Slow business outside Wipro’s biggest growth segments hurts revenue

Wipro Ltd reported a sequential decline in revenue dragged by its oil and natural gas business segment, becoming the second information technology services company out of the country’s top four to declare a sequential revenue decline after HCL Technologies Ltd.

Wipro’s decline follows its previous year’s performance when it became the only IT services company out of the country’s top four to end the 12 months through March 2024 with a revenue decline. 

The company posted a revenue of $2.64 billion for the quarter ended June, down 1.1% from the preceding three months. Even as this performance was a tad better than the start of the last financial year, when the company posted a sequential revenue decline of 2.2%, this provides no solace to the fact that it is still a revenue decline. 

Srinivas Pallia, chief executive officer of Wipro, put up a brave face at the post-earnings press briefing while acknowledging the stagnant demand environment. 

“The initial climb is both challenging and exciting and as a hiker, I am pleased with the momentum we are building,” said Pallia. “In quarter one, we did not see a significant shift in the demand environment. Clients remain cautious and discretionary spending continues to be muted.” 

Much of Wipro’s revenue was dragged by its ‘energy, natural resources and utilities’ business, which saw a sequential revenue fall of about $22 million, accounting for 76% of Wipro's overall sequential revenue decline of $29 million.

Even as the company’s biggest revenue zones, the Americas, held steady, growth from Europe and Asia Pacific, West Asia, and Africa declined by $14 million each on a sequential basis.

Wipro’s revenue decline, which followed two second consecutive quarters of flat growth, lagged estimates of 26 analysts polled by Bloomberg who had expected the company to report a revenue of $2.66 billion.  

To compound matters for the company, which underwent a change in its top management in April, Wipro is expected to report a further sequential decline in constant currency terms, clouding chances of an immediate turnaround towards growth. 

According to the company’s growth guidance, India’s fourth-largest IT outsourcing company might end September with $2.6-2.65 billion in revenue.

“There are factors in the market, but there also are internal factors… if you look specifically on energy and utilities and manufacturing, we have had a soft quarter. And we'll have to recover that softness that we had through winning deals and growing accounts,” said Pallia.

Even as Wirpo reported a revenue decline, it was not as much as that posted by Noida-based HCLTech, which reported a 1.9% sequential revenue decline. 

Wipro’s net profit did provide some cheer, growing 5.81% sequentially to $364 million and exceeding the median estimate of $351.1 million by 25 analysts polled by Bloomberg. 

Wipro reported 16.5% in operating margins, which is a marginal 10 basis point increase on a sequential basis. 

Hearteningly for investors, the company snapped its headcount trimming streak since the quarter ended September 2022 by adding 337 employees to end the last quarter with 234,391 employees.

Wipro did not give a generative artificial intelligence (Gen AI) pipeline much like its peers, save Mumbai-based Tata Consultancy Services Ltd, which announced a pipeline of $1.5 billion as of the last quarter.  

“Gen AI will be infused in our existing business. Gen AI will be leveraged for software development life cycle, Gen AI will power our industry and cross-industry services. So there are multiple components that's going on. That's why it's very difficult to predict how much and what it is,” said Pallia, who took over the reins of the company from Thierry Delaporte in April this year. 

Pallia in his address to shareholders during the company’s 78th annual general meeting had said Gen AI was going to be an opportunity for the company in the medium to long term and that the company was looking to increase its market share from the business.  

Last year was not easy for Wirpo. Not only did it end the year with a revenue decline, it witnessed a churn at the top, coupled with an exodus of senior leaders. 

 While India’s top two IT services companies, TCS and Infosys Ltd, reported revenue growth to end the last quarter with $7.5 billion and $4.7 billion in revenues, respectively, HCLTech reported a first-quarter decline with $3.4 billion in revenue.  

Even as Wirpo’s performance was short of analyst expectations, at least one analyst was confident of a turnaround.  

“As the industry is now showing signs of recovery we would expect to see some modest return to revenue growth in the next two quarters,” said Phil Fersht, chief executive officer (CEO) of US-based HFS Research, an outsourcing-research firm.

Wipro's shares on the New York Stock Exchange crashed 11% after the company's muted earnings. At 8:45 PM, Wipro’s American depositary receipts were down 11.34% at $6.1 per share.