wipro, however, was the only company among the pack to post a sequential revenue decline in the US region during the December quarter.

Experts feel the country's third-largest software-services exporter, which still appears to be struggling from the impact of its internal restructuring, has not been able to adjust to the change in market realities. The firm's revenue from the US region slipped 0.7% sequentially, while the year-on-year declined 0.5%.

In the last two years, Wipro has been a laggard among top-tier IT companies. Since T K Kurien came in, there have been significant changes within the company, including management reshuffle, marketing strategies and approach towards various businesses. Wipro has been on an experimentation mode and some of its experiments have not worked for the company. They lost out quite a bit in that process to competition, said Pradeep Mukherji, president and managing partner, Avasant, an IT-BPO advisory firm.

Wipro's third quarter performance, when compared to its peers on revenue growth from the North America market. reveals a stark difference. Infosys' revenue from North America grew 1.6% sequentially, while it was 2.5% for TCS. The Noida-based HCL Technologies recorded a growth of 3.4%. We would like to grow in all the markets. The US contribution has slipped a bit but we will bounce back once the growth comes back, said Kurien, CEO IT, business, Wipro. The US market has always contributed around 50% of the companys revenue and we would not like to get overweight on any particular geography, he said.

According to Sanjeev Hota, assistant vice-president, IT research, Sharekhan, it is not about the market in the US but the vertical and clients Wipro is catering to. TCS has grown in the US market because 46% of its revenue is from BFSI. The US is a big market for banking and financial services. Even HCL Technologies has a strong hold in the infrastructure management services (IMS) space, which is again a huge market in the US.

Wipro is catering to a different category of clients, he said. Hota feels 'secular growth' is missing at Wipro. In Europe, growth happened this quarter because of some ramp up in the utilities vertical in continental Europe. But the key market for Wipro is US and that is not going to show major turnarounds in the next couple of quarters. And the management has also indicated that for next couple of quarters, volume growth will be soft.

During the December period, Wipro reported a decline in volume by 1%, owing to lesser business in the non-discretionary spend, while rivals HCL posted 3% growth, TCS 1.25% and Infosys 1.5%. This is the worst performance among top-tier IT companies. Wipro's poor volume growth is led by a revenue decline in the US and zero per cent dollar revenue growth in application, development and maintenance (ADM) practice, said Rikesh Parikh, VP, markets strategy and equities, Motilal Oswal Securities, adding the negative growth in the US region continues to concern the market. While others grew in that geography, Wipro declined. It is a client-specific problem and not so much to do with the US market, added Parikh.

Slowdown in decisions, currency issues, pricing decline have not translated into a standardised impact for all IT players in the last few years. Analysts point out that how firms have steered through all of this is more a reflection of how they are individually managing themselves. With this differentiation coming into play, the sectors dynamics are changing.

In the last four to five quarters, growth has been extremely sluggish for Wipro. The management has even admitted that business revenue is on the softer side, which has impacted the overall revenue growth. Even during the December quarter, the top line growth was sluggish mainly due to decline in revenue in the US, said Hota of Sharekhan.

Experts feel Wipro will take some more time to pick up as its key verticals telecom, manufacturing and hi-tech have 'hardly grown' after the global economic meltdown. TCS and Infosys have higher percentage of financial services and insurance clients compared to Wipro, which has more concentration in areas such as hi-tech and telecom. But after the downturn, banking and financial services (BFSI) sectors were faster to react, whereas Wipro did not have a strong holding compared to its peers, said Mukherji of Avasant.

The Azim Premji-led Wipro undertook a management overhaul early in 2011. Premji dismantled the dual CEO model by elevating Kurien to the position of chief executive officer in 2011. Ever since Kurien took over, the company has witnessed large scale revamp and restructuring. This has largely to do with dismantling the multiple reporting structures.

However, analysts feel Wipro might catch up. But it will have a slower growth rate compared to players like TCS, Cognizant and HCL Technologies. For the fourth quarter ending March 31, 2013, Wipro expects its IT services revenue to be in the range of $1,585-$1,625 million, a growth of 0.5-3%.