Wipro projects slower Q3 revenue growth, Q2 profit falls 7.6%

Wipro’s dollar revenue declined 0.8% sequentially and it expects between no growth and 2% revenue growth in constant currency terms in Oct-Dec quarter


The biggest challenges ahead of Wipro are to arrest declining profitability, integrate buyouts and improve its ability to generate more business from existing clients. Photo: Hemant Mishra/Mint
The biggest challenges ahead of Wipro are to arrest declining profitability, integrate buyouts and improve its ability to generate more business from existing clients. Photo: Hemant Mishra/Mint

Bengaluru: Wipro Ltd reported second-quarter revenue that missed analysts’ estimates although it was in line with the management’s guidance, and provided a weak outlook for the third quarter, indicating that a turnaround for India’s third largest software firm is still some time away.

Wipro on Friday said its dollar revenue declined 0.8% sequentially to $1.92 billion (0.9% rise in constant currency terms), after it had earlier outlined quarterly growth of at-best 1% in constant currency terms in the second quarter. Net profit improved 2.6% from the preceding March quarter to $312 million.

A Bloomberg survey of analysts had estimated revenue of $2.02 billion (Rs13,461.1 crore) and profit of $301.23 million (Rs2,010 crore).

Last year, Wipro reported a 3.7% growth, the slowest annual growth since 2009, and ended with $7.35 billion in revenue.

Chief executive officer Abidali Neemuchwala said it would take at least four to five quarters for the steps he has taken to bear fruit.

“I’m very confident that Wipro is progressing well and I believe four-five quarters is a reasonable time frame by when many of our steps should bear fruit,” Neemuchwala said.

Wipro’s weak earnings come a week after larger rival Infosys Ltd cut its full-year revenue outlook for the second time and industry leader Tata Consultancy Services Ltd (TCS) posted tepid results. For the June-September period, Infosys reported 3.5% sequential growth, while revenue at TCS inched up 0.3%.

Infosys now expects dollar revenue growth of at-best 8.5% this year (8-9% in constant currency terms). Unlike Infosys and Cognizant Technology Solutions Corp. (expects a growth of 8.5-9.5%) which forecast annual earnings, Wipro provides only a quarterly revenue growth outlook. It expects between no growth and 2% growth in constant currency terms in the October-December period.

The three biggest challenges ahead of Wipro are to arrest declining profitability, integrate buyouts and improve its ability to generate more business from existing clients.

First, Wipro’s operating margin dropped to 17.8% at the end of September, down from the 19.7% at the end of March.

Second, in the last 18 months, Wipro has spent more than $1.13 billion in buying four companies, including cloud-services firm Appirio Inc. for $500 million. Apart from Appirio, which has $200 million in revenue, the three companies together have over $350 million in revenue, which translates into a growth of 4% from the buyouts, provided Wipro is able to integrate them.

Finally, Wipro’s share of business from its top clients continues to slide. During the July-September quarter of 2014, Wipro’s quarterly revenue totalled $1.77 billion, with its top client bringing $62 million, top five clients $228.5 million and top 10 clients bringing $381 million of business. Even though Wipro managed to improve its quarterly revenue by 8% to $1.92 billion, the share of the largest, top five and top 10 clients declined by 19.6%, 15.2%, and 12%, respectively.

“The company’s guidance of at-best 2% growth clearly means that the company’s organic revenue is not growing much,” said a Mumbai-based analyst at a domestic brokerage. “So until the company can start recording good organic revenue growth, any talk of a turnaround is premature.”

Like TCS, Wipro too discloses revenue from its digital business, which includes cloud computing platforms, analytics and consultancy practice. TCS said that $704.2 million of the $4.37 billion revenue was from digital in the second quarter, while Wipro improved its digital revenue by 8.7% to $375.6 million in the same quarter.

In the quarter to September, Wipro’s business improved 1.6% in the US, which brings more than 54% of the total business, but declined 6% in Europe, which accounts for 24% of revenue.

The company added 47 new clients in the first quarter, taking the total number of customers to 1,180. Wipro’s attrition rate was 16.6% at the end of the second quarter, as against 16.5% at the end of the first quarter.

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