Aircel bankruptcy seen hurting Wipro’s Q4 results
The bankruptcy of telecom operator Aircel will hit Wipro Ltd’s March quarter profit by up to 75 basis points (bps) and also hurt revenue growth
Bengaluru: The bankruptcy of telecom operator Aircel Ltd will hit Wipro Ltd’s March quarter profit by up to 75 basis points (bps) and also hurt revenue growth, India’s third largest information technology services firm said in a filing to the BSE on Monday.
One basis point is one-hundredth of a percentage point.
Although Wipro did not name the client in its filing, an executive at the firm confirmed Aircel filing for bankruptcy earlier this year had hit profitability and revenue growth at the company. The executive requested anonymity.
“It is estimated that this development will have an impact on both revenue and profitability. The company is likely to see an impact on profitability at the net income level in the range of 65-75 bps of the consolidated revenues for the quarter to March 31, 2018,” Wipro said in its filing to BSE.
Worryingly for investors, Wipro did not clarify if it is a one-time provision related to its investments and billed work done for Aircel and if the company will book more losses in subsequent quarters.
An email sent to Wipro seeking comment went unanswered.
Significantly, this is the second straight quarter when Wipro’s profitability will be hit on account of a client going bankrupt. In the third quarter (October-December), the bankruptcy of Carillion Plc, one of the British government’s largest contractors, hit Wipro’s December quarter profit as the firm made a one-time provision related to its investments and billed work done for the UK builder.
In 2008, Wipro first won a multi-year contractto manage Aircel’s IT infrastructure which was subsequently renewed by the two firms in 2013. Wipro and Aircel have not disclosed financial details of the deal.
Earlier this year, Aircel filed for bankruptcy after the country’s competitive telecom sector saw a daunting rival emerges in Reliance Jio, controlled by billionaire Mukesh Ambani who has spent more than $25 billion in building the telecom firm. Since launching its services last year, Reliance Jio has forced consolidation in the telecom sector and forced all companies to slash prices as incumbents struggle to retain subscribers.
“On February 28, 2018, the Client filed a petition to initiate its Corporate Insolvency Resolution Process (CIRP) with the National Company Law Tribunal (NCLT). The Company subsequently submitted its claim on March 28, 2018. Since then, the Company has been engaged with the Insolvency Resolution Professional (IRP) to discuss the potential outcome of the process,” Wipro said in the statement to the exchange.