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Wipro revenue forecast underlines IT industry’s challenges

Wipro’s IT services revenue in the third quarter grew 3.5% to $1.90 billion from a year ago period, but the firm provided a weak outlook for the fourth quarter


Wipro’s IT products segment delivered revenue of Rs570 crore for the third quarter. Photo: HT
Wipro’s IT products segment delivered revenue of Rs570 crore for the third quarter. Photo: HT

Bengaluru: Wipro Ltd reported third-quarter revenue that missed analysts’ estimates although it was in line with the management’s forecast, and provided a weak outlook for the fourth quarter, mirroring the challenges faced by rivals in the country’s $150 billion outsourcing sector.

Wipro on Wednesday said its dollar revenue declined 0.7% sequentially to $1.9 billion (0.6% rise in constant currency terms), after it had earlier outlined quarterly growth of at-best 2% in constant currency terms in the third quarter. Net profit declined 1% to $309 million from $312 million in the preceding quarter.

A Bloomberg survey of analysts had estimated revenue of $2.01 billion (Rs13,678.7 crore) and profit of $308.23 million (Rs2,094.6 crore).

Wipro expects between 1% and 2% revenue growth in constant currency terms in the January-March quarter.

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

“Operationally, it was a good quarter. Our profitability improved in a quarter where there are furloughs and fewer working days. But I think in revenue growth we could have done more,” Neemuchwala said.

He added that the company’s “core business is doing well” and that in “three-four quarters” it would return to industry-leading growth.

Wipro’s weak numbers come after a tepid show by its peers. Infosys Ltd reported a 1.4% sequential drop in dollar revenue in the third quarter and cut its full-year revenue outlook for the third time while industry leader Tata Consultancy Services Ltd posted a 0.3% dollar revenue growth.

Infosys now expects dollar revenue growth of at-best 7.6% this year (8-9% in constant currency terms). Wipro provides only a quarterly revenue growth outlook.

Hearteningly for Wipro, the company managed to improve its operating margins by 50 basis points to 18.3%. However, two of the biggest challenges ahead for Wipro are to improve its ability to generate more business from existing clients and reviving organic growth.

Wipro’s share of business from its top clients continues to slide. Even though Wipro managed to improve its quarterly revenue by 6.3% year-on-year, the share of the largest, top five and top 10 clients declined by 21.9%, 16.5%, and 14%, respectively.

During the quarter, Wipro spent $8.7 million to buy Infoserver SA, a Brazilian company that offers solutions to banks and insurance companies. This is the fifth acquisition by Wipro in the last 20 months; it spent $1.13 billion in buying the other 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 at-least 4% from the buyouts. Considering Wipro is expected to grow at-best 5% in the current year, this means the company’s traditional business is hardly growing.

“Until the company can start recording good organic revenue growth, any talk of a turnaround is premature,” said an analyst at a domestic brokerage who asked not to be identified.

Wipro’s digital revenue improved to $413 million, a 10% sequential increase. In the quarter to December, Wipro’s business grew 0.7% in the US, which brings more than 55% of the total business, but declined 2.3% in Europe, which accounts for 23.6% of revenue.

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