Country’s third-largest software exporter Wipro ltd on Monday met street epectation and posted 2 per cent rise in December quarter net profit as business was hit by Chennai rains and seasonal furloughs.
Net profit rose to Rs 2,234.1 crore in the October- December period of the current fiscal, while revenue from IT services grew 9 per cent to Rs 12,310 crore ($1.84 billion), meeting guidance.
Operating margins for its IT services business, calculated as sales minus costs, fell to 20.2 per cent from 21.8 per cent a year earlier due to floods in Chennai where it employs 13 per cent of its staff.
“We delivered revenues in line with our guidance. We saw a pick-up in large deal closures led by global infrastructure services,” Wipro CEO T K Kurien said.
“It is becoming increasingly clear that customers want to simplify operations and optimize their IT spend while investing in digital to transform their business. We are well-positioned to take advantage of this trend,” he added.
Wipro forecast IT services revenue to grow marginally between $1.87 billion to $1.91 billion for the fourth quarter ending March.
The company had posted a net profit of Rs 2,192.8 crore in the third quarter of the previous fiscal. Its overall revenues rose 7.1 per cent to Rs 12,951.6 crore in October-December this year from Rs 12,085.1 a year-ago.
“We are focused on driving market share growth in our core businesses through integrated domain and technology services, while investing for the future in building differentiated Digital capabilities,” said Abidali Neemuchwala the firm’s new chief executive.
Neemuchwala, who will start in his new role from February 1, said: “We will leverage our strong culture of innovation and extremely talented employee pool to build compelling value propositions for our customers.”
Revenue from its energy, natural resources and utilities business dropped to 14.4 per cent in October-December quarter from 16.4 per cent in the year ago period, Wipro said in a statement. Wipro had already warned of a muted performance for thequarter on account of furloughs and Chennai-floods. It had said it expected to meet the lower half of its guidance range of $1,841-1,878 million.
While the numbers are in line with Wipro’s own estimates, the performance is pale in comparison to rival Infosys which reported 6.6 per cent growth in net profit and 15.2 per cent jump in revenues.
Tata Consultancy Services also reported 14.2 per cent jump in profit and 11.7 per cent rise in revenues in the December quarter.
For the fourth quarter, Wipro expects its revenues from the IT services business to be in the range of $1,875 million to $1,912 million.
Senior vice-president and Head of Private Client Group Research at Kotak Securities Dipen Shah said Wipro continues to be impacted by the lack of scale up in large accounts, apart from the continuing challenges in the energy/telecom segments.
“The Q3 FY16 results were lower than our estimates... Wipro’s valuations are at a discount to larger peers. Markets will accord higher valuations after seeing consistent high revenue growth, we believe,” he added.
Wipro stock closed 0.72 per cent up at Rs 547.35 on BSE.
Responding to a question on impact from Chennai, Wipro Chief Financial Officer Jatin Dalal said there was roughly 40 basis points impact.
“We were expecting very large revenue impact also... But teams worked hard to limit the revenue impact. So finally when we closed our books the revenue impact was a small number, but cost impact certainly flew, and it is roughly 40 basis points which is the impact we have taken both on account of cost and little revenue that we actually lost,” he added.
On the demand environment, Kurien said the overall environment is stable and “the mood is largely positive on domestic demand and corporates are in a cost reduction mode in the US”.
While clients are still finalising their IT budgets, Wipro expects to see a strong momentum in the US, he added.
“Continental Europe has a lot of potential and our acquisition of Cellent will enhance our capability in the DACH region. We are seeing pickup in large deal wins,” Kurien said.
large deals are highly competitive with high pricing pressure, which are being partially offset through higher use automation and AI technologies, he added.