Wipro Q1 profit up 29.5% as IT spending returns in North America
IT services major Wipro on Thursday reported a 29.5 percent growth in its consolidated net profit at Rs 2,103.2 crore for April-June period, helped by large deals in the application and infrastructure space.
Bangalore: IT services major Wipro on Thursday reported a 29.5 percent growth in consolidated net profit for April-June period, helped by large deals in application and infrastructure space as well as return of discretionary spending in the North American market.
The city-headquartered firm had posted a net profit of Rs 1,623.3 crore in the year-ago period, it said in a BSE filing.
Consolidated net sales of the country's third largest IT services firm rose 15.5 per cent to Rs 11,245.5 crore in April-June quarter this fiscal from Rs 9,733.2 crore in the same quarter of 2013-14. Figures are in IFRS.
Wipro Chairman Azim Premji said: "We see a significant rise in business confidence in developed markets as well as India."
The new government at the Centre has brought about hope and confidence in the minds of all stakeholders through reform pronouncements with fiscal prudence, he added.
In US dollars, Wipro reported a net profit of USD 351 million and revenue of USD 1.9 billion.
Revenue from IT Services stood at USD 1.74 billion, a quarter-on-quarter increase of 1.2 percent and year-on-year increase of 9.6 percent. Wipro had guided this to be in the range of USD 1.715 billion-USD 1.755 billion.
For the July-September quarter, the IT services revenue is forecast to be in the range of USD 1.77 billion-USD 1.81 billion.
"We continue to win large deals particularly in the application and infrastructure space. We recently announced our largest ever total outsourcing deal," Wipro CEO T K Kurien said.
Speaking to reporters after the result announcements, Kurien said Wipro had a quarter-on-quarter revenue growth of 1.2 per cent, which was in line with the guidance.
On the demand environment, he said: "Demand continues to hold steady. In North America, we see return of discretionary spending, while Continental Europe continues to have significant potential for outsourcing IT services."
"We see strong demand in healthcare and life sciences which grew 20 percent y-o-y in revenue this quarter.
Business momentum is improving in manufacturing & hi-tech, while we challenges in retail," Kurien said.
On service lines, global infrastructure services continue to score good wins with a sequential growth of 5 percent. The business in India and Middle East also witnessed good growth.
Analysts said the April-June quarter has been lukewarm for the country's third largest IT services firm.
"Its been a lukewarm period overall for IT industry at large, including Wipro. That said, few contracts over the last quarter has helped Wipro get access to more high-profile deals at a time when outsourcing demand looks stronger compared to previous years," Greyhound Research CEO Sanchit Vir Gogia said.
Wipro shares today closed higher by 1.31 percent at Rs 576.80 apiece at the BSE.
IT Services revenue in rupee terms was Rs 10,510 crore, an increase of 18 percent year-on-year.
The IT services segment had 147,452 employees as of June 30, 2014 and the firm added 35 new customers for the quarter.
"We continue to drive operational efficiency and invest in our strategy. Operating margins for the quarter was on expected lines, impacted largely due to wage hikes," Wipro CFO Suresh Senapaty said.
The decline in profit and margins is mainly due to the wage hikes, he added.
"We gave average eight percent wage hikes to offshore employees and two percent to onsite employees. About 80-90 percent of the decline in profits and margins is due to the wage hikes," Senapaty added.
Wipro's IT products segment delivered revenue of Rs 770 crore, registering a decline of 6 percent over the year-ago period, after Wipro's strategy to focus on services business by engaging in selective transformational deals where products form an integral part of the solution.
Segment wise, BFSI contributed the most towards Wipro's revenues in the first quarter followed by Manufacturing & Hi-tech, Energy, Natural Resources & Utilities, Global Media & Telecom, Retail, Consumer, Transport & Government and Healthcare & Life Sciences.
Geography wise, the US was the main revenue generator followed by Europe, Rest of the World and India.
On outlook, Kurien said two themes are becoming increasingly significant with potential to transform the business landscape.
"Open source technologies have moved mainstream especially in infrastructure and application layer with traditional enterprises adopting models from web companies," he added.
Wipro's open source practice is engaging with leading clients to re-architect their technology landscape to achieve significant cost savings, innovation and agility, he said.
"We have secured mandates from six customers over the last quarter," Kurien added.
Besides, digital transformation is driving clients to rethink how they protect themselves from disruption by improving customer relevance and cost efficiency by digitising their legacy processes and infrastructure, he said.
"Wipro Digital brings capability, scale and acceleration to this vision. We have recorded three wins in this quarter and see positive business momentum," Kurien added.
On the employee front, he said Wipro has launched a major organisation-wide training initiative to enable a proactive response to shape future demand. The firm also implemented its merit salary increase effective June 1, 2014.
Gogia said attrition still remains one of the key issues that the management needs to address.
Wipro Senior VP Human Resources Saurabh Govil said: "We have RSUs, and salary increases so we expect to see impact of that in the coming quarters.
"Also, we are seeing that among the high performers at Wipro, attrition rates have fallen drastically, which makes for about 25 percent of our total workforce."
Last week, Wipro had announced that it signed a series of Master Services Agreements with ATCO under which it will acquire ATCO's IT subsidiary for an all-cash consideration of CAD (Canadian dollar) 210 million (USD 195 million or over Rs 1,176 crore).
Besides, Wipro also secured a 10-year IT deal with ATCO for providing outsourcing services, that will result in annual revenues of over CAD 120 million (USD 112 million or over Rs 675 crore) for Wipro for the next 10-years.
Gogia said ATCO deal will definitely add to Wipro's overall growth, particularly in the Utilities vertical.
Going ahead, Gogia said the company is expected to gain substantially if it manages to crack the Rs 1,200 crore call centre deal from Reliance Communications.
Separately, its active conversations with the government on various pending issues like taxation and allotment of new SEZ are clear signs of the expected growth in the near future.
Wipro is also planning to invest in upcoming software firms, a clear sign of their intent to also sell software to their customer base, Gogia said.