Wipro finally reports robust financials

IT division revenue up 20% in September quarter, net profit up 29%; posts growth across all verticals

 

Wipro, India’s third-largest information technology (IT) services firm, on Tuesday announced its highest growth in the last seven quarters, backed by an improved demand environment and favorable currency movement.

The company, which has been struggling to put its house in order for several quarters, recorded a consolidated net profit (including IT services and product business) of Rs 1,932 crore for the quarter ended September, a year-on-year rise of 28.6 per cent. Backed by improved performances in key verticals and geographies, the company’s revenue rose 19 per cent to Rs 10,992 crore, compared to the corresponding quarter last year.

The Bangalore-based company’s IT services revenue rose 20 per cent year-on-year to Rs 10,068 crore, while operating profit for the segment increased 31 per cent to Rs 2,264 crore. In dollar terms, Wipro’s IT services revenue stood at $1.63 billion, a quarter-on-quarter rise of 2.7 per cent, against the company’s estimated revenue growth of 1.9-3.8 per cent.

ON ROAD TO RECOVERY?

• Wipro's consolidated net profit (excluding IT) stood at Rs 1,932 crore, an increase of 28% Y-o-Y
• In dollar terms the company’s IT revenues stood $1.63 bn, a sequential increase of 2.7%
• Margins stood higher than expectations, partly due to a marginal reduction in employee strength
• Wipro had also recently effected a round of management changes re-organising the portfolios of some of its leaders

“Last quarter, I had mentioned we were seeing improvement in spending and momentum in deal closures. Over the quarter (July-September), we see discretionary spends continue to show a steady pick-up and our deal conversion rates have gone up. We see broad-based revenue growth across verticals,” said Chief Executive Officer T K Kurien.

During the September quarter, the healthcare, life sciences and services vertical grew the most —5.5 per cent sequentially. The global media and telecommunications vertical grew 4.9 per cent, while the banking, financial services and insurance (BFSI) segment grew 2.3 per cent.

The company recorded robust 6.3 per cent growth in Asia-Pacific (APAC) and emerging markets, while the company’s America operations increased 2.9 per cent. However, the India and West Asia business, which accounts for eight per cent of the company’s IT services revenue, declined 2.2 per cent due to delay in project ramps-ups.

Among service lines, Wipro’s global infrastructure services grew 2.8 per cent sequentially, while business application services increased 4.6 per cent. The company recorded 3.5 per cent growth in product engineering services.

While the company’s performance was broadly in line with expectations, the robust growth in operating profit margin surprised analysts. The operating profit margin for IT services stood at 22.5 per cent, up 250 basis points. “Our sustained execution towards increasing operational efficiencies in the business, coupled with currency benefits helped offset the impact of wage rises, resulting in strong improvement in operating margins,” said Chief Financial Officer Suresh Senapaty.

During the quarter ended September, the rupee depreciated about 11 per cent sequentially.

Dipen Shah, head (private client group research), Kotak Securities, said Wipro’s margins exceeded expectations partly due to a marginal reduction in employee strength. As on September 30, 2013, Wipro’s employee headcount stood at 1,47,216, against 1,47,281 three months earlier.

“I think the more important message here is our push for non-linear growth, and that would be reflected in employee productivity,” said Pratik Kumar, Wipro’s executive vice-president (human resources).