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

The Economic Times - - Companies - Our Bureau

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

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