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Wipro disappoints with 6.3% drop in net profit, flat guidance

The company expects revenue from IT services to be USD 1,931-1,950 million for the September quarter.

By: PTI | Bengaluru |
July 19, 2016 8:52:46 pm

Wipro on Tuesday missed Street expectations with over 6 per cent fall in net profit for the first quarter ended June and forecast that IT services sales would grow less than 1 per cent in July-September. The company, which announced the disappointing set of numbers after markets hours today, expects revenue from IT services to be USD 1,931-1,950 million for the September quarter, that is flat to 1 per cent sequential growth.

IT services revenues, which account for a dominant chunk of Wipro’s business, grew 2.6 per cent sequentially to about USD 1,931 million for the June quarter, meeting the guidance of USD 1,901-1,939 million. “We are seeing a certain level of run-the-business getting automated and that had a level of revenue reduction. Customers are investing in digital change-the-business which is gradually picking up… I think all of that is reflected in the guidance that we have provided,” Wipro CEO and Member of the Board, Abidali Z Neemuchwala said.


He said September sales forecast was based on what the company perceived to be “predictably achievable” and expressed confidence that operational improvements will start reflecting more strongly from December quarter onwards. “Overall I think the demand environment, we see quite stable,” he said, adding that the company bagged seven deals in the digital space during the first quarter.

On the muted numbers, Rikesh Parikh, V-P (Markets Strategy & Equities), Motilal Oswal Securities, said September quarter guidance was a “dampener”. For the quarter ended June 2016, net profit stood at Rs 2,052 crore as against Rs 2,192 crore in the year-ago period. Its total income from operations rose almost 11 per cent to Rs 13,697.6 crore from Rs 12,370.6 crore in the previous year. Its IT services segment had a headcount of 1.73 lakh. Revenue from IT products stood at Rs 590 crore.

The Wipro stock on BSE closed marginally lower at Rs 549.40. Wipro’s larger rival, Infosys last week had slashed its annual sales forecast, sending the stock crashing the most on a single day since Vishal Sikka became CEO more than two years ago. Infosys, which does not give quarterly outlook, had lowered its dollar guidance for the full fiscal to 10-11.5 per cent from 11.8-13.8 per cent (projected in April) due to
currency volatility and headwinds.

Infosys had also said that it was facing unanticipated headwinds in discretionary spending in consulting services and package implementations as well as slower project ramp-ups in large deals. Kotak Securities Senior V-P and Head, Private Client Group Research, Dipen Shah said Wipro’s results disappointed largely on the margins front. “The revenue trajectory reflects the challenges faced by
Wipro in some of the key verticals like energy and utilities as well as in scaling up accounts to larger sizes,” he added.

Wipro’s Chief Financial Officer Jatin Dalal said the IT services margin at 17.8 per cent (19.7 per cent in March 2016) reflected investments in rewarding employees as well as impact of consolidation of acquisitions for the full quarter. The Azim Premji-led company attributed the fall in margins, and effectively, net profit to wage hikes and headwinds in India and Middle East business.

On business implications of Britain’s exit from the European Union, Neemuchwala said while Brexit hasn’t had any immediate impact, it remained “on the top of the mind”. “Brexit’s immediate impact is on the currency. In the medium term, we believe Brexit could delay some of the decision-making, but we have not seen any immediate impact of it,” he added.

Other IT services companies like TCS, Infosys, and Mindtree have also indicated that they are in a “watch mode”, but analysts expect technology spendings to be hit, especially in banking, financial services and insurance (BFSI) segment on account of the UK’s exit vote.

Wipro said it has decided not to proceed with the buyout of the Viteos group due to “inordinate delays in completion of closing conditions that exceeded the target closing date”. In December last year, Wipro had announced the signing of a definitive agreement to acquire US-based Viteos group for USD 130 million. Wipro said its director, Jagdish N Sheth, has retired from the Board with effect from July 18, on completion of his term. Also, another Director, Vyomesh Joshi has resigned from the board due to his other commitments.

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