Wipro keeps market faith, revenue growth jumps to 2.9% q-o-q

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Azim Premji Azim Premji
SummaryThe Bangalore-based IT major posted a 2.9% dollar revenue growth for the October-December stretch, the highest sequential rise in the last eight quarters

The country's third-largest IT-services exporter Wipro on Friday continued to maintain the upbeat earnings momentum set by its peers in the last one week, indicating buoyancy in outsourcing demand and discretionary spend in the US, its largest market.

The Bangalore-based IT major posted a 2.9% dollar revenue growth for the October-December stretch, the highest sequential rise in the last eight quarters.  

Continuing with its growth momentum seen during the second quarter of the current fiscal, Wipro recorded revenue of $1,678.4 million, exceeding the lower-end of its forecast of 1.8-3.6% for the quarter, while meeting Street estimates that had predicted the IT firm would outperform the lower end of its guidance.    

During the quarter, net income stood at $325 million growing at 5.2% sequentially, indicating that the company’s turnaround initiatives have started to yield results. Experts feel the “laggard tag” must now come off its back with this performance. 

For the October-December period, Wipro reported one of the highest sequential jump in dollar revenue growth among the top-tier IT pack. The country’s largest IT-services firm TCS posted a dollar revenue growth of 3% sequentially, while cross-town rival Infosys recorded a growth of 1.7%. Smaller rival HCL Technologies posted 4% dollar revenue growth quarter-on-quarter, the highest among the top-four players.

Azim Premji, chairman, Wipro, said, “As the global economy is progressing towards stability, we see optimism amongst clients, especially in the West. Corporations are leveraging technology to reduce operational costs and investing resources in differentiating themselves in the marketplace.”

For the January-March period, Wipro expects revenue from IT services to be in the range of $1,712-1,745 million, which translates into a projected sequential growth in the range of 2-3.9%. Wipro’s shares had closed at R552.45 down 3.15% on the Bombay Stock Exchange on Friday, before earnings were declared.

On the performance of the company and its future outlook, T K Kurien, CEO, Wipro, pointed out that the IT firm need to get into a “secular growth rate of 4-4.5%. Till then it is work in progress,” adding that “our focus on account management has yielded encouraging results. We continue to investing in emerging technologies to drive towards a higher growth trajectory”.

Wipro’s IT services operating margins improved by another 54 basis points during the quarter to 23%, its highest operating margins in three years. The company pointed out that its investments in automation and productivity tools have driven efficiencies and helped expand margins of its IT services business.

 “The margin increase was the positive surprise.  Wipro’s guidance for the Q4 indicates that it has likely returned on the path of sustainable and consistent growth on the back of its account mining initiatives. Lower utilisation levers provide it with an important lever for maintaining and improving margins, going ahead,” said Dipen Shah, head, private client group research, Kotak Securities.

In rupee terms, the Azim Premji-led company reported a year-on-year growth of 27% in net profit for the third quarter. The software-services business, which the company separated from its consumer care and lighting and infra arm through a demerger effective April 2013, posted net profit of R2,014 crore during the December quarter, compared with R1,932 crore in the September quarter.

Revenue for the quarter stood at R11,331 crore, up 3% sequentially, while it was up 18% annually. The earnings before interest and taxes (EBIT) for IT services grew 33% on an annual basis to R2,380 crore. Among its various business practices, Wipro saw its global infrastructure practice growing at 5.6% sequentially and BPO practice at 4.1% while the R&D business has shown a decline of 2.4% quarter-on-quarter.

In terms of geographies, Americas grew at 3.2% sequentially for Wipro, while its larger peers TCS and Infosys had a flattish growth in the industry's largest market.

During the quarter, Wipro grew its Europe business by 5.4% and India and West Asia business grew by 5.5% sequentially whereas the Asia Pacific region has seen a decline of 5.2%.

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