Faced with challenges of “underperformance” and competition from peers who have shown faster growth in the IT sector, Wipro Ltd has announced a major change in leadership in a bid to shore up the fortunes of the company.

The IT major on Friday said that it is replacing the joint-CEO model with a “simpler, leaner organisation” structure leading to the exit of the current joint-CEOs of IT business, Mr Girish Paranjpe and Mr Suresh Vaswani. In their place, Mr T. K. Kurien, who is President, Eco-energy of the company, has been appointed the Chief Executive Officer of IT business and Executive Director of the company, effective February 1.

Numbers disappoint

The third quarter results, also announced on Friday, reflect the current mood in the company which is struggling to retain its position as the third largest software services exporter in India. The numbers were below street expectations with Wipro posting a mere 1.26 per cent sequential growth in revenues at Rs 7,892 crore, while net profit grew marginally by 2.6 per cent to Rs 1,319 crore. Year-on-year growth in net profit was 10 per cent, while revenues were up 12 per cent for the same period. Admitting to pressure from competition, Mr Azim Premji, Chairman, Wipro, said: “We have underperformed in Q3 relative to competition and our own potential as a company. Large companies like TCS and Infosys are growing faster than us. There are no excuses… but we are trying to improve performance in Q4 and going forward. “While the joint CEO structure was one of the key factors that helped us navigate the economic crisis; with the market exploding now, there is a need for a simpler, leaner organisation. We hope the organisational change will result in faster growth. We will relook at emerging market opportunities.”

Competition

Compared with some of its peers, Wipro's business volume growth for the quarter was much smaller at 1.5 per cent sequentially while TCS recorded a 5.7 per cent increase while Infosys grew 3.1 per cent.

While IT services revenue increased 15 per cent year-on-year to Rs 5,949 crore, IT products faced a decline of 13 per cent to Rs 879 crore.

Apart from lesser number of working days and more holidays which generally results in a quiet third quarter, Mr Suresh Senapaty, CFO, Wipro, said, the year-on-year decline in IT products was also due to the presence of large system integration and transformational deals in Q3 last year, which were absent this year.

Q4 guidance

In its guidance for the fourth quarter, Wipro expects a 3-5 per cent sequential increase in IT services revenue to $1384-1411 million. The board of directors has proposed an interim dividend of Rs 2 a share.

In the third quarter, margins for IT services remained flat at 22.2 per cent, while profit before tax grew 8 per cent y-on-y to Rs 1,321 crore.

Europe grew sequentially at 13 per cent, while the US clocked a mere 2 per cent growth. India and West Asian business grew 6 per cent sequentially. The division added 36 new clients this quarter.

Other verticals

Among the verticals, energy and utility showed a growth of 16 per cent sequentially. Telecom OEM too showed a “heartening” trend at 5.5 per cent growth. But Wipro has seen a modest 7 per cent growth in financial services, which is the fastest growing segment in the market.

Mr Premji said: “While we are strong in financial services – it accounts for a 27 per cent share in revenues – Infosys and TCS have a greater share. Competition has taken advantage of the high turbo-charged growth in this segment. But we have seen high growth in eco energy and going forward too it will be a growth driver.” Wipro also expects growth from infrastructure services, cloud services and testing.

In this quarter, Wipro added 3,591 employees (net) and faced an attrition of 20 per cent.

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