Wipro earnings disappoint investors

Wipro earnings disappoint investors

Bangalore: ipro Ltd’s weak numbers in terms of volume growth, revenue growth, net profit and guidance, apart from negative to marginal growth in key verticals and geographies, disappointed investors, sending its stock down 3.95% to Rs398.60 on Wednesday.

Net profit for the first quarter fell 3% sequentially to Rs1,335 crore, on the back of a 120 basis points impact due to wage increases and the rest from revised taxation rules. One basis point is one-hundredth of a percentage point.

Total revenue rose 3.1% to Rs8,564 crore sequentially.

Revenue from Wipro’s information technology (IT) services business, in dollar terms, was $1,408 million, an increase of 0.5%. Without the revenue component from Wipro’s acquisition earlier this year of Science Applications International Corp.’s (SAIC) oil and gas business, that figure is $1,398 million (Rs6,221 crore today), a sequential decline of 0.15%.

Wipro’s guidance for this quarter made in April was itself muted, putting growth between –0.4% and 1.5%.

IT services revenue in the September quarter is expected to be $1,436-1,464 million, a projected increase of 1.9-3.9%.

In terms of verticals, healthcare and life sciences, retail and transportation showed negative growth sequentially, while finance and manufacturing grew by only 0.5%.

Finance sector growth came primarily from two new deals worth about $500 million totally over a period of time, both in North America.

As for geographies, Wipro again lagged behind peers by reporting a 1.2% decline in the Americas, which account for 53% of revenue. The India and the Middle East businesses, which account for 9% of revenue, also declined 0.2%, while Japan dropped 25%, though accounting for only 1.1% of revenue.

The exception in terms of verticals was Wipro’s energy and utilities business, which grew 7% sequentially, in organic terms. With the inclusion of the SAIC business, it reported 14.4% growth.

Geographically, Asia-Pacific and emerging markets stood out, with 11.3% growth.

Margins are flat at 22%, as against 22.1% in the previous quarter.

“Wipro was expected to underperform, so no surprises there. They have been able to hold on to their margins, so that is a positive," said Amneet Singh, vice-president, global sourcing, at consulting and research firm Everest Group. “It remains to be seen if they can sustain that. BFSI (banking, financial services and insurance) really needs to fire for them, and in that context, the large deal wins they have cited are encouraging."

IT business chief executive officer T.K. Kurien said that “as we exit this quarter, we are a lot more positive. The momentum is there."

He said he was holding on to his earlier message that Wipro would get back to industry level growth rates “in two-three quarters", counting from the last quarter when reorganization and leadership changes came into effect.

Kurien was particularly upbeat about growth in the business analytics and information management space, which grew 7.6%.

However, other important service offerings witnessed a decline. The application development and maintenance segment dropped 2.8%, while the research and development business declined 3.4%.

Wipro chairman Azim Premji said the company was settling into a new rhythm and there was “much more optimism than three to six months back. We are focused on deal conversions, closures and investments," he said. Wipro’s reorganization was at least three times that engaged in by rival Infosys Ltd, he added.

He did not see any change in decision making cycles and the environment was strong, he said.

Suresh Senapaty, executive director and chief financial officer of Wipro, said investments in client mining are starting to show results, with four customers contributing more than $100 million of revenue.

“We have maintained our operating margins in the current quarter despite one month’s impact of salary revision," he said.