Wipro beats estimates but profit falls 9.6% QoQ; IT revenue up 7.7%

Firm surpassed $10 billion in annualised revenue run rate

Technology services firm Wipro reported better-than-expected results for the second quarter of FY22, even though its profit fell 9.6 per cent sequentially because of higher amortisation cost on the Capco acquisition and salary hikes.
 
The firm reported IT services revenue at Rs 19,667 crore, up 30 per cent on a year-on-year basis and 7.7 per cent on a quarterly basis; the net income for the quarter was Rs 2,930.7 crore, down of 9.6 per cent on a quarter-on-quarter (QoQ) basis, but up 18.8 per cent YoY.
 
According to Bloomberg estimates, analysts on average expected Wipro to post revenue of Rs 19,363.4 crore and profit of Rs 2,875 crore.
 
In the current quarter (Q3FY22), the technology services firm expects revenue from its IT services business to be in the range of $2.63 billion- $2.68 billion, translating to a sequential growth of 2-4 per cent.
 
In the quarter ended September 30, revenue growth was 8.1 per cent in constant currency terms. This is above the upper end of its expected revenue growth of 5-7 per cent that it announced in Q1.
 
“Our order book in terms of annual contract value has jumped 28 per cent in H1 (the first half of the year); in terms of total contract value, the order book is up 19 per cent YoY. We have strengthened our large deals team and brought in specialised expertise there, so I’m confident our participation and win rate of deals will accelerate,” said Thierry Delaporte, CEO and managing director of Wipro, during a post-results call.
 
Delaporte also said that the company had surpassed $10 billion in the annualised revenue run-rate.   "The company’s Q3FY22E guidance looks to be in the range of their historical growth numbers. We would look for management commentary on the steep rise in attrition and margin outlook for the year," said a note from ICICI Direct Research.

The growth in the revenue was led by BFSI (up 12.5 per cent QoQ, mainly led by acquisition of Capco), E&U (up 9.2 per cent QoQ), communication (8.9 per cent QoQ), and the consumer business unit (up 7.7 per cent QoQ).
 
"Wipro continues with the growth momentum despite several challenges. Wipro is making organisational changes to bring more flexibility, improve the experience, and bring decision-making closer to customers. Attrition may become an inhibitor for growth for the moment, but it is also valid for its competitors. Finally, Wipro needs to improve it's messaging around its cognitive automation capabilities and its transformational capabilities” said D D Mishra, senior director analyst, Gartner.
 
The IT services operating margin for the quarter was at 17.8 per cent, flat on an adjusted basis QoQ and reported a decrease of 104 bps on a quarterly basis.
 
 “We sustained our operating margin in Q2 in a narrow band even after absorbing the full impact of our recent acquisitions and investing significantly in our business across sales, capabilities, and talent. We completed a salary increase covering 80 per cent of our colleagues, making it the second hike in this calendar year,” said Jatin Dalal, chief financial officer, in a statement.
 
The firm, however, saw an increase in attrition in Q2 to 20.5 per cent, from 15.5 per cent in the previous quarter.
 
"Our customers, too, are grappling with increased attrition. Wipro acknowledges this new talent landscape, and has adapted quickly to the new world of work. A hybrid work environment is definitely a part of this mix. We have doubled down on our fresher intake with about 8,100 young colleagues joining us from campus in Q2. We will continue to aggressively build on this, and I am happy to share that we are well positioned to add over 25,000 freshers in the next financial year," said Delaporte.
 
He also said the firm has strengthened its leadership with "a good mix of internally promoted talent and lateral hires".
 
 Attrition has been a sore point with all technology heavy companies, and large IT services players have announced plans to hire thousands of freshers over the next year. With the pandemic accelerating digitisation, the demand environment has been robust for IT services firms but talent skilled in newer technologies has been hard to come by.