The Hindu Business Line : Wipro Q2 margins seen lower by 1.5 pc

Margins impact
Margin decline in September quarter to be offset by increased manpower utilisation and offshore leverage.
Currency volatility had a negative impact of 40 basis points on Wipro Infotech margins during the quarter.

Bangalore July 19

A proposed wage hike and charges relating to restricted stock options would impact Wipro's operating margins by 1.5 per cent in the September quarter this year, said its Chief Financial Officer, Mr Suresh Senapaty.

The margin decline will be offset by increased manpower utilisation and offshore leverage, he said. Further, he expects "margins to move in a narrow range" for the rest of the year.

Wipro has issued about 6.8 million restricted stock options to 3,200 employees in July and will take a charge of Rs 340 crore over 60 months. The company expects to start raising wages for its employees between September and November, he said.

Despite strong revenue growth and volume growth of 5.5 per cent in the June quarter, the operating margins for the IT services declined to 24.6 per cent from 25.1 per cent in the previous quarter, while the overall operating margin was flat at 21 per cent.

IT services

Mr Senapaty attributed this decline to the acquisition costs, and higher sales and marketing expenses.

However, the June quarter margins were partly offset by improved price realisations, higher utilisation and continued improvement in BPO profitability. Wipro signed new clients at higher rates during the quarter. "On a blended basis, our rates have gone up 1.4 per cent this quarter," he said.

The global IT revenues included $3.2 million from Enabler Informatica, a European retail solutions provider acquired in June, Mr Senapaty said.

Wipro added about 2,400 employees during the quarter taking its headcount to over 56,400. The company earned 52 per cent of its revenues from the US and 24 per cent from Europe during the quarter. Wipro Infotech recorded a revenue of Rs 456 crore during the quarter representing a 35 per cent year-on-year growth.

Currency volatility

The currency volatility had a negative impact of 40 basis points on its margins during the quarter.

The company has bought forward cover worth $410 million to reduce risks from foreign exchange volatility, Mr Senapaty said.

BPO revenues grew to Rs 210 crore from Rs 182 crore about a year ago. The operating margins of BPO also improved by about 2.7 per cent to around 20 per cent during the quarter. Wipro expects its BPO margins to be in the 18-24 per cent range.

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