Wipro: Upbeat quarter, muted outlook

Despite better-than-expected results, company gives tepid forecast for QI FY15, cites seasonal weakness

Wipro, India’s third-largest information technology (IT) services company, on Thursday announced a 41 per cent year-on-year increase in consolidated net profit to Rs 2,226.5 crore for the quarter ended March. Consolidated revenue increased 22 per cent to Rs 11,704.5 crore. Sequentially, net profit and revenue rose 11 per cent and three per cent, respectively.

This was the third quarter in which the company posted satisfactory earnings in the IT services segment, after muted growth for several quarters. For the March quarter, IT services revenue rose 24 per cent year-on-year to Rs 10,619 crore. In dollar terms, IT services revenues grew 2.5 per cent to $1,720.2 million. Wipro had estimated two-four per cent sequential growth in this segment.

Despite the healthy set of numbers for the quarter, Wipro gave a muted forecast for the June quarter. The company, however, said FY15 was expected to be better than FY14.

For the June quarter, Wipro expects IT services revenues to be between $1.71 billion (a sequential decline of 0.3 per cent) and $1.75 billion (a rise of two per cent). “We request you not to look at our guidance for the first quarter of FY15 as a precursor to the full year (FY15),” said Chief Executive Officer T K Kurien.

“We see growth returning in the second quarter; there is no reason for me to believe otherwise. We believe this year (FY15) will be better than the previous one,” he said. The company said the forecast for the June quarter was reflective of seasonal pressure, primarily in India. In the March quarter, operating margin expanded 150 basis points sequentially to 24.5 per cent, owing to the rupee’s rise against the dollar, improved utilisation and productivity.

“While the fourth quarter numbers were well ahead of expectations, the revenue growth outlook for the next year disappointed,” said Ankita Somani, research analyst (IT), Angel Broking. “Wipro has recovered strongly from lower levels after posting better-than-expected results in the past two quarters. But we believe it will still lag larger peers such as TCS and HCL Technologies, in terms of revenue growth in FY15.”

For FY14, Wipro’s consolidated net profit rose 27 per cent to Rs 7,796.7 crore, while revenue rose 16 per cent to Rs 43,763 crore. Revenue from IT services grew 18 per cent to Rs 39,950 crore. However, revenue from this business fell a per cent to Rs 3,878 crore, primarily due to cessation of its computer hardware business. The company said in December it was discontinuing this business.

“The steady improvement in the global economy, with the pace of technological advancements, presents us opportunities to create innovative solutions for our customers,” said Chairman Azim Premji.

During the March quarter, the company witnessed robust sequential growth in most key regions, with Europe operations growing 4.1 per cent, Americas 2.7 per cent, and India & West Asia 4.7 per cent. However, revenue from Asia-Pacific and other emerging markets fell 4.1 per cent.

In terms of business verticals, the media and telecom segment grew 4.3 per cent sequentially, finance solutions 3.9 per cent, and health care, life sciences and services 3.1 per cent. The energy, natural resources and utilities business grew 2.9 per cent sequentially, while retail, consumer goods and transportation rose 1.7 per cent. Manufacturing and high technology remained a laggard, with revenue from this vertical declining one per cent sequentially.

During the quarter, the company saw the strongest growth in its business process outsourcing (BPO) segment (12.5 per cent sequential growth). This was followed by the global infrastructure services and product engineering verticals. Other segments such as consulting, application development and maintenance and research and development fell sequentially.

The company saw a sequential rise in employee utilisation (excluding trainees) at 76.5 per cent, against 74.3 per cent in the December 2013 quarter. Attrition stood at 15.1 per cent, up 80 basis points sequentially.

Wipro has decided to give offshore employees a six-eight per cent salary increment, effective June 1. Onsite employees will get a two-three per cent wage rise.