Covid-19 crisis: Wipro sees short-term impact on gross profit margin

IT services firm Wipro on Monday said its overall financial performance is likely to be adversely affected owing to ongoing Covid-19 crisis with gross profit margins coming under pressure in the current financial year.

In a filing with the US Securities and Exchange Commission, the Bengaluru-headquartered firm, however, said that the impact couldn't be accurately predicted as the pandemic is yet to recede.

“The conditions caused by the Covid-19 pandemic can affect the rate of customer spending, including through cancellations or ramp downs of existing projects, increased requests for furloughs and requests by customers for price discounts, all of which could adversely affect our future revenues, operating results and overall financial performance,” said the company in the filing.

Wipro earlier had refrained from giving any growth guidance for the first quarter of FY21 owing to uncertainties arising from Covid-19 pandemic.

The Azim Premji-promoted firm also flagged up concerns on likelihood of increasing pressure on its cash flow position in the wake of the pandemic.  

“Macroeconomic conditions caused by Covid-19 could also result in financial difficulties for our clients, including limited access to the credit markets, insolvency or bankruptcy. Such conditions could cause clients to delay payment, request modifications of their payment terms, or default on their payment obligations to us, all of which could negatively impact our liquidity and cash generated from operations,” the IT firm said.

Wipro, which last week announced Capgemini’s top executive Thierry Delaporte as its next chief executive officer, is lagging peers in revenue growth rates in recent years. In just ended FY20, it posted 1.7 per cent growth in its revenues from IT segment at $8.256 billion as compared to 9.8 per cent for Infosys and 7.1 per cent for Tata Consultancy Services (TCS).

On the impact of the pandemic on gross profit margin, Wipro said, it could see adverse impact in the ongoing financial year. “In the short term, there may be a decrease in gross margins due to any decrease in technology spending, lower demand for IT products, lower rate of customer spending, delay in customers’ purchasing decisions owing to the pandemic,” it said.

In order to conserve cash to tide over the crisis, Wipro is pursuing various cost optimisation moves such as rationalising costs relating to travel, facilities and other discretionary spends like marketing events apart from deferment of annual increases in salary. “We are deploying workforce from our existing pool of talent, and new hiring will be done only for business-critical reasons,” it said.