IT major Wipro has reported a 8% sequential drop in net profit for the three months ending June, hampered by wage hikes and an appreciating rupee, but still beat market expectations due to revival of its crucial BFSI vertical.
Wipro’s net profit at the end of first quarter of FY18 stood at Rs 2,082 crore as compared to Rs 2,267 crore in preceding three months period, even as operating profit margins (OPM) of its mainstay IT services business dropped by 150 basis points sequentially to end at 16.8%.
The company’s drop in net profit and OPM at the end of the first quarter mirrored a trend which also saw its peers TCS and Infosys in the same boat. TCS’s net profit on a sequential basis had dropped by 10% while Infosys slipped 3.3%. While TCS’s OPM had dropped 240 basis points, that of Infosys had slipped by 50 basis points.
The Wipro scrip ended at Rs 269 on the BSE on Wednesday recording a marginal dip of 0.83%.
The results were declared after market hours. Wipro registered IT services revenue of Rs 13,026 crore during the quarter, down 2.8%, compared to `13,402 core in the previous three months. Its consolidated revenues stood at Rs 13,626 crore, marginally down from Rs 13,988 crore recorded in the March quarter.
Wipro’s flagship IT services revenues, grew by 0.9% sequentially in dollar terms punching above its guidance, on the back of positive momentum from its financial services vertical. However, its performance was below that of TCS and Infosys which grew over 3%. In US dollar terms, the IT services revenue stood at $1,972 million as compared to $1,955 million in the previous quarter. For the second quarter of FY18, Wipro expects its IT services revenue to grow in the range of—0.5% to 1.5% to $1,962-2001 million.
Wipro CEO Abidali Neemuchwala said its core business continued to improve but the regulatory uncertainty in the US healthcare market was causing headwinds.
He said that the healthcare vertical saw a $120 million loss in revenue run rate over the last four quarters. The healthcare vertical registered a 2.9% sequential dip in revenue growth for the quarter.
During the first quarter, the financial services vertical reported the highest sequential growth of 4.1% which the company attributed to better traction from the digital segment of the business. On the future outlook, Neemuchwala said, “We continue to build momentum towards Q4 and aim to be at industry level growth rates in Q4.”
Wipro reported a positive development on the human resources front with a net addition of 1,309 people to take its total headcount to 1,66,790 at the end of the June quarter. This was unlike TCS and Infosys which had negative headcount addition in the first quarter of the fiscal. The company was very clear that there has been no layoffs in the company and it has been redeploying all those employees who were displaced due to automation.
Wipro has set an ambitious target of achieving $15 billion in revenue by 2020 with an operating margin of 23%. Wipro had ended FY17 with a revenue of $7.7 billion.
Sanjoy Sen of UK’s Aston Business School while commenting on Wipro’s performance said, “The results have not been too dissimilar from TCS and Infosys in demonstrating that no miracles are possible when macro-economic forces are unfavourable and uncertain and immigration push backs are prompting a rethinking on onsite deployment in international projects.”