News Analysis

Wipro: Key verticals impacted but cost control aids profits

Vivek Ananth BL Research Bureau | Updated on July 15, 2020 Published on July 14, 2020

Pause on promotions, yearly salary hikes helped raise the firm’s operating margins

Wipro, the second IT services company to declare results for the June 2020 quarter, saw its revenues severely impacted by the Covid-19 pandemic. Consolidated revenues from IT services in dollar terms were down 7.3 per cent quarter-on-quarter (QoQ) to $1.92 billion.

The fall in dollar revenue in percentage terms is in the same range as TCS. In rupee terms, consolidated revenue fell 5.1 per cent QoQ to ₹14,913 crore. However, due to its efforts to keep costs under control, Wipro managed to report around 3 per cent rise in consolidated net profit to ₹2,390 crore sequentially. In contrast, TCS saw its sequential consolidated net profits fall by nearly 13 per cent during the quarter ended June 30, 2020.

Employee costs and sub-contracting expenses fell 6.1 per cent and 6.8 per cent, sequentially. Wipro had already paused promotions and yearly salary hikes. Even facility expenses, which had risen nearly 4 per cent sequentially in the previous quarter, has dropped sequentially during the quarter ended June 30, 2020 by nearly 9 per cent at ₹463 crore.

 

All these cost control measures have helped the company post robust operating margins of 19 per cent, rising nearly 140 bps sequentially.The rise in Wipro’s operating margins were also helped by the fact that it managed to increase its net employee utilisation, excluding trainees, during the quarter (84.5 per cent vs 82.4 per cent QoQ).

Annualised voluntary attrition remained subdued at 13 per cent compared to 14.7 per cent in the previous quarter.

Key segments feel heat

All verticals saw revenue fall in dollar terms. Banking, Financial Services and Insurance vertical, saw revenues fall by 6.4 per cent QoQ. It makes up nearly 31 per cent of Wipro’s consolidated revenues. In contrast, TCS saw revenues from this vertical rise marginally by 0.5 per cent during the quarter.

Manufacturing and Technology verticals, which together make up nearly 22 per cent of revenues, also saw revenues shrink by 4.7 per cent QoQ. This was expected as most IT services companies would be impacted by their manufacturing clients shutting down operation due to large scale lockdowns imposed by countries across the world during the quarter.

 

Similarly, retailers, other than staples like grocery, have been impacted due to the lockdown. As a result, Wipro’s consumer business unit, which includes revenues from retail clients, also took a hit with revenues falling 12.3 per cent QoQ.

In terms of geographiesrevenues from Americas, which contributes nearly 60 per cent to Wipro’s revenues fell 7.5 per cent sequentially in dollar terms.

Wipro has lost two customers in the $100 million revenue category during the quarter ended June 30, 2020. It has also lost one customer in the $50 million revenue bucket. This might have some impact on revenues in the coming quarters.

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Published on July 14, 2020
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