Q4 Comment: Wipro’s consolidated PAT falls 5 per cent on higher employee & facility costs

In a quarter where the whole world has been impacted by the Covid-19 pandemic, Wipro’s performance might set the trend for the IT services space. Due to a 3.7 per cent spike in employee benefit expenses (₹8,545 crore) and 4 per cent increase in facility expenses (₹507 crore), its consolidated net profit for the quarter ended March 2020 fell 5 per cent sequentially to ₹2,345 crore.

For the financial year 2019-20, the company’s consolidated profit after tax was 8.4 per cent higher year-on-year at ₹9,772 crore. Revenues rose 4.2 per cent year-on-year to ₹61,023 crore.

The consolidated revenues during the quarter were 1.6 per cent higher q-o-q in rupee terms at ₹15,711 crore. But its IT services segment’s dollar revenue fell 1 per cent sequentially to $2.073 billion due to a fall in revenues from BFSI, consumer business unit, communications, energy and natural resources and utilities verticals. The dollar revenues came in far below its guided revenue range of $2.095-2.137 billion.

While the negative impact of the pandemic during the quarter was just 0.7-0.8 per cent of the revenues in dollar terms, the hit could be higher in the June quarter with most countries imposing restrictions on businesses and people.

The company has, however, refrained from giving any revenue guidance for the following quarter because it has no visibility about the extent to which the pandemic will disrupt its operations.

Verticals, service lines

In terms of service line, modern application services was a drag as its revenue was flat at $927 million. This service line contributes nearly 45 per cent of Wipro’s IT services revenues. Among others, only the industrial and engineering services line posted sequential revenues growth of 1.6 per cent. But this service line contributes just 8 per cent of the IT services revenues. All the other service lines like cloud & infrastructure, data analytics & AI, and digital operations & platforms saw sequential decline in revenues.

Among the six verticals, only manufacturing, technology and health managed to post sequential growth in dollar revenues during the quarter. The rest of the verticals saw revenues shrink sequentially.

Another reason dollar revenues fell sequentially during the quarter was because revenues from US fell 1.2 per cent, while revenues from Europe rose marginally by 0.7 per cent. The US is Wipro’s main revenue earning geography and makes up for nearly 60 per cent of its revenues, Europe makes up for around 24 per cent of the company’s revenues.

Operating metrics

As a result of spike in expenses, the company’s IT Services’ operating margin came in at 17.6 per cent in the quarter ended March 2020 compared to 18.4 per cent in the previous quarter. The net utilisation of employees rose sequentially during the quarter ended March 2020 to 82.6 per cent (vs 79.6 per cent in December 2020). The attrition of employees also came down by one percentage point to 14.7 per cent.

In terms of client additions, the company added 65 clients which includes one client of over $100 million revenues. The revenues from existing customers fell to 97 per cent compared to 97.6 per cent in the previous quarter.

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