Wipro and HCL Technologies Q3 results reaffirm sluggishness in Indian IT
Wipro, HCL Technologies and other IT firms said that they expect growth to pick up in the coming quarters, but it makes sense to wait and see if this materializes
Wipro Ltd and HCL Technologies Ltd, the third and fourth largest information technology (IT) services companies listed in India, reported results that were in line with Street estimates. Of course, HCL Technologies has been ahead of its peers and reported sequential growth of 3.3% in the December quarter, but as much as 1.5 percentage points of this might have come from inorganic contributions, according to an analyst at a multinational brokerage.
Besides, it appears to have stepped up its strategy of buying growth by entering into intellectual property-related deals with International Business Machines Corp. (IBM). In fiscal 2016-17, the company reported cash outflows of $387 million on this count. In the first three quarters of this fiscal, outflows rose to $583 million.
Adjusted for revenues from these deals and other acquisitions, year-on-year growth of the company wouldn’t be very different from the mid single-digit growth reported by peers Tata Consultancy Services Ltd and Infosys Ltd. In reported terms, HCL’s revenue growth looks far more impressive at 13.9%.
Growth at Wipro remains pedestrian at 0.9% in constant currency terms sequentially for the December quarter. The company expects growth to pick up to between 1% and 3% in the March quarter, which it says will bring it to industry-level growth rates. But a moot point is that growth in the seasonally strong June and September quarters matters far more. It remains to be seen if the company will grow in line with peers during those quarters.
Both companies reported better growth compared to TCS and Infosys in the banking, financial services and insurance (BFSI) segment; although that has been the case for the past few quarters. For the industry as a whole, this segment continues to be lacklustre and is the primary reason overall growth has remained subdued. In HCL’s case, growth in infrastructure services remained subdued, although the company said it expects a pick-up in the coming quarters. This segment used to drive growth for the company until not too long ago.
All told, Wipro and HCL’s results give the impression, like TCS and Infosys’s, that growth remains sluggish for Indian IT firms. While most of these companies said they expect growth to pick up in the coming quarters, it makes sense to wait and see if this materializes. After all, even FY18 was expected to be a better year compared to FY17, although things haven’t turned out that way.
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