Wipro lags peers in key parameters

K. Venkatasubramanian | Updated on March 12, 2018

Volumes, important segments tepid

The pecking order in the ‘hierarchy' of IT companies in terms of performance across metrics remains intact with the June quarter numbers of Wipro failing to throw up any positive surprises.

If anything, a tepid guidance of 2-4 per cent for the September quarter has acted as an added dampener, even as the company seeks to restructure its operations over the next couple of quarters and return to industry growth levels.

During the June quarter, IT services' revenues, which constitutes three-fourths of Wipro's total pie, grew just 1.8 per cent sequentially to Rs 6,405 crore, while EBIT (earnings before interest and tax) inched up 1.3 per cent to Rs 1,407 crore. Lower volume growth, pricing cuts, and marginal growth in key segments have all weighed on the division's performance.

However, the (hardware intensive) IT products division, which accounts for 12 per cent of revenues, has fared much better, reporting over 10 per cent growth in revenues to Rs 1006 crore, while EBIT expanded by over 27 per cent to Rs 42.3 crore.

Annual wage hikes to the tune of 10-12 per cent and increase in effective tax rates have dragged overall profitability. Attrition, at 22.6 per cent, is the highest among peers. The silver lining though is a reasonable addition of large-sized clients, which could prop up volumes in the quarters ahead.

Wipro had a volume (person-months billed) growth of just 1.7 per cent sequentially, much lower than the 4 - 7.5 per cent levels reported by Infosys and TCS. This apart, the company also had a dip in realisations, suggesting that pricing pressure may still not have abated for the company. This, at a time when peers registered steady realisations or even had a marginal uptick.

Key verticals

In terms of verticals, financial solutions and manufacturing expanded by just 0.5 per cent, when competitors witnessed superior traction in these segments. Key verticals such as telecom, retail and healthcare witnessed 1.8-3.6 per cent dip in revenues.

However, going forward, there are some factors that could help the company record higher growth. There have been a couple of clients added in the $50 million category and another in the $100 million band. The number of active clients too has gone up significantly. The company's revenues from Asia-Pacific and other emerging markets have grown 11.3 per cent sequentially suggesting that it has been able to tap growth markets well. The relatively high-margin analytics and information management service has grown 7.6 per cent. The deal pipeline for the hardware division, especially domestically, continues to be robust.

But it would need a spectacular performance in the latter half of the year for Wipro to achieve even the 16-18 per cent growth that industry body Nasscom expects the Indian IT services sector to achieve this fiscal.

Published on July 20, 2011

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