Wipro Q2 profit rises 24%, beats estimates
Net profit for three months ended September rises 24% to `1,611 crore from a year ago
Premium(Hemant Mishra/Mint)
Bangalore: Wipro Ltd, India’s third biggest software services provider, reported a higher-than-expected profit on Friday for the September quarter, helped by better billing rates for its services, and allayed concerns that the global economic crisis is hurting the prospects of outsourcing companies.
Wipro, which counts Citigroup Inc. among its top customers, said net profit rose 24% to ₹ 1,611 crore in the three months ended 30 September from ₹ 1,301 crore a year earlier. The company’s revenue from the information technology (IT) business grew by 1.7% to $1.54 billion (around ₹ 8,265 crore) during the second quarter.
“It’s been a decent, not a great quarter," said Azim Premji, chairman of Bangalore-based Wipro, which forecast revenue from the IT business to grow by around 1.2-3.2% sequentially to $1.56-1.59 billion in the December quarter.
Shares of Wipro gained 0.98% to ₹ 364.95 on Friday on the BSE, while the benchmark Sensex rose 1.04% to 18,755.45.
The September quarter earnings and the revenue guidance were seen by analysts as early signs of a turnaround at Wipro, which has lagged behind its peers for more than a year on revenue and profit growth.
“We see guidance of low single digit in a seasonally weak quarter as an indication of recovery in performance for the company. We expect revenue momentum to get better in the fourth quarter," analysts at Prabhudas Lilladher Pvt. Ltd said in a report.
On Thursday, Wipro unveiled plans to hive off its non-IT business, including the consumer care and lighting units, into a separate company in a move that will sharpen its focus on outsourcing and provide a small boost to margins.
T.K. Kurien, 52, who oversees Wipro’s IT business, said it wasn’t yet time for celebration. In the past few quarters, the company has made changes that “have brought in one thing clearly into the organization and that is accountability," he said in an interview.
“For many, many years that (accountability) was the single biggest issue we faced. It used to be that when you go and asked who’s responsible, there were 14 fingers pointed at each other," Kurien said.
Wipro triggered an overhaul of its IT business in January last year when it replaced the company’s joint CEOs with Kurien. Since then, Kurien has consolidated Wipro’s overlapping business units to create a nimbler organization and empowered second-tier leaders to take bolder decisions and help the company regain growth.
During the September quarter, Wipro added 53 new customers and increased revenue contribution from its top 10 customers to 22.3% of the total business. The firm also added another client contributing $100 million to annual revenue, taking the number of such clients to nine.
“Wipro now gets more business from its top 10 customers, a clear sign that T.K. Kurien is able to get more from existing clients," said an analyst tracking Wipro at a multinational brokerage firm. He requested anonymity because he is not authorized to speak to reporters.
Earnings at India’s top IT firms have been mixed this quarter. Earlier in October, India’s largest IT services provider, Tata Consultancy Services Ltd (TCS), reported strong quarterly results, with profit jumping 49.2% and revenue rising more than 34%.
Infosys Ltd, formerly considered an IT bellwether, continued to disappoint investors by not raising its revenue forecast for the year despite an acquisition and the depreciating rupee, and also reported weak operating margins for the quarter. Smaller rival HCL Technologies Ltd posted a higher-than-expected profit on strong margins.
In the September quarter, TCS added 41 clients and closed nine large deals, while Infosys added 39 customers.
Competition is getting more fierce in India’s $100 billion IT industry, where outsourcing firms are chasing new clients as they struggle to get companies in the core markets of the US and Europe to spend more amid a debt crisis in the euro zone and weak economic growth in the US.
Reflecting the challenges facing IT firms, Wipro did not report growth for all its segments in the September quarter. Wipro’s business from healthcare and life sciences, and telecom and media customers declined by 4.4% and 1.3%, respectively, compared with the June quarter this year. The company’s revenue from Japan, too, declined 11.1% during the quarter.
“Business remained lackluster in healthcare, media and telecom and capital markets, and America and Europe were stable. More of a surprise was the improvement in pricing," said analyst James Friedman at Susquehanna Financial Group in a report.
Other analysts said they expected Wipro to grow faster hereon. “We expect growth rates to trend higher over the next few quarters as the developed economies stabilize or at least, there are no major catastrophic events like defaults/bankruptcies," said Dipen Shah, head of private client group research at Kotak Securities Ltd.
Kurien defended the time taken by Wipro to regain growth.
“Right now we are comfortable in terms of what we see. We are heads down in executing the strategy," he said.
Chairman Premji said the company will grow faster after the separation of the IT and non-IT businesses. “We have charted a new course for Wipro by demerging our diversified non-IT businesses. I am confident that the demerger will enhance value for all our stakeholders and provide fresh momentum for growth for each of our businesses," Premji said.
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