Wipro snaps quarterly revenue growth trend, even as digital picks up

The company missed some analyst estimates and the December quarter's earnings reflect a 'customer insolvency event' as well

g_102651_wipro_280x210.jpgImage: Punit Paranjpe / Reuters

Wipro missed street estimates for its fiscal third-quarter earnings, even as India’s third-biggest software services company reported a pickup in its digital services, which now account for a quarter if its revenue.

Profits for the three months ended December 31, 2017 fell 8.2 percent to Rs. 1,937.1 crore from Rs. 2,109.4 crore for the year-earlier period, according to international accounting standards, Wipro said in its press release, after close of Mumbai trading on Friday. Profit margins were hurt by a Rs. 317.5 crore provision to account for a “customer insolvency event” Wipro said.

Barring that, profits rose 4 percent year-on-year, the company reported. That compares with the Rs. 2,175 crore estimate at brokerage HDFC Securities. Profits fell 11.6 percent sequentially from Rs. 2,191.7 crore for the previous quarter.

Billionaire Azim Premji’s Wipro, however, joined larger rivals Tata Consultancy Services and Infosys in reporting more traction for its digital services. The Bengaluru company said it also won contracts to help clients do more work on the cloud, using the know-how from Appirio, which Wipro purchased in the US last year for $500 million.

“We continue to see strong growth in our digital ecosystem,” CEO Abidali Z. Neemuchwala told reporters in a conference, discussing the results in Bengaluru. Wipro’s digital services grew over 5 percent each quarter over the previous one for the last 12 months, he said. The company is also “rapidly expanding” its consulting business, growing it 7 percent sequentially each quarter in the last 12 months.

Sales for the October-December period, which is Wipro’s fiscal third quarter, was $2,013 million for the company’s IT services business, which accounts for most of Wipro’s revenue and profit. That compares with $2,013.5 million for the previous quarter, and Wipro’s October projection of between $2,014 million and $2,054 million. December-quarter revenue failed to extend the three-quarter sequential rise in sales, Wipro had notched up over the previous nine months.

Analysts at Mumbai brokerage HDFC Securities expected sales of $2,035 million, which would have been a 1 percent sequential increase. That would have put Wipro in line with sales increases reported by Tata Consultancy Services in Mumbai and Bengaluru’s Infosys.

“Overall, we have been seeing an improving trajectory of growth over the past four quarters and our Q4 guidance further reflects that,” Chief Executive Neemuchwala added.

Wipro expects to grow sales in the current quarter to between $2,033 million and $2,073 million for its IT services business, which accounts for most of its sales and profits. IT products account for a tiny portion as well.

“While there are some customer-specific uncertainties, commentary from our clients look positive and we are on the right track” Neemuchwala said. “We don’t expect customer budgets to change drastically; however, we do expect that there could be more momentum.”

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