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Business News/ Companies / Company-results/  Wipro’s weak guidance raises concerns about turnaround
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Wipro’s weak guidance raises concerns about turnaround

Wipro's net profit jumps 41% to Rs2,227 crore from a year ago, revenue rises 22% to Rs11,704.5 crore

Wipro forecast revenue of between $1.715 billion and $1.755 billion in April-June—a range between marginally negative and 2% sequential growth. Photo: Hemant Mishra/ MintPremium
Wipro forecast revenue of between $1.715 billion and $1.755 billion in April-June—a range between marginally negative and 2% sequential growth. Photo: Hemant Mishra/ Mint

Bangalore: India’s third-largest software services exporter Wipro Ltd on Thursday forecast weak revenue growth in the June quarter, a period in which clients in the US and Europe typically spend more on information technology (IT), raising concerns that its return to double-digit growth will take longer than foreseen.

Wipro forecast revenue of between $1.715 billion and $1.755 billion in April-June—a range between marginally negative and 2% sequential growth.

IT industry analysts had, on average, been expecting Wipro to forecast sequential revenue growth of at least 2-4% for the quarter. Bangalore-based Wipro is the only one among the top five software services firms that provides quarterly revenue growth forecasts.

In the quarter to March, net profit at 2,227 crore jumped 41% from 1,576 crore a year ago. Revenue rose 22% to 11,704.5 crore. Analysts, on average, had been expecting Wipro to post a net profit of 2,102 crore on revenue of 11,643 crore, according to a Bloomberg poll of 38 analysts.

Wipro last posted double-digit revenue growth on a year-on-year basis in the 2011-12 financial year and was the only one among the top five Indian IT firms, which includes Tata Consultancy Services Ltd (TCS) and Infosys Ltd, to not post double-digit revenue growth in the 2013-14 fiscal year.

“Wipro has recovered strongly from lower levels after posting better than expected results in the last two quarters but we believe it will still lag other larger peers such as TCS and HCL Tech in terms of revenue growth rates in FY2015," Angel Broking Ltd said in a post-earnings research note.

Chief executive T.K. Kurien played down concerns that Wipro’s turnaround plan was taking longer than expected to execute, saying that the company would bounce back in the fiscal second quarter, but conceded that Wipro needed to get more consistency in its performance.

“While it may look like a work in progress, the reality is that we performed last quarter. If you look at this quarter, we have an issue in terms of the way we’ve guided. Again I wouldn’t read too much into it, primarily because of the number of wins we’ve had. We clearly see topline (growth) coming back in Q2," Kurien told reporters.

“To that extent, most of the work that we had to do in terms of restructuring is all over. Now what we need to do is get more linearity in our performance. That’s going to take some more time. Fundamentally we’re in a position where we can grow at a rate that is better than last year. We just need to get our Q1 performance off," he added.

He attributed the tepid Q1 guidance to “seasonal weakness".

“Don’t read Q1 as a precursor to the full year. Our order book was probably the highest that we’ve ever had in the previous quarter, with the momentum playing out this quarter also. So, from that perspective, it’s the seasonality playing out to some extent, especially our India business," he said.

“...a slow start to the year does make it challenging from a full-year perspective to get double-digit revenue growth. The real proof of whatever they have said today will be seen in Q2," said an analyst at a leading Indian brokerage who did not want to be named.

In the year ended March, Wipro posted full-year revenue growth of 6.4%, to $6.62 billion, the second consecutive year when the company’s growth has lagged the industry average by more than half.

Even more worryingly for Wipro, the 6.4% growth rate comes in a year when India’s $118-billion information technology industry enjoyed its best performance in nearly 3 years, growing by 13%, according to industry lobby group Nasscom.

Even former sector bellwether Infosys, which was struggling till about a year ago when it missed its own forecasts several times and was forced to recall N.R. Narayana Murthy from retirement in June, has doubled growth this year and posted revenue growth of 11.5%.

In the March quarter, Wipro benefited from a pick-up in client spending. Its performance was bolstered by its energy and utilities business, as well as healthcare and life sciences. While the traditionally strong energy business grew 14%, healthcare revenues grew by 14.3%. Revenue from Europe rose by 14.4% from a year ago.

In January, Kurien had said that Wipro would perform better in the financial year ending March 2015 than in the year gone by.

In dollar terms, the currency in which it generates most of its revenues, Wipro posted a net profit of $434 million on revenue of $1.72 billion, an increase of 8.5% from last year. The company had forecast its March quarter revenue at between $1.71 billion and $1.75 billion after its December quarter results.

Over the past three years under Kurien, Wipro has undertaken a massive organizational overhaul and collapsed complex organizational structures to create a nimbler organization. Wipro decentralized decision-making by handing more powers to second-tier leaders to help them take quicker and bolder decisions in the company’s quest for reviving growth.

Wipro still continues to lag other top-tier rivals in terms of growth, barring its energy and utilities business, and has failed to capture crucial market share in the banking and financial services sector, which contributes about 30-40% of the total revenue of India’s IT sector.

Since April last year, Wipro has been trading as a standalone IT stock, having hived off its non-IT businesses.

Wipro’s results were declared after market hours on Thursday. Its shares ended 2.4% higher at 585.55 on the BSE while TCS stock closed at 2,217.45, up 1.02%; Infosys was up 1.06% at 3,189.9 and HCL Technologies also rose 1.06% to 1,424.30.

The benchmark BSE Sensex rose 1.58% to 22,628.84 points while the BSE IT index gained 1.21% to 8,907.19 points.

In the March quarter, TCS shares fell 1.97% while Wipro dropped 2.94%, Infosys retreated 5.93%, and HCL Technologies Ltd rose 10.09%. The Sensex rose 5.74% while the BSE IT Index fell 3.22%.

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Published: 17 Apr 2014, 06:05 PM IST
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