BackWipro’s profit up 18% in Dec quarter, but volumes drop
Earnings helped by new software outsourcing contracts; firm forecasts Q4 revenue at $1.58-1.62 billion
Premium(Hemant Mishra/Mint)
Bangalore: Wipro Ltd, India’s third largest software exporter, said net profit for the December quarter rose 18% from a year ago to ₹ 1,716 crore, helped by new software outsourcing contracts from clients such as US retailer Sears Holdings Corp.
Though net profit for the December quarter beat analysts’ estimates, the company continued to lag behind rivals in revenue growth, a sign that its turnaround being led by chief executive T.K. Kurien is still a work in progress, and its volume of business declined.
Wipro, which counts Citigroup Inc. among its top customers, forecast fourth quarter revenue at $1.58-1.62 billion ( ₹ 8,516-8,732 crore today), compared with the $1.536 billion it earned from information technology (IT) services in the year-ago period.
Revenue from Wipro’s IT services grew 2.4% sequentially to $1.57 billion for the October-December period.
“While the overall mood on economic growth continues to be muted, global corporations continue to leverage technology to drive revenue and productivity," said Wipro chairman and founder Azim Premji.
A wavering US economic recovery and the debt crisis in Europe have resulted in slower revenue and profit growth for Indian software services companies in their two biggest markets in recent quarters.
At a news conference, Premji said he saw the economy stabilizing “globally".
The “US economy is showing improvement. Europe is steady; it’s not showing negative signs, neither is it showing strong positive signs. When I talk to global leaders, they are more confident today than they were two or three months ago", he said.
Analysts have been expecting better forecasts and earnings from Wipro. On Thursday, UBS Securities upgraded Wipro from “sell" to “buy" rating, citing a potential recovery for the software sector.
Analysts said the company needs to do more to catch up with peers after four years of revenue underperformance.
Wipro fell 7.88% to ₹ 397.15 on BSE on Friday. The benchmark Sensex gained 0.38% to 20,039.04 points.
While Wipro is pushing aggressively to catch up with rivals, it may take longer before its new strategy led by Kurien starts delivering.
“If we don’t get industry leading growth by June 2013, we won’t be happy," said Suresh Senapaty, chief financial officer of Wipro. “We have been making these changes to see results; the whole board is supporting T.K. (Kurien)."
Wipro is already seeing more long-term contracts that bring in annual revenue in excess of $100 million, with the number of such customers increasing to 10 from six a year ago.
The company has also been hiring top technology experts for its board to explore new business opportunities. Last year, Wipro appointed former Hewlett-Packard Co. veteran Vyomesh Joshi.
Wipro’s biggest worry for now, however, is to regain revenue growth and increase its share of outsourcing spending by customers such as Citigroup. In the December quarter, Wipro’s volume of business fell 1% over the preceding three months.
This and the relatively low revenue growth do not reflect the recent positive commentaries of Tata Consultancy Services Ltd (TCS), Infosys Ltd and HCL Technologies Ltd, which have hinted that 2013 will be a better year in terms of outsourcing demand.
“There are two parts to the business: one is the discretionary business spend, and there’s a run-the-business spend," said Kurien. “I think we have to capture more than our share of discretionary business spend, which we have not yet done. The day we do that, volumes will come back."
Senapaty said revenue growth would sometimes be led by volumes and sometimes by higher price realization, adding that the lower volume was partly a reflection of the lower number of working days in the third quarter.
“This is not a bad result we have delivered," Senapaty said. “We have been giving better forecasts quarter after quarter for some time."
Analysts aren’t buying that.
“Wipro’s revenue underperformance has now lasted for over four years and a quick fix seems unlikely," CLSA analysts Nimish Joshi and Arati Mishra said in a note on Friday after the earnings were announced.
The revenue growth forecast of 0.5-3% for the fourth quarter is also below expectations, they said. “Importantly, the guidance range is wider than the usual 200 bps (basis points) range and suggests that current revenue roll-up would be indicating an achievement closer to the lower end of the guided range," they added.
A basis point is one-hundredth of a percentage point.
December quarter earnings and forecasts provided by India’s three largest software companies hint at a potential recovery for the country’s IT services sector, as these firms trade high profit margins to gain bigger contracts and customers in the US and Europe to cut costs.
While Infosys chief executive S.D. Shibulal gave positive commentary for the first time since June last year, India’s largest software services provider TCS on Monday said it would beat industry lobby Nasscom’s revenue growth forecast of 11-14% for the year to 31 March.
The country’s fourth biggest software exporter HCL Technologies on Thursday reported a 68.5% rise in net profit for the December quarter to ₹ 965 crore.
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