Wipro’s Q1 guidance disappoints3 min read . Updated: 28 Apr 2011, 01:25 AM IST
Wipro’s Q1 guidance disappoints
Wipro’s Q1 guidance disappoints
Bangalore: India’s third largest information technology (IT) services company Wipro Ltd posted a 4.3% increase in profit for the March quarter from the preceding one, but muted guidance for the three-month period ending June (Q1) disappointed investors. The stock fell 2.86% to Rs450.75 on a day when the benchmark Sensex ended 0.49% down at 19,448.69 points.
Profit was Rs1,375 crore in the March quarter, while revenue rose 6% sequentially to Rs8,302 crore, chairman Azim Premji said in Bangalore on Wednesday.
The company sees revenue slightly contracting or expanding in the range of -0.4% to 1.5%.
Explaining the guidance that disappointed the markets, chief executive officer of the IT business T.K. Kurien, who took over after Wipro’s joint-chief executive experiment ended the previous quarter, said that although demand was robust, the company was seeking to move towards consulting-led revenue, where contract sizes and margins were bigger. The effect of this shift won’t show up on earnings before the current quarter is over, he said.
Kurien, who took over from joint-chief executives Suresh Vaswani and Girish Paranjpe after the firm wasn’t able to capitalize on the sharp bounce-back in business that followed the slump of 2008-09, has been leading a restructuring exercise at Wipro’s IT business.
The “disappointing" Q1 guidance “reflects the impact of the restructuring process under way", said Dipen Shah, senior vice-president at Kotak Securities Ltd, who said results were in line with expectations. “We expect Wipro to revert to higher growth rates over the next couple of quarters."
As part of the recast, six business units aligned to industry verticals had the “clear objective of leaner, more agile" teams working with a clear customer focus, and this was resulting in better account penetration and expansion, Premji said. He characterized the demand environment ahead as stable.
Wipro’s muted guidance may be assuming a higher attrition rate over the next quarter, said Abhishek Shindadkar, analyst at ICICI Securities Ltd.
Wipro’s voluntary attrition, people quitting on their own, dropped marginally to 20.9% from 21.7% on an annualized basis for the fourth quarter (Q4). Involuntary attrition, employees being asked to leave, went up to 2.5% from 2.2% in the earlier quarter.
“We are still not comfortable with these levels of attrition," said Pratik Kumar, executive vice-president (human resources). “Q1 is a little challenging because this is the time we see a lot of movement, a lot of people leaving for higher studies and so on. It is only in the second half that we will see it coming to a level we are comfortable with."
Stocks of the country’s second largest IT company Infosys Technologies Ltd fell last week after a conservative guidance for fiscal 2012. The firm issued a Q1 growth projection of 2.5-3.5%.
Infosys’ profit growth in Q4 was restricted to 2% in rupee terms and 1.1% in dollar terms. The top software company, Tata Consultancy Services Ltd, posted a 5.1% sequential profit growth in rupee terms, more in line with expectations.
Wipro’s IT services segment grew 4.2% in dollar terms to $1.4 billion (around Rs6,220 crore today), at the upper end of its guided range of $1.38-1.41 billion, mostly in line with market expectations. While Standard Chartered had expected a more muted figure at $1.38 billion, brokerage firm Sharekhan had expected Wipro to lead its peers with sequential growth at 5.4%.
In rupee terms, revenue growth was 5.7% sequentially, “higher than peers", said chief financial officer Suresh Senapaty. He said that given Wipro’s geographical mix with greater weightage to non-US and non-Europe markets relative to its peers, Q4 and Q2 were strong quarters, with Q1 typically weaker than Q4.
For the fiscal year ended 31 March, IT services revenue was $5.2 billion, a rise of 18.9% over last year. Total revenue came in at $6.9 billion, an increase of 15% over last year. Net profit for the year was $1.2 billion, a rise of 15%.