3 min read.Updated: 25 Jul 2014, 12:02 AM ISTAnirban Sen
IT firm forecasts stronger sequential revenue growth in the range of 1.7% to 4% for the September quarter
Bangalore:Wipro Ltd’s chief executive officer (CEO) T.K. Kurien said on Thursday that India’s third largest software services exporter had “plenty of work to do" to return to industry-leading growth rates, but forecast a stronger second half on a healthy deal pipeline after first-quarter profit fell slightly short of expectations.
For the April-June quarter, Wipro posted a 30% rise in fiscal first-quarter profit, marginally below analysts’ estimates, due to the impact of wage hikes. It forecast stronger sequential revenue growth in the range of 1.7% to 4% for the September quarter.
Wipro, the only top five software services firm that provides quarterly forecasts, said revenue will be in the range of $1.77 billion to $1.81 billion in the three months ending 30 September, the strongest quarter for Indian software exporters given that clients typically invest heavily in technology services in the period.
For the June quarter, net profit rose to ₹ 2,103 crore from ₹ 1,623 crore a year ago. However, profit dropped 5.4% from the preceding three months, mainly due to annual wage hikes. Revenue rose 14% to ₹ 11,136 crore from a year earlier.
Analysts had been expecting the company to post a profit of about ₹ 2,127 crore on revenue of ₹ 11,375 crore, according to Bloomberg estimates.
CEO Kurien said the company still had a long way to go before it could consistently expand revenue by at least 4% on a sequential basis and that Wipro needs to work on its performance in the June quarter, when it has traditionally lagged bigger rivals Tata Consultancy Services Ltd and Infosys Ltd.
This year is crucial for Kurien, who has enjoyed the backing of chairman Azim Premji and the board so far in his tenure as CEO (beginning in January 2011). Investors are hoping Wipro can close the increasing gap with larger rival Infosys and are awaiting a return to double-digit revenue growth rates at the company.
“There is a lot of merit in being paranoid because being paranoid just helps you. It helps you perform better, it helps you watch every move and it just gets your competitive juices up and running. So, to that extent, I don’t think I’ll ever get to a state of satisfaction," Kurien said.
Since Kurien took over, Wipro has struggled to grow at industry-level rates and the CEO conceded that the company needed to win back market share rapidly.
Industry lobby Nasscom has forecast software exports to grow 13-15% during this financial year, and experts said Wipro’s weak first quarter will make it tough for the company to post double-digit revenue growth for the year.
“The endeavour is to ensure that we grow at or above industry growth rates. That’s where we are. All we can say is that the second half of the year will be better than the first half," said Kurien.
Kurien also said that Wipro would look to replace its recently retired board members with external candidates, rather than internal executives. Wipro board members Henning Kagermann, B.C. Prabhakar and Shyam Saran recently stepped down from the board and the company is now searching for replacements.
“From a corporate governance perspective, I think we’d like to have more external directors than internal directors. I think it’s important to have a strong board that challenges you," said Kurien.
In dollar terms, June quarter revenue grew 1.2% sequentially and 9.6% from a year ago to $1.74 billion. Wipro had forecast revenue in the range of $1.715 billion to $1.755 billion after the March quarter results.
Wipro’s results were buoyed by a strong performance by its healthcare and life sciences business, which grew 20% from last year, and by media and telecom, which grew 15.4%. Wipro’s retail and consumer business underwhelmed expectations with a 2.1% increase from last year.
Wipro also witnessed a slowdown in its traditional outsourcing business, with revenue from application development and maintenance down 4.2% from last year.
Wipro said it would focus on hiring more employees at customer locations than at offshore locations.
Last week, Wipro won a $1.1 billion outsourcing contract from Canada’s Atco Ltd, its largest ever outsourcing deal, and also bought Atco’s information technology services business for $195 million.
Experts tracking Wipro said the company would take time to return to double-digit growth and that the company’s revenue growth was sub-par compared to peers.
“We believe that the initial signs of gains from restructuring initiatives have started showing, but having growth in line with industry average levels is still some time away," said Ankita Somani, a research analyst at brokerage MSFL Research.
Wipro shares closed up 1.31% at ₹ 576.80 on Thursday on BSE, while the Sensex gained 0.48% to end at 26,271.85 points.
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