Wipro bets on $1.6-billion Alight deal to tide over growth woes

After several quarters of slow growth, IT major Wipro is seen to have regained the momentum with the clinching of the $1.6-billion Alight deal earlier this month.

The contract has not only cemented the position of its chief executive officer (CEO) Abidali Neemuchwala, it has also proven the ability of the current management to successfully chase and close larger deals that are becoming scarcer in the market.

“This is the second mega deal for Wipro in the past four years after the ATCO contract. Taken together, these deals help address the persistent growth issues that Wipro has experienced in the past couple of years," said Peter Bendor-Samuel, founder and CEO of global advisory firm, Everest Group. “As these factors take hold, we anticipate that Wipro's growth prospects are improving, and will start to look more similar to its peers," he added.

While the Alight contract, which has a tenure of 10 years, is the largest-ever won by the company, in June 2014, the Bengaluru-based firm had bagged a $1.1-billion outsourcing contract from Canadian logistics firm ATCO. According to its contract with Alight, Wipro has been mandated to digitally transform the Illinois-headquartered company's business.

“Alight deal indicates that Neemuchwala's efforts of entering into the big league has started showing results. It also shows his ability to drive big deals, which augurs well for the company," said an analyst from a global research firm requesting anonymity.

Neemuchwala, a former TCS top executive, had joined Wipro in 2015 as the group president and chief operating officer, before being elevated to the top post in February 2016. His appointment was seen as an effort to bring a fresh perspective into the company that was continuing to lag peers.

During the past two years that Neemuchwala had been at the helm, the company had not shown any marked improvement in growth parameters, owing to a combination of factors such as macroeconomic events and company specific issues. The company had to deal with bankruptcies of two large clients in Communications and Energy & Utilities verticals.

While Aircel filed for insolvency in January-March quarter, it was British energy firm Carillion that went belly-up earlier this year. As these verticals together account for around 20 per cent of Wipro's overall revenues, insolvency issues proved to be a drag on its balance sheet. Similarly, the scrapping of Patient Protection and Affordable Care Act or Obamacare by US President Donald Trump also hit Wipro hard as it was a major focus for the IT services firm through its subsidiary HealthPlan Services (HPS). Wipro had acquired HPS in 2016 for around Rs 31.3 billion.

Among the macro-economic factors, fall in oil prices also impacted its energy and utilities vertical, while migration of infrastructure management services to Cloud disrupted its strongest service lines.

These factors translated into low revenue growth numbers for the firm in the past two fiscal years, compared to its larger peers. In FY18, Wipro's IT services revenue growth in dollar terms was at 4.6 per cent, while it was at 4.9 per cent in FY17.

When compared with this, larger rival Infosys's revenue in dollar term rose by 7.2 per cent in FY18 and 7.5 per cent in FY17. Similarly, industry leader Tata Consultancy Services showed a revenue growth of 8.6 per cent in FY18 while it was 6.2 per cent during FY17.

"Abid is fortunate to have his board dominated by its founder who has demonstrated patience with his leadership team. There is no doubt that patience was needed given the repair work which was needed when Abid took over," said Bendor-Samuel of Everest Group.

The uptick in growth was already visible in Wipro's first quarter earnings when it reported a 2.8 per cent rise in dollar revenue to $2.02 billion. According to a report by brokerage firm Elara Capital, in the first quarter of FY19, Wipro's revenue grew by 8.3 per cent annually, excluding the one-offs seen in communications, healthcare and energy and utilities.

"Client mining seems to be good for Wipro with $50-million plus client count increasing by seven to 40 from 1QFY17 to 1QFY19," the report added.

Wipro had added 75 new customers in the first quarter of this fiscal year as compared to 58 in the previous quarter.