Bangalore: India’s third largest software services provider, Wipro Ltd, beat analyst expectations with a 12% increase in the June quarter net profit after it cut costs and won more orders, but was cautious about its business prospects in the months ahead as the US, the world’s biggest technology market, struggles to emerge from recession.
Profit rose to Rs1,016 crore in the three months ended June on a 5% increase in revenue to Rs6,274 crore from the year-ago period. Compared with the March quarter, profit varied a little while revenue was down by Rs107.8 crore.
The profit and revenue beat analyst estimates. A Mint poll of six analysts had forecast that Wipro would report profit of Rs924 crore on revenue of Rs6,448 crore.
Bangalore-based Wipro’s larger rivals Infosys Technologies Ltd and Tata Consultancy Services Ltd, or TCS, also reported better-than-expected first-quarter numbers last week, indicating that clients are beginning to spend again on technology and that business is trickling in despite a recession in the US and Europe.
“We are starting to see the first signs of stability in the business as ramp-downs start to taper off and volumes start to stabilize,” said Azim Premji, chairman of Wipro.
Wipro shares fell Rs6.96, or 1.52%, on Wednesday to end at Rs451 on the Bombay Stock Exchange while the benchmark Sensex index fell 219.37 points, or 1.46%, to 14,843.12.
“(There is) no positive surprise. The degree of pessimism has reduced, overall environment continues to challenging,” said Apurva Shah, head of research at Prabhudas Lilladher Pvt. Ltd, a Mumbai based brokerage. “Does it mean that weather is now sunny? That is not the case”.
Infosys, the second largest software services firm, reported a profit of Rs1,527 crore on revenue of Rs5,472 crore. TCS, the largest, logged a profit of Rs1,534 crore on revenue of Rs7,207 crore.
Wipro’s revenue from information technology (IT) services, which generates three-fourths of its business and 93% of operating margins, fell 3.1% to $1.033 billion (around Rs.5,000 crore) in the quarter from $1.067 billion in the year-ago period. It declined 1.3% from the previous quarter on a marginal decrease in volumes, falling short of its forecast of $1.046 billion.
Operating margins as a percentage of sales improved to 22.3% from 21.7% in the preceding quarter.
Wipro forecast its second quarter revenue from IT services to vary a little at around $1.035-1.053 billion.
The company has a healthy pipeline of projects for the near-term but closing deals worth at least $100 million is taking longer than before, Wipro chief financial officer Suresh Senapaty said.
“We are seeing lot of new projects that are happening,” he told reporters. “It is improving but one can’t say that it is done and therefore one has to be a little cautious.”
Software industry lobby, the National Association of Software and Service Companies, or Nasscom, has predicted less than 10% growth in software exports this year as the global recession crimps demand.
Wipro, which counts Citigroup Inc., Cisco Corp. and General Motors Corp. among its clients, added 26 new customers between April and June. However, the total tally of clients in the latest quarter fell to 830 from 928 in the first quarter of last year.
Like other Indian IT firms, Wipro is also investing in strengthening sales teams and building local business in countries such as the US.
“The clients are still cautious. Nobody is coming out with big cheques. But once stability comes in the one or two quarters, I think the basic need to build new products, services and comply with regulations—that has not gone away. It is a matter of just being there at the right time; maybe the time will come in a quarter or two,” said Girish Paranjpe, joint chief executive at Wipro.
Reuters contributed to this story.