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Saturday, Apr 20, 2002

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Wipro: Glitches on the screen

Krishnan Thiagarajan

THE fourth-quarter ended March 31, 2002 has turned out to be a disappointing one for Wipro's flagship Global IT Services division.

This division managed to barely achieve the revenue projections of $120 million made for the fourth-quarter, recording actual revenues of $ 120.2 million (Rs 588.40 crore).

During this quarter, the revenues recorded a sluggish growth of 13 per cent to Rs 588.40 crore and profit before interest and tax inched up by 5 per cent to Rs 192.40 crore over the corresponding period of the previous year.

The significant contribution of the Global IT Services division is evident from the fact that it accounted for 63 per cent of Wipro's total revenues for the quarter and 83 per cent of profit before interest and tax in this quarter.

An examination of the limited information available for the fourth-quarter reveals the following:

  • For the first time this year, Wipro suffered a sequential (quarter-on-quarter) decrease in offshore pricing by 2.4 per cent and onsite pricing by 4.5 per cent. But it was able to offset it by an 8.5 per cent sequential growth in volumes.

    The top management of Wipro has indicated that the pricing pressure is likely to continue for the next six months and improvement is likely only in the second half of 2002-03.

  • Both the revenues and profit before interest and tax have recorded a sequential decline of 3.4 per cent and 8.07 per cent respectively. The profit before interest and tax margin at 32.7 per cent in the fourth-quarter was the lowest for the year, significantly lower than 34.8 per cent recorded in the third-quarter of 2001-02. To some extent, the margin in this quarter was bolstered by an encouraging 8 per cent rise in employee utilisation rates.

    Based on the reasonably strong performance for the first three quarters of 2001-02, the Global IT Services division has managed to end the year 2001-02 with a 28 per cent growth in revenues to Rs 2,290.9 crore and a 28 per cent growth in profit before interest and tax to Rs 785.10 crore.

    During the year, this division has recorded a 12 per cent rise in price realisations for offshore projects and 15 per cent for onsite projects. This is an encouraging development as Wipro has traditionally logged relatively low billing rates compared to its frontline peers in the software industry.

    To further dampen the market sentiment, the Wipro management has also indicated that the revenue guidance for the first quarter of 2002-03 will be $123 million, a mere 2.3 per cent rise over the fourth-quarter of 2002-03. This relatively sluggish growth for the largest division of Wipro resulted in the markets taking a pessimistic view of the revenue guidance.

    The stock was marked down sharply during the day's trading and ended the session at Rs 1,645.35, Rs 178.15 lower than the previous close.

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