Wipro increasing annuity revenues in manufacturing

The largest vertical after BFSI, Mfg and high-tech makes up 24% of Wipro's IT services business revenues

Wipro, the country’s third-largest information technology (IT) services company, is focusing on increasing the proportion of annuity-based revenues in its manufacturing and high-tech vertical.

According to the annuity-based model, a service provider derives revenues from a client at regular intervals in lieu of the services and solutions it might have offered in the past. This helps build a stable revenue stream during uncertain times.

The manufacturing and high-tech vertical, the second-largest after the banking, financial service and insurance (BFSI) segment, accounts for about 24 per cent of Wipro’s IT services business revenue. However, in the last seven quarters, this segment has been a laggard, primarily due to its over-dependence on discretionary and slow spending by semiconductor and computing companies.

During a recent meeting with analysts, N S Bala, global head of Wipro’s manufacturing & hi-tech vertical, had said the company was trying to bring about fundamental changes in its portfolio to ensure long-term stability of revenues and high growth. The company has also changed its sales strategy to increase the revenue from the vertical’s annuity business.

“As a result, the proportion of annuity revenues has improved noticeably through the last two years. It should be reflected in lower volatility in revenues in the coming quarters and less dependence on discretionary revenues,” said a report by Equity Research firm J P Morgan. The report added, “It is taking slightly longer to deliver quarterly growth rates, but, in our view, these are changes in the right direction.”

In the last seven quarters, revenues of Wipro’s manufacturing & hi-tech segment grew merely 7.1 per cent, while the company’s overall IT services revenues rose 12.6 per cent. The manufacturing & hi-tech verticals of most large Indian IT companies, including Cognizant, TCS and Infosys, reported revenue growth of about 25 per cent during this period.

The JP Morgan report said following the renewed strategy, Wipro had a good deal pipeline in various service lines in the manufacturing vertical, including automotive, aerospace, industrial production and consumer electronics.

Semiconductor and computing industries, key constituents of the hi-tech sector, are seeing turbulent times, owing to rapid changes in technologies and innovation. Also, clients in these segments are facing significant pricing pressure, which limits their ability to make discretionary investments.