Wipro fails to meet Street expectations

Written by fe Bureau | Bangalore | Updated: Oct 23 2014, 07:05am hrs
Wipro, Indias third-largest IT services exporter, has reported a 0.9% sequential decline in net profit in rupee terms for the September quarter, impacted by wage hikes and its top clients curbing their technology spends. The net profit stood at R2,084 crore, failing to meet Street expectations. Wipro has provided a dollar revenue guidance in the range of 2-4% for the December quarter, as it expects the second half of the fiscal to deliver better results.

The IT major, whose revenue grew 1.8% sequentially in dollar terms, could only touch the lower end of its guidance for the quarter, falling way below the market expectation of a 2.5% growth. Wipro underperformed its peers in dollar revenue growth with TCS having reported 6.4%, Infosys 3.19% and HCL Technologies 1.9% growth on a sequential basis. Wipro said its top 10 clients had limited their spending in the quarter due to internal management changes and promised that the situation would normalise over the next 2-3 quarters.

Analysts were clearly not impressed. Sanchit Vir Gogia, chief analyst & CEO of Greyhound Research, noted thus, With a sequential growth of 1.8% q-o-q, Greyhound Research believes that this quarter has been poor and far from industry standards. Their business continues to be a well balanced portfolio between infrastructure and application services, but BPO, product engineering and ADM continue to decline. While Wipro continues to have strong focus on cloud services, they need to increase their focus on Cloud-delivered managed services.

Even the operating margins dropped from 22.8% in the June quarter to 22%, largely due to the cross currency impact and wage hikes. However, the company said it hoped to take this to a level of 23-24% over the medium term.

CEO TK Kurien said, We are seeing a temporary cutback in discretionary expenses from certain industry segments as they adjust to structural changes. Overall, the demand environment continues to hold steady.In North America, we see discretionary spending return.

The consolidated revenue stood at R11,684 crore, growing by 8% year-on-year and 3.9% sequentially. Except for the healthcare & life science and energy verticals, all others turned in a below-par performance with its largest pie BFSI segment posting a dip of 0.9%.

The Americas segment recorded a sequential growth of 4.2% though Europe showed a decline of 4.3%. Kurien said the European market continues to remain challenging with few of their clients cutting down on their discretionary spending.

On the positive side, Wipro reported a better numbers on the employee front with net headcount addition at 6,845 and the attrition level down marginally. The total headcount at the end of September quarter stood at 154,297 while the attrition rate was at 16.9%. HR head Saurabh Govil said the increase in headcount addition was primarily due to the increase in volume of business. The net utilisation rate stood at 79.4% up from 77.9% in the June quarter.

Wipro said that as part of their strategic bets, they see a great potential in the areas of digital and open source, where they plan to make investments to build IP. Kurien said, As a strategic initiative to build deeper technical skills, we have launched the distinguished member of technical staff programme to create a cadre of technical specialists who will work on developing IP in next generation technologies.