Covid-19 to drag growth: Wipro

IT company sees short-term impact on gross profit margin

IT services firm Wipro said on Monday that the present crisis was likely to hit its overall financial performance, with gross profit margins coming under pressure in FY21.

In a filing to the US Securities and Exchange Commission, however, Wipro said the impact couldn’t be accurately gauged.

“The conditions caused by Covid-19 could affect the rate of customer spending, through cancellations or ramp-downs of existing projects, as well as increased requests for furloughs and requests of price discounts — all of which could adversely affect our future revenues, operating results, and overall financial performance,” the filing stated.

Wipro had earlier refrained from providing any growth guidance for Q1FY21, factoring in the uncertainties.

The Azim Premji-promoted firm also flagged concerns over increasing pressure on its cash flow, in the wake of the pandemic.

“Macroeconomic conditions caused by Covid-19 could also result in financial difficulties for clients, including limited access to credit markets, insolvency, or bankruptcy. Such conditions could cause clients to delay payments, request modifications in payment terms, or default on payment obligations, all of which could negatively impact our liquidity and cash generated from operations,” the firm added.

Wipro, which announced the appointment of Capgemini’s top executive Thierry Delaporte as its next chief executive officer, last week, has lagging peers in revenue growth in recent years.

In FY20, it posted 1.7 per cent growth in revenues from the IT segment, at $8.26 billion, compared to 9.8 per cent for Infosys and 7.1 per cent for TCS.

As regards the impact of the pandemic on gross profit margin, Wipro said: “In the short term, there may be a decrease in gross margins on account of any decrease in technology spending, lower demand for IT products, lower rate of customer spending, and delay in customers’ purchasing decisions.”

In order to conserve cash, Wipro is pursuing various cost-optimisation moves such as rationalising expenses pertaining to travel, facilities, and other discretionary spends such as marketing events, besides deferment of salary increments.

“We are deploying workforce from our existing pool of talent, and new hiring will be done only for business-critical reasons,” it said.