Forbes India 15th Anniversary Special

Wipro Q3 profit falls; expects 'uptick' in digitalisation

CEO Neemuchwala expects businesses will accelerate their technology spending aimed at gearing up their organisations towards digitalisation

Harichandan Arakali
Published: Jan 25, 2017 05:44:22 PM IST
Updated: Jan 25, 2017 11:24:01 PM IST

Wipro Q3 profit falls; expects 'uptick' in digitalisation
Image: Punit Paranjpe/ REUTERS

Wipro, India’s third-biggest software services company, reported fiscal third-quarter profits fell 5.7 percent, roughly matching street expectations, and joined rivals Tata Consultancy Services and Infosys in signaling a spending pick up in the quarters to come as customers ramp up digitalisation.

Profits for the three months ended December 31 fell to Rs. 2,114.6 crore from Rs. 2,245.8 crore for the year-earlier period, according to international accounting standards, Wipro said in its press release. That compares with a 5.8 percent fall expected by analysts at Mumbai brokerage ICICI Securities. Profits rose 2.3 percent sequentially from Rs. 2067.2 crore for the previous quarter.

India’s $110 billion-plus IT sector is facing the likelihood of stiffer rules on the H-1B non-immigrant visas in America, the industry’s biggest market on the one hand. On the other, there is a massive opportunity to consult on business technology and deliver cheap-to-build and quick-to-deploy solutions that run on the Internet.

“In the current (calendar) year, we believe clarity will emerge and we expect an uptick” in investments by clients in gearing their operations up for business in a digital world, CEO Abidali Z Neemuchwala said in a statement. “We don’t expect customer budgets to change drastically; however, we do expect that there could be more momentum.”

On the digital front, Wipro’s solutions and the related IT services now accounts for over a fifth of the company’s revenues, Neemuchwala said. Digitalisation related revenue rose 9.9 percent from the previous quarter, he said. Among customers Wipro provided services in the area were three large global banks. Further, after the demonitisation announcement in India, Wipro helped six major banks and fintech clients to handle “regulatory changes and the increased transaction volumes,” the CEO said.

Wipro’s numbers for the three months ended December 31 include some earnings from Appirio, a cloud-service provider that the Indian IT company purchased in a deal valued at $500 million — the transaction closed in the second half of November. Wipro expects current-quarter IT services revenues to range from $1,922 million to $1,941 million, the Bengaluru company said in a press release after close of Mumbai trading on Wednesday.

In comparison, Wipro’s IT services sales rose 0.6 percent in constant currency terms to $1,902.8 million for the December quarter. Including Appirio, Wipro’s revenues would rise about 1 percent in constant currency or 0.5 percent in US dollar-terms, analysts at ICICI Securities estimated. That compares with Wipro’s own October forecast range of between no growth at $1,916 million and an increase of as much as 2 percent to $1,955 million.

Sales at second-ranked Infosys fell 1.4 percent from the September quarter, hit by an anticipated cancellation of a large contract by Royal Bank of Scotland, while No. 1 company TCS reported a 0.29 percent sequential increase in fiscal third-quarter sales.

Wipro has been the more aggressive pursuer of M&A among its Indian competitors, based on publicly disclosed details by these companies. Appirio’s acquisition added customers including Coca Cola, Johnson Controls and Facebook, the Indian IT company said in October, announcing the acquisition. The deal could add upwards of $200 million to Wipro’s annual revenues, according to an April report in Indianapolis, where Appirio is based.

On Wednesday, Wipro announced one more acquisition, albeit a very small one in comparison with its size. Wipro has agreed to buy Brazil’s InfoServer, an IT services provider to financial clients, in a deal valued at $8.7 million.

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