Home / Companies / People /  Wipro names Rishad Premji to board; oil slump hurts results

Bengaluru: Wipro Ltd has promoted Rishad Premji, the 38-year-old son of billionaire chairman Azim Premji and chief strategy officer, to the company’s board, eight years after he joined the company, even as India’s third-largest software services exporter reported fourth-quarter revenue that disappointed investors.

“These past eight years have given Rishad an in-depth view of the organization and makes him well positioned to guide Wipro and carry the mantle of ownership in the years ahead," chairman Premji wrote in an email to Wipro employees.

Rishad Premji was also included as a member of the company’s 17-member executive council on Tuesday.

Rishad Premji, a Harvard Business School graduate, has played an instrumental role in helping Wipro build its presence in the social, mobile, analytics and cloud (SMAC) business. He also heads the company’s technology operations and oversees Wipro’s recently unveiled $100 million corporate venture arm.

Since the start of 2014, the younger Premji has been meeting start-ups and venture capitalists from Beijing to San Francisco. Rishad has also worked with GE Capital for four years and then with Bain and Co. in London for two years before returning to India to work with Wipro in 2007.

He currently leads a team of more than two dozen executives, meeting customers and evaluating acquisition opportunities for the company. Under his watch, Wipro made a three-fold gain on its $5 million investment in US-based machine-to-machine learning focused start-up Axeda.

Bengaluru-based Wipro on Tuesday said fourth-quarter revenue from its IT services business fell 1.2% to $1.77 billion from the preceding three months, hurt primarily by a 6.6% drop in revenue from customers in the oil and gas industry. Net income totalled $366 million, topping the $345 million analysts’ estimate, according to a Bloomberg survey.

The revenue disappointed investors. Wipro’s American depository receipts fell 4.36% to $12.07 on the New York Stock Exchange at 10.25p.m. India time.

On the BSE, its shares rose 0.67% to 578.80 on a day the benchmark Sensex lost 0.75% to 27,676.04. The earnings announcement came after the market closed.

For the year ended 31 March, revenue increased 7% to $7.08 billion, helped by improved customer spending in the US. The company’s net income rose 11% from a year-ago period to $1.4 billion

Wipro forecast that revenue will remain flat for the first quarter of 2015-16, with the company expecting revenues to be between $1.765 billion and $1.793 billion for the April-June period, a traditionally weak quarter for the company.

“It has been a tough quarter," Wipro CEO T.K. Kurien said in an interview after the earnings announcement. “When I started the year, I did not expect I will lose $100 million in topline. In oil and gas, $1 trillion worth of capital expenditure has been stopped midstream."

Wipro’s oil and gas business accounts for 16.2% of company’s total revenue. The management continues to see “pricing pressure" in commodity deals, as reflected in the operating margin narrowing to 22.2% from 22.6% at the end of March last year.

However, Kurien said that company’s newly appointed chief operating officer Abid Ali Neemuchwala has already started work to streamline Wipro’s delivery side of business and should start delivering results in another two quarters.

“He’s already started work and by the end of the quarter, I see some form of service-integrated layer taking space. And then we can offer differentiated services to our customers. So in another two quarters, I see Abid starting to fire as far as service lines are concerned," Kurien said.

For this reason, Kurien said that “outside of energy", the company should report a better fiscal year 2015-16, declining to answer if the company will finally clock a double digit revenue growth number. Since taking office in February 2011, Kurien has struggled to make Wipro report a 3% quarter-on-quarter revenue growth rate.

Wipro last reported a 4.6% revenue growth in the July-September quarter of 2012. Wipro recorded a 5% growth in fiscal year 2012-13, 6.4% in 2013-14, and 7% last year.

“Wipro results continue to disappoint. Actually, all the IT companies until now have declared disappointing numbers. And since they are most exposed to cross-currency fluctuation, you cannot help much either," said a Mumbai-based analyst at a foreign brokerage, who declined to be named.

Indian IT firms could be up for another challenging year ahead as analysts do not expect any of the large IT firms, save for country’s largest software exporter Tata Consultancy Services Ltd (TCS), to report revenue growth exceeding 10%.

“We believe Indian IT will at best have 9% growth for the year with companies other than TCS growing in single digits," said a Singapore-based IT analyst. Industry lobby group Nasscom, nonetheless, expects software exports for the country’s $146 billion technology sector to grow between 12 and 14%.

Indian software services exporters have had a challenging year as they were hurt by unfavourable currency swings and managed to bag fewer deals. Indian IT vendors won about 8% of total deals awarded by customers during the January-March period, down from about 13% in the April-June period of the fiscal year 2014-15, Mint reported earlier this week.

Last week, TCS reported a tepid set of numbers, missing analysts’ revenue estimates for the third consecutive quarter, while HCL Technologies Ltd, the country’s fourth-largest IT firm, also reported a slip in revenue growth when it declared earnings on Tuesday.

At the core of this underperformance of home-grown software exporters has been the weakening of the euro and other global currencies in the last year against the dollar. Although the country’s four largest IT companies have seen their business from Europe grow from 25% in 2011 to 29% now, the weakening euro—along with a basket of other currencies—has considerably dented margins at the largest software exporters, including Wipro, which generates about 49% of its revenue in non-US dollar currencies.

“While a lot is said about the macroeconomic revival in the US and its consequent impact on growth for IT services, it is actually growth in Europe that has been the main driver for the Indian vendors. Europe has consistently grown faster than the US since the Jun-11 quarter, with the expectation that growth trends will likely remain strong from the region. We believe that the massive changes in currency could likely have an impact over pricing of deals and the overall intention to outsource (given the diminishing currency and cost arbitrage) over the medium to longer term," Jefferies’ Singapore-based analysts Atul Goyal and Vaibhav Dhasmana wrote in a recent note.

In the last 12 months, Wipro has added one new $100 million client, to take the total number of such customers to 15. The company improved its utilization rate to 69.4% from 66.1% in the year-ago period.

The company added 65 new clients in the third quarter, as against 44 clients in the preceding quarter, taking the total number of customers to 1,054. The company’s revenue from Americas declined by 0.6% while business from India and the Middle East improved 10.1% during the January-March quarter.


Varun Sood

Varun Sood is a business journalist writing on corporate affairs for the last fifteen years. He also writes a weekly newsletter, TWICH+ on the largest technology services companies. He is based in Bangalore. Varun's first book, Azim Premji: The Man Beyond the Billions, was brought out by HarperCollins in October 2020.
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