Home >companies >Wipro lags peers in Q2, forecasts tepid sales growth

Bengaluru: Wipro Ltd reported a 2.1% increase in second-quarter revenue, underperforming larger rivals in the Indian technology industry, and forecast tepid sales growth in the December quarter citing a temporary shutdown at clients in the US and Europe during the holiday season.

India’s third-largest software exporter cautioned that a lot more of its clients in manufacturing, retail and financial services segments across the US and Europe, two of its biggest markets, were temporarily shutting down business at the end of the year. For this reason, it expects its revenue to grow anywhere between 0.5% and 2.7% to $1.84 -1.88 billion in the quarter ending 31 December.

The Bengaluru-based company posted a net profit of $341 million on IT services revenue of $1.83 billion in the three months ended September. A Bloomberg survey of analysts had estimated the company to report a profit of $345 million. Wipro’s revenue grew 3.1% sequentially in constant currency terms (if it was unaffected by currency fluctuations).

In rupee terms, second-quarter profit grew 7% to 2,240.8 crore from 2,098.3 crore a year earlier. Gross revenue grew 7% to 12,566.8 crore. A Bloomberg poll of 32 analysts forecast the company to report profit of 2,232.30 crore. A poll of 34 analysts expected the company to report revenue of 12,808.60 crore.

“It was a heartening performance," said T.K. Kurien, chief executive of Wipro. “Last quarter, healthcare was weak. This time it came back. ENU (oil and gas vertical) flattened out (compared to a decline in the first quarter) and BFSI (banking, financial services and insurance) grew. So that is the biggest takeaway."

Kurien said the current October-December period won’t be very unusual.

“We are seeing a little bit of weakness in furloughs and that is it. Rest of the things are the same and if the quarter goes like last year, than we should actually do quite well."

Earlier this month, rival Infosys Ltd warned of slower growth in the second half of the current fiscal year, citing specific issues with some of its clients and fewer number of working days because of temporary shutdown at clients during Christmas and New Year.

In contrast, industry leader Tata Consultancy Services Ltd (TCS) and smaller rival HCL Technologies said there was no unusual weakness in business, barring the softness in a traditional weak second half of the fiscal year.

With Wipro, too, cautioning of weak growth in the second half of the fiscal year, the industry is split wide open about the growth prospects over the next two quarters.

“A lot depends on the performance of the company in this quarter," a Mumbai-based head of research at a domestic brokerage said, requesting anonymity. “Wipro’s second half is traditionally stronger. So if the company can actually grow close to its upper end of guidance—and this looks do-able—and as the management said that the worst is over for its oil and gas vertical (which brings about a fifth of its revenues), then the company could actually look at ending this fiscal year with a good growth."

Since taking charge in February 2011, Kurien has been struggling to make Wipro’s revenue grow faster than 3% in successive quarters, leaving its annual growth lag behind its competitors and industry body Nasscom’s growth estimates.

While growth in the recent past has been hit by weaknesses in the energy and healthcare businesses—both together accounted for more than a third of its revenue—analysts say Wipro has been crippled by its inability to win more business from existing clients.

Earlier this year, Wipro hired TCS veteran Abid Ali Neemuchwala as its chief operating officer to lead growth initiatives. Wipro has been taking a string of measures under Neemuchwala to revive growth and hopes to see those efforts bear fruit by the end of the December quarter.

The latest quarter also saw Wipro’s revenue from top customers shrinking as they clamped down on their technology budgets and consolidated the number of suppliers.

Revenue from the energy business, which accounted for nearly 18% of the company’s revenue, declined 1.4% in the quarter, while sales in Europe, which declined in the previous quarter, reversed course to grow barely 0.7%.

However, Kurien said that higher client spending by oil majors should help boost Wipro’s revenue from Europe and the oil and gas vertical down the lane.

The financial services segment, which accounts for 27% of its revenue, grew 2.1% sequentially. Healthcare and life sciences, which lagged in the last quarter, reported a robust 3.8% gain. The company said its operating margin narrowed 30 basis points to 20.7% from the previous three months because of the wage hikes given to its employees.

Wipro is the last among India’s top three software exporters to report July-September quarter earnings. Industry leader TCS last week reported a tepid 3% growth in revenue, hit by persisting weakness in some of its key markets and industries. Second-ranked Infosys reported an enviable 6% rise in second-quarter revenue, citing broad-based growth across industries and regions.

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