Wipro: Broad-based growth delivered

Wipro has delivered a set of numbers that were broadly in line with most of its top-tier IT peers. Robust client additions, improving realisations and growth in key verticals were positives for the company during the quarter.

But it is the lacklustre outlook for the June quarter that had the markets turn cautious and beat down the stock by 2.9 per cent on Wednesday's close.

In the March quarter, Wipro saw its IT Services revenues grow by 5.7 per cent sequentially to Rs 6,289 crore, while its earnings before interest and taxation (EBIT) expanded by about five per cent to Rs 1,388 crore.

The company has matched TCS and HCL and exceeded Infosys in the revenue and profit growth numbers during the period.

Key metrics stabilise

Wipro witnessed a significant improvement in realisations by over a per cent in both its offshore and onsite operations. Onsite realisations in fact improved by 1.8 per cent, which compares quite favourably with peers.

The company has managed healthy addition of large clients during the quarter, with two clients added in the $100-million-plus category and three customers who would provide annual revenues of $50-100 million. The overall client addition, at 68, is the best the company has managed over the last 4-5 quarters. Also its top 10 customers have ramped up contribution suggesting improved client mining strategies.

Across its service lines, the company has managed reasonable growth, with higher-billed offerings such as infrastructure services, package implementation and product engineering growing at 5-6 per cent. Among lower-billed services, Wipro's BPO segment grew at a healthy 9.9 per cent.

A broad-based expansion bodes well for the company as it suggests increasing IT spends from clients, including on discretionary services. This is reinforced by the fact that even the telecom (technology, media and telecom) vertical has grown by 4.7 per cent, compared to flat or declining trend among peers. Manufacturing and retail too have grown at a healthy pace, while financial services continued to lag.

Operationally, increase in the proportion of fixed-price contracts that ensure better realisations, too helped maintain margins.

Attrition, at 22.7 per cent, is higher than peers. A wage hike of 12-15 per cent to be done in June may help stem the tide, though it could dent margins.

But what comes as a surprise is the guidance of just a 1.5 per cent sequential increase in revenues for the June quarter, a period which is typically the strongest for IT companies.

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