Wipro Q2: CEO says company 'on trajectory' to bridge growth gap with peers by March

The company's focus on digital solutions is working, helped by a strong pick up in demand in the US, the sector's biggest market

g_100385_wipro_280x210.jpgImage: Shutterstock

Wipro, India’s third-biggest software services provider, posted its third consecutive quarterly increase in sales since December, helping CEO Abidali Z Neemuchwala stay “on trajectory” to bridge the growth gap with the Bengaluru company’s peers by March.

Sales for Wipro’s IT services unit, which accounts for most of the company’s revenues and profits, rose 2.1 percent sequentially to $2,013.5 million for the September quarter, surpassing Wipro’s own July projection of between $1,962 million and $2,001 million.

The number also just beat the $2,003 million estimate at Mumbai brokerage HDFC Securities, where analysts Apurva Prasad and Amit Chandra were expecting India’s top IT companies to post their best results in five quarters for the three months ended Sep. 30.

A stronger US economy is helping India’s $154 billion IT services and back-office process outsourcing industry, despite concerns over changes to immigration rules and negative publicity that the sector’s use of H-1B visas has attracted. India’s top IT company Tata Consultancy Services posted fiscal second-quarter dollar-term sales of 3.2 percent over the June quarter.

At Wipro, “we surpassed the milestone of $2 billion in quarterly revenues for IT Services on the back of rigorous execution of our strategy,” Neemuchwala said in a press release after close of Mumbai trading on Tuesday. “Our unique Digital capabilities powered growth in top clients and position us well to drive our clients’ digital transformation.”

Use of automation solutions and efforts to make operations more efficient, which saves money, helped expand margins, CFO Jatin Dalal said in the release.

Profits for the three months ended Sep 30 rose 6 percent to Rs 2,191.7 crore from Rs 2,067.2 crore for the year-earlier period, according to international accounting standards. That compares with the Rs 2,111 crore expected by the analysts at HDFC Securities.

The three months to September saw enough demand for tech services in the ‘Americas’, the world’s largest market, to lift traditional outsourcing by 47 percent over the previous year, while contracts for Software as a Service (SaaS) rose by 43 percent, Information Services Group, a consultancy, noted recently. ISG tracks every IT outsourcing contract worth at least $5 million annually, worldwide.

Wipro projects sales for the current quarter, which ends Dec. 31, and which is the only guidance the company offers,  will be in the range of $2,014 million and $2,054 million for its IT services business. That would be growth of as much as 2 percent over the September quarter, and compares with the 1 percent to 2 percent estimate at HDFC Securities.

Digital services contributed 24.1 percent of Wipro’s revenues for the September quarter, “driven by shifts of projects from traditional areas to digital in our larger clients,” Neemuchwala said. During the quarter, Wipro also acquired Cooper, a design and business consultancy, strengthening its ability to offer more sophisticated digital services.

Wipro’s revenues from cloud services, such as helping clients migrate their IT systems to the cloud, has hit the $1 billion annual revenue “run rate,” he said — meaning over the next 12 months, that line of business will likely do at least $1 billion in sales.

The overall share of revenues from digital services, at 24.1 percent, compared with 22.5 percent for the previous quarter. Such services include the related consulting business and the underlying IT services and backend work needed to deploy the actual digital solutions.

At a conference with reporters in Bengaluru, Neemuchwala added: “Adjusted for the seasonality, we are seeing an improvement in our growth trajectory in Q3 compared to Q2 and we are on a trajectory to match industry growth rates in Q4 of this year.”

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