5 takeaways from Wipro's Q1 results

Wipro's recent investments highlight that the company is leaning heavily towards automation, digitalisation and Big Data to improve its offerings in the market.

After Infosys, Wipro has hinted at better times ahead for the company while announcing their first quarter numbers. Not only did the company say that the second quarter will be better but also pointed out that the second half of the current fiscal will be better than the first half, indicating that FY16 as a whole will witness growth.
 

Following are the five key takeaways from the company’s June quarter numbers.

1) As against its revenue guidance band of $1,765-1,793 million, Wipro posted revenues of $1,794.1 million. Analysts had estimated the revenues at $1,787.5 million. Sequentially, the company has posted a 1.1 per cent growth, while on a constant currency basis, growth was only 0.2 per cent.

2) Though revenue was slightly better than market expectations, Wipro posted slightly lower operating margins. Earnings before interest and tax (EBIT) stood at 21 per cent for June ending quarter as compared to 22 per cent in the previous quarter and market expectation of 21.33 per cent. Jatin Dalal, CFO of Wipro said “In this quarter, we maintained strong cash flow generation while operating margins were, on predictable lines, modestly lower due to employee compensation measures.”

3) Wipro’s optimism for growth is reflected in its net utilisation level which has increased to 81.9 per cent (excluding trainees) as compared to 80.5 per cent in the previous quarter and 77.9 per cent in the same quarter last year. Unlike Infosys and TCS, Wipro has maintained a steady attrition rate of 16.4 per cent.

4) In terms of verticals, healthcare, energy and telecom posted negative growth while Europe has seen a sharp decline. On a year-on-year (YoY) basis, business from Europe has come down by 11 per cent, though on a sequential basis it has come down by 1.9 per cent. Wipro’s management said that energy business has bottomed out and there is a structural slowdown in the telecom business in Europe. During the quarter, Wipro added 36 new clients.

5) Going forward, the company has given a guidance of $1,821-$1,857 million. But the second quarter will be impacted for two months on account of a wage hike. The company has also warned that deals are getting competitive.

While the numbers give a peek into the company’s immediate future, it is important to understand the management’s thinking in terms of where it is looking for growth . This can be found out from the areas where the company is investing or acquiring companies. Wipro has made investments in Talena, an early-stage company building innovative Big Data Availability Management Solutions. Wipro also made an investment in Vicarious, an early-stage company developing the next-generation of Artificial Intelligence algorithms and solutions.

Further, Wipro Digital, the digital business unit of Wipro Limited, announced its intention to acquire Designit, an award-winning global strategic design firm specializing in designing transformative product-service experiences. These investments highlight that Wipro is leaning heavily towards automation, digitalisation and Big Data to improve its offerings in the market.