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Wipro gives Coder Ave a reality check

Saturday, 19 January 2013 - 7:00am IST | Place: MumbaiBangalore | Agency: dna

In rupee terms, the company posted a 3.3% quarter-on-quarter (qoq) growth in consolidated revenue at Rs10,989 crore.

Wipro, the fourth-ranked software firm, ended the Tier 1 IT results week on a sombre note on Friday as it barely met estimates, reported a 1% fall in volumes and gave a poor guidance for the next fiscal. The dismayed street, which had high expectations following the better performance and guidance by top three players, pulled down Wipro’s shares 8%, despite the company posting an 18% year-on-year jump in net profit to Rs1,716.4 crore.

In rupee terms, the company posted a 3.3% quarter-on-quarter (qoq) growth in consolidated revenue at Rs10,989 crore.  Net profit grew 6.6% qoq to Rs1,720 crore, led by higher forex gain and lower tax rate. Wipro’s IT business revenues, which account for 78% of its total revenues, rose 2.4% at  $1.577 billion, or `8, 602 crore, over the September quarter figures, meeting the median estimates of 1.2-3.5% growth. Wipro said the IT business revenues will be between $1.585 billion and $1.625 billion in the ongoing quarter, a qoq gain of 0.5-3%.

However, analysts were unimpressed.

Rikesh Parikh, VP-markets strategy and equities, Motilal Oswal Securities, said, “Wipro’s volumes in IT services declined 1% qoq, versus our estimate of 1.6%. This is the worst performance among the Top Tier companies (Infosys +1.5%, TCS +1.25%, HCLT +3%). Even the Q4 guidance shows uncertainty in volume growth.”

Poor volume growth in Q3 is led by 0.7% revenue decline in US geography and nil dollar revenue growth in application development and maintenance division due to the US fiscal cliff and debt recast.

Wipro is the only Top Tier IT company to report a decline in revenues from US geography.
TK Kurien, CEO, IT business and executive director, however, said the growth was broad-based, with all verticals growing sequentially. On the decline in volumes, he said, “The company will have to capture a greater share of discretionary spend. The day we do that, volumes will come back.”

This is in contrast to peers like Infy, TCS and HCL Technologies, which have seen a rise in client wins from discretionary spend. Onsite pricing increased 3.2% qoq and offshore pricing was up 3% qoq on a constant currency basis. Harit Shah, senior research analyst, Nirmal Bang Institutional Equities, said, “IT services margins expanded just 16 bps qoq despite higher pricing (our estimate of 40 bps increase), as a drop in utilisation offset pricing benefits, while consolidated margin declined 37 bps qoq.”

However, bagging a $200 million contract in December from Europe makes the company more hopeful of growth from that geography than its peers. “The economic situation in the EU has bottomed out. So we are more bullish on that region than we were a year ago,” said Kurien, adding that the US will come back in sometime as the company starts selling more there.

Firm may sell small stake
Wipro Ltd will sell a small stake if it is not able to bring down the promoter holding to 75% even after the completion of the demerger process and certain other steps being taken to meet regulatory norms, its chairman Azim Premji said. As on December 31, 2012 promoter and promoter group shareholding stood at 78.29%.

Under Sebi norms, privately promoted companies are expect to have a public shareholding at 25% by June. The company has proposed including the ADR as part of public float because “ADR is quoted, so it’s part of public float”, Premji said.

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