Wipro Q2 profit rises 4.7% sequentially to $336 million
Bengaluru: Wipro Ltd’s dollar revenue inched up 2.1% sequentially to $2.01 billion in the three months to September (0.3% rise in constant currency terms), higher than management’s earlier guidance, largely on account of higher spending by banking clients.
Significantly, Wipro now expects to grow at-best 2% in constant currency terms in the current October-December period, which the management claims reflects the momentum it needs to end the current fiscal with industry-matching growth.
Net profit improved 4.7% sequentially to $336 million from $321 million in the preceding quarter. Consequently, operating margin improved 50 basis points to 17.3% from 16.8% at the end of June quarter. A basis point is one-hundredth of a percentage point.
A Bloomberg survey of analysts had estimated revenue of $2.12 billion (Rs13,841.9 crore) and a profit of $317.79 million (Rs2,072.5 crore).
“Overall I’m satisfied,” Wipro chief executive officer Abidali Neemuchwala said in an interview. “Our execution was pretty good. Four of our six business units have grown. Telecoms (the fifth business unit which reported a decline) has bottomed out. The only area of uncertainty is healthcare.”
Wipro’s first-quarter performance lagged its larger rival, Tata Consultancy Services Ltd, which posted 3.2% sequential dollar revenue growth (1.7% in constant-currency terms). Infosys Ltd declares its earnings on 24 October.
For the third straight quarter, Wipro reported industry-leading growth from its oil and gas clients (which account for 13.5% of revenue) and banking, financial services and insurance, or BFSI, clients (27.6% of total business).
“Overall, Wipro’s earnings for Q2FY18 was a mixed bag,” Sanjeev Hota, an analyst with brokerage Sharekhan, wrote in a note to investors after Wipro declared its earnings. “Wipro has delivered weaker than expected numbers on revenues front with 0.3% sequential constant currency growth for Q2FY18, though IT services EBIT margins surprises positively at 17.3% despite wage hikes being effective for full quarter and net profit exceeds estimates led by higher than expected other income” EBIT is short for earnings before interest and tax.
A 2.1% increase on the back of 0.9% in the first quarter means Wipro added $138.1 million in incremental revenue in April-September, lower than the $221.1 million in new business in the same period of the last fiscal year. Wipro added $358.2 million in new revenue in 2016-17 to report 4.9% growth. In the current fiscal year, the firm needs to add $377.5 million in incremental revenue to match that pace. This means Wipro will have to add $239.4 million in incremental revenue in the second half of the year to match last year’s growth.
For now, Neemuchwala maintained that the firm’s organic growth remains higher than last year’s.
Indian IT firms including Wipro, have seen demand from their Fortune 500 clients slow in areas like application development and maintenance. Though they are seeing demand for solutions like applications over mobile platforms or cybersecurity solutions (broadly termed digital), this has not been enough to offset the slowdown in traditional areas of business. For all IT outsourcing firms, digital revenue still accounts for less than a fourth of total revenue.
A case in point is Wipro, which claimed that digital revenue accounted for 24.1% of its quarterly revenue at the end of the July-September period this year.
For Wipro, revenue from digital offerings recorded 40.4% growth to $485.25 million in the September quarter, as against $345.61 million in the June quarter of last year, when the management first disclosed digital revenue. However, Wipro’s overall quarterly revenue inched up 4.3% to $2.01 billion from $1.93 billion in the same period. This was largely on account of a 3.3% decline in traditional business to $1.53 billion from $1.58 billion, according to a Mint analysis.
One fallout of this shift is on the workforce. Wipro saw its workforce decrease by 3,031 people to 163,759 employees at the end of September, as against 166,790 at the end of June quarter, mirroring the industry trend.