Wipro Ltd’s shares have risen by 3.1% since the beginning of the December quarter results season, at a time when the CNX IT index on the National Stock Exchange has fallen by 5.6%. While the company’s results weren’t extraordinary, investors are enthused that the company is on the recovery path.
Revenue grew by 4.5% in constant currency terms, higher than the higher end of its guidance range (1.9-3.9%). This is for the second quarter in succession that the company has beaten the higher end of its guidance range. What’s more, its growth rates are beginning to align with those of its peers.
Even so, it must be noted that revenue growth was aided to a large extent by an improvement in pricing (thanks to increased efficiency and productivity in fixed price contracts). Volume growth, at 1.8%, was lower than the 3.1-3.2% growth reported by Tata Consultancy Services Ltd and Infosys Ltd.
The company has also guided for a 1-3% growth in revenues for the March quarter, which comes as a positive surprise, especially considering that Infosys has guided for flat revenues. There are some other encouraging signs in the company’s results announcement. Employee attrition, which has been a matter of worry in the past, has come down meaningfully to 15.8% last quarter, from 19.8% in the September quarter and as high as 25.2% in the June quarter.
True, attrition rates have come down across the industry. Even so, Wipro’s attrition rate has come down at a faster pace in the past two quarters. Additionally, its hiring has been far more aggressive in recent times.
According to a post-results note by
JP Morgan India Pvt. Ltd, “In FY12 (April-December), Wipro has added about 14,349 employees, at par with 14,268 employees for Infosys, despite the fact that Infosys’s revenue base is around 20% higher than Wipro’s. We believe the company’s aggressive stance to position itself for a pick-up in demand is encouraging.”
Likewise, its sales and marketing expenses have risen by about 100 basis points quarter-on-quarter. One basis point is one-hundredth of a percentage point. The flip side is that margins can come under pressure owing to higher costs as well as lower employee utilization rates. Having said that, considering that Wipro is attempting to get back on the growth path, these investments seem necessary.
Investors, evidently, seem to believe that Wipro is back on the growth path. In the past three months, or since the time the company announced results for the September quarter, Wipro’s shares have risen by 17%, while the CNX IT index has fallen by around 1%.
The JP Morgan report adds, “We see the improvement at Wipro as structural and defining. It is also consistent with the company’s goal to draw level with peers on growth by Q4 FY12. The company is well placed to grow by 15% (dollar revenues) in FY13 and perhaps beat the industry average for the first time in three years.”
Graphic by Sandeep Bhatnagar/Mint
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