Wipro Q1 profit rises 11%; company upbeat about outsourcing

Wipro India's third-largest software services exporter, said quarterly profit rose 11 percent from a year earlier, in line with analysts' estimates, after an increase in orders boosted earnings.

Updated: Jul 27, 2013, 09:20 AM IST

Bangalore: Wipro, India's third-largest software exporter, Friday reported an 11 percent rise in June quarter profit on back of an increase in large contracts and said it was upbeat about demand for its outsourcing services.

Controlled by Chairman Azim Premji, Wipro said in a statement that April-June quarter net profit at Rs 1,623.3 crore was 10.7 percent higher than Rs 1,466 crore in the same period a year ago. The year-earlier profit excludes earnings from its non-IT businesses, which were demerged into a privately held company.

"We have seen an increase in deal closures in Q1 and we are hopeful the momentum will continue in the quarters to come...We are fairly confident of the future," company Chief Executive Officer T K Kurien told reporters here.

Wipro, which does not give annual forecasts, said it expects revenue from the IT services business to increase 2 to 3.9 percent to USD 1.62-1.65 billion in the current July- September quarter.

Larger rival Tata Consultancy Services had earlier this month reported better-than-expected profit to signal a pick-up in demand for Indian IT outsourcing providers.

Wipro's consolidated sales rose 5 percent to Rs 9,733.2 crore in the April-June quarter.
Commenting on the performance, Premji said: "We are seeing higher confidence among other clients on the backdrop of positive macro economic developments, particularly in the US."

In US dollar terms, the company's net income from operations rose 11 percent to USD 273 million in April-June from the same period in the previous year. Revenue rose 5 percent to USD 1.64 billion.

"We are seeing a pick-up in large deal closures, which has reflected in strong order book in the current quarter. Our clients look to technology to pursue growth and profitability and increase organisational agility," Kurien said.

Wipro's IT services revenue increased 4.9 percent year-on-year and 0.2 percent sequentially to Rs 8,936 crore.

Wipro shares gained 1.74 percent to Rs 382.80 at the close on the BSE Friday.

Wipro CEO Kurien said the first quarter was soft on account of delays in discretionary spending and other factors.

"We see Q1 to be soft due to delay in discretionary spending and seasonal weakness in India and the Middle-East business. This is playing out in line with our expectations," he said.

The CEO said the demand environment is showing signs of a revival.

"We are seeing positive traction in demand environment with discretionary expenses returning in specific pockets," Kurien said. "The US economy continues to show signs of strong macro economic recovery."

Deal closures are expected to pick up, he said.

"We have seen a pick up in deal closures in the first quarter and we are hopeful that the momentum will continue in the coming quarters," Kurien said.

Operating margins were affected by wage increases.

"We have given wage hikes for both onsite and offshore employees effective June 2013, which impacted our operating margins in the quarter," Wipro CFO Suresh Senapaty said.
The firm announced average wage hikes of 6 to 8 percent for offshore staff and 2 to 3 percent for onsite employees.

Wipro's IT services segment added 1,469 people in the quarter, taking the headcount to 147,281 employees as of June 30, 2013. The company added 28 customers in the quarter.

Speaking on the US Immigration Reform bill, Senapaty said: "There are certain provisions in the Senate bill that in some form are harmful and not necessarily in the nature which encourages international trade and commerce."

He further added: "Our expectation is some of those provisions will not find a place in the final bill."

Asked if Wipro's customers are worried about the proposed law, Kurien said: "Customers are not particularly worried over the bill. They are interested but haven't given their statement that they are worried."

Wipro's top revenue earner was financial solutions, followed by manufacturing & hi-tech, energy, natural resources & utilities, retail, consumer goods & transportation, global media & telecom and healthcare, life sciences & services.

In terms of geography, the Americas were the top grosser, followed by Europe, APAC & Other Emerging Markets and India & Middle East business.

Wipro saw a 14 percent year-on-year fall in revenue from the IT products segment to Rs 817 crore in the quarter.

As of June 30, the company had cash and cash equivalent of Rs 9,009.5 crore (USD 1.514 billion).

Wipro shares were 0.24 percent lower in early trade on the Nasdaq.

Analysts were positive about Wipro's results in the quarter and said the company's guidance for July-September was stronger than expected.

"We see some sort of positivity in the results," Gartner Vice President Ian Marriott told PTI. "It is difficult to draw real conclusions from one quarter results here, so we will have to see next quarter's results to find out.

Marriot said Premji's comments on the uptick in the US economy and increased consumer confidence is surprising.

"Certainly the US is a little ahead of Europe in terms of pick-up but there is still the backdrop of potential visa issues in the US," he added.

If the Bill goes through, Wipro and others will find it difficult to deliver on their commitments. They will have to change their delivery model, hire more people in North America or move much more work offshore and the cost of that will be very damaging for all, he said.

Wipro's revenue guidance is stronger than expected, said Dipen Shah, Head (Private Client Group Research) at Kotak Securities.

While the results were marginally lower than estimated, the 2 to 3 percent quarter-on-quarter growth guidance in Q2 FY'14 revenue is stronger than expected, Shah said.

The company is more positive about the deal closure rate as well as the pipeline. This, along with the stable economic scenario in major developed economies, bodes well for Wipro, he added.