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Wipro disappoints in Q2; misses Street estimates

BS Reporter  |  Bangalore 

Wipro

Wipro, India's third-largest information technology (IT) services company, met its revenue growth forecast for IT services on Wednesday, but it disappointed on several parameters.

In the quarter ended September 30, the Bangalore-based firm reported an eight per cent rise in net profit at Rs 2,084 crore compared to the year-ago period. The revenue also grew eight per cent at Rs 11,680 crore on the back of strong volume growth, as well as better-than-expected performance by the global infrastructure services business.

Sequentially, the net profit was nearly flat while the revenues were up 3.8 per cent.

FACTS AND FIGURES
  • Rs 2,084.8 crore: Consolidated net profit in the quarter
  • Rs 1,932.1 crore: Net profit in the year-ago period
  • Rs 11,816 crore: Net sales in the quarter
  • Rs 10,990.7: Net sales for the same quarter of previous year

In the IT services business (excluding the IT products business), the firm posted a six per cent year-on-year growth in revenues, while it rose four per cent sequentially to Rs 10,923.5 crore. In dollar terms, the company reported $1,771.5 million in revenues, a sequential growth of 1.8 per cent - slightly below the Street's estimates of two per cent. For the July-September quarter of FY15, Wipro had given a revenue growth forecast of $1,770-$1,810 million.

However, what's surprising is the company reported sequential decline in revenues in some of its key verticals including financial solutions, global media and telecom, and Europe - a key geography accounting for 28 per cent of Wipro's IT services business. On top of that, the firm reported an 80 basis point drop in its operating margin at 22 per cent, and cited the organisation-wide wage hike effected from June this year as one of the main reasons.

"With a sequential growth of 1.8 per cent, we believe that this quarter has been poor and far from industry standards," said Sanchit Vir Gogia, chief analyst and chief executive officer, Greyhound Research. "Their business continues to be a well-balanced portfolio between infrastructure and application services, but BPO, product engineering and ADM (application development and maintenance) continue to decline," he added.

In the quarter, Wipro reported a strong 4.2 per cent sequential growth in its largest market North America. In Europe business declined 4.3 per cent on quarter-on-quarter basis. Financial solutions, the largest business vertical accounting for 26 per cent of the company's overall IT services business, declined 0.9 per cent whereas global media and telecom vertical dropped 1.3 per cent. However, it reported good growth in health care, life sciences & services, energy, natural resources, and utilities.

The company also saw a drop in revenue contribution from its top-5 and top-10 clients, which came down to 12.9 per cent and 21.5 per cent, respectively. The numbers had stood at 13.4 per cent and 21.8 per cent, respectively, in the previous quarter.

T K Kurien, the CEO of Wipro, said the company witnessed some headwinds in the case of a couple of its large clients who are in the top 10 clients category. However, he said the overall demand environment continues to be steady with the return of discretionary spending in North America. "Overall, in the long-term, I don't see any negative bias," he noted.

For the quarter ending on December 31, 2014, Wipro has guided its IT services business to be in the range of $1,808 million to $1,842 million, a growth of two-four per cent. In the September quarter, Wipro added 6,845 employees on a gross basis, which is one of the biggest additions in the recent quarters. Wipro said the hiring were made primarily as the company reported 'strong' volume growth while at the same time managing to improve the utilisation. The firm improved net utilisation by 150 basis points to 79.4 per cent. The employee attrition level, though, went up marginally to 16.5 per cent, it said.

First Published: Thu, October 23 2014. 00:39 IST
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