Wipro net profit rises 24%

IT services business improves performance compared to past quarters

Customer care-to-information technology (IT) services major Wipro on Friday reported a net profit of Rs 1,611 crore for the quarter ended September, a rise of 24 per cent over the corresponding period last year. The rise in profit was primarily driven by the better-than-expected performance of its flagship IT services business.

At Rs 10,657 crore, the company’s consolidated revenue rose 17 per cent, compared to the year-ago period. The IT services business accounted for 79 per cent of Wipro’s revenue in the quarter, with the company meeting the upper end of its revenue guidance for the IT services business. Revenue from this segment rose 23 per cent year-on-year to Rs 8,373 crore, backed by a rise in IT outsourcing demand from the financial services sector and growth in key markets, including the US and Europe. The operating profit of the IT services business rose 27 per cent to Rs 1,731 crore, compared to the year-ago period.

On Friday, the company stock closed at Rs 364.95, up 0.98 per cent on the BSE.

“Our growth in the second quarter was decent, though I can’t term it a great quarter,” said Chairman Azim Premji. He said while the general mood of clients at this point was muted, he expected “the demand environment in the US to improve two to three months after the elections.”

Sequentially, the operating profit in the IT services segment fell 0.74 per cent due to higher outgo towards salaries. Though the company added 53 clients during the quarter, the growth in revenue was flat. A 1.2 per cent increase in pricing helped the company mitigate some of the impact on its margins. During the quarter, the operating margin fell by 30 basis points to 20.7 per cent, compared to the previous quarter.

At 0.1 per cent, the company’s volume growth (person-months billed in a quarter) was the lowest among the four top Indian IT services companies---TCS, Infosys, Wipro and HCL.

“The numbers reported by Wipro were largely in line with estimates. Volume growth remained weak during this quarter as well. However, some deal wins towards the end of the quarter improved the visibility,” said Rikesh Parikh, vice-president (markets strategy and equities), Motilal Oswal Securities.

The number of clients who contributed more than $100 million in annual revenue stood at nine, compared with eight in the previous quarter, while the number of clients contributing revenue of more than $75 million rose from 14 to 16. These helped the company raise revenue contribution from the top 10 clients to 22.3 per cent, 140 basis points higher than in the previous quarter. “This is a positive indication of the company’s improving client-mining capabilities,” said Ankita Somani, research analyst (IT) at Angel Broking.

For the year quarter ending December, Wipro has given a revenue guidance of $1,560-1,590 million, growth of 1.3-3.2 per cent. “Wipro’s guidance for IT services for the third quarter looks decent (still, it is lower than our expectation of 1.5-3.5 per cent quarterly growth) after continuous disappointments for the last couple of quarters, in terms of guidance, and keeping in mind the seasonal weak nature of the third quarter,” Somani said.

Business in the Americas and Europe grew sequentially (1.4 per cent and 2.1 per cent, respectively), while business in India and West Asia again proved laggards, owing to weak demand for the company’s IT products in these markets.

Among verticals, the energy and utilities business reported strong sequential growth of 8.4 per cent. The financial solutions vertical, which accounted for 27 per cent of the overall IT services revenue, saw four per cent sequential growth. However, health care, life sciences and services growth fell 4.4 per cent compared to the previous quarter.

During the quarter, the company recruited 2,017 people on a net basis, raising the total headcount to 1,40,569.