Wipro numbers mirror IT gloom

Mirroring the subdued mood currently prevalent in the Indian IT industry, Wipro too posted flat revenue growth for the three months to September with net profit rising marginally due to cost optimisation measures and higher utilisation of its employees. Wipro’s net profit at the end of the second quarter rose 2.6% in dollar terms sequentially and the expectation for the December quarter is also muted, with the IT major providing a revenue growth guidance of 0-2%.

Wipro’s IT services segment reported a revenue of $1.91 billion for the second quarter, which was a sequential decrease of 0.8%, missing expectations. Net profit during this period was $312 million compared with $304 million in the first quarter. In rupee terms, Wipro’s IT services revenue was R13,140 crore, which was a sequential fall of 3.3%, while net profit stood at R2,070 crore, a rise of 1%.

Tata Consultancy Services (TCS) had also posted flattish revenue growth during the quarter while Infosys recorded a 3.5% sequential growth in revenue though it slashed its revenue growth guidance to single digits for the fiscal.

According to Wipro, the company faced multiple headwinds including a general hesitancy on the part of the clients to spend more on technology services. CEO Abidali Neemuchwala said, “We see cautious optimism for the next two to three quarters as certain headwinds like Brexit and US presidential elections have increased the level of uncertainty.”

The Wipro CEO expects that there would be better clarity in the new calendar year and there could be an uptick in the investments on technology services.

Operating profit margins remained flat at 17.8%. Chief financial officer Jatin Dalal said, “IT services segment margins was maintained at 17.8% as headwinds in salary increases were offset by strong operational improvements in automation led productivity, offshoring and utilisation improvement.”

During the second quarter, every business vertical recorded a sequential decline in growth except for the healthcare segment. Wipro attributed this to certain seasonality and cross-currency impact, though CEO remarked that in constant currency terms they were within their guided range.

In terms of geographies, North America recorded a sequential growth of 1.6% while Europe declined by 6% and India & Middle East by 1.1%. The Wipro scrip had closed at Rs 499.20, showing a gain of 0.75% on Friday. The results were declared after the markets had closed.

The IT major has already started making gains on the automation front, as it has released around 4,300 employees in the first six months of the fiscal, and they have been redeployed. Wipro on Thursday had announced the $500-million acquisition of US company Appirio which is expected to give a stronger foothold in the cloud segment.

Sanjoy Sen, doctoral research scholar, Aston Business School, UK, said, “Wipro is trying to make it fit for the future. Clearly, there is now more evidence of this repositioning act, whether reflected in higher employee costs for this restructuring or whether it is the recent investment made in the acquisition of Appirio to develop cloud capability.”

As part of the expanding its footprint globally, Wipro is also scaling up centres in the US spread across, Mountain View, Atlanta and Dallas.