Home >companies >company-results >Wipro Q1 profit rises 11% to `1,623 crore

Bangalore: India’s third largest software exporter Wipro Ltd on Friday forecast a better quarter ahead in terms of revenue growth, driven mainly by improved spending from top clients in the US, but investors expecting signs of a strong turnaround in fortunes are likely to be disappointed as the company posted weak top-line growth in its June quarter that was below the upper end of its own guidance.

Experts tracking the sector said Wipro’s current growth trajectory suggested it would miss industry growth expectations for the third consecutive year. For the 2013-14 financial year, industry lobby Nasscom expects Indian software export revenues to grow 12-14%. Wipro last posted double-digit revenue growth in the December 2011 quarter.

Wipro’s billionaire chairman Azim Premji was not present at the post-earnings press conference, marking the first time in years the company’s founder has not faced the media after results.

In February, Mint had reported that Premji might have begun setting the stage for his retirement and had started preparing to hand over executive responsibilities to professional managers, according to people working directly with him. Premji has also started to elevate elder son Rishad Premji to board seats across different company units before 2015, the people mentioned above said, requesting anonymity.

At the post-earnings conference, Wipro chief executive officer (CEO) T.K. Kurien brushed aside suggestions of Premji stepping aside from his current responsibilities and said he continued being an active part of the company.

“It’s not that Premji has retired. He is still very much around," said Kurien, adding that Wipro would follow the current pattern in the coming quarters. The March quarter, therefore, could possibly mark the last time Premji faced the media after quarterly results.

Kurien said the firm was seeing better traction in spending in its biggest market, North America, which reflected in its better-than-expected guidance for the September quarter.

“We do see the demand environment picking up post Q1," said Kurien during the post-earnings conference. “The US economy continues to show signs of strong macroeconomic recovery."

“We are seeing higher confidence among our clients on the backdrop of positive macroeconomic developments, particularly in the US," said chairman Premji in a statement.

After its March quarter results, Wipro had forecast revenue in the range of $1.57-1.61 billion for the June quarter. Analysts had on average been expecting the company to post a net profit of $274.87 million on revenue of $1.68 billion, according to Bloomberg estimates.

“The guidance looks better than expected. If they can maintain their momentum from Q2 onwards, they should have a stronger year ahead," said Ankur Rudra of Ambit Capital.

For the September quarter, Wipro forecast revenue in the range of $1.62-1.65 billion, slightly better than what analysts were expecting.

“After better top-lines and positive commentary from Infosys/TCS (Tata Consultancy Services Ltd), Wipro’s guidance/commentary also indicates a pick-up in deal closures and improved order-booking. All of this should flow through in revenues over next six months," said analyst Nimish Joshi of CLSA India.

In the latest quarter, Wipro posted net income of 1,623 crore, an increase of 11% from a year ago. Revenue rose 5% to 9,735 crore. In dollars, the currency in which Wipro generates most of its sales, revenue rose 4.9% to $1.588 billion.

“We are seeing a pick-up in large deal closures, which has reflected in strong order book in the current quarter," said CEO Kurien.

Weak Q1

Experts said that while its second-quarter guidance suggested an improvement in near-term visibility, the company’s performance in the first quarter, having missed average analyst estimates, suggests it’s still far from recapturing strong double-digit growth.

“Wipro’s modest June 2013 revenue report continues Wipro’s struggle with top-line growth," said Joshi of CLSA. “Wipro’s claims of significant investments in sales and marketing in the last two years have so far not translated into results."

Wipro’s results were in contrast with those of larger rivals such as TCS and Infosys Ltd, which posted strong double-digit growth in the June quarter, igniting hopes of a better year ahead and a recovery of growth in India’s $108 billion information technology (IT) sector.

To be sure, Wipro has traditionally forecast a weak first quarter in April. But in the June quarter, even struggling rival Infosys did well despite tough macroeconomic conditions.

Over the past five years, Wipro has consistently lost significant market share to the likes of TCS and Cognizant Technology Solutions Corp. In 2011, Premji appointed Kurien as CEO to lead a turnaround in its fortunes and revive flagging revenue growth.

Kurien collapsed complex organizational structures that earlier reported to the two joint chiefs, shifted decision-making powers to leaders managing different business units and poached high-performing executives from rivals to create a new organization.

The company, however, still continued to lag behind rivals in overall growth and barring its energy and utility business, failed to become a leader in the banking and financial services and manufacturing sectors. The banking, financial services and insurance sector contributes 30-40% of revenue for India’s IT sector.

“While we appreciate that demand has not exactly been buoyant, Wipro’s current trajectory suggests that it will grow slower than industry growth rate (not just tier-1 peers) for the third consecutive year," said Joshi of CLSA.

Shares of Wipro, which currently trades as a stand-alone IT stock, rose 1.74% to 382.80 on Friday on BSE. The benchmark Sensex closed 0.29% down at 19,748.19 points and the BSE IT index closed 0.06% down at 7,241.32 points.

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