Rishad Premji, please note: Wipro needs to pull up socks

Rishad Premji, the just-appointed chief strategy officer of Wipro, has one helluva task at hand.

The company, steered so successfully for so long by his father Azim, is slipping, say analysts.

It had better pull up socks for rivals are snapping at  its heels, some even beating the third-largest IT player in its areas of strength, they said.

Like, for instance, Cognizant Technology Solutions (CTSH) has already overtaken Wipro in US revenues. CTSH’s earnings from the US was $869 million in the June quarter of this fiscal, while Wipro’s was $690 million in the same period (DNA Money first reported this on August 4).

Just a year back, the gap between the two companies’ US revenues in the second quarter was merely $5 million.

That’s now widened to $179 million. Two years back, Wipro US revenues at $638 million in June quarter was more than Cognizant’s $536 million.

Cognizant has also beaten Azim Premji’s IT services business in terms of average size of top 10 accounts. While it is $137 million for it, Wipro’s is $95 million.

The company has also fallen behind in business process outsourcing (BPO) services, where it had a strong foothold not long ago.  Largest IT services company Tata Consultancy Services (TCS) has pipped it and established a big lead with BPO revenues of $201 million compared to Wipro’s $122 million in the previous quarter.

In the third quarter of fiscal 2008, TCS’ revenue from BPO of $86 million was lower than Wipro’s $94 million.
However, from March quarter of fiscal 2009, TCS has surged ahead of Wipro in BPO services and only increased gap between them.

In infrastructure management services, the company is facing stiff competition from rival HCL Technologies, which is marching closer to it. The chasm between the two companies in this service line has narrowed from $123 million two years back to $89 million.

All these setbacks of Wipro are making analysts jittery.
Kawaljeet Saluja, Rohit Chordia and Vineet Thodge of Kotak Institutional Equities Research in a note last week said: “With Cognizant breathing down its (Wipro) neck and Infosys and TCS increasing the gap further on revenues, Wipro will have to deliver better-than-peers revenue growth to retain investor mindshare. Some of recent initiatives to catch up on size are commendable buy yet to fully reflect in results.”

They said even though Wipro had grown, it had trailed peers since 2004, except in 2009, when its diversified portfolio helped it perform better.

Saluja, Chordia and Thodge don’t expect the scenario at the Bangalore-based company to change dramatically unless it “scaled up account size, took a proactive approach in business portfolio management and defended leadership in its core areas of competence.”

They estimate Wipro to grow at 19.4% in this fiscal, which means it will be trailing growth of 23% to 25% of peers.
And if Cognizant, which was just $99 million behind it at $1,105 million sales in June quarter, catches up with it in the coming quarters then Wipro’s position at the third spot in the IT industry could also be threatened.

“We find the underperformance of disappointing since Wipro has all the right ingredients to match peers in revenue performance,” the Kotak trio wrote.