Wipro to go for Rs11,000 crore share buyback, Q1 results better than expected
Bengaluru: Wipro Ltd on Thursday said its board had approved a Rs11,000 crore-share buyback plan, the second in as many years by India’s third largest IT services company which completed a Rs2,500-crore share buyback last year.
Wipro’s decision to go for a share buyback mirrors a trend followed by other homegrown IT companies. India’s largest software services company, Tata Consultancy Services Ltd, completed a Rs16,000-crore buyback in May, while Infosys Ltd has also promised to return Rs13,000 crore to shareholders through dividends and/or share buyback this fiscal.
HCL Technologies Ltd too is expected to start its Rs3,500- crore-buyback in the coming months.
Wipro made the announcement while declaring its results for the first quarter of 2017-18. Wipro’s dollar revenue inched up 0.9% sequentially to $1.9 billion in the three months to June (0.3% rise in constant-currency terms). This better-than-expected show was primarily on account of higher spend from banking clients as the company reported a 4.1% sequential growth in BFSI (banking, financial services and insurance). The management had earlier outlined for at-best no growth in constant-currency terms in the April-June period.
Net profit declined 8% to $321 million from $349 million in the preceding quarter, hurt by unfavourable currency movement and as the company recorded a $70 million gain from the sale of Wipro EcoEnergy in the earlier quarter. Consequently, operating margin narrowed 150 basis points to 16.8% from 18.3% at the end of March quarter.
A Bloomberg survey of analysts had estimated revenue of $2.06 billion (Rs13,242.50 crore) and a profit of $316.01 million (Rs2,031.5 crore).
Wipro management expects to grow at-best 1.5% in the current July-September period, which the management claims reflects the momentum it needs to end the current financial year with industry-matching growth numbers.
“I feel very good with the kind of progress we have made and the disciplined execution of strategy,” Wipro chief executive officer Abidali Neemuchwala said in an interview. “Looking at the metrics, I believe we are progressing well on our trajectory of delivering industry-matching growth numbers by March quarter.”
Still, Wipro’s first-quarter performance lagged its larger peers, as TCS posted a 3.1% sequential dollar revenue growth (2% in constant-currency terms) and Infosys recorded a 3.2% growth (2.7% in constant-currency terms).
Wipro saw its workforce increase by 1,309 employees from the earlier quarter to 166,790 by the end of June, primarily on account of the company taking close to 1,000 employees from clients in its BPO business, according to an executive familiar with the development.
Another 200 employees joined the company on the acquisition of Infoserver. Wipro’s larger peers saw declines in headcounts, with that at TCS falling by 1,414 to 385,809 employees, while Infosys saw its workforce shrink by 1,811 people to 198,553 employees.
Hearteningly for Wipro, some of the new initiatives undertaken by Neemuchwala appear to be finally showing results. These include the firm’s ability to generate more business from existing clients. For the second straight quarter, Wipro managed to generate more business from its top five and top ten clients, sequentially.
Finally, for two straight quarters, Wipro has reported industry-leading growth from its oil and gas clients (which account for 13.4% of revenue) and BFSI clients (26.7% of total business).
“This is again a good performance, followed by a strong fourth quarter,” said a Mumbai-based analyst at a foreign brokerage, requesting anonymity. “Healthcare is a pain point but on the positive side, the company’s guidance in the second quarter has baked in weakness from healthcare segment. Unless there is a broader slowdown, one finally gets comfort that Wipro could be turning the corner soon.”
“Wipro reported good set of numbers for Q1FY18, with beat across topline, margins and net profit. Top 10 accounts delivered 4.1% growth qoq, on top of 2.7% growth in Q4FY17, among the verticals BFSI and Energy and Utilities reported decent growth with 3.2% and 2.2% growth, respectively,” Sanjeev Hota, an analyst with brokerage Sharekhan wrote in a note to investors after Wipro declared its earnings.
Wipro, TCS and Infosys are all trying to make their engineers work on platforms which help customers run their businesses better by offering value-added solutions through higher data analytics work to reduce dependence on writing software codes or managing infrastructure for clients.
This transition, which is upending the traditional business model of outsourcing is testing the resolve of homegrown IT firms as they struggle for growth.
TCS, Infosys and Wipro, which together make up a quarter of the industry’s total business, grew slower than the information technology (IT) industry’s 8.6% growth in the year, estimated industry body Nasscom.