Bangalore: Wipro Ltd’s IT (information technology) services business, belying expectations of beating the upper end of its revenue forecast and delivering growth above its peers, grew 2% sequentially for the March quarter to $1.54 billion (Rs 8,085 crore today) which, along with a negative-to-muted growth guidance for the first quarter of fiscal 2013 (FY13), sent the stock tumbling by 7.3%.
IT business chief executive officer T.K. Kurien attributed the underperformance to delays in deal closures during the quarter, and a decline in business from one of its largest customers.
As for the disappointing forecast for the first quarter of fiscal 2013, which pegged revenue between $1.52 billion and $1.55 billion, a slowdown was also expected in its India business, which had grown well in the fourth quarter, in addition to further delays in deal closures, he said.
“Telecom and government spending in India is an issue, and we are seeing a topline (revenue) decline here,” he said.?While?Wipro does not give an India business figure, the India and Middle East businesses combined was about 9.3% of the total revenue in the fourth quarter, growing 7.6%.
Wipro’s earnings mirror those of Infosys Ltd, which also disappointed investors with muted fourth quarter performance and poor FY13 forecast. Their performance has been in contrast to earnings at India’s biggest IT company, Tata Consultancy Services Ltd, which posted a 22.6% increase in profit and said it expects to grow faster than lobby group Nasscom’s 11-14% forecast for the industry.
Wipro had forecast growth of 1-3% in dollar terms in the fourth quarter. In constant currency terms, revenue grew 1.3%. Fourth quarter net income rose 8% to Rs 1,481 crore from a year ago, while operating margin narrowed slightly to 20.7%.
With Wipro reporting its fourth quarter earnings, the company’s CFO Jatin Dalal, talks about the company’s guidance and the challenges ahead.
The fourth quarter saw a decline in revenue in key verticals and practices. Financial solutions, which account for 27% of revenue, witnessed a decline of 0.6%, while global media and telecom declined 2.1%. In terms of practices, consulting declined 1.1%, continuing the negative trend of the previous quarter. Research and development (R&D) declined 2.9%, business process outsourcing (BPO) 2% and product engineering and mobility 1.5%.
IT business chief financial officer Jatin Dalal pointed out that for the year ended 31 March, financial services had grown 13.3%, in line with the company’s overall growth. As for R&D, he said: “A lot of the R&D business is in the telecom vertical; so the challenges there are having an impact in service lines, too. Spend is coming down, and workforces are being cut,” he said.
Kurien said the telecom business is “secularly challenged. In 2005, this was 33% of our business, now it is less than 5%. But (on the) enterprise services side, there is an uptick. Given the intense Chinese price competition, I don’t see growth coming back in the equipment vendor side,” he said.
Dalal said pricing has been robust, and realizations, both on site and offsite, were up. “In fact, the $12,303 per person per month figure we hit this quarter for on-site realization is our highest in 10 quarters.”
Analytics and information services maintained the growth trajectory by expanding at 5.4% sequentially.
Wipro, unlike its Bangalore-based counterpart Infosys, won’t hold back on employee salary increases this year.
“We can’t head for the hills at the first sign of trouble. We will stand by our commitment on wage increases,” Kurien said.
Businesses that showed strong growth included retail and transportation, and energy and utilities, the latter continuing to benefit from the acquisition of SAIC Inc.’s upstream oil and gas business that Wipro made more than a year ago. The energy and utilities vertical grew 6.8%.
Kurien declined to give details of SAIC’s revenue, but analysts said that at around $40 million, it raised questions as to how much Wipro’s organic businesses had actually managed to grow.
The numbers were below estimates on both—revenue and margin—fronts, and the forecast was disappointing, said Dipen Shah, head of fundamental research, Kotak Securities Ltd. “The management has indicated this is due to some one-off issues in the India business. We will wait for further developments on the same,” he said.
An analyst with Emkay Global Financial Services Ltd said the earnings were disappointing “given that analysts were expecting the best performance from Wipro in the tier I pack”.
While Wipro has been growing over the last few quarters, analysts are holding off on taking a call on whether a true turnaround has been effected.
The stock dropped 7.3% to Rs 410.15 on BSE on Wednesday, while the benchmark Sensex fell 0.33% to 17,151.29 points.
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