Like Infosys, now Wipro gets Bangalored

Q4 results with flat revenue growth and declining margins suggest recovery isn't happening

After Infosys shocked the market with its poor fourth quarter numbers, it's now the turn of Bangalore-based Wipro to report nearly zero sequential revenue growth in its information technology (IT) services business. The coming quarter might not be very different either. It seems the turn of Infosys and Wipro to get 'Bangalored', given that both are losing revenue market share to Mumbai-based TCS and New Delhi-based HCL Technologies. The term 'Bangalored' was coined by Americans to describe the loss of jobs being outsourced to the two Bangalore-based companies. Now, it seems it's their turn to get Bangalored.

Wipro has reported a sequential growth of 0.5 per cent in dollar revenue ($1.58 billion) in the fourth quarter, while for the full year, the IT services business has grown by an abysmal five per cent. After the co-CEO model failed and T K Kurien was appointed CEO of its global IT business in 2011, the market believed there would be a turnaround of sorts in FY13. This, clearly, has not happened. The revenue share across verticals has either declined or remained flat, both sequentially and for the full year. For instance, the application and maintenance business has declined to 21.7 per cent of revenues in FY13 from 23.6 per cent in FY12, while sequentially it is down 80 basis points. The infrastructure services business has grown four per cent sequentially and 12 per cent annually but it is not reflecting in the overall revenue run rate though it has a revenue share of 23.6 per cent.

According to Dipen Shah, head of private client group research at Kotak Securities: "Wipro's results were below estimates. The fall in average realisations was higher than estimate. The management has made several changes to the structure to align it more with the demand generation process and increasing efficiency. We believe, these initiatives have not yet started showing the expected results and will start reflecting in the financials in due course of time."

Like Infosys, Wipro, is seeing its operating margins come down steadily. Operating margins are down 60 basis points sequentially and 50 basis points annually. According to Microsec Research, the rupee appreciation also led to a decline in the operating margins in the IT services business. Analysts say while the separation of the consumer business from the IT business is positive, the dismal performance of the very business and poor guidance are unlikely to inspire investor confidence.