Momentum good despite margin pressure: Wipro

Font Size

Print

Feedback

Email

Discuss

Related Articles

Cobra Beer for setting up wineries in IndiaTop 10 firms lose Rs 30k crore in a weekI want to compete with Chinese products: JainReliance oil deals with Kurdistan illegal: Iraq

Wipro Ltd increased its quarterly profit by a smaller-than-expected 11 per cent, its slowest growth in four years, and said higher billing rates should help offset rising costs from wage hikes and a firm local currency.

Wipro, the No. 3 software services exporter, said it expects its global IT services business revenue to rise to about $955 million in the current end-March quarter, up nearly 5 per cent from the December quarter, despite prospects of a recession in its key US market.

"In terms of the business environment, the US economy in general and the financial services sector worldwide in particular are facing challenges," Chairman Azim Premji said.

"However, we have not seen any impact on our business so far. We continue to see good demand for our services."

Shares in New York-listed Wipro, which has a market value of $17 billion, ended down 1.1 per cent at Rs 455.35 in a Mumbai market that fell 3.5 per cent.

"Of the IT companies, Wipro's numbers are weaker and its guidance for the next quarter is also a bit muted," said Vikas Jadhav, IT analyst at Motilal Oswal Securities.

"But no one's negative and at least the frontline firms will be able to command higher billing rates."

Wipro said net profit rose to 8.26 billion rupees ($210 million) in its fiscal third quarter ended Dec. 31 under US accounting standards, up from 7.45 billion a year earlier -- its slowest annual pace of growth since the September 2003 quarter.

October-December revenue grew nearly a third to 52.36 billion rupees, helped by large outsourcing contracts, including five multi-year, multi-million dollar deals.

A Reuters poll had forecast quarterly net profit of Rs 8.65 billion on revenue of Rs 52.78 billion.

Comparatively lower wages and competent English-speaking workers have helped Indian services firms grab outsourcing deals from overseas firms, but a strong rupee, soaring salaries and prospects of a US recession are worries going forward.

"During the quarter, improved realisations and rationalisation helped us fully mitigate the pressure on profitability on account of the foreign exchange impact," Wipro Chief Financial Officer Suresh Senapaty said.

He said global IT services margins fell by 100 basis points from the previous quarter on the acquisition last year of US firm Infocrossing, which was completed in the last quarter.

Wipro, which counts telecoms gear makers Cisco and Nortel among its clients, said it added 39 new clients in the December quarter, including a large European bank and a U.S.-based retail firm.

COST PRESSURES

Wipro, which provides IT solutions and services such as system integration, software application development and maintenance and research services, said March quarter operating margins were likely to take a hit of 1 per cent from higher wages.

"Our objective is to mitigate (that) as much as possible, but we think the operating margin will be in a narrow range," Senapaty said.

Wipro and bigger rivals Tata Consultancy Services and Infosys Technologies, which both beat expectations and forecast strong growth earlier this month, are rapidly expanding into Europe, Asia Pacific and Latin America.

That will help reduce their dependence on the US market, where Wipro earned more than 62 per cent of its revenue in the December quarter.

A strong rupee, which rose 12 per cent against the dollar last year, poses a risk to software services firms that get over three-quarters of their revenue from overseas.

Sector leader Tata Consultancy beat forecasts on Wednesday with a 20.5 per cent rise in quarterly profit and Infosys last week posted a 25 per cent rise and raised its full-year guidance.