Wipro posts strong Q4 results, but Q1 FY18 growth forecast weak
Bengaluru: Wipro Ltd on Tuesday reported a strong set of fourth-quarter earnings that beat street estimates to end a year in which India’s three largest services firms all lagged behind the industry’s average growth pace.
Bengaluru-based Wipro said its dollar revenue improved 2.7% sequentially to $1.95 billion in the three months to March (1.7% rise in constant currency terms), after it had earlier outlined quarterly growth of at-best 2% in constant currency terms in the fourth quarter.
Net profit jumped 13% to $349 million from $309 million in the preceding quarter, on account of gains made on the sale of Wipro EcoEnergy for $70 million.
A Bloomberg survey of analysts had estimated a revenue of $2.14 billion (Rs13,817.6 crore) and a profit of $327.94 million (Rs2,122.6 crore).
For fiscal 2016-17, Wipro reported 4.9% dollar revenue growth, a slight improvement over the 3.7% growth in 2015-16, to end with $7.7 billion in revenue.
The firm ended 2016-17 with 7% growth in constant currency terms.
Wipro and its larger rivals Tata Consultancy Services Ltd (TCS) and Infosys Ltd grew slower than the information technology (IT) industry’s 8.6% growth in the year estimated by industry body Nasscom.
Both TCS and Infosys reported 8.3% growth, each, in constant currency terms (TCS and Infosys reported 6.2% and 7.4% dollar revenue growth, respectively).
This means that for the first time since 2009-10 the three largest IT services firms, which together make up a quarter of the industry’s total business, grew slower than their smaller peers in the industry.
The big disappointment for analysts, however, was the poor guidance outlined by the management. Wipro, which only provides a quarterly growth forecast, expects its business to report no growth in April-June, on account of weak spending by clients in healthcare and retail industries.
“I feel very good with the kind of progress we have made as a team in the past year,” Wipro chief executive officer Abidali Neemuchwala said in an interview. “We believe Q1 guidance is not a reflection of the growth potential for the rest of the year. We anticipate the growth momentum to return in Q2 and expect to be at industry growth rates by Q4 FY18”
Hearteningly for Wipro, some of the new initiatives undertaken by Neemuchwala appear to be finally showing results. These include the firm’s ability to generate more business from existing clients. Wipro managed to generate more business from its top five and top clients, sequentially. Also, after two years, Wipro logged a sequential increase in business from its oil and gas clients (which account for 13.1% of revenue).
“The performance in this quarter is outstanding,” said a Mumbai-based analyst at a foreign brokerage. “But the poor guidance in the first quarter means it is still early to say if any early signs of a turnaround are there. Because once too many times in the past, the firm has done well in one quarter, followed by weak performance. So, we need to wait for at least two successive quarters to see if Wipro has finally turned the corner.”
Understandably, Neemuchwala conceded “more work lies ahead”.
Wipro, TCS and Infosys are all trying to make their engineers work on platforms which help customers run their business better by offering value-added solutions through higher data analytics work to reduce dependence on writing software codes or managing infrastructure for clients.
TCS reported a 6.2% revenue growth last year, 7.1% growth in 2015-16 and 15% growth in 2014-15. Infosys expects to grow between 6.1% and 8.1% this year, as against the 7.4% growth last year and 9.1% growth in 2014-15. Wipro reported 3.7% growth in 2015-16 and 7% growth in 2014-15.
Wipro shares gained 0.7% to Rs495 on BSE on a day the benchmark Sensex ended 0.97% higher to 29,943.24 points. The earnings were announced after the close of trading.