Experts remain skeptical about Wipro's plan to restructure business

IT services firm Wipro has largely satisfied the Street with their above expectation June quarter results, but analysts have remained skeptical about the company’s target on restructuring certain business units as it shifts focus to high growth digital areas.

Wipro is currently rejigging its businesses in India and West Asia by shifting focus from the government segment to private enterprise while moving away from low-end commoditised services business through high-end digital offers. Similarly, it is also in process of restructuring its global health care business after the Donald Trump government decided to scrap the Obamacare project last year. Obamacare or Patient Protection and Affordable Care Act was a major focus area of Wipro through its subsidiary HealthPlan Services, a US-based health care solutions provider that it had acquired in 2016 for Rs 31.3 billion.  

“The majority of old Indian businesses were lower-end service types. We are not renewing these contracts actively, instead we are pivoting towards digital application and consulting-led business with higher profitability,” said Abidali Neemuchwala, chief executive officer (CEO), during the post earnings analyst call.

He said the erosion of business in old services from India was reflected in the profitability witnessed in new areas. Analysts, however, do not see revenue from these services compensating for the drag from the legacy services.

“While the CEO has done an excellent job in transforming the service portfolio of the company towards a more digital-focused approach, there is still a need to stabilise the drag from legacy contracts,” said Amit Chandra, IT analyst, HDFC Securities.

In the end of June quarter, Wipro has seen the US business growing faster with a revenue share of 54.9 per cent as compared to 52.7 per cent in the previous quarter while businesses in India and West Asia continue to drag. Revenues from India and West Asia declined 10.2 per cent in the June quarter, though the region clocked 8.6 per cent of Wipro’s overall business as compared to 10.4 per cent it contributed in the year-ago period.

Banking, Financial services and Insurance (BFSI) grew 14 per cent year on year in constant currency terms, led mostly by digital projects and cross-selling of solutions to existing clients. Wipro’s commentary on BFSI matched strongly with TCS’ for Q1 on offering existing clients add-on digital services. Digital business grew 6.2 per cent to account for 28 per cent of Wipro’s overall revenues at the end of June quarter.

“Wipro’s overall growth has been affected due to continuously shedding off unprofitable businesses in its attempt to improve profitability,” said Rahul Jain, research analyst of Emkay Global.