Wipro Ltd and Tech Mahindra Ltd ended 2024 on a weak note with sequential revenue declining in the third fiscal quarter, implying that the worst is not yet behind for the two software services providers that saw revenue contract in the previous financial year.
On Friday, Bengaluru-based Wipro reported a sharper dip in business compared to smaller peer Tech Mahindra—both disclosed third-quarter results after market hours. Wipro’s revenue totalled $2.61 billion, down 2% sequentially. Much of this decline was on account of weak business in Europe, which makes up 27% of the company’s revenue.
Still, the company did not perform as bad as expected. A Bloomberg survey of 27 analysts had estimated Wipro to report a revenue of $2.59 billion.
For Pune-based Tech Mahindra, revenue came in at $1.57 billion for the three months through December, down 1.38% from the preceding quarter. The contraction was driven by telecom companies, which make up a third of its topline.
Even though this was the company’s worst third quarter performance in at least five years, it was still better than expected. Analysts polled by Bloomberg forecast Tech Mahindra to report a revenue of $1.56 billion.
A revenue decline at Wipro and Tech Mahindra implies that three of India’s top five IT services companies have now ended the three months through December 2024 with a sequential revenue decline.
Tata Consultancy Services Ltd, the country’s largest information technology (IT) services company, reported $7.54 billion in revenue in Q3, a 1.7% decline on a quarterly basis.
However, the mood was better at second-largest Infosys Ltd and third-largest HCL Technologies Ltd. Infosys reported a revenue of $4.94 billion, up 0.92% sequentially; whereas HCLTech's revenue rose 2.55% to $3.53 billion.
Both Wipro and Tech Mahindra reported client slippages, with the number of active clients declining on a yearly and sequential basis for both the companies.
Another similarity is the new leadership. Wipro picked Srinivas Pallia as its new chief executive in April last year, while Tech Mahindra appointed Mohit Joshi as CEO in December 2023. Both bosses are trying to change the fortunes of the respective companies, which ended last year with a revenue decline.
Their work reflected in the margin performance of their companies.
Wipro and Tech Mahindra fared better than peers save HCLTech in a seasonally weak quarter. For Wipro, operating margins grew 80 basis points to 17.5%, whereas for Tech Mahindra, profitability came in at 10.2%, up 60 basis points.
One basis point is a hundredth of a percentage point.
“We attribute this gain to efficient delivery, to pricing excellence and to cost optimization under Project Fortius,” said Joshi in a post-earnings interaction with the media on Friday.
Tech Mahindra had initiated a three-year plan in April last year, called Project Fortius, to expand its margins to 15% by March 2027 and grow faster than peers.
"Both companies have delivered well on the margins front,” said Manik Taneja, executive director of IT services at Axis Capital. “While operating margins at Wipro expanded on the back of operational efficiencies; at Tech Mahindra, continued improvement in margins is re-enforcing our confidence on the multiyear transformation ahead."
Save for HCLTech, which gets a big chunk of business from software subscription renewals, the third quarter is seasonally weak for IT services companies because of holidays which result in lesser working days.
While Tech Mahindra does not offer guidance for the future, Wipro expected the company to end the fourth quarter with IT services revenue between $2.6 billion and $2.66 billion. This means that even if Wipro reports the upper-end of its estimate in the fourth quarter, it is likely to end the 12 months through March 2025 with a second consecutive full-year revenue decline.
Still, Wipro’s management was optimistic.
“If you look at 2025, we are more hopeful and resilient. Our clients are cautiously optimistic, and we see discretionary spending slowly coming back. While cost optimization continues to remain, we also see significant opportunities in AI spending,” said CEO Pallia in a post-earnings interaction with the media on Friday.
To be sure, none of India’s five largest IT services companies have disclosed revenues or order bookings from Gen AI.
Both Wipro and Tech Mahindra have reported a revenue decline in the April-December 2024 period. While Wipro’s revenue declined 4.15% from the year-ago period to $7.78 billion, Tech Mahindra’s revenue dropped 0.3% to $4.72 billion.
Investors abroad did not cheer Wipro’s performance. Its shares on the New York Stock Exchange were down 0.65% to $3.28 in pre-market trading as of 6:56 pm IST.
For Wipro, net profit was a silver lining. Wipro reported a net profit of $394 million, an increase of 2.3% sequentially. In contrast, Tech Mahindra reported a 22% decline in net profit to $116 million.
With this, each of the country’s four largest IT services companies have reported an increase in net profit. TCS, Infosys, and HCLTech reported a 2.6%, 3.5%, and 7.5% increase in sequential net profit, respectively.
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Both Wipro and Tech Mahindra decreased their headcount this quarter. Wipro cut employee count by 1,157 people, while Tech Mahindra decreased it by 3,785 people, taking their total at the end of 2024 to 232,732 and 150,488 employees, respectively.
This means that three of the country’s five largest software services companies have ended 2024 with a quarterly decline in headcount, indicating that demand recovery for IT services is still uncertain.
Infosys and HCLTech increased headcount in the quarter by 5,591 and 2,134, respectively.
Again, both Wipro and Tech Mahindra got lesser business from companies in the technology and communication verticals, as also from European clients.
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