Wipro Q2 profit up 10%, result trails its peers

Lower FE realisation hits firms margins

Wipro Q2 profit up 10%, result trails its peers

Wipro’s financial numbers for quarter ending September 2010 (Q2), while moderate by traditional Indian standards, pale before the performance of its peers such as TCS and Infosys.

The company announced that its IT services division earned a revenue of Rs 5,747 crore for the quarter, growing at 15 per cent  year on year (YoY). In contrast, TCS and Infosys grew their revenue for the quarter by more than 24 per cent YoY.

Wipro’s IT services division’s profits before interest and tax (PBIT) grew 7 per cent YoY to reach Rs 1,275 crore. In contrast TCS and Infosys reported 32 and 13 per cent jump in net profit, respectively.

More strikingly, Wipro’s margin from IT services in Q2 declined sequentially 2.5 per cent and stood at 22.2 per cent. Wipro CFO Suresh Senapaty attributed the dip on lower foreign exchange realisation, people-related actions such as progressions and restricted stock grants, and higher investments in sales and marketing.  

Chariman Azim Premji acknowledged that the industry had shown better revenue and volume growths and Wipro was putting its corporate muscle to return to industry-leading growth and operating margins. 

He said despite macro economic challenges, overall demand for IT services and discretionary spend were on the rise. Pricing remained stable and there was room to increases prices for customers who had got discounts during recession, he added. 

Explaining Wipro’s muted performance Joint CEO Suresh Vaswani said Wipro’s volume in the quarter had grown impressively at 6.6 per cent but this did not translate into similar growth in revenue.

“The company made higher investments in sales and marketing and customer engagement activities to go beyond staff augmentation and offer higher value services such as consulting,” he added.

The fluctuating fortunes of some of its verticals and geographies seem to have contributed to its muted performance. Revenue from verticals such as Technology, Manufacturing, Communication and Media, Technology Media and Telecom headed South. Similarly, revenue from Americas and surprisingly from India and Middle East, Wipro’s traditional strongholds, also dipped. 

Wipro continued with its conservative hiring and added net 2,975 employees in the quarter. Other Wipro divisions present a mixed picture. Revenue from IT products grew 10 per cent to Rs 1,069 crore and but PBIT at Rs 53 crore in Q2 showed a decline of 13 per cent YoY. Consumer care and lighting grew by 20 per cent YoY to touch Rs 665 crore. Put together, Wipro’s overall revenue reached Rs 7731 crore, an increase of 12 per cent YoY. Net income for the quarter was Rs 1285 crore, an increase of 10 per cent.

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