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Business News/ Companies / Company-results/  Wipro’s Q2 profit rises 8%, lags estimates
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Wipro’s Q2 profit rises 8%, lags estimates

Revenue rose 8% to Rs11,816 crore from a year earlier; net profit fell 0.8% sequentially, while revenue rose 5%

Wipro had projected stronger sequential revenue growth of between 1.7% and 4% in the September quarter.. Photo: Hemant Mishra/MintPremium
Wipro had projected stronger sequential revenue growth of between 1.7% and 4% in the September quarter.. Photo: Hemant Mishra/Mint

New Delhi: Wipro Ltd, India’s third largest software services exporter, posted a lower-than-expected fiscal second-quarter profit after effecting wage increases in the preceding quarter and taking a hit from adverse exchange-rate fluctuations.

Net profit rose 8% to 2,084.8 crore in the three months ended 30 September from a year ago. Revenue rose 8% to 11,816 crore from a year earlier. In dollar terms, net income was $337 million on revenue of $1.9 billion.

Net profit was down 0.8% from the previous quarter while revenue rose 5%.

A Bloomberg poll of analysts had estimated profit to rise to 2,118.7 crore on revenue of 11,678.3 crore. In dollar terms, net profit had been estimated at $347.47 million on net sales of $1.915 billion.

Wipro had projected stronger sequential revenue growth of between 1.7% and 4% in the September quarter. The company had said revenue would range between $1.77 billion and $1.81 billion.

Wipro, the only one among the top five software services firms to provide quarterly forecasts, expects revenue from its information technology business in the seasonally weak December quarter to range between $1.808 billion and $1.842 billion.

The benefits of the rupee’s depreciation in the September quarter were negated by the dollar’s appreciation against other major currencies, according to Suresh Senapaty, executive director and chief financial officer of Wipro.

“We continued to drive productivity and improving operating levers even as the effect of salary hike on this quarter’s operating margin was on expected lines," he said.

T.K. Kurien, executive director and chief executive of Wipro, said the company sees “multiple opportunity spaces for growth and gaining market share".

The September quarter has turned out to be a mixed one for Indian IT services companies.

Last week, market leader Tata Consultancy Services Ltd (TCS) and HCL Technologies Ltd, the country’s fourth-largest software services company, posted earnings that disappointed investors. Shares of TCS and HCL Tech posted their biggest declines in more than five-and-a-half years after the results.

Earlier this month, Infosys Ltd, India’s second-largest software services exporter, reported a higher-than-expected 28.6% increase in fiscal second-quarter net profit.

Business leaders in the US continue to exhibit increased confidence on growth prospects, according to Azim Premji, chairman of Wipro. “We are seeing positive sentiment in India with the confidence that the government is focused on driving an agenda of growth," he said.

On Wednesday, Wipro shares gained 1.47% to 581.70 on BSE, while the exchange’s benchmark Sensex gained 0.8% to 26,787.23 points and the BSE IT index advanced 0.71% to close at 10,142.88 points. The company announced its earnings after the end of trading on Wednesday.

Wipro’s lower-than-expected earnings may disappoint investors and affect the company’s stock negatively.

“Wipro has reported a 1.8% QoQ (quarter-on-quarter) US$ revenue growth to US$ 1,771.5 million versus estimates of 2.8% QoQ US$ revenue growth with constant currency revenue growth at 3%. Profits at 20.8bn (were) a tad short on expectations on account of operational miss," said a report by Emkay Global Financial Services, adding that “margins are lower than estimates despite forex gains of ~ 1.3 bn recorded in the revenue line".

Wipro’s IT services Ebit (earnings before interest and tax) margin narrowed 70 basis points to 22% sequentially. One basis point is 0.01%.

The company’s outlook for December quarter also disappointed analysts.

“Revenue and operating margins were hit to some extent due to the ATCO acquisition. Q3 guidance is also slightly lower than Street estimates, but we expect that this is keeping in mind the seasonally weak Q3 and cross-currency headwinds," said Ankita Somani, an analyst with MSFL Research, part of the Marwadi Institutional Business Group. “Wipro will take some time to catch up with its peers, and that remains a concern as we do not expect the company to match peers’ growth for the rest of this year," .

“Dec’14 quarter revenue guidance at US$ 1,802-1,840 mn (+2-4% QoQ growth) also falls short of street and our expectations of guidance of 2.5/3%-4.5/5% revenue growth guidance and continues to indicate that while Wipro seems to be winning deals, losses in existing book of business is limiting overall acceleration in revenue growth," said Emkay Global Financial Services’ report.

As of 30 September, Wipro said its IT services segment had 154,297 employees. During the quarter, the company added 50 new customers. While the company has 1,018 active clients, its top 10 clients contributed 21.5% of its revenue.

Fifty-one per cent of the company’s revenue for the quarter came from Americas. Europe contributed 27.8% of the total, while India and the Middle East and Asia-Pacific (APAC) and other emerging markets contributed 9.2% and 12%, respectively.

“Growth (was) led by Americas and APAC with growth from Europe disappointing for the second quarter in a row for Wipro," noted Emkay Global Financial Services’ report.

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Published: 22 Oct 2014, 05:46 PM IST
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