Wipro beats Street, but no turnaround in sight yet for IT business

Wipro Ltd, India's fourth largest  IT services company, beat Street expectations - on a consolidated basis - in its results for the third quarter ending December 2012. However, a turnaround in the IT services segment, which contributes up to 78 per cent of the company's overall revenues, still appears to be some distance away.

Consolidated net profit grew 18 per cent over the year-ago period to Rs 1,716 crore. Besides IT services, the company has other diversified businesses such as Consumer Care and Lighting.

In dollar terms, IT services revenues rose 4.8 per cent to $1,577 million and 2.4 per cent sequentially. While the revenue numbers met expectations, analysts were disappointed by the company's volume numbers.

Wipro's IT services guidance for the March quarter has also stumped analysts, some of whom were expecting a more robust outlook. In the September quarter, Wipro had seen IT services revenues growing between 1.2 per cent and 3 per cent in the December quarter. Now, the company sees dollar growth in the March quarter at the lower end remaining flat. The IT Services business is expected to be in the range of $1,585 million to $1,625 million during the quarter.

"The contraction of guidance at the lower end reflects the uncertainties and the headwinds the company is facing," says Sanjeev Hota, an analyst with brokerage house Sharekhan.

Dipen Shah, an analyst with Kotak Securities, says the company's volume decline of one per cent was unexpected considering that rivals reported volume increases of one to three per cent.

Wipro's management, however, sounded positive about the business environment, going ahead. While businesses such as telecom continue to remain a drag on the company's overall performance, there are bright spots such as healthcare, which jumped 7.1 per cent sequentially in the December quarter. The company expects the momentum to continue in this vertical.

This earnings season, Infosys was the only surprise package among the tech companies with four per cent organic growth during the quarter. Market watchers were also delighted at HCL's margins and volume growth. But they have adopted a wait and watch approach before announcing that the IT industry will rebound in 2013.

So, what does all this say about the prospects of the IT industry, going ahead? With the macroeconomic climate still uncertain, most pundits would prefer to take a call on whether the business environment has changed only at the end of the current quarter.