Wipro's Apr-Jun net down 6.7%; analysts see pain continuing

Bengaluru: The country’s third-largest software services firm Wipro Tuesday posted 6.7 percent decline in its net profit at Rs 2,059 crore for the quarter ended June 2016. The company had reported a net profit of Rs 2,207.4 crore in the year-ago period, Wipro said in a statement.  Its total income from operations rose 10.7 percent to Rs 13,697.6 crore for the said quarter, from Rs 12,370.6 crore in the April-June 2015 quarter. The firm’s IT services revenues, which account for a substantial chunk of the pie for the city-based firm, saw a sequential growth of 2.6 percent to $1,931 million in the said quarter, meeting its revenue guidance of $1,901 million to $1,939 million. For the July-September 2016 quarter, Wipro expects its IT services revenues to be in the range of $1,931 million to $1,950 million. The IT services segment had a headcount of 1.73 lakh as of 30 June, 2016. Revenues from IT products stood at Rs 590 crore. “We have delivered revenues in line with our guidance. We expect the trajectory of growth to build gradually over the course of the year as we drive execution on our strategic themes and make progress towards achieving a sustainable growth trajectory,” Wipro CEO Abidali Z Neemuchwala said. Chief Financial Officer Jatin Dalal said the IT services margin, at 17.8 percent in the said quarter as against 19.7 percent in January-March 2016, reflected the investments in rewarding employees as well as impact of consolidation of acquisitions for the full quarter. “We continue to expand the reach of our automation programmes to harness efficiency gains,” he added. Wipro said it has decided not to proceed with the buyout of Viteos Group due to “inordinate delays in completion of closing conditions that exceeded the target closing date”. In December last year, Wipro had announced the signing of a definitive agreement to acquire US-based Viteos Group for $130 million. Commenting on the company’s continued disappointing performance Manik Taneja of brokerage Emkay said the 190 basis points sequential slip in EBIT margins to 17.8 percent was despite the hit from wage increments being only partial. The other factors that impacted the IT services EBIT margins are full-quarter consolidation of acquisitions, changes in reporting related to amortization of acquisitions, slight headwinds in the India and Middle East business and certain investments in client relationships. Wipro’s IT Services EBIT margins have slipped by a whopping 290 bps over the past 4 quarters. Taneja expects the pain to continue this year. “Management hopes for a better H2 but weak start to year implies that Wipro might stick to a single digit growth year in FY17 as well . Management’s initiatives to transform Wipro across several dimensions will continue to involve significant investments across dimensions and might keep overall FY17 performance muted,” he said in a post-earnings note. According to analysts who spoke to CNBC-TV18, the weak guidance for the second quarter was a expected as the revenue from the energy vertical has been stagnant for a while for the company. The vertical contributes 15 percent to Wipro’s total revenue. According to Karan Taurani of Dolat Capital, most of the big clients of the company are from the energy sector this is prove it difficult for Wipro to deleverage from this sector. Ravi Menon of Elara Capital told the TV channel that there is an uptick in capacity expansions in this sector which is likely to help the company in the long term. With PTI