Info-tech

BFSI, Americas save the day

K Venkatasubramanian BL Research Bureau | Updated on July 20, 2018

Wipro delivers on modest expectations But still way behind TCS and Infosys on growth

Wipro managed to beat its own modest guidance and deliver numbers that were slightly ahead of market expectations in the June quarter. But the results were still way behind what market leader TCS and cross-town rival Infosys delivered.

In the June period, Wipro’s revenues declined by 1.7 per cent sequentially, while peers delivered 0.9-1.6 per cent growth in dollar terms. In constant currency, Wipro’s revenues were up a modest 0.1 per cent in the June period.

While the increase in revenues from the key Americas geography and the BFSI vertical was welcome, there was a decline in Europe and segments such as health business, manufacturing and technology. Large-sized client additions were a mixed bag.

The BFSI segment grew by 1.7 per cent during the quarter, while revenues from the Americas increased by 2.4 per cent. There was a decline of 2-7 per cent in verticals such as health business, manufacturing and technology. Revenues from Europe fell by 6.6 per cent sequentially during the quarter. In constant currency terms, the traction in key verticals were marginally better.

In terms of customer addition, Wipro managed to add one customer in the $50-million category and two in the $10-million bucket. But there was a decrease of four customers in the $20-million category and one in the $75-million band. In contrast, Infosys and TCS managed additions even in the $100-million band.

Thus, even the marginal growth in revenues in constant currency terms appears to be narrowly-led and not broad-based.

The IT industry is likely to grow at 7-9 per cent in FY19, according to trade body Nasscom’s projections. Some peers such as TCS, HCL Technologies and many mid-tier IT players are likely to register double-digit growth, while Infosys is likely to achieve at least the lower end of Nasscom’s guidance.

In this regard, Wipro may grow in mid-single digits, given that in a seasonally strong quarter, its revenues barely grew. Its growth guidance is reasonable at $2,009-$2,049 million for the second quarter, a sequential growth of 0.3-2.3 per cent.

For the foreseeable future, Wipro is likely to trade at a discount to peers. TCS trades at a price-earnings ratio of 28 and Infosys enjoys a valuation multiple of about 19 times trailing earnings. Wipro, on the other hand, trades at 16 times trailing earnings. This valuation discount is likely to persist if not widen over the next year or so.

Published on July 20, 2018

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