A New Direction

Wipro is setting high standards in financial disclosures, driving home the point that the change in its image is not restricted to its corporate logo. In its 1997-98 annual report, it initiated the process of publishing business-wise turnover and operating profit for all businesses.

Given that Wipro has a diversified set of businesses like software, hardware, consumer care and lighting, this assumes significance as one can find out which businesses are contributing to the operating profit.

Moreover, it has even extended this practice to its first quarter results which should shame companies which are complaining about preparing even plain quarterly results.

The result reveals a quantum jump in Wipro's performance-- a fact that is borne by the steep rise in its share price from about Rs 800 in April, 1998 to Rs 1,900. At the end of the quarter, Wipro's total income has grown by 31 per cent to Rs 345.54 crore.

The growth in its profit before depreciation, interest and tax has been more spectacular, increasing by 74 per cent to Rs 50.05 crore. Moreover, its working capital management has become more efficient with the operating cash flow at the end of the quarter standing at Rs 67.76 crore as against Rs 149.5 crore in 1997-98.

Software exports is consolidating its position as the main revenue driver at Wipro. This division has grown by 73 per cent in the first quarter (against 51 per cent in 1997-98). Wipro's profit growth, too, is almost entirely derived from this business.

For the quarter ended June, 1998, the software division's PBDIT almost doubled to Rs 48 crore against the total of Rs 50.05 crore.

Wipro has set itself an ambitious target of increasing turnover in this business to Rs 660 crore in 1998-99 from Rs 391.7 crore in the previous year. This business will continue to outperform what with various policy initiatives to spur growth in the sector being implemented.

Consumer care and lighting are the other businesses which are doing well with combined sales increasing by 16 per cent to Rs 90.99 crore and contributing about Rs 7.07 crore to the PBDIT.

This is far better compared to the three per cent sales growth achieved in 1997-98.

Products and services, which contribute to nearly 33 per cent of its total income, however, has not been doing well on the profitability front.

This business includes computers, peripherals, communications and customer service. Sales growth has been impressive at 22 per cent as against 6 per cent in 1997-98 but higher

expenditure levels have seen it achieve a mediocre PBDIT of Rs 84 lakh.

As with most software companies, Wipro has increased the depreciation rates on computers to 50 per cent from 33 per cent in the current year.

This has resulted in a higher depreciation charge of Rs 3.18 crore in the first quarter.

Losses incurred, which are not identified with business units (including expenditure on its quality initiatives and brand building exercise) amounted to Rs 8.75 crore.

This has depressed the profit after tax to Rs 25.67 crore which, when compared to the whole year profit of Rs 107.88 crore last year, does not seem very impressive.

However, given that its first quarter net profit has grown by 6.9 times, it should be an indicator of the likely growth in the rest of the year.

Trafalgar House

An improvement in its order book position in 1997 and prudent financial management enabled Trafalgar House Construction to post an improved performance in the half year ended December, 1997 with a profit before tax of Rs 5.47 crore as against a loss of Rs 2.15 crore in the previous corresponding period and Rs 1.78 crore in 1997-98.

In 1997, it secured contracts worth Rs 575.35 crore as against Rs 139 crore in the previous year.

The Rs 48 crore rights issue in January, 1998 enabled the company to pay off its bank debts, substantially lowering its interest cost to Rs 78.49 lakh in the first half from Rs 2.84 crore in the previous corresponding period.

Bad debts were straining its finances but have been written off progressively, and write-offs amounted to Rs 88 lakh in the first half as against Rs 2.09 crore.

The rights issue also saw the parent increase its stake in the company to 64.38 per cent from 51 per cent.

Apart from technology, the parent is supporting the Indian subsidiary by bidding for huge contracts and sub-contracting it to Trafalgar.

One such order is the Rs 280 crore liquid chemical jetty at Dahej which forms a substantial portion of its order book. The company is also rationalising the number of contracts based on the size of the order.

With a sales growth of 38 per cent in the first half, it is well on its way to achieve its stated objective of a 20 to 30 per cent compounded turnover growth between 1997-1999.