Global Economics

Quarterly Profit at Wipro Jumps 19%


India's third-largest software services exporter beats expectations and says the outlook for outsourcing is improving

India's third largest software exporter provided an upbeat assessment of its prospects for the October-December quarter, saying new business deals are beginning to flow in at a quick pace and pricing pressure is on the wane.

Benefiting from aggressive salesmanship, Wipro added 37 customers in the second quarter to September, the most in a year-and-a-half, and forecast that revenue would rise by up to 4.5% in the three months to December.

"As I talk to CEOs across the globe, the general sentiment is more upbeat than before," chairman Azim Premji said. "We see more stability in volumes and pricing as well as an improving demand environment," he added. The news sent the Wipro stock up nearly 2.2% to Rs 604.15 on BSE on Tuesday even as the benchmark index Sensex fell by 2.3% in reaction to the monetary policy announcement by the RBI.

Wipro beat expectations and increased its net profit for the second quarter by 19% at Rs 1,162 crore. It bettered its own forecast with revenues of $1.06 billion (Rs 6,917 crore), a rise of 10% compared to the quarter ended June.

The financial results of the country's top three software exporters indicate that the worst is over for India's IT service providers. While second largest exporter Infosys saw profits rise by around 7.5% during the September quarter to Rs 1,540 crore, top-ranked Tata Consultancy Services (TCS) grew net profit by 29% to Rs 1,642 crore. Wipro said it expects budgets of outsourcing customers to be flat, but not dip any further.

During the past three months, one of the toughest that India's $40 billion outsourcing industry has seen in two decades, joint chief executive Suresh Vaswani said he met over 100 potential customers in the US, Europe and Asia.

This was part of Wipro's energetic effort to win new business deals. Mr. Vaswani, joined by Mr. Premji and joint chief executive Girish Paranjpe, travelled the world bidding for new outsourcing contracts as customers such as British Petroleum (BP) and British Telecom (BT) started seeking to work with fewer vendors for better rates.

Between them, around 15 top customer accounts that need priority have been shared. "With each of us becoming an executive sponsor for these accounts, we can even miss a board meeting in order to catch up with a customer," said Mr. Vaswani.

"We were almost eliminated from BP a few years ago, but we remained proactive and decided to invest in developing pilot solutions for demonstrating our understanding of their domain," he added, illustrating the dogged determination of the company to win outsourcing contracts.

Operating margins rose to 23.8% from 22% in the June quarter, aided largely by better staff utilisation, but CFO Suresh Senapathy said pricing on pressure is declining. "Volume has been negative during the second quarter, though there was some uptick towards the end this period. In the third quarter, we will have a lot of growth from volume and the pricing pressure is on the wane at the same time," he observed.

Avinash Vashishtha, chief executive of offshore advisory firm Tholons, said the industry is seeing a "billing rate discount of 5-15% in the current scenario."

Wipro has also been making progress in arresting 'linear', employee-led growth by increasing the proportion of projects delivered under fixed price contracts. For the quarter ended September, it derived almost 40% of its revenues from fixed-price deals, its highest ever, where billing is not linked to the number of staff working on a project.

The growing Indian IT outsourcing market, estimated to be worth over $10 billion, is also playing a big role in driving growth. Chief strategy officer KR Lakshminarayana cited the example of Lavasa, a unit of Hindustan Construction, that was seeking suppliers to set up an e-city with technology-enabled services for residents.

Major vendors such as IBM, HP, TCS, Wipro and Infosys entered the fray for the deal at a time when large global customers such as Citigroup and GE were shelving their new technology investments. "We were appointed as consultant for this project, and it took almost a year to finally win the contract," said Mr Lakshminarayana.

While the first phase of the project is estimated to bring in revenues of around $70 million for Wipro, the next two phases could result in new business opportunities worth around $200 million. "We were willing to partner with them and even forge a joint venture, which made a big difference," he added.

Wipro had around 97,891 employees at the end of second quarter, lower than around 98,521 staff the company had on its payroll during the first quarter. "Negative addition is the thing of the past and we do not anticipate anything like that in the future," said Pratik Kumar, Wipro's head of human resources.


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