Wipro net profit up, sees revenue fall

Wipro net profit up, sees revenue fall
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First Published: Wed, Apr 22 2009. 04 44 PM IST
Updated: Wed, Apr 22 2009. 04 44 PM IST
Bangalore: India’s No.3 outsourcer Wipro Ltd beat expectations with a 4% rise in profit, sending its shares to a six-month high, although it forecast a fall in June quarter revenue as the global downturn hits demand.
Wipro, which offers IT solutions such as system integration, software application and back-office services, said it expected software services revenue to fall to $1 billion to $1.03 billion in the June quarter from $1.05 billion in the March quarter.
The January-March IT services revenue was the first decline on quarter in at least five years as the harsh economic climate hit global outsourcing demand.
“Today the environment is such that every customer is asking for price reductions,” chief financial officer Suresh Senapaty told reporters.
“We think in the short term the weakness will continue.”
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‘No salary hike’
The company will not raise salaries of staff in the current fiscal year that began 1 April Pratik Kumar, head of human resources, told reporters on Wednesday.
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New York-listed Wipro, which counts Citigroup, telecoms gear makers Cisco, Nokia Siemens Networks and Credit Suisse as clients, saw cutbacks on outsourcing contracts from financial services clients, he said.
Wipro said pricing fell 160 basis points on quarter.
Prices of IT outsourcing services will shrink 5% to 20% through 2010 due to the uncertain economic climate, IT budget constraints and competition between vendors, research company Gartner said last month.
“Looking at the trying conditions, it’s a decent set of numbers... but looking at the guidance and its range, it looks like Wipro is trying to play it safe,” said Arun Kejriwal, director at research firm KRIS.
At 0501 GMT shares in Wipro, which the market values at $8 billion, were up 4.2% at Rs285.80, after rising as much as 7.5% to a six-month high, in a Mumbai market that was up 0.9%.
Gloomy Tech Outlook
Wipro’s lower revenue forecast follows a gloomy outlook by larger rivals Tata Consultancy Services and Infosys Technologies Infosys said it expected its first annual revenue decline.
Wipro, owned by billionaire Azim Premji who turned the family’s ailing vegetable oil business into IT services major, said net profit in its fiscal fourth quarter to March rose to Rs9.1 billion ($180 million) from Rs8.75 billion reported a year ago. Sales rose 13% to Rs64.5 billion.
A Reuters poll had forecast a net profit of Rs8.73 billion.
Earnings were boosted by the integration of Citi Technology Services, which Wipro bought for $127 million from Citigroup in December.
“We expanded our margins despite the headwinds of reduction in volumes and lower tailwind of forex gains,” Senapaty said in a statement. Wipro added 20 new clients in the quarter.
Wipro’s IT business margin rose to 20.8% in the quarter from 20% in the December quarter and the weaker rupee helped margins by 40 basis points, an investor relations executive said.
The rupee fell nearly 4% against the dollar in the quarter, adding some buffer to profit margins of exporters.
Growth in India’s once-booming software services exporting sector has slowed sharply due to a recession in the United States, which accounts for more than one-half of the estimated $60 billion industry supply, and rising competition from the likes of IBM.
On Monday, IBM reported a bigger-than-expected 11% drop in quarterly revenue as the slowdown in corporate spending hurt even one of the healthiest US technology companies, but the company affirmed its full-year earnings outlook.
The market share of India’s top outsourcers could come under pressure with the acquisition of fraud-tainted Satyam Computer Services by mid-sized Indian IT services company Tech Mahindra Ltd in a deal worth about $580 million.
Tech Mahindra, 31% owned by Britain’s BT Group, will become India’s fourth-largest outsourcing firm from a current ranking of sixth after the takeover.
Shares in Wipro, rose 5% in the March quarter, outperforming a 2.6% advance in the sector index and a 0.6% rise in the main index.
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First Published: Wed, Apr 22 2009. 04 44 PM IST
More Topics: Company results | Wipro | Profit | Technology | Salary |