India’s third largest software firm,Wipro Ltd, is seeing an rise in demand at its key financial services segment and expects to sustain overall operating margins in the near term as the business environment improves.
The global banking sector has seen a slew of mergers and acquisitions in the recent past, and firms such as Wipro are cashing in on the growing need for technology services.
“The recovery is taking place slowly... Customers have decided to move on and make things happen,” Suresh Vaswani, joint chief executive officer of Wipro’s information technology (IT) business, said at the Reuters India Investment Summit in Bangalore.
The company’s banking, financial services and insurance segment, which accounts for about a quarter of its revenue, has been pressured by project delays and tightened customer spending amid the global slowdown.
“Some of the uptick is driven by the consolidation activities we are doing for our clients,” Wipro Technologies chief financial officer Manish Dugar said.
IT spending by banks and financial institutions has increased in the last two quarters, driven by consolidation-related work, said Rohit Kumar Anand, an analyst with PINC Research.
Wipro’s operating margins have risen over the last couple of quarters. Its IT services division posted operating margins of 23.8% for the second quarter ended 30 September, up from 22.3% for the prior quarter.
Analysts say the worst seems to be over for India’s $60 billion (Rs2.77 trillion) outsourcing sector as bigger firms win large deals and pricing pressures ease. “The pipeline certainly looks better. It has looked better and better over the last couple of quarters,” Vaswani said.
Wipro, which competes with larger rivals Tata Consultancy Services Ltd and Infosys Technologies Ltd, has forecast IT revenue to rise between 3.8% and 5.7% in October-December from the preceding quarter to $1.09-1.11 billion, exceeding street expectations.
The company, which integrates IT systems, develops software applications and manages call centres, posted a 1.9% sequential rise in July-September IT revenue.
In October, IT research firm Gartner said global IT spending was likely to decline 5.2% in 2009, marking the worst year on record, but it expects a return to growth of 3.3% in 2010.
Emerging markets, which account for about 20% of Wipro’s total revenue, are expected to be the “big thrust areas” for the company going forward.
“When I say emerging markets, predominantly it’s India and the Middle East, but Australia is becoming a big part of the business now,” Wipro’s Vaswani said. “While some markets may get challenged, some other markets somehow compensate.”
The US accounts for half of the company’s revenue, while Europe contributes about 30%.
Wipro shares were down 0.05% at Rs646.45 on Wednesday in the main Mumbai market, which was up 0.4%.