Massive blow, Wipro cuts revenue guidance in Q3 after reporting Rs 2190 cr profit in Q2

Wipro’s IT services revenue stood at Rs 13,169 crore, a sequential growth of just 1% while in constant currency terms, the increase was a mere 0.3%. In dollar terms, revenues for Q2FY18 were up 2.1% sequentially.

A reasonably good performance in the September quarter notwithstanding, software major Wipro on Tuesday toned down revenue guidance for Q3FY18 to 0-2%. Analysts said the downward revision reflects the subdued demand environment though the Wipro management attributed it to seasonal holidays during this period. Despite the impact of wage hikes, the company reported a 5.2% sequential increase in net profit to Rs 2,190 crore for Q2FY18, boosted largely by productivity improvements in utilisation and automation. Wipro’s IT services revenue stood at Rs 13,169 crore, a sequential growth of just 1% while in constant currency terms, the increase was a mere 0.3%. In dollar terms, revenues for Q2FY18 were up 2.1% sequentially. The country’s third-largest software services exporter reported operating profit margins (for IT services) of 17.3%, up 50 basis points over the June quarter, with the management indicating they would remain in this narrow band.

Analysts said the margins may have been driven up partly due to a better exchange realisation, higher than those for peers. “We believe the company may also have made some accounting changes but would need a clarification,” said an analyst with a local brokerage. The company’s earnings before interest and tax for the September quarter stood at Rs 2,259 crore compared with Rs 2,174 crore in Q1FY18. Wipro’s employee headcount at the end of September was lower by 3,031 people at 1,63,759 compared with that in Q1FY18. HR head Saurabh Govil attributed this decline to a one-quarter issue. “We continue to hire and it has been robust across all our business segments,” Govil said. Wipro CEO Abidali Neemuchwala said the company had surpassed the milestone of $2 billion in quarterly revenue for IT services on the back of rigorous execution of its strategy. Neemuchwala expressed confidence the healthcare sector had bottomed out, saying there could be some uptick in the coming months. “We see robust demand in all the markets and are confident of meeting the industry growth rates in the fourth quarter,” he said. The healthcare segment was a drag on Wipro’s revenues during the quarter, falling 5.2% sequentially. Regulatory uncertainties in the US in the area of healthcare reforms have resulted in pressure on revenues for the Indian IT industry.

In dollar terms, Wipro’s IT services revenue for the second quarter came in at $2.01 billion while the net profit was $336 million. The Wipro scrip ended Tuesday’s trading session at Rs 289.35, virtually flat on the BSE. The big boost this quarter came from the BFSI segment, which recorded a sequential growth of 5.1%. The BFSI segment has traditionally not been a strong vertical for Wipro and it expects this momentum to continue. Harit Shah, analyst with Reliance Securities, said the guidance was disappointing. “Double-digit revenue growth still appears to be some time away. FY18E will be the sixth successive year of single-digit USD revenue growth for Wipro, and it could be a challenge to hit double-digit growth even in FY19E given no visible improvement in growth guidance,” he said.