Wipro, Satyam profits rise, but markets are still not impressed

Wipro, Satyam profits rise, but markets are still not impressed
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First Published: Fri, Jul 18 2008. 11 31 PM IST
Updated: Fri, Jul 18 2008. 11 31 PM IST
Bangalore: India’s third and fourth largest software services companies by revenue—Wipro Ltd and Satyam Computer Services Ltd—outperformed their larger peers Tata Consultancy Services Ltd (TCS) and Infosys Technologies Ltd by posting higher profit and revenue growth in the quarter to June, aided by improved efficiency and a weak rupee.
But investors fled both companies as both firms were cautious on business outlook, forecasting muted revenue growth for the quarter to September in anticipation of a slowdown in orders from overseas customers.
Increased orders from customers in banking and financial services and retail verticals helped Wipro to post a 25% rise in profit from a year earlier to Rs908 crore in the June quarter. Hyderabad-based Satyam posted a 45% increase in profit at Rs547.7 crore.
The market was not impressed. Wipro shares shed 3.75% to close at Rs365.55, while Satyam shares ended 7.5% lower at Rs382.95 on a day the benchmark Sensex index gained 4% at 13,635 points.
“There are no positive cues from the results as yet,” said Anurag Purohit, analyst at Mumbai-based brokerage firm Religare Securities Ltd.
“The forecast indicates growth would still be back-ended and there will be pressure to perform in the December and March quarters.”
TCS, India’s largest software firm, and No. 2 Infosys reported slower growth a week ago as Indian outsourcers weather an economic downturn in the US, the largest market for technology spending.
Industry lobby group National Association of Software and Services Companies, or Nasscom, has forecast growth in the country’s software exports would slow to 24% for the fiscal year to March 2009, from 28% last year.
Bangalore-based Wipro’s revenue rose 43% from a year ago to Rs5,967 crore in the June quarter. On a sequential basis, profit and revenue grew by 3% and 5%, respectively.
“We continue to see a lot of uncertainty and remain cautious in the near term,” said Wipro chairman Azim Premji. For the September quarter, Wipro expects revenues from IT services to be about $1.09 billion (Rs4,665 crore), a growth of 2% over the June quarter’s $1.07 billion.
Terming the “cautious outlook” a short-term blip, Suresh Vaswani, co-chief executive of Wipro’s IT business, said service lines such as technology infrastructure services and testing continue to show significantly higher growth. Its consumer care and lighting business grew more than 25% for the 10th straight quarter, contributing about a 10th of the firm’s overall revenue.
Wipro did see some project ramp downs in businesses such as banking, financial services and insurance (BFSI) and telecom, but has a healthy deal pipeline, said Girish Paranjpe, also co-CEO of IT business. Revenue from BFSI, retail, manufacturing and health care grew over the previous quarter as a proportion of overall revenue. The firm added 31 new clients including seven large deals, of which three were worth between $50 million and $100 million.
Wipro, which builds applications and software for corporates such as General Motors Corp., Microsoft Corp. and Cisco Systems Inc., maintained its operating margin for the IT services business at 21% despite granting restricted stock units to employees and a foreign exchange loss of Rs67 crore due to currency fluctuations.
Chief financial officer Suresh Senapaty said the company has long currency hedges worth $2.6 billion at rates ranging between Rs39.50 and Rs45 to a dollar, spread over two-three years. Wipro had mark-to-market losses of Rs934.4 crore as of 30 June, relating to derivative financial instruments that are designated as effective cash flow hedges in the shareholders’ funds.
Wipro added a mere 108 employees in the quarter, taking overall headcount to 95,675, while its attrition rate declined to 16.6%. It has made some 14,000 campus offers and is “committed to take those recruits on board,” said Pratik Kumar, head of human resources.
Satyam, which serves customers such as Nissan Motor Co. Ltd and Telstra Corp. Ltd, said first-quarter revenue grew 43% to Rs2,620.8 crore.
The company revised its rupee-denominated sales growth forecast for the fiscal year to March 2009 to 34.1%, but kept it dollar-denominated growth rate prediction unchanged at 26%.
“We are yet to see clear and consistent signals emanating from the banking and financial services sector, which continues to be fluid,” said its chairman B. Ramalinga Raju.
Satyam added 34 new customers during the quarter, increasing its overall customer base to 631. Sustained operational efficiency helped it improve operating margin by 130 basis points to 24.12%. A basis point is one-hundredth of a percentage point.
“Improved operational efficiency, better cost management and a favourable exchange environment have helped us to revise our fiscal 2009 EPS (earnings per share) growth guidance upwards to 28% from 19% given earlier,” said chief financial officer V. Srinivas.
“The results are broadly in line with expectations but hiring was on the lower side, which is a cause for concern,” said Apurva Shah, analyst at broker Prabhudas Liladhar. Considering the external market conditions, volume growth will remain anaemic for the next few quarters, he said.
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First Published: Fri, Jul 18 2008. 11 31 PM IST