Wipro merges govt business with IT services segment after drop in revenue

Wipro, Indian IT services company, has merged its Indian state-run enterprises (ISRE) sector with its broader IT Services segment following a 20.18 per cent decline in revenue within the same segment during the financial year 2022-23. The company attributed the revenue reduction to the completion, closure, or scaling down of large government contracts.

Additionally, Wipro expressed challenges in collecting overdue accounts receivables from government-related businesses. The company operates across three segments: IT Services, IT Products, and ISRE. In FY23, IT Services accounted for 98.7 per cent of Wipro's revenue, while the IT Products segment contributed a mere 0.7 per cent.

During FY23, the ISRE segment represented only 0.6 per cent of the total revenue, a decrease from the 0.9 per cent contribution in FY22. Notably, revenue from government-related business surpassed sales from the IT Products segment in both FY21 and FY22.

Wipro stated in a filing, "General and administrative expenses as a percentage of revenue from our ISRE segment decreased from (1.01) per cent for the year ended March 31, 2022, to (2.59) per cent for the year ended March 31, 2023." 

The company attributed this decrease to increased write-backs in lifetime expected credit loss due to the collection of overdue accounts receivable. In absolute terms, the credit in general and administrative expenses rose by Rs 77 million. As a result, the segment results of the ISRE segment decreased by 851 basis points, from 16.08 per cent to 7.57 per cent, with an absolute decline of Rs 732 million.

The ISRE segment was previously carved out as a separate entity from Wipro's global IT Services business in FY19. Wipro emphasized that historically, ISRE projects primarily involved system integration (SI) with complex deliverables, longer working capital cycles, and distinct downstream processes for billing and collections compared to the IT Services segment. 

However, now the company has shifted its ISRE strategy to focus more on consulting and digital engagements, being selective in bidding for SI projects with extended working capital cycles. Moreover, the company's ISRE and IT Services segments now share similar sales cycles, billing, and collection processes due to the emphasis on consulting and digital engagements.