Why Delaporte’s brave bets have failed to sustain Wipro’s growth? | The Financial Express

Why Delaporte’s brave bets have failed to sustain Wipro’s growth?

The deal was expected to bolster Wipro’s presence in the banking, financial services & insurance (BFSI) space, its largest vertical contributing about 30% to the total revenues.

Why Delaporte’s brave bets have failed to sustain Wipro’s growth?
It involved accelerating growth through prioritisation of sectors and markets, strengthening relationships with strategic clients and partners, enhancing the company’s portfolio of business solutions, building talent at scale, and simplifying the operating model.

When Thierry Delaporte took over Wipro as the MD and CEO in July 2020, the company was not in great shape. In FY19, for the first time in its history, it had fallen to the fourth position by revenues among India’s IT majors, losing the third position to the Noida-headquartered HCLTech. He had a tough task at hand to stabilise the company and to some extent, he had managed to do so, riding on the digital transformation wave that accelerated during the pandemic.

Delaporte had made some bold strategic moves to turn around the company. Effective January 2021, he dismantled a complex operating model to just four so-called strategic market units and two global business lines. He adopted and communicated a five-point strategy. It involved accelerating growth through prioritisation of sectors and markets, strengthening relationships with strategic clients and partners, enhancing the company’s portfolio of business solutions, building talent at scale, and simplifying the operating model.

He adopted a bold mergers and acquisition (M&A) strategy and made more than 10 acquisitions since he joined, the most notable one being that of London-headquartered Capco for $1.45 billion, the largest in Wipro’s history. The deal was expected to bolster Wipro’s presence in the banking, financial services & insurance (BFSI) space, its largest vertical contributing about 30% to the total revenues.

Also Read: Wipro launches new financial services consulting capability in India

Investors had initially cheered Delaporte’s moves. The stock price had more than doubled in one year since his joining to reach an all-time high of Rs 726.70 on the BSE. But the initial euphoria around Delaporte is losing steam and Wipro seems to be struggling again. Since then, the stock has tumbled more than 80% and traded at Rs 402.65 as of Friday’s close.                  

Wipro reported tepid second-quarter earnings missing analysts’ estimates on both revenue and profitability. It has also forecast a sequential revenue growth of just 0.5-2.0% in constant currency for the December quarter, indicative of the challenges it is facing. Wipro’s larger peers – Tata Consultancy Services (TCS), Infosys, and HCLTech have projected double-digit growth for FY23.

Analysts point towards a slump in Wipro’s BFSI business and Capco’s underperformance as among the key reasons responsible for the challenges at the firm. “Their largest vertical has underperformed and that has hit them hard given their exposure. In addition, Capco’s lacklustre performance recently has exacerbated the situation,” said Nitish Mittal, partner, Europe Technology Practice, Everest Group. “Wipro clearly expressed that it expected much better organic growth performance from Capco during the period of integration. It is currently seeing demand slowdown for Capco, hence, we expect more sluggishness going forward.”

Slowdown in large deals is also seen as one of the reasons for the underperformance at Wipro. Wipro defines deals with a total contract value (TCV) of over $30 million as large deals. “Wipro’s large/strategic deals pipeline is weaker and more inconsistent than leading peers. The purple patch in the early days of Thierry’s leadership was largely driven by Metro AG deal ramp up. Since its first anniversary, Wipro has seen a sharp deceleration. This is unlike Infosys and TCS, which enjoyed a good run on back of mega deals (before the current macroeconomic headwinds). The difference is that Wipro’s large deal wins has been inconsistent over the last few quarters and lacked sizeable deals,” said Mittal.

Wipro’s EBIT margin at 15.1% for the second quarter was the one of the lowest in the past three years. Analysts have pointed out that the IT major is likely to miss the 17-17.5% margin outlook through FY23. In comparison, the operating margins of TCS and Infosys stood at 24% and 21.5% respectively while that of HCLTech stood at 18%.      

The macro-economic conditions are further exacerbating Wipro’s challenges. Chief executive Delaporte said during the second quarter earnings, “Since the last time we spoke in July, we have seen the macroeconomic conditions across almost all markets and sectors have changed. In speaking to our clients every day, we are seeing a change in the level of optimism. As businesses around the world are dealing with inflation pressure, with geopolitical turmoil, with energy crisis, also the rising interest rates. Almost every major economy is experiencing economic deceleration.”

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.

First published on: 28-11-2022 at 04:15:00 am
Photos
1 Photos
Jawans perform Republic Day rehearsals in high spirit at Kartavya Path amid Delhi cold wave – See PHOTOS
5 Photos
Festive Fervour: Manali Winter Carnival is full of cultural extravaganza – See Beautiful PHOTOS
12 Photos
Redmi Note 12 Pro Plus: Top 12 things to know about Xiaomi’s new 200MP camera phone