Wipro Still Struggling with Growth Momentum, Hints at a Subdued Q1
Software services co, under new CEO Abidali Neemuchwala, meets its evenue projections for the fourth quarter, but sets the bar low with a guidance of 1-3% top line growth for April-June quarter; Co to buy back 40 million shares
Bengaluru: In the first full quarter with chief executive Abidali Neemuchwala in charge, Wipro continued with its familiar struggle for growth momentum, and projected that the first three months of 2016-17 will not be much better.
The Bengaluru-based company, which is owned mostly by chairman Azim Premji and his family, met its revenue projections for the fourth quarter and set the bar low with guidance of 1-3% top line growth for the IT services business during April-June 2016. The company said it would buy back up to 40 million shares at .₹ 625 apiece, spending up to .₹ 2,500 crore. The board also recommended a final dividend of .₹ 1 per share, taking the total dividend to .₹ 6. The Wipro stock closed 2.34% higher at .₹ 602.35 on the National Stock Exchange before the results were announced. An hour into trade, Wipro’s shares were trading at $12.93, down 0.35%, on the New York Stock Exchange.
“It (the turnaround) does take time. While I have some intermediate timelines in mind, publicly we can’t talk about how long it takes,” Neemuchwala told ET. “It’s not something that happens tomorrow, but it can’t take forever,” an echo of language employed by vice chairman TK Kurien, who was CEO for five years until February. Neemuchwala has set a revenue goal of $15 billion by 2020. Wipro ended the financial year with the topline of its IT services business growing by 3.7% to $7.35 billion. Revenue at the IT products business shrank by 13% to $449 million.
Revenue growth during the final quarter came in at 2.4%, helped along by
acquisitions, and the operating margin dipped 10 basis points to 20.1%. The company added a net 118 customers between January and March 2016. Wipro declined to provide details about how much of the top line growth, or the customer additions, were because of the four acquisitions worth $763 million it made in 2015-16. CFO Jatin Dalal said the company does “not look at organic and inorganic revenues separately as part of the company’s broader philosophy.” Wipro’s margins took a hit during the year due to cross-currency fluctuations and acquisitions. On Monday, Tata Consultancy Services surprised with better-than-expected top line growth and commentary, and Infosys, under CEO Vishal Sikka, kicked off earnings season last Friday by saying it expects to do better than the industry average this year. Wipro has continued to lag its peers, and analysts said they will watch Neemuchwala for actions that will signal a turnaround at a company
which has been under-performing for the whole of this decade.
“Wipro continues to be impacted by the lack of scale-up in large accounts, apart from the continuing challenges in the energy/telecom segments. Consistent revenue growth in future will make us more positive on the stock,” said Dipen Shah, head of Private Client Group Research, Kotak Securities.
Neemuchwala, sources said, has told his top lieutenants to shoot for at least 12-14% revenue growth in fiscal 2017, a task that will be harder if the company delivers a weak first quarter. In constant currency terms, revenue growth for the year 7.6% was well below Nasscom’s export growth estimate of 12.3%. Infosys’ sales grew by 9.1% in 2015-16 and TCS’ by 7.1%.
Wipro was rescued during the quarter by strong growth in the healthcare and life sciences business, while finance, telecom and energy were a drag. The company reported positive growth in regions other than Asia-Pacific and “other emerging markets”.
The IT Services business had a headcount of 172,912 employees at the end of March, compared with 170,664 employees at the end of December 2015.
Neemuchwala, sources said, has told his top lieutenants to shoot for at least 12-14% revenue growth in fiscal 2017