The Hindu Business Line : Wage hike may hit Wipro Q2 margins

Mr Azim Premji, Chairman, Wipro Ltd, and Mr Vivek Paul, Vice-Chairman, at a press conference to announce the company's first quarter results in Bangalore on Friday. -- G. R. N. Somashekar

Bangalore , July 23

WIPRO Ltd said that its operating margins in the future quarters could witness some pressure as the company plans to hike wages in its global software division in the current quarter. The compensation factor along with IP (Intellectual Property) sales that tend to be "lumpy" could drag the operating margins in the September quarter only to be offset by operational improvements, the Chief Financial Officer, Mr Suresh Senapaty, said here today. The company spent 0.6 per cent of global IT services revenue on IP sales for the June quarter. Wipro Technologies, the global software arm of Wipro reported its operating margins jumped 3.4 per cent in the June quarter to 27 per cent from a 24 per cent a quarter ago.

"Wage pressure could be challenging", the Vice-Chairman and Chief Executive Officer of Wipro Technologies, Mr. Vivek Paul said.

The company managed better price realisations in the June quarter, where in offshore realisation was up three per cent and onsite realisation was up by 2.1 per cent. The price increase was due to a change in business mix as high-end services like package implementation gained larger share in the revenue pie and productivity improvement. "The new accounts came in at nicely higher rates", Mr. Paul said adding that fixed price contracts contributed to the increase in price productivity.

However, he cautioned that environment for "aggressive" re-negotiations with old clients for higher rates was still "not conducive". Fixed price projects as percentage of revenue dipped for fifth straight quarter and the company plans to "tighten" the slide and increase its contribution in the subsequent quarters, he added Though Wipro has hedged its receivables close to $1 billion over the next six quarters, any sharp swing in the rupee could hurt its margins, analysts said.