India?s third largest software exporter, Wipro Ltd, put up a less than impressive performance for the first quarter ended June 30. Though the company reported 17% growth in net profit to Rs 726 crore on Rs 4,203 crore revenues (34% growth year-on-year), operating margins took a 3.4% hit because of the rising rupee.
Wipro shares, which had a volatile day on the National Stock Exchange on Thursday, ended flat at Rs 505.15, down 0.24%, or Rs 1.20.
?The results for the quarter are satisfying considering the strong headwinds faced by us in the form of an appreciating rupee. Revenues from our global IT services at $726.1 million for the quarter were ahead of our guidance of $711 million. Looking ahead, for the quarter ending September 2007, we expect our revenue from global IT services business to be approximately $777 million (a growth of 7%),? Wipro chairman Azim Premji said.
A 6.5% volume growth and a 4% increase in utilisation helped Wipro mitigate margin pressures by 100 basis points. However, what is worrying investors is the firm?s failure to increase billing rates, leading to flat margins and slower growth, and contain attrition, which has touched 20.1%.
?Wipro has not been able to drive up billing rates and contain attrition. There needs to be a clarity on that front,? Harit Shah, IT analyst with Mumbai-based Angel Broking, said.
To stem rising attrition, the company reworked its salary cycle and will be now be giving wage hikes of 12-14% to its offshore employees from August 1.
?There will be an impact of 150 basis points in the September quarter due to wage increase,? CFO Suresh Senapaty said.
Wipro added 39 new customers, including a $130-million, five-year total outsourcing deal from a large utility company in Europe.
?We are also negotiating 10-12 deals worth over $50 million,? Premji said, adding the company was also scouting for acquisitions in Germany and Canada.
Senapaty said Wipro had also increased its hedge to $400 million at Rs 40.40-45.70 per dollar, which analysts believed was a ?forex call gone wrong again? as the company has made a transactional loss of around Rs 40 crore in Q1. ?There has been a Rs 257-crore loss on the revenue line due to the appreciating rupee,? Senapaty said.
Meanwhile, Azim Premji?s eldest son, Rishad, joined the company on Wednesday. Rishad has been appointed in the global IT services division and will be reporting to Girish Paranjpe (president of the financial services practice of Wipro Technologies).