Wipro’s net dips, in line with expectations

IT major Wipro has reported a sequential dip in net profit of 0.06% for the October-December quarter, impacted primarily by the Chennai floods and a lower utilisation of its human resources, reports fe Bureau in Bengaluru. Wipro posted a net profit of Rs 2,234 crore for the third quarter, known to be a seasonally weak period, in line with analysts’ expectations, but provided a revenue growth guidance of 2-4% for the final quarter, indicating better tidings.

IT services revenue at the end of the quarter stood at Rs 12,314 crore, recording a sequential rise of 2.25%. Two of its biggest markets — US and Europe — registered flat and negative growth, respectively, indicating how tough the quarter was. The Wipro scrip ended Monday at Rs 547.35 with a marginal gain of 0.72% on the BSE.

Operating profit margins dropped further to 20.2% at the end of the third quarter compared with 20.7% in previous quarter. On a year-on-year basis, net profit rose 2%. Wipro’s lukewarm performance comes after a stellar performance by Infosys, which revised its revenue guidance upwards, and a disappointing show by market leader TCS.

The biggest drag for Wipro during the course of this fiscal has been its energy and utilities vertical, which was hit hard by the falling oil prices. The vertical, which accounts for around 15% of Wipro’s revenue, witnessed a 10% decline in revenue on a year-on-year basis. CEO TK Kurien said that Wipro would have seen a 4% gain in revenue had there been no crash in oil prices, adding, however, that it will invest in this segment on expectations of a turnaround when the situation stabilises.

BNP Paribas in its note following the Wipro results said, “Wipro has much to do on client mining given its low annuity revenue but initiatives around key account management, sales incentives and delivery managers pitching in for business are a start.”

In dollar terms, Wipro’s net profit stood at $338 million for the third quarter versus $341 million in the previous quarter, slipping 0.8%. The IT services revenue at end of third quarter stood at $1,838 million, recording a sequential growth of just 0.3%, and missing its stated guidance.

Kurien was positive on the demand for IT services. “The overall demand environment is stable. In the US, the mood is largely positive on domestic demand and corporates are in a cost-reduction mode. While clients are still finalising their IT budgets, we expect to see strong momentum in this geography.”

Incoming CEO Abidali Neemuchwala, who takes formally from February 1, said, “I believe a solid foundation has been laid and now we have to crank up the execution engine.”

Chief financial officer Jatin Dalal said that the operating profit margin is likely to remain in this narrow band as it has to still make numerous growth-led investments.

The big positive during the quarter for Wipro was the India and West Asia business, which recorded a sequential growth of 4.8% and a year-on-year growth of 17.5%.

The employee headcount at the end of the quarter stood at 170,664 with a net addition of 2,268. The attrition rate remained stable at 16.3%.

However, the company saw its net utilisation rate dropping to 78% at the end of the quarter compared with 82.3% in the second quarter. HR head Saurabh Govil said that it was a deliberate strategy to lower the utilisation rate as they want to retrain more number of its employees on digital technologies.