Wipro delivers a mixed bag

Wipro on Wednesday delivered a mixed bag, beating rival Infosys in quarterly revenue growth rates but pointed to a tepid June quarter in its guidance.

Wipro's IT services pulled in revenues of $1,536 million (Rs 8,048.6 crore) in the three months to March 2012, up 2 per cent over the previous quarter. This contrasts favourably with Infosys whose March quarter revenues were down 1.9 per cent but is lower than the growth reported by both TCS (2.4 per cent) and HCL Technologies (2.5 per cent).

Wipro's revenue numbers, however, did not exceed the higher end of its own revenue guidance - the company saw its March quarter topline growing between 1-3 per cent earlier.

While the company's numbers certainly look better compared to the first half of last year, its outlook for the June quarter is hardly encouraging. In fact, its guidance is worse than that of Infosys, indicating poor visibility into client spending. For its first quarter, the firm sees its topline coming in between $1,520 million and $1,550 million - a contraction of 1 per cent at the lower end. Infosys had earlier guided to flat revenues for the quarter, pointing to slower deal ramp ups and even ramp downs.  

Wipro's IT business CEO TK Kurien, who has led a restructuring of the company over the last one year, has indicated that Wipro would "endeavour to grow above market growth". Wipro does not give annual guidance but the statement implies growing above Nasscom's outlook of 11-14 per cent. That would be a tough ask if Wipro were to generate flat growth in June.

Kurien, nevertheless, said that the company's deal pipeline was good and growth will come back once conversions start taking place. Two factors contributed to the weak guidance  - delays in deal closures in the March quarter and softness in the India business - India and the Middle East contributes 9.3 per cent of Wipro's IT revenues.

"There are two headwinds in the India business - government and telecom. We expect growth to come back to the business in the second quarter," Kurien said, also citing progress in account mining. "We have seen progress with customer satisfaction scores going up in each of the last four quarters and we have created better value for our clients, with seven customers contributing more than $100 million in revenues," he said.

Analysts were not convinced. Sanjeev Hota of brokerage house Sharekhan found conviction missing in the management's commentary. "TCS said they are comfortably placed to beat Nasscom's guidance. Wipro is saying they would endeavour to grow above the market. There is a difference," he told BT. "I would wait to see a more concrete outcome of the company's transformation," he added.

Telecom and investment banking continues to remain challenging for Wipro, as also for the whole industry. For the company to grow above the industry average in 2012-13, lot would depend on how it performs in the promising energy and utilities vertical (13.2 per cent of revenues) as well as in healthcare and life sciences (10 per cent of revenues). IT buying in healthcare and life sciences, particularly, is getting a boost from two trends - pharma companies accelerating growth in emerging markets and profit pressures because of the lack of blockbuster drugs in their pipeline.

Meanwhile, Wipro's full year 2011-12 IT services revenue came in at $5,921 million, an increase of 13.4% over the previous year.

Overall company profits for the March quarter, which includes the consumer care and lighting division, stood at Rs 1,481 crore compared to Rs 1,456 crore in the December quarter. The bottomline number beat Street expectations. Consolidated revenues came in at Rs 9,869 crore. 

Wipro was down 7.31 per cent to Rs 410 on the BSE at 3.30 PM.