IT major Wipro beat Street estimates for the December quarter on Friday reporting a 5.23% sequential increase in the net profit to Rs 2,193 crore, on the back of a secular growth across verticals, especially healthcare and life sciences. The Azim Premji-led firm achieved guidance of 2-4% revenue in dollar terms, with a 3.7% sequential rise in the quarter in constant currency terms.
The company has guided 1-3% growth in IT services revenue for the January-March stretch. Operating margins for the IT services’ margins finished up a tad lower at 21.8%, due to currency volatility. IT services revenue rose 3.9% to Rs 11,344 crore in the quarter.
“Development in the global currency and commodity markets are affecting major economies unevenly even as India anticipates growth led by next-generation of economic reforms,” said Azim Premji, Wipro chairman.
“We had a very satisfying quarter in terms of sequential revenue growth. We continue to see a strong deal momentum,” said TK Kurien, executive director and chief executive officer at Wipro. “After many quarters, every business unit has performed. We have won eight sizable deals. The deal pipeline is strong and we are bullish about next year.” Wipro added 44 new clients during the quarter.
Wipro’s healthcare and lifesciences business outpaced other verticals with a 6.1% sequential growth followed by the retail, consumer goods and transportation vertical which grew at 2.7% in the quarter. The energy vertical showed a decline of 0.9%. The management said it was looking to make up for the blip with other verticals, but was optimistic on demand from the energy sector in the long term
“With the oil prices going down, there will be a reduction in capital budget. Whatever decline we anticipate is accounted for in the guidance. When oil prices come down, major players tend to outsource more, which is an opportunity,” said Kurien. “There are oil majors who have not outsourced at all. In the long term, we see the prognosis as positive. In fact, visits from the companies have increased three times,” he added.
Suresh Senapaty, the executive director & CEO, said the share of fixed price contracts had increased to over 55% of engagements, adding it reflected the maturity of Wipro’s customer engagement model.
The Americas market grew 2% sequentially for Wipro while Europe grew 0.6%. Revenue from the India and Middle East business grew 5.7% sequentially. “North America is a very bright spot. The market there is driven by discretionary spends. We are seeing good opportunities in India as well, where demand from the private sector is coming back,” said Kurien.
Wipro’s IT services business had a headcount of 1,56,866 at the end of December. “The gross utilisation has come down this quarter because it is a period of high leaves. Given the growth and plan for hiring, there is no issue operationally but there is ample headroom for growth,” said Saurabh Govil, senior vice president, HR.
The company declared an interim dividend of Rs 5 ($0.081) per share or American Depositary Share. Wipro’s share price closed at Rs 555.25, down 0.79% on the Bombay Stock Exchange on Friday. The earnings came in after market hours.
Senapaty retires in March, Jatin Dalal to step in
Wipro on Friday said chief financial officer Suresh Senapaty will retire on March 31 on attaining the age of superannuation, after a three-decade association with the company. Senapaty, who is also an executive director, will relinquish his Board position as well.
Jatin Dalal, senior vice-president, finance, will take over as the CFO from April 1.Senapaty and Dalal will work together until March 31 to ensure a smooth transition, the company said in a statement.
Secular trend is positive, energy the only wild card
The third quarter performance of Wipro has guided it into a more optimistic zone and the company expects the next fiscal to be a better year. In an interview with FE’s PP Thimmaya, Wipro CEO TK Kurien says there is secular growth momentum with all its business segments recording an upswing. Excerpts
How do you see the economic environment today?
From Wipro’s perspective, there were some businesses like retail that lagged. Now we clearly see demand coming back. In the retail segment, we do not see a slowdown in this quarter or next. Even growth in manufacturing is coming back. In the healthcare segment, we have always done well, and we expect it to stabilise at a 3-4% sequential growth rate. Overall, I would say the secular trend is positive, though the only wild card is energy and we do not know where it will settle. This quarter, we have factored significant drop in the energy vertical. In Europe, surprisingly we are seeing outsourcing starting again; there is a lot of bullishness. India has done well, but West Asia has done better. The oil and gas sector in West Asia has clearly increased the outsourcing.
How is the situation on pricing?
We will keep the ticket size of the deals stable. Whatever pricing we give to the customer, we will make it up through our effort. That is why we are seeing a big shift towards fixed price projects.
Wipro’s operating profit margins have seen a steady decline. Comment.
One should not read too much into it. There will be quarterly gyration but it will remain in the 21-23% range. That is where we will be comfortable.
Has the attrition rate stabilised for Wipro?
The attrition rate is more or less on the same. The major attrition for us is coming in lower band of employees with 3-4 years’ experience. We train these guys and they leave, that’s one thing we have to stop. However, there is pressure on wages in terms of senior people and those who have specific skills sets.
How is the deal pipeline looking for Wipro?
Our percentage of deals won doubled over the past three quarters. The challenge for us today is how we grow our pipeline. The deal-wins have added to our bottomline.
Will Wipro invest further into startups?
Absolutely. That is the reason we have the corporate venture capital fund of $100 million. We will look at investments in four areas — artificial intelligence and big data, internet of things (IOT), open source and digital. We will also encourage people internally if they have got any ideas in these areas. We already made first two investments — Opera and Axeda. We will look at India and anywhere else globally.
