Wipro revenues jump 18% in Q2; Net profit rises by 1.24% to Rs 1,301 croreSource : Economic Times
Wipro sprang a pleasant surprise with strong earnings for the second quarter, giving indication that chief executive T K Kurien is beginning to turn things around at the Bangalore-based company after his predecessors were eased out in January.
Revenue for the July-September quarter increased by 18% and profit stopped forecasts, but margins came under pressure because of higher wage costs. Wipro forecast revenue growth of 2-4% for the December quarter to between $1.5 billion and $1.53 billion. Business prospects look good, chairman Azim Premji said, despite the global economic environment continuing to be uncertain.
“Companies are strong on cash flows, and most of them are looking for service partners who can help them variabalise their costs. We are not finding any significant slowdown in the market, which is what you find from some of our competitors also,” he said. “So far as Wipro is concerned, we have settled well into the new rhythm.” India’s biggest IT services providers have reported mixed results so far this quarter, with Infosys as the standout performer showing strong top line and bottom line growth. TCS revenues just about met expectations but profit growth declined sequentially. But all of them have been recording healthy volume growth of around 6%. Cognizant Technologies, one of the strongest performers coming out the global economic slowdown, reports results on November 2.
“Wipro has beaten street revenue expectations after almost over two years,” Nimish Joshi of brokerage house CLSA wrote. “While optimists will invariably see this quarter as a sign of turnaround, we would wait for greater consistency in financial performance before taking a more constructive call onthe stock.”
Joshi maintained his underperform rating on the Wipro stock, which rose by as much as 3.2% during the day before mirroring the benchmark Sensex to settle half a percent lower at the end of trading. Wipro’s net profit rose by 1% to Rs 1,301 crore on revenues of Rs 9,094 crore. Its pricing for projects delivered from India declined by around 4% during the second quarter.
“We believe the meaningful price decline is concerning and needs watching. Notably, TCS has also reported 0.9% decline in pricing while Infosys’ constant currency billing rates have increased,” JP Morgan analyst Viju K George wrote.
Compared with the over 28% profit margins enjoyed by rivals TCS and Infosys, Wipro has been lagging. “We are not there yet; we have a lot of work to do. We need to operate in a 2-3% band in terms of margins, but from where we are currently, it’s not a happy place,” said Kurien, who took over as sole chief executive from Girish Vaswani and Suresh Paranjpe.
Earlier this year, he collapsed overlapping business units, service lines and geographic operations into fewer divisions headed by ‘mini CEO-like’ leaders with complete authority to make important decisions in the market. This, along with strategic investments such as the acquisition of SAIC’s IT unit, is helping Wipro gain more business from large customers, including petroleum giant BP Plc.
The company now has five customers that contribute over $100 million annually, up from just one such client from a year ago. Wipro’s CFO Suresh Senapaty said his company is already making gains from scrapping the old structure.
Earlier, “there was a lazy way of measuring performance only on profit; variable pay component was based on that. Now, everybody including delivery managers are paid incentives based on customer satisfaction apart from revenue and profit growth in a particular customer account,” Senapaty said.