Q2 Comment: Wipro’s numbers point to an uptick in demand for IT services

Wipro reported a consolidated net profit of ₹2,484 crore in Q2 FY20, up 3 per cent quarter-on-quarter.

Also read: Wipro Q2 net profit declines 3.4% to ₹2,470 crore

Revenues came in at ₹15,115 crore, up 1.4 per cent sequentially. Out of this, IT services revenue came in at ₹14,768 crore — up 1.2 per cent — aided by an uptick in demand at almost all its business units. In dollar terms, revenues from IT services were at $1.99 billion, compared to $1.92 billion in the previous quarter.

The company’s revenue growth during the quarter ended September 30, 2020 points to a general improvement in demand environment for Indian IT services company.

TCS had also alluded to a robust uptick in demand for IT services during the quarter, pointing to a multi-year technological transformation demand in the future.

Also read: TCS reports 6.45% profit in Q2

Revenue guidance

Wipro restarted its practice of giving quarterly revenue guidance. The company expects revenues in dollar terms from IT services to grow 1.5-3.5 per cent QoQ for the quarter ended December 31, 2020.

This comes up to $2.02 billion to $2.06 billion revenues in the December quarter at the lower and upper end of the guided range, respectively.

If the company manages to achieve this, it would be the first time since March 2020 that it would report $2-billion revenues from IT services.

Operating margin expands

Wipro’s IT services’ operating margin came in at 19.2 per cent, compared to 19 per cent in the previous quarter, helped by a near 5 per cent fall in sub-contracting costs during the quarter.

A 72 per cent fall in other expenses also helped the company report an expansion in margins.

A fall in employee attrition rate to 11 per cent during the quarter compared to 13 per cent in the previous quarter also helped shore up Wipro’s margins. Gross utilisation of employees rose by 114 bps QoQ to 76.4 per cent.

Wipro had 1,089 active clients in the quarter ended September 30, 2020, compared to 1,004 in the previous quarter.

It added three clients in the $20-million revenues bucket and two in the $75-million bucket. However, the company lost two clients in the $100-million revenue bucket.

Regions & business units

In terms of regional performance, the company reported positive revenue growth in the Americas, Europe and Other Emerging Markets. Revenues from these regions grew 2.7 per cent, 4.1 per cent and 6.4 per cent, respectively on a sequential basis. In the previous quarter, all these regions saw revenues fall sequentially in dollar terms.

Apart from Wipro’s Technology business unit, all other businesses saw positive sequential revenue growth in dollar terms.

The growth in IT services revenues in dollar terms were led by banking, financial services, and insurance business unit, health business unit, consumer business unit and manufacturing business unit. All of these together make up nearly 70 per cent of Wipro’s IT services revenues.