Wipro net up but IT services revenue disappoints

Wipro, the country’s No. 3 software exporter, reported a net profit that was in line estimates, but registered a sequential decline in revenue from the key IT services segment, sending the shares of the company down.

It also gave a subdued guidance for the September quarter and listed scores of risks to meeting the projection.

The consolidated net profit rose 18 percent to Rs 1,580 crore in April-June while net sales stood at Rs 10,619.6 crore, in line with analysts estimate in a CNBC-TV18 poll.

[caption id=“attachment_388415” align=“alignleft” width=“380”]  Premji, chairman of Wipro Ltd[/caption]

The forecast in the poll for net profit was Rs 1,578 crore and for net sales Rs 10,510 crore.

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The company’s IT services revenue, constituting about 78 percent of the total revenue, was Rs 8,314 crore, an increase of 30 percent year on year, but a fall of 1.4 percent sequentially.

Earnings before interest and tax (EBIT) from the segment was Rs 1,744 crore, an increase of 24 percent, the company said.

Analysts on an average had expected IT services revenues at Rs 8,145 crore and IT services EBIT at Rs 1,688 crore during the quarter.

The company sees its September quarter IT services revenue in the range of $1,520-$1,550 million, considering an exchange rate of 54.76 for the rupee against the dollar. This indicates a fall of 1.2 percent to a rise of 0.6 percent sequentially.

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“Wipro’s IT services revenue growth disappointed by coming in at -1.4% qoq as against our expectation of it remaining flat qoq. The operating margins as well as profitability was inline with our estimates,” Ankita Somani, IT analyst, Angel Broking, said.

Shares of the company were down nearly 3 percent at Rs 346.65, reacting to the disappointing guidance.

“Wipro’s guidance for IT services for 2QFY13 of 0.3-2.3 percent qoq growth looks decent (still lower than our expectation of 1-3 percent qoq) after continuous disappointments since last couple of quarters in terms of guidance,” she said.

She said Wipro too has reported slight decline in offshore pricing (-1 percent on quarter).

The company added one client in the US$100mn plus revenue bracket which Somany sees as a positive indication of company’s improving client mining capabilities.

The company said the risks to meeting the earnings guidance included the company’s ability to maintain the cost advantage and wage increases in India.

Revenue from IT products and consumer care and lighting segments constituted 9 percent each of total revenue. IT products sales stood at at Rs 953 crore and consumer care and lighting revenue at Rs 980 crore.

The company sees opportunity as global corporations increasingly invest in transformational technology initiatives, Chairman Azim Premji said in a press release.

Suresh Senapaty, executive director & chief financial officer, said there has been high levels of volatility in global currencies.

“Wipro is still in the process of realigning its capabilities and positive results from organization restructuring exercise are yet to be seen,” said Somany, who has a buy rating on the stock.