Wipro net rises 10%, falls short of expectations

Hit by currency volatility, wage hike, investment in marketing.

Wipro on Friday reported a lower-than-expected 9.7 per cent rise in second-quarter net profit at Rs 1,285 crore, as currency volatility, pay rises and increasing investment in sales and marketing weighed.

The street took exception to this, especially when its rivals, Infosys and Tata Consultancy Services, comfortably beat expectations. Shares closed 4.54 per cent down at Rs 448.40 on the Bombay Stock Exchange, while the 30-share sensitive index, or Sensex, was down by a modest 0.4 per cent.

Revenue for the July-September quarter rose 12.73 per cent to Rs 7,731 crore, compared to the year-ago quarter, driven by a volume rise of 6.6 per cent by the company’s information technology (IT) services business. Operating profit jumped 6.8 per cent to Rs 1,356.4 crore.

But on a sequential basis, net profit fell by 2.56 per cent, while revenues rose a tad below seven per cent. The Bangalore-headquartered consumer care to IT services company said salary rises and currency volatility affected the sequential numbers. It posted a forex loss of Rs 41 crore, as operating margins slipped to 18.1 per cent from 20 per cent in the previous quarter of this financial year.

Wipro’s flagship IT services business, which contributes around 74 per cent to its overall revenues, posted a 15 per cent rise in revenues at Rs 5,747.1 crore ($1,290 million), compared to a year ago. Earnings before interest and tax rose seven per cent to Rs 1,275 crore.

Chairman Azim Premji was quick enough to acknowledge the company’s lower-than-expected performance. “The industry has seen much stronger volume and revenue growth for the quarter and we recognise and acknowledge this. We want to assure you that we’ll rise to this occasion and challenge, and ensure that we return among the industry, leading both in terms of growth and operating margins,” Premji said at the company’s earnings conference. “We are putting the entire muscle of the operation and our organisation behind this.”

The company’s September quarter IT revenue was in line with its July guidance of $1,250-1,270 million. In the next quarter, Wipro expects revenues from the IT services business to be in the range of $1,317 million to $1,343 million, a sequential rise of 3.5-5.5 per cent. Unlike Infosys Technologies, Wipro does not give annual revenue guidance.

Operating margin of the company’s IT service business was down by 2.5 per cent at 22.2 per cent, compared to a year ago. The company said the margin was primarily affected by foreign exchange realisations, people-related actions like progressions and restricted stock units (RSUs) and investments made in sales and marketing during the quarter.

“Wipro’s second-quarter results were disappointing. The volume growth was lower than all large peers, though being decent in absolute terms. However, margins in IT services & products business dipped significantly due to RSU expenses, promotions and currency volatility,” Dipen Shah, senior vice-president – PCG Research, Kotak Securities.

During the quarter, the company added 29 new clients, a fair mix of medium and large deals across the sectors. This led to the number of active clients to 434, with the number of $50-million plus clients increasing to 20 from 17 in the previous quarter.

Vertical wise, while healthcare and retail led the pack, with a sequential growth of over nine per cent, the banking, financial services and insurance, manufacturing, and energy & utilities segments grew over five per cent each.

Geography-wise, Europe, Asia-Pacific and other emerging markets grew more than 10 per cent, while Americas grew by just 3.2 per cent, on a sequential basis. Wipro added 2,975 employees on a net basis, while the attrition went up to 19.4 per cent from 15.8 per cent in the previous quarter of this financial year.