Wipro’s Q3 profit declines 10% to $303 million on Carillion provisions
Bengaluru: The bankruptcy of Carillion Plc, one of British government’s largest contractors, hit Wipro Ltd’s December quarter profit as India’s third largest software firm made a one-time provision related to its investments and billed work done for the UK builder.
Significantly, Wipro is poised to become the first large Indian information technology (IT) outsourcing company to end the current financial year with fewer employees than it started with, as its headcount fell by 2,928 in the April-December period.
Wipro did not report any sequential dollar revenue growth in the three months to December, even as revenue in constant currency terms inched up 0.9% to $2.01 billion, which met management’s earlier guidance but fell short of Street expectations.
Wipro now expects to grow at-best 3% in constant currency terms in the January-March period, which the management claims reflects the momentum it needs to end the current fiscal with industry-matching growth.
Net profit declined 10% to $303 million from $336 million in the September quarter on account of the company making a $49.7 million provision to deal with investments it made as part of its 10-year contract with Carillion, signed in 2014.
Consequently, operating margin declined 250 basis points to 14.8% from 17.3% at the end of the September quarter.
One basis point is one-hundredth of a percentage point.
Stripped of this one-time provision, Wipro’s quarterly profit would have been up 5% sequentially at $352.7 million.
A Bloomberg survey of analysts had estimated a revenue of $2.14 billion (Rs13,684.3 crore) and a profit of $335.9 million (Rs2,144.4 crore).
“Overall, I’m happy,” Wipro chief executive officer Abidali Neemuchwala said in an interview. “Like I’ve said, we remain confident that beginning April, sequentially, our growth will be industry-matching or comparable to peers. We have resolved almost all company-specific issues and so we believe it’s just a matter of time before we start reporting industry-matching growth.”
Wipro’s third-quarter performance lagged its larger rival, Tata Consultancy Services Ltd (TCS), which posted a 1% sequential dollar revenue growth (1.3% in constant-currency terms) and Infosys Ltd managed a 1% dollar revenue growth (0.8% in constant currency terms).
Wipro’s energy and utilities vertical (which accounts for 12.4% of revenue) reported a 7.9% sequential decline. This was largely on account of Carillion going bankrupt and a few delays in decision-making by clients in Saudi Arabia. Still, Wipro’s clients in banking, financial services and insurance, or BFSI, who bring 28.5% of revenue, continued to affirm their faith in the firm, as the segment reported a 3.3% sequential increase.
“For now, the results, save for BFSI, does not have anything great. Communications vertical is still a soft spot. ENU (energy, natural resources and utilities) to remain volatile while we have not seen successive growth in healthcare and retail. So we have to wait until next quarter, by when the management will start reporting industry-matching growth,” said a Mumbai-based analyst at a domestic brokerage, on condition of anonymity.
Wipro managing no dollar revenue growth in the third quarter, on the back of a 2.1% and a 0.9% increase in second and first quarters, respectively, means the firm has added $248.3 million in incremental revenue in April-December, 13% lower than the $285.6 million in new business in the same period of the last fiscal year.
For now, Neemuchwala maintained the firm’s organic growth remains higher in the current year than last year’s. Wipro added $358.2 million in new revenue in 2016-17 to report a 4.9% growth. In the current fiscal, the firm needs to add $377.5 million in incremental revenue to match that pace. This means Wipro will have to add $129.2 million in incremental revenue in the current fourth quarter to match last year’s growth.
For Wipro, revenue from digital offerings recorded a 46.1% growth to $505 million in the December quarter against $345.61 million in the June quarter of 2016, when the management first disclosed digital revenue.
However, Wipro’s overall quarterly revenue inched up 4.3% to $2.01 billion from $1.93 billion in the same period. This was largely on account of a 4.55% decline in traditional business to $1.50 billion from $1.58 billion, according to a Mint analysis. One fallout of this shift is on the workforce. Wipro saw its workforce decrease by 1,206 people to 162,553 employees, after its headcount fell by 3,031 people in the second quarter.