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Wipro profit up 17% in Q4; forecast muted

Weak forecast for June quarter raises concerns about ability to regain flagging revenue growth momentum
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First Published: Fri, Apr 19 2013. 11 31 PM IST
Wipro forecast revenue in the range of $1.57-1.61 billion for the quarter ending June. Photo: Hemant Mishra/Mint
Wipro forecast revenue in the range of $1.57-1.61 billion for the quarter ending June. Photo: Hemant Mishra/Mint
Updated: Sat, Apr 20 2013. 12 43 AM IST
Bangalore: India’s third largest software services firm Wipro Ltd on Friday reported a better-than-expected profit for the three months ended March (fourth quarter, or Q4), but its forecast of tepid revenue growth in the current quarter raised concerns over whether the turnaround plan overseen by chief executive officer (CEO) T.K. Kurien is working.
Wipro’s net profit rose 16.74% to Rs.1,729 crore in the March quarter from Rs.1,481 crore in the year-ago period, the company said. That beat the Rs.1,720 crore median of 42 analysts’ estimates compiled by Bloomberg.
Revenue rose 3.2% to $1.585 billion (around Rs.8,560 crore today) during the quarter. It had forecast revenue of $1.58-1.62 billion for the period, when it added three more clients contributing $100 million to annual revenue, taking the number of such customers to 10.
Wipro forecast revenue in the range of $1.57-1.61 billion for the quarter ending June, weaker than analysts’ estimates, triggering concerns about its ability to regain flagging revenue growth momentum. It also underscored the widening gap in performance among the country’s top four software services firms, with Tata Consultancy Services Ltd (TCS) and HCL Technologies Ltd rapidly increasing their lead in revenue growth over Infosys Ltd and Wipro.
Wipro’s forecast suggests flat to 1.5% growth in revenue on a sequential basis. Analysts had been expecting it to guide for 2-4% growth in dollar terms. For the 2013-14 fiscal year, industry lobby group Nasscom has projected revenue growth of 12-14% for the country’s $108 billion information technology (IT) sector.
“Wipro’s poor March 2013 topline performance and tepid June 2013 revenue guidance suggests no let-up in its revenue underperformance,” CLSA Asia-Pacific Markets’ analysts Nimish Joshi and Arati Mishra wrote in a post-results research note. “Wipro’s claims of significant investments in sales and marketing in the last two years are clearly not translating into results.”
Wipro had confirmed the theme of “greater heterogeneity” among tier-I IT companies, the analysts wrote, noting that “the last two years have seen TCS/HCL drift gradually ahead even as Infosys/Wipro continue to struggle”.
Earlier this week, TCS said Q4 profit rose 25% and HCL Tech posted a 73% profit increase as they won more work from overseas clients, pleasing analysts and allaying the disappointment delivered last week by Infosys, which failed to meet its fiscal 2013 revenue growth forecast and predicted revenue growth of 6-10% in the current fiscal, lower than Nasscom’s industry forecast.
Some of the deals that Wipro expected to close in the March quarter are being pushed into the June and September quarters, chief financial officer (CFO) Suresh C. Senapaty said.
“We are starting the year with a little weaker guidance, but our expectation would be, of course, that we do better in the current fiscal year than what we did last year,” he said.
The results and guidance will put more pressure on Kurien, who took over as CEO in February 2011 after the company ditched a dual CEO model and put a turnaround plan in place, empowering him to take bolder decisions to create a nimbler organization and revive flagging growth.
The company this month completed the separation of its non-IT businesses into unlisted Wipro Enterprises.
In an interview, Kurien said the company’s performance during the March quarter was hurt by the investment banking sector, with clients cutting back on spending. “I think we underestimated the extent of pressure from investment banking,” he said. “Investment banking has been a big area of degrowth.”
Kurien also said the company did not expect a pickup in growth until the second quarter of the year. “The way we’ve seen it, the first quarter, primarily because of our India business, has traditionally been soft. In the second quarter, we expect growth to come back,” he said.
CFO Senapaty said Wipro had lagged behind its peers in growth because of its overdependence on technology clients as well as lower-than-expected growth from areas such as IT infrastructure management. “In IT infrastructure management, we should get back into leadership position soon in terms of overall growth; our expectation is that we should be there in few quarters,” he said.
Shares of Wipro fell 1.68% to Rs.368.65 on BSE on Thursday. The markets were closed on Friday for the Ram Navmi holiday. The stock has declined 12% in the past year and is the second worst performer among the 10 companies tracked by the S&P BSE IT index.
In New York on Friday, Wipro’s American depositary receipts were down 6.1%
at $7.97 at 8.30pm India time, declining 10.95% in the past year.
“These numbers will disappoint investors,” said an analyst at a foreign brokerage firm, who did not want to be named. “The stock will be weak on the back of this. The commentary that has been coming out from Wipro lately has looked constructive, but that’s still not reflecting in the numbers.”
Bloomberg contributed to this story.
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First Published: Fri, Apr 19 2013. 11 31 PM IST
More Topics: Wipro | T.K. Kurien | IT | fourth quarter | sales |