Info-tech

With strong client additions, Wipro outpaces TCS on revenue growth

K.Venkatasubramanian BL Research Bureau | Updated on January 18, 2019

(From left) BM Bhanumurthy, President and COO, Abidali Z Neemuchwala,CEO, and Senior Vice-President and Global Head, HR Saurabh Govil, Wipro, in Bengaluru on Friday   -  SOMASHEKAR GRN

Continued improvements in digital revenues, expansion in operating margins

Wipro has delivered a healthy set of numbers in the third quarter, indicating the pick-up in revenue momentum that started in the September period, which continued in the December quarter as well.

Healthy large-sized client additions, continued improvements in digital revenues and expansion in operating margins are key highlights for the company during the quarter.

All-round show

In the December period, Wipro’s revenues grew by 1.8 per cent sequentially (2.4 per cent in constant currency) in dollar terms. This growth rate was better than the 0.7 per cent that TCS managed, but lower than Infosys’ figure of 2.2 per cent. Operating margins have risen steadily from the mid-teens over the past few quarters to 19.8 per cent currently, helped by a combination of a weak rupee and higher operational efficiencies.

Wipro’s largest vertical, BFSI (banking, financial services and insurance), which accounts for 31.4 per cent of revenues led the way and grew at a robust 4.7 per cent, sequentially. Other key segments such as communications, health business unit, and energy and utilities grew at 2-3.6 per cent QoQ, indicating broad-based expansion across verticals.

Digital offerings continued to grow at a healthy pace and now account for 33.2 per cent of overall revenues, increasing 6.4 per cent sequentially.

Wipro added one customer in the $100-million category, two in the $50-million bucket and seven in the $20-million category. Revenues from the top 10 clients has increased to 19.7 per cent, up from 19.1 per cent in the previous quarter, as the company consciously mined its existing customer base more.

Better outlook

Wipro has now delivered strongly for two successive quarters. But even as its performance improves, there is quite a bit of catching up to do with peers Infosys and TCS. While TCS is set to deliver double-digit dollar revenue growth for FY19, Infosys has upped its guidance recently and may achieve 9 per cent at the upper end of its projected band.

The Wipro stock may rally in the short-to-medium term, given the good show on the revenue and margin fronts. But any significant re-rating will depend on when the company manages to catch up with the industry growth rate. It trades at about 17 times trailing earnings, at a discount to the multiples that Infosys(21 times) and TCS(24 times) trade at. The gap in valuations may not be bridged in a hurry.

From a broader standpoint, with the three leading players putting up a fine show in a seasonally weak period, the outlook does look much better for the industry.

Published on January 18, 2019

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