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Wipro posts slowest Q3 profit rise since 2002

Numbers suggest the company is still over-dependent on traditional outsourcing

Harichandan Arakali
Published: Jan 18, 2016 11:25:06 AM IST
Updated: Jan 18, 2016 12:27:44 PM IST
Wipro posts slowest Q3 profit rise since 2002
Image: Abhishek Chinnappa / Reuters
TK Kurien, CEO, Wipro

Wipro Ltd., India’s third-largest software services exporter, said fiscal third-quarter profit rose 1.8 percent, and forecast sales for the current quarter will rise between 1.9 percent and 4 percent sequentially. That is Wipro's slowest December-quarter increase in profits since 2002 and suggests the company, like its other large peers, are still reliant very heavily on conventional cost-cutting oriented outsourcing contracts and not moving fast enough to meet rising demand in end-customer focused digital services.

Indian IT sector's "investments in design and customer experience related skills are few and far between and their digital capabilities seem mostly bolted-on their traditional business," Frederic Giron, a vice president at IT consultancy Forrester Research said in an email.

Wipro, Infosys and Tata Consultancy Services Ltd., India's top IT company by sales, are making less money on their traditional IT services — Infosys reported a 4.5 percent year-on-year decline in billing rates at the end of the third quarter — but see new opportunities in digital transformation, a catch-all term for digitising business processes, artificial-intelligence-based automation, big-data analysis and Internet-based services.

These new services are meant to help businesses from banks to retail chains to automakers boost revenue by anticipating what their customers want rather than only cut costs by moving backend IT jobs to cheaper centers in India.

If only they acquired the design and business knowhow to become vendors that can help clients become "customer obsessed," the Indian IT services providers could aim for a bigger chunk of what Forrester Research estimates will be a $45.6 billion market worldwide this year, Giron said.

Companies in the Indian IT sector's biggest markets, the U.S. and western Europe, "will accelerate their digital transformation in 2016," Giron said. Large businesses in the U.S., India IT's biggest market, are expected to spend on both modernising their backend IT systems and on incorporating software tools that can help them take advantage of the humongous volumes of data that their customers as well as their supply chains are generating in the digital era.

Forrester estimates only 16 percent of the companies it surveyed in a recent study believe they have the necessary people and skills to execute on their digital strategy. This talent shortage will push the businesses to turn to a diverse portfolio of service providers, but "the challenge for Indian IT companies is that their capabilities in the digital transformation service space are still weak," Giron said.

At Wipro, consolidated net profit for the three months that ended Dec. 31 rose to Rs 2,243 crore ($332.6 million) from Rs 2,203 crore  a year-earlier, Bangalore-based Wipro said in a statement to the stock exchanges on Monday. Sales for the current quarter that ends March 31 will rise to between $1,875 million and $1,912 million, or an increase of 1.9 percent to 4 percent, at its IT services business unit, which accounts for most of its revenue and profits, Wipro forecast. The company, whose customers include Citigroup Inc., BP PLC and Telenor, doesn't provide any other projections.

Kurien, who took over as Wipro's CEO four years ago — as Chairman Azim Premji sought a turnaround at the company, which had started to lag peers — had set himself the ambition of achieving and sustaining 4 percent quarter-on-quarter growth for the IT services business in dollar terms.

As he hands over the CEO's reins to Abidali Z. Neemuchwala, an import from Tata Consultancy, who is currently the COO at Wipro, that target has proved elusive. However, Kurien has brought back some large-deals momentum in areas that still account for the bulk of the revenues and profits of the sector.

During the quarter, "we saw a pick-up in large deal closures," Kurien said in a press release. "It is becoming increasingly clear that customers want to simplify operations and optimise their IT spend while investing in Digital to transform their business." On Feb. 1, Kurien will become executive chairman and Neemuchwala, the new CEO at Wipro.

Wipro's larger Bangalore rival, second-ranked Infosys Ltd., signalled a pickup in demand for its services on Jan. 14. Infosys raised its full-year sales forecast to between 12.8 percent and 13.2 percent growth over the previous fiscal year on a constant-currency basis, which eleminates changes due to currency fluctuations, from an earlier 10 percent to 12 percent range. Tata Consultancy Services Ltd., which saw its revenues fall in the December quarter over the previous three-month period doesn't provide a forecast.

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