Wipro posts better-than-expected Q3 numbers

Wipro, India’s third largest information technology services company, surprised the Street by delivering better than expected numbers, on the back of demand from customers in health care, life sciences and retail sectors.

The Bengaluru-based company reported a net profit of Rs 2,192 crore for the financial year’s third quarter ended December 31, 2014, up nine per cent over a year and five per cent sequentially. Revenue at Rs 11,992 crore grew six per cent year-on-year and 2.7 per cent sequentially.

In the infotech services business, excluding products, Wipro managed to inch closer to the upper end of its earlier forecast in constant currency terms, posting 3.7 per cent growth at $1,836.2 million. This was better than what competitors TCS and Infosys reported during the same period. However, in dollar terms, infotech services revenue growth was 1.3 per cent sequentially, ahead of the Street’s expectation of 0.8 per cent.

By IFRS standards, infotech services revenues at Rs 11,322.5 crore grew 10 per cent over the corresponding period last year and 3.7 per cent sequentially.

“This is for the first time after many many quarters we saw every business performing according to expectation,” T K Kurien, executive director and chief executive officer, said. “Going by the order pipeline and secular growth we see across the industry, we are far more bullish for the next year than what we were at this point of time last year,” he added.

Despite posting healthy top and bottom line growth, Wipro saw a 20 basis point (a basis point is a hundredth of a percentage point) contraction in its operating profit margin for the infotech services business at 21.8 per cent, primarily because of cross-currency movements. Utilisation rates, excluding trainees, also dropped sequentially by 60 basis points to 78.8 per cent.

“Wipro beat expectations on revenue as well as margins. The 3.7 per cent (constant currency) revenue growth was better than its larger peers and the best in the past 12 quarters,” said Dipen Shah, head, private client group research, Kotak Securities. “Wipro has won marquee deals over the past few quarters, which should help accelerate growth.”

The performance was backed by two per cent growth in the Americas and the India and Middle East business, which grew 5.7 per cent sequentially. However, the company said growth in Europe would remain subdued because of headwinds in the oil and gas segment, and currency volatility.

Growth was driven by the healthcare and life sciences business, which grew 6.1 per cent over the previous quarter, followed by retail, consumer goods and transportation at 2.7 per cent. The financial solutions segment continued to show sluggish growth in constant currency terms, dragged down by insurance.

Wipro again provided a wide range as the growth outlook for the next quarter. For the quarter ending March 31, Wipro expects its infotech services revenue to be in the range of $1,814-1,850, growing 1.03-3.04 per cent over the previous years.

Kurien said the wide range was primarily due to external factors, including currency fluctuation and the fall in oil prices. “The demand environment continues to hold steady with opportunities across key markets in North America and Europe. We see recovery of demand in the retail and manufacturing sectors… One area of caution is the oil and gas industry, where we expect the plunge in crude prices to impact capital expenditure and discretionary spending in the near term,” added Kurien.

During the quarter, Wipro added 44 clients, including eight large deals. The number of clients contributing over $75 million in revenue per year increased by one to 16. The company added 2,569 employees on a net basis, which took its headcount to 156,866 on December 31, 2014.