Wages, stock options will dent Wipro net

Wipro's margins in the third quarter could be dented by the proposed wage hike, unfavourable exchange differences on forex hedging and bottomline impacts due to the issue of restricted stock units (RSU), according to senior Wipro officials.

While announcing Q2 results, they said, "To improve retention and enhance the alignment of employee interests with those of the shareholders, we have issued RSU to our senior and middle level managers." In a similar vein, the company also announced a 15 -18 per cent salary hike for offshore employees.

The 5.5 million RSU issue will mean a Rs 342 crore charge on the P&L account, effective from this October but spread equally over 20 quarters, or Rs 17.1 crore each quarter.

On the salary front, the impact of the first round of hikes effected for a small portion of the workforce towards the end of the quarter has had a 0.3 per cent impact on the Q2 margins, officials said. Salaries at Rs 671 crore last quarter accounted for about 39 per cent of company revenues.

Another factor that is likely to impact margins is the company's forex exposure. It has entered into forward option contracts worth $860 million at Rs 45 a dollar.

As it works on a forecasted transactions method, the gain or loss on these contracts is accounted for when transaction is expected to occur. The company took a hit of Rs 11.4 crore (under Indian GAAP) due to these contracts last quarter.

Officials explaining the RSU issue said the company will need to charge off the difference between the face value and market price on grant day. However, charge on P&L account will be spread over the life of the unit.

They added that efforts were on to offset the impacts arising out of these issues, by upping operational efficiency and other measures. The company's operating margins grew by 0.5 per cent on a sequential basis to 27.5 pr cent and by 6.8 per cent year on year.