Bangalore: India’s third largest software exporter, Wipro Ltd, expects IT revenue to decline by at least 5% in the current quarter from the three months ended December, indicating a grim outlook for the industry as clients cut spending and scale back projects with recession deepening in the US and Europe.
Bangalore-based Wipro forecast IT services revenue to drop to $1.045 billion (Rs5,133 crore) in the three months to March, from $1.1 billion (Rs5,403 crore) it earned in the quarter to December.
Wipro and other Indian computer services companies are struggling as recession forces customers in their main markets to trim technology budgets and negotiate lower prices with technology vendors. Research firm Forrester Research forecast on 19 January a 3% decline in global purchases of IT goods and services by businesses and governments in 2009 to $1.66 trillion, ending a boom that started in 2001.
“The biggest challenge for us in the current environment is the ability to make a judgement or predict what is going to happen the next quarter or the next year,” Wipro chairman Azim Premji told reporters on Wednesday. “Consumer confidence is down significantly and leading indicators suggest that the bottom is not in sight.”
The company posted a year-on-year increase of 18% in third quarter net profit to Rs1,004 crore, and a 25% jump in revenue to Rs6,618.3 crore. Sequentially (from the previous quarter), profit rose 3% and revenue 2%. Technology services revenue for the three months saw a 0.9% drop from the second quarter.
The division contributed 77% of Wipro’s sales. Its consumer care and lightning business reported a year-on-year profit growth of 21% to Rs527 crore, unchanged from the previous quarter because of sluggish sales of soaps and furniture due to seasonal factors.
A 12 January Mint survey of seven analysts had projected Wipro’s profit at Rs920 crore on revenue of Rs6,722 crore.
Wipro’s stock ended lower by Rs8.10, or 3.55%, at Rs219.75, while the IT sector index closed down 1.9% to Rs2,104.71. “The company’s forecast is disappointing and well below peers,” Govind Agarwal, an analyst at UBS AG, said in a note to clients on Wednesday.
Chief financial officer Suresh Senapaty said clients were seeking price cuts. “The pressure was there in the third quarter, it will continue to be there in the fourth quarter and that is reflected in our guidance.”
Analysts cite a continuing deterioration in demand for outsourcing work to Indian vendors. “One of the intriguing aspects of the last few months has been that while consensus expectations have been going down, vendors have struggled to meet even much lowered estimates, indicating continuing deterioration in the demand environment,” securities house CLSA Asia Pacific said in a post-results note to clients.
Wipro followed bigger rivals Tata Consultancy Services Ltd and Infosys Technologies Ltd in declaring quarterly results. Last week, Infosys reported a year-on-year net profit increase of 33.3% to Rs1,641 crore on revenue of Rs5,786 crore, aided by a weakening rupee against the dollar that boosts export revenue. But the company lowered its dollar guidance for the year ending 31 March. TCS reported a 24% year-on-year rise in profit to Rs1,362 crore on revenue of Rs7,277 crore. The Tata company’s performance was affected by the global financial crisis: Around 42% of TCS’ revenue comes from companies in the banking, financial services and insurance sectors.
“Indian firms are trying their best to push work offshore, get more fixed-price contracts and improve productivity. In the face of a macro economic slowdown, things are helpful, but it cannot mitigate the impact of the slowdown,” said Apurva Shah, head of research, Prabhudas Lilladher Pvt. Ltd, a Mumbai-based brokerage.
Harichandan Arakali of Bloomberg contributed to this story.