Wipro pushes productivity to improve profitability

India's third-largest IT services company sees operating margins up next yr

After reporting better-than-expected profits in FY14, Wipro, India’s third largest software services company, expects better operating margin in 2014-15, backed by the productivity improvements initiatives it has undertaken in the recent past. And, despite a wage increase for all employees with effect from June 1.

In the fourth quarter of 2013-14, Wipro’s operating margin improved 1.5 percentage points compared to the previous quarter to 24.5 per cent, while year-on-year improvement was about four percentage points. For the full year, the company expanded margins 1.95 percentage points. “While we don’t give any specific guidance, our margins in FY15 should look equal or better than FY14,” said Suresh Senapaty, chief financial officer and executive director.

“Due to the very fact that we are not in the industry leading position so far as margin is concerned, definitely we have head space (to grow it),” he added. Senapaty, however, said that the immediate priority before the company is to grow the revenues to the industry standards.

Among peers, Wipro’s profitability is the lowest. For example, in the January-March quarter, TCS was leading in profitability with an operating margin of 29.1 per cent, followed by HCL Technologies at 26.7 per cent. Infosys, striving hard to retain its earlier glory of being a highly profitable company, reported an operating margin of 25.5 per cent. The company says thanks to the productivity drive it has undertaken, as well as the improvement of the quality of revenues, the margins can only improve. The firm expects to improve the employee utilisation rate, currently the lowest among the top-four Indian information technology services providers.

For example, in the January-March quarter, Wipro’s utilisation rate including trainees stood at 67.7 per cent against 74.4 per cent of Infosys and 77.9 per cent of TCS. During the same period, HCL Technologies’ was 84.2 per cent. “At this point, we can say we have enough head space with respect to utilisation and costs improvement. Over a period of time, some of that will be met. Some of the productivity drive that is happening will help us do better,” Senapaty added.

According to Saurabh Govil, senior vice-president and head of human resources at Wipro, apart from utilisation, the company is looking at the entire supply chain and utilisation. “We are also focusing on this entire drive on productivity and automation. We are bringing in more efficiency to drive higher productivity. We are also pushing the drive on now to automate low-end mundane repetitive jobs, so that the resources deployed in that can be re-skilled for better value added works,” said Govil.