The Hindu Business Line : Client decision delays may hit Wipro earnings

SLACK current period sales are likely to bring down the earnings of Wipro Ltd for the September and December quarters. This is due to delays in offshoring decisions by clients, even though the company sees healthy numbers in client visits.

"There could be some minor blips... client addition continues to be strong," said a software analyst with a European brokerage.

It is understood that in a recent Smith Barney IT services conference in New York, Wipro management indicated possibilities of delays in offshoring decisions.

A stretched sales cycle often cramps earnings in subsequent quarters, as there is a lag in booking a client and billing it.

The company, which also acknowledged a recent win from Shell at the conference, did not detail the size, but company sources put it close to 500 person-efforts in the new deal.

It was reported earlier that Wipro and IBM had won a $1-billion outsourcing deal.

Analysts said that Wipro was able to sign new contracts at higher prices than average research and development services rates even as the deal sizes have expanded.

During its annual earnings call, Wipro had said that it was witnessing a positive pricing environment.

The company reported a three per cent rise in fourth-quarter pricing realisation. (Pricing, manpower utilisation and the dollar-rupee equation affect pricing realisation and hence, earnings.)

Of this, 2.5 per cent was on effective yield (gains from better manpower utilisation or from the rupee acting favourably) and the remaining 0.5 per cent was the actual increase in prices.

A higher manpower utilisation level, greater offshore thrust and better gains from acquisitions are likely to help Wipro counter rising wage pressure and rupee swings, according to analysts.

Traditionally, for every one per cent gain of rupee against the dollar, Wipro's operating margin has shrunk by half a per cent.

The company reversed its sagging margins in its fourth quarter as it expanded to 23.7 per cent from 21.8 per cent in the previous quarter.

Moreover, analysts believe that Wipro is witnessing a surge in volume growth across all its verticals.