Wipro's fourth quarter (January-March) results disappointed the Street, which was expecting performance better than its peers. Also, its muted guidance (outlook) for the first quarter of 2012-13 regarding its flagship information technology (IT) business sent the stock down seven per cent.
The stock shed 7.3 per cent at the end of the day’s trading on the Bombay Stock Exchange, at Rs 410.15.
The Bangalore-headquartered company, also into consumer care and lighting, furniture and infrastructure engineering, posted an eight per cent growth in net profit at Rs 1,481 crore in the quarter ended March 31 when compared with the corresponding quarter in the previous financial year. Revenue grew 19 per cent to Rs 9,869 crore on a year-on- year basis, driven by its two key businesses, IT services and consumer care. (HOW THEY STACK UP)
The IT services business accounts for three-fourth of its overall business. It recorded 13 per cent growth in operating profit at Rs 1,573 crore, when compared with the same quarter in 2010-11. Revenue rose here by 21 per cent to Rs 7,590 crore over the year. When compared with the previous (sequential) quarter), operating profit and revenue declined marginally by 0.6 and 0.2 per cent, respectively. Operating margin declined marginally by 10 basis points in the quarter to 20.7 per cent.
Though expectations from Wipro were high for the coming quarters, it has given a negative to flat revenue outlook forecast for its IT services business for the first quarter (April-June) of 2012-13. The company said it was expecting IT services revenue to be in the range of $1,520-1,550 million in the quarter ending June 30, a sequential decline of about one per cent and a growth over a year of close to one per cent.
The management has almost echoed the same concerns the Infosys leadership had shown earlier to justify their guidance, saying a few deals it had been expecting to close in the fourth quarter could not. Additionally, Wipro, which derives nine per cent of revenue from India, said it expected its business here to decline in the first quarter of 2012-13, because of sluggish growth in the telecom and government services segments.
“Guidance for (Wipro’s) IT services revenue in the June quarter implies a minus one to 0.9 per cent sequential growth, which is disappointing. While this weakness can be partly explained by pressures on the India business in the June quarter, it also implies lacklustre growth in the rest of the business,” said a note by Bhuvnesh Singh and Vaibhav Dhasmana of equity research firm Barclays Capital.
Added Dipen Shah, head of fundamental research at Kotak Securities, “Wipro’s numbers for 4Q (Jan-March) were below our estimates on IT revenues and margin. The guidance of a flattish revenue growth in 1Q (April-June) was also disappointing.”
The stock shed nearly 7.3 per cent at the end of the day’s trading on the Bombay Stock Exchange at Rs 410.15, on the company’s muted revenue outlook.
For the financial year ended March 31, net profit of the overall business went up five per cent to Rs 5,573 crore and revenue increased 21 per cent to Rs 37,525 crore.
Consumer care & lighting, which accounted for nine per cent of Wipro’s total business, posted a 23 per cent increase in revenue to Rs 3,340 crore in 2011-12 when compared to the previous year. The operating profit of the IT services business saw a 11 per cent increase in 2011-12 at Rs 5,927 crore and revenue grew 21 per cent to Rs 28,431 crore when compared with 2010-11.
Regionally, the Americas account for 52 per cent of its overall IT services revenue and this grew 1.1 per cent sequentially. Growth in Europe was almost flat at 0.5 per cent. The IT business growth in the March quarter was primarily led by energy & utilities, which grew by 6.8 per cent, and the retail business by 5.9 per cent, sequentially. The company added 41 clients during the quarter and improved the number of $100 million-plus clients to seven from six in the previous quarter. However, the number of active clients declined to 943 at the end of the March quarter from 953 in the previous one. The company said this was because revenues from certain clients declined below a ‘certain threshold’ because of which they were not considered active ones.
The banking, financial services and insurance (BFSI) segment had seen uptick in demand in the previous quarters. It saw flat growth in this one. The company said a top banking customer declined by 7.8 per cent. It expects BFSI segment growth in the US to be muted, as clients are looking to defer certain compliance-related spending to subsequent quarters due to a change in requirements.
For the first time in many quarters, it saw headcount for the IT services business decline despite the company adding about 7,400 people in the fourth quarter. The headcount at the end of March was 135,920, as compared to 136,734 at the end of the previous quarter. The company said the decline in headcount is a ‘one quarter phenomenon’, primarily because of ramping down by a business process outsourcing client.
Wipro has announced a pay rise with effect from June 1, “in line with the industry average”, said T K Kurien, chief executive officer of the IT business.