Bangalore:Soaps-to-software Wipro Ltd, which counts on technology services for more than two-thirds of its business, saw its first quarter profits grow at a less-than-expected 17% to Rs726 crore—its slowest expansion in profit in two years—as it struggled to contain the effect of the rupee’s rise against the US dollar.
But the Bangalore-based firm forecast stronger business growth in the quarter ahead, aided by improving productivity and moving more software services work offshore to low-cost locations.
Sales rose to Rs4,203 crore in the April to June months, a growth of 34% over the year-ago quarter.
“The outlook for the year in terms of revenue is strong. We are confident that we will recover from the impact of the rupee,” chairman Azim Premji told reporters here on Thursday. “We haven’t seen the appreciation of the rupee of this scale in tens of years.”
The rupee, which strengthened nearly 7% over the dollar in the last quarter, shaved off 3.4% or Rs297 crore of Wipro’s earnings before interest, tax, depreciation and amortization or Ebitda, a measure of profits on operations.
On a quarter-on-quarter basis, Wipro’s profits fell 15.2% from Rs856 crore and sales contracted by 3% from Rs4,333 crore in the previous quarter.
Its operating margin, measured by Ebitda as a percentage of revenues, was 17.3% in the quarter, seven percentage points less than the previous quarter. Operating margins in the software services business for the quarter was 21.6%.
“The concerns are around how they will be managing margins with wage hikes,” said Harmendra Gandhi, an equity analyst with Brics Securities, a Mumbai brokerage. Wipro, which saw a high attrition of 20% in the quarter, said it would increase salaries for offshore employees by 12-13% this month, a quarter before its regular wage revision period in the third quarter.
Wipro forecast a 7% year-on-year rise in income from software services to Rs3,147 crore for the second quarter.
It added 39 new clients, including a $130 million five-year outsourcing contract from an unnamed European utility.
The Wipro share on the Bombay Stock Exchange ended flat on Thursday, closing at Rs505.40; the bourse’s benchmark Sensex rose 1.63%.
Analysts Surendra Goyal and Hitesh Shah of Citigroup Global Markets Inc. maintained a ‘buy’ rating on the stock, setting a 12-month target price of Rs650 a share, a 12% discount to their target multiple for rival Infosys Technologies Ltd. The discount was justified given Wipro’s “expected sub-par growth vs. Infosys in the coming years,” the analysts wrote in a post-results report.