Infosys, Wipro earnings ride robust demand for digital3 min read . Updated: 14 Jan 2021, 07:22 AM IST
- IT services companies beat analyst estimates on all fronts—guidance, revenue and profit
Infosys Ltd and Wipro Ltd reported soaring quarterly sales and profit, leading a group of software services companies that have seen their businesses thrive because of a surge in demand for digital services that helped mitigate the unprecedented disruptions caused by the pandemic.
The companies beat analyst estimates on all fronts—guidance, revenue and profit—underpinned by demand for services such as digital transformation, cloud computing and cybersecurity.
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Infosys, India’s second-largest software services company, raised its revenue growth forecast to 4.5-5% for the year to 31 March from the 2-3% it had expected in the preceding quarter. It also upgraded its full-year operating margin forecast to 24-24.5% from 23-24%.
December-quarter profit rose 16.6% to ₹5,197 crore from a year ago, while revenue grew 12.3% to ₹25,927 crore, showing strength across sectors, including financial services, high tech and manufacturing. The closely watched dollar revenue grew 8.4% from a year ago, and 6.2% sequentially to $3.51 billion on the back of deal wins worth $7.13 billion.
Analysts surveyed by Bloomberg expected Infosys to report a profit of ₹5,061 crore on sales of ₹25,183 crore.
“Execution of client-relevant strategy focused on digital transformation continues to drive superior growth, well ahead of the industry," said Salil Parekh, chief executive and managing director of Infosys. “I remain confident about the future."
The Bengaluru-based firm, which has been betting big on cloud and emerging technologies, saw its digital revenue grow 31.3% from a year ago in constant currency to $1.76 billion, contributing 50.1% to the total revenue for the December quarter.
Cross-town rival Wipro also reported a nearly 21% increase in profit to ₹2,967 crore. Revenue rose 1.3% from a year ago to ₹15,670 crore. In dollar terms, revenue grew 3.9% to $2.07 billion from the preceding three months.
The company was expected to report a revenue of ₹15,491 crore and a profit of ₹2,552 crore, according to a Bloomberg survey of analysts.
Wipro forecast revenue growth in the March quarter to be in the range of 1.5-3.5%, driven by an improving demand environment, especially for digital transformation, digital operations, and cloud services.
“Our growth is at the upper end of our guidance and was the highest in 36 quarters. The growth in revenue was broad-based across sectors and markets and led by a surge in volumes," said Thierry Delaporte, chief executive and managing director of Wipro.
Delaporte expects growth to accelerate in the next few quarters and eventually outpace competitors. Bigger rival Tata Consultancy Services Ltd, which reported its December quarter earnings last week, said it is targeting double-digit growth in revenue this financial year.
Analysts said the stellar earnings are a testament to the maturity, resilience, and agility of the Indian IT services industry.
“Infosys and Wipro’s quarterly results are noteworthy for the increase in their digital and cloud revenues, improved operating margins, reduced attrition and a healthy deal pipeline. Their ability to close multi-billion dollar strategic deals speaks favourably of their client centricity and increased risk appetite as they pursue sustainable digital revenue growth," said Nitin Bhatt, technology sector leader, EY-India.
Effective 1 January, as part of simplifying its organizational structure, Wipro has replaced the current structure of various strategic business units, service lines and markets with four strategic market units (SMUs) and two global business lines (GBLs). The four SMUs are Americas 1, Americas 2, Europe and Asia Pacific Middle East Africa (APMEA). While Americas 1 and Americas 2 will be organized by sectors, Europe and APMEA will be structured by countries. The GBLs are known as iDEAS (integrated digital, engineering and application services) and iCORE (cloud infrastructure, digital operations, risk and enterprise cybersecurity services).
Wipro, which has been trailing peers for several years, is looking to accelerate growth under Delaporte, who joined the company last July.
Delaporte has outlined a five-point strategy that revolves around growth, focus, scale, offerings, building talent with domain expertise, and simplification of the operating model.