Will Wipro soon post negative growth?
Wipro’s organic growth in constant currency fell to around 2% in the December quarter, and is expected to fall further to around 1% in the March quarter
Latest News »
- Narendra Modi hosts farewell for outgoing President Pranab Mukherjee
- In major bureaucratic reshuffle, 35 secretaries, additional secretaries named
- Congress top brass discuss aftermath of Shankarsinh Vaghela exit as Gujarat polls loom
- Orissa HC notice to EC for early completion of inquiry against Naveen Patnaik
- Arvind Subramanian hints at writing about demonetisation in memoir
Waiting for Wipro Ltd’s recovery has become something like waiting for Godot. But leave alone a recovery, investors will be horrified to discover that things have progressively become worse.
On a year-on-year basis, organic growth in constant currency fell to around 2% in the December quarter, and is expected to fall further to around 1% in the March quarter. At this rate, the company could soon start reporting negative growth, points out an analyst at a multinational brokerage firm.
Wipro said it is facing growth headwinds in its India and Middle East business because of an ongoing restructuring. Besides, it said the US healthcare segment needs monitoring to see if expected changes in government policy results in delays in decision-making by its clients. In addition, the company has a fairly high exposure to the energy and telecom segments, where demand for IT services has ebbed.
But despite these headwinds, analysts are dissatisfied with Wipro’s execution. Excluding the impact of acquisitions, revenue fell by about 30 basis points sequentially in the December quarter. Worse still, the company has guided for 1-2% growth for the March quarter. Adjusted for the contribution from acquisitions, revenue is expected to be flat at best or decline again.
Wipro has lagged peers for years now. And there are no signs of the company bouncing back to industry growth rates anytime soon. While most large IT firms are struggling, they are at least growing at around 8-9% on a year-on-year basis.
One silver lining in the results is that the operating profit margin widened by 50 basis points. Margins have been ahead of expectations for two quarters in a row. Of course, investors are unlikely to be impressed on account of this. Analysts expect fairly high selling in the stock when trading resumes on Friday, as Thursday is a market holiday.
In addition, as pointed out in this column earlier, one heartening feature of Wipro’s strategy lately is that it has become fairly aggressive with mergers and acquisitions. It remains to be seen how well the newly acquired firms are integrated with the company’s operations, and whether this will translate into decent growth. But at least as far as use of cash goes, Wipro is ahead of peers, both in terms of returning it to shareholders as well as using it for growth opportunities.
In the end analysis, however, unless growth returns to industry-levels soon, the Wipro stock can be expected to continue languishing at below-average valuation multiples.