Wipro Q3 profit up 2%, meets estimates

Wipro's revenues rose by 7.1 per cent to Rs 12,951.6 crore in the third quarter.

India's third-largest software exporter Wipro Ltd on Monday posted 2 per cent rise in December quarter net profit as business was hit by Chennai rains and seasonal furloughs.

The net profit rose to Rs 2,234.1 crore (Rs 22.34 billion) in the October- December period of the current fiscal, while revenue from IT services grew 9 per cent to Rs 12,310 crore ($1.84 billion), meeting guidance.

Operating margins for its IT services business, calculated as sales minus costs, fell to 20.2 per cent from 21.8 per cent a year earlier due to floods in Chennai where it employs 13 per cent of its staff.

"We delivered revenues in line with our guidance. We saw a pick-up in large deal closures led by global infrastructure services," Wipro CEO T K Kurien said.

"It is becoming increasingly clear that customers want to simplify operations and optimize their IT spend while investing in digital to transform their business. We are well-positioned to take advantage of this trend," he added.

Wipro forecast IT services revenue to grow marginally between $1.87 billion to $1.91 billion for the fourth quarter ending March.

The company had posted a net profit of Rs 2,192.8 crore (Rs 21.92 billion) in the third quarter of the previous fiscal. Its overall revenues rose 7.1 per cent to Rs 12,951.6 crore (Rs 129.51 billion) in October-December this year from Rs 12,085.1 crore (Rs 120.85 billion) a year-ago.

"We are focused on driving market share growth in our core businesses through integrated domain and technology services, while investing for the future in building differentiated Digital capabilities," said Abidali Neemuchwala the firm's new chief executive.

Neemuchwala, who will start in his new role from February 1, said: "We will leverage our strong culture of innovation and extremely talented employee pool to build compelling value propositions for our customers."

Revenue from its energy, natural resources and utilities business dropped to 14.4 per cent in October-December quarter from 16.4 per cent in the year ago period, Wipro said in a statement.

Wipro had already warned of a muted performance for the quarter on account of furloughs and Chennai-floods. It had said it expected to meet the lower half of its guidance range of $1,841-1,878 million.

While the numbers are in line with Wipro's own estimates, the performance is pale in comparison to rival Infosys which reported 6.6 per cent growth in net profit and 15.2 per cent jump in revenues.

Tata Consultancy Services also reported 14.2 per cent jump in profit and 11.7 per cent rise in revenues in the December quarter.

For the fourth quarter, Wipro expects its revenues from the IT services business to be in the range of $1,875 million to $1,912 million.

Senior vice-president and Head of Private Client Group Research at Kotak Securities Dipen Shah said Wipro continues to be impacted by the lack of scale up in large accounts, apart from the continuing challenges in the energy/telecom segments.

"The Q3 FY16 results were lower than our estimates...Wipro's valuations are at a discount to larger peers. Markets will accord higher valuations after seeing consistent high revenue growth, we believe," he added.

Wipro stock closed 0.72 per cent up at Rs 547.35 on BSE.

Responding to a question on impact from Chennai, Wipro chief financial officer Jatin Dalal said there was roughly 40 basis points impact.

"We were expecting very large revenue impact also... But teams worked hard to limit the revenue impact. So finally when we closed our books the revenue impact was a small number, but cost impact certainly flew, and it is roughly 40 basis points which is the impact we have taken both on account of cost and little revenue that we actually lost," he added.

On the demand environment, Kurien said the overall environment is stable and "the mood is largely positive on domestic demand and corporates are in a cost reduction mode in the US".

While clients are still finalising their IT budgets, Wipro expects to see a strong momentum in the US, he added.

"Continental Europe has a lot of potential and our acquisition of Cellent will enhance our capability in the DACH region (Germany, Austria, Switzerland). We are seeing pickup in large deal wins," Kurien said.

Large deals are highly competitive with high pricing pressure, which are being partially offset through higher use automation and AI technologies, he added.

Kurien expressed confidence that Abidali Z Neemuchwala (currently CEO-designate) is the "right person to lead the company into the future".

Earlier this month, Wipro named Neemuchwala as its new chief as part of efforts to regain market share from competitors like TCS and Infosys. He will take on his new role from February 1.

Dalal said the impact on revenues from the Chennai floods were minimised significantly by execution of Business Continuity Plans (BCP).

"The additional expenses incurred in deploying BCP impacted operating margins for the quarter," he added.

Wipro added 2,268 people to take the headcount of the IT services business to 1,70,664 at the end of the December 2015 quarter. It added 39 new customers during the said quarter.

Kurien said the company won seven digital deals in the third quarter and is making progress on its focused programme to train 10,000 employees in digital technologies during the year.

Wipro's IT products segment delivered revenue of Rs 6.5 billion ($98 million) for the quarter ended December 31, 2015.

The company has approved an interim dividend of Rs 5 per equity share of par value Rs 2 each.

Wipro saw its revenue from energy, natural resources and utilities clients drop 10.4 per cent, while that from global media and telecom fell 0.2 per cent y-o-y.

Neemuchwala said the segment's performance will improve once the oil prices stabilise.

"We will stay the course, we have a unique strength in the energy and utilities segment, we dominate the market. We have also focused on share of the wallet," he added.

He added that the company is focused on driving market share growth in core businesses through integrated domain and technology services, while investing for the future in building differentiated digital capabilities.