2 min read.Updated: 24 Oct 2016, 02:25 PM ISTVarun Sood
Wipro believes measures to generate more business from existing clients, investments in new technologies, M&A strategy will help it match industry growth
Wipro Ltd expects the strategy pursued by chief executive Abidali Neemuchwala to help India’s third-largest software services company end the next fiscal year with industry-matching growth.
Bengaluru-based Wipro does not give an annual forecast (it provides quarterly guidance) and for this reason, it has clarified that this should not be interpreted as a target.
Still, Wipro, which over the last few years has struggled to keep pace with its larger rivals, believes that measures taken since February this year to generate more business from existing clients, investments in building capabilities in new technologies, such as cloud computing platforms and Internet of things, and an aggressive mergers and acquisitions (M&A) strategy should help it get to industry-matching growth.
“I’m always careful of putting a timeline and so I believe it is not unreasonable to expect this industry-matching growth number by March 2018," Neemuchwala said in an interview on Friday.
“I feel very confident and I see that green shoots (are) coming in a more sustainable manner. I’m very hopeful that four-five quarters is a good time for a very visible outcome or metric for an industry-leading growth or margin."
Wipro under Neemuchwala, who joined the company in April last year as chief operating officer and was elevated to his current role as CEO in February, posted a 0.8% decline in dollar revenue growth in the second quarter, mirroring the growth pangs faced by country’s $150 billion outsourcing sector. Wipro’s large rivals, Tata Consultancy Services Ltd (TCS) and Infosys Ltd, run the risk of slower growth this year than the 7.1% and 9.1% growth recorded last year.
To be sure, some of the early signs of the measures taken have started reflecting well, with the company improving its ability to generate more business from existing clients, and arresting declining profitability.
Wipro has managed to improve average revenue per client to about $6.6 million at the end of September from $6 million at the start of the financial year in April.
The firm managed to hold on to a 17.8% operating margin, same as during the April-June period, despite giving salary raises to close to 174,000 employees during the July-September period. Wipro’s margins had narrowed sharply after it reported 19.7% profitability in the March quarter.
“Wipro’s muted 0-2% QoQ dollar revenue growth guidance for third quarter is a disappointment and belies hopes for a turnaround in the core business. Despite this, margin management and cash-flow generation continues to be strong. We also like the recent acquisition of Appirio, a US-centric cloud services firm," Pankaj Kapoor, director of India IT services and software equity research at JM Financial Institutional Securities Ltd, wrote in a note after the company declared its earnings on Friday.
Significantly, Neemuchwala also said Wipro’s aggressive M&A strategy will boost its chances of becoming a $15 billion firm by 2020. Wipro, which ended with $7.35 billion in yearly revenue at the end of March 2016, declined to disclose what percentage of revenue will come from buyouts.
“Directionally, I can tell you that M&A will not be insignificant. It will be substantial and not small. (Also) I’m very focused that every business unit should not have more than one acquisition to integrate and digest," said Neemuchwala.
Wipro has already spent $1.13 billion in the last 18 months to buy four companies, which together have over $550 million in revenue.
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