Earnings shock at Wipro

Also See | Who’s In , Who’s Out (Graphic)

While Wipro chairman Azim Premji acknowledged the “underperformance", he refused to formally link the exit of the CEOs with the quarterly results, saying the key trigger was that the joint CEO structure was better suited to dealing with the economic slump. Given that growth had returned, a “simpler, leaner" structure was required.

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“It was not an easy decision to make," Premji said. Vaswani and Paranjpe, who have been with Wipro for 20 years, “have made significant contributions to how we have grown and where we are today, and we wish them well", he said.

Since the company was taking the line that the exits were voluntary, Premji was asked if any attempts were made to retain them, and whether one of them was considered for a single CEO position. He refused to answer, calling it an unfair question. “Let us not split hairs here," he said.

Wipro’s December quarter numbers lagged behind peers such as Infosys Technologies Ltd and Tata Consultancy Services Ltd (TCS),both of which Premji mentioned by name. Total revenue across Wipro’s businesses was Rs7,829 crore in the three months ended December, below market consensus numbers of around Rs8,000 crore, an increase of 1.6% from the preceding quarter. Net profit was Rs1,319 crore, at or just below market estimates, a quarter-on-quarter (q-o-q) growth of 3.36%. Operating margins remained flat at 22.2%.

Wipro’s stock fell 4.5% to Rs455.95, the most since 22 October, according to Bloomberg data, pulling down the Bombay Stock Exchange benchmark index, the Sensex, by 0.2% to 19,007.53 points.

The company’s IT services revenue rose 5.6% to Rs5,949 crore from the last quarter. TCS grew at 4.1% this quarter, while profit increased by 9.3%. Wipro’s IT product revenue declined to Rs879 crore from Rs1,069 crore last quarter.

IT products constituted 11% of total revenue and IT services constituted 76% of total revenue in the third quarter.

Wipro declared an interim dividend of Rs2 per share.

Premji said that in the domestic IT services sector, Wipro was “neck and neck with IBM". The multinational has made significant gains in the domestic market over the last few years.

Dipen Shah, senior vice-president at Kotak Securities Ltd, said Wipro’s results were in line with expectations, and he expected the stock to be range-bound after the recent run-up. “We prefer Infosys and TCS in large caps," he said.

For the fourth quarter of fiscal 2011, Wipro expects IT services revenue to go up 3-5% to $1.38-1.41 billion (Rs6,307-6,444 crore) q-o-q, from the current $1.3 billion.

Conversations with Wipro employees off the record suggested that the changes at the company were prompted by the belief that it had been too slow at reading the recovery signals and, hence, hadn’t been prepared enough to take advantage of the business uptick as were its rivals.

Kurien has a track record of having turned around Wipro’s business process outsourcing business.

“Over the last 10 years, Kurien has been instrumental in building and scaling our businesses,"Premji said. “Kurien’s track record makes him uniquely positioned to lead Wipro through the next phase of growth."

While Kurien will take over on 1 February, Vaswani and Paranjpe will work together till 31 March to ensure a smooth transition.

On the CEO’s role, Premji said the strategy was broadly laid out, and execution would be his focus, particularly in tackling Wipro’s “portfolio challenge", where fast-growing areas such as BFSI (banking, financial services and insurance) were under-represented in its portfolio relative to peers such as TCS and Infosys.

While about 27% of Wipro’s revenue came from this vertical, it was 36% for Infosys, with similar numbers for TCS.

“We will do the blocking and tackling that is necessary, to gain in such segments—BFSI and healthcare, and align the organization’s resources behind them. It is pretty simple, no rocket science," said Kurien.

Markets such as France and Germany, in which Wipro didn’t have too much of a presence, were already beginning to get a fresh focus, Premji said.

The company won 36 new clients this quarter, dominated by energy, retail, health and manufacturing.

Bloomberg contributed to this story.

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