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Wipro’s hiring strategy indicates weak outlook

Wipro’s hiring strategy indicates weak outlook
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First Published: Sat, Feb 07 2009. 03 34 PM IST

Updated: Sat, Feb 07 2009. 03 34 PM IST
Software services firm Wipro Ltd’s revenue growth of 3.5% in constant currency terms for the December quarter is considerably higher than the 1% growth reported by rivals Tata Consultancy Services Ltd (TCS) and Infosys Technologies Ltd.
What’s more, the company has said average billing rates were 1.2% higher on a constant currency, compared with the September quarter. While TCS said average billing rates were flat at second quarter levels, Infosys reported a 1.8% decline in average pricing.
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In recent times, it has been rare for Wipro to outperform its peers on these parameters. Yet, its investors have little reason to rejoice. Its guidance for the March quarter implies close to a 7% decline in the core business, compared with the December quarter.
Wipro’s hiring strategy bears out its weak outlook on volumes. Its headcount in the IT services business was reduced by about 1,100 compared with the September quarter. Though volumes have grown year-on-year (y-o-y), the number of employees is stagnant at year-ago levels.
TCS and Infosys continue to hire freshers from campuses and train them, so that they have trained manpower to meet demand when there’s a turnaround.
Wipro’s hiring strategy seems to reflect there is no sign of a turnaround in the near future. The positive side is that employee utilization has improved y-o-y. Besides, pricing is higher and Wipro has also had the benefit of rupee depreciation.
Still, its profit margin has fallen by about 20 basis points on a y-o-y basis after adjusting for a one-time provision for bad and doubtful debts. With pricing now expected to decline and volume growth set to disappear, margins could well take more beating. One basis point is one-hundredth of a percentage point.
Wipro has also been aggressive in hedging its foreign currency exposure. Although the rupee is at 48 to a dollar, it may realize a rate of about 42-45 for a number of its contracts. This could be one of the reasons margins were under pressure last quarter. The worry is that the problem will repeat in the coming quarters.
It’s for these reasons that Wipro’s stock fell 3.7% after its results were announced.
Graphics by Sandeep Bhatnagar / Mint
Write to us at marktomarket@livemint.com
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First Published: Sat, Feb 07 2009. 03 34 PM IST
More Topics: Wipro | TCS | Strategy | December | Business |