Wipro’s Q4: Will the outperformance continue?

Weak guidance suggests challenges for 2017-18

With sedate numbers from Infosys and TCS for the March quarter, the market was not pinning much hopes around Wipro. But the company’s results actually turned out good. Both on the revenue and margin front, it was better than peers- Infosys and TCS.

The sequential dollar revenue growth was 2.7 per cent. Markets were expecting about 1.7-2 per cent growth from the company.

But the question arises if the outperformance is just a flash in the pan.

Wipro has guided for a revenue of $1915-1955 million for the June 2017 quarter. This is a drop of over 2 per cent sequentially at the lower end of the band. Even if the company hits the top-end of the band, it will mean a revenue growth of just about 0.02 per cent.

In telecom and energy — the two verticals where industry slowdown turned down the prospects for the company, there is not much respite yet.

In the March 2017 quarter, the company’s communication business saw revenue drop by 6.6 per cent sequentially, in constant currency terms. In energy, the revenue growth was 1.9 per cent, not encouraging given that it is a slip from the 2.1 per cent growth reported in the previous quarter.

India and Middle East geographies (which contribute 10 per cent to revenue), which were reporting declining revenues in the last few quarters due to business restructuring, showed only a small improvement. The segment recorded 0.5 per cent revenue growth, sequentially.

The total number of clients added in the March quarter were 51. It added only one new client in each of the $75 million, $50 million and $20 million baskets .

While challenges continued to persist in a few verticals and geographies, the company was able to hold its margins. For the March 2017 quarter, the company reported an operating profit margin of 18.3 per cent — the same as that of the previous quarter. This is a big relief. While the attrition rate remain unchanged at 16.3 per cent in the March quarter, gross utilisation improved to 73.1 per cent from 71.6 per cent in the previous quarter.

Bonus

Following TCS and Infosys’ share buybacks, Wipro has announced a gift for its shareholders — a 1:1 bonus. The company’s management also said that a buyback will be considered by the management by July.

Investors may now have to reduce expectations of high inorganic growth from Wipro.

Unlike the conservative lot of Indian IT majors, Wipro was actively looking out and striking deals. Its acquisition of Appirio in October 2016 for $500 million, made heads turn. Though an earnings dilutive acquisition, the business prospects from Appirio — a partner in SaaS implementation — gave confidence that the company may soon rev up to match the industry growth.

But now, with bonus announcement and a likely buy back soon, investors have to scale down expectations of inorganic growth buttressing company’s overall performance.

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