Wipro Posts Strong Results Despite Weak Environment

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Wipro reported first-quarter results that met expectations amid a soft operating environment, but management signaled that solid demand is buoying the firm’s IT services business, which is encouraging. Wipro’s IT services business (78% of sales) delivered revenue of nearly $1.6 million in the quarter, representing growth of 0.2% sequentially (1.2% on a constant currency basis) as management noted that pricing pressure was not as fierce as expected. The firm booked 28 new customers in the quarter, including several large multiyear contract wins spanning the telecom, health care, retail, financial, and insurance industries.

This is encouraging, as it highlights near-term increased demand for data servicing, analytics, and infrastructure maintenance and improvement while reinforcing Wipro’s long-term market position. Operating margins took a hit in the quarter, (down roughly 100 basis points year over year) driven by wage hikes which were initiated in early June. We have witnessed firms such as Infosys institute similar wage increases, which may have triggered Wipro’s increase as a means of guarding against attrition.

Looking ahead, management offered upbeat guidance for the second quarter, with IT services revenues expected to come in at $1.62 billion to $1.65 billion (up 2% to 4% sequentially). We maintain some concern over the firm’s continued decline in utilization, which fell for the third straight quarter to 73.3%, but Wipro realized increased sequential growth rates from both top five and top 10 accounts in the quarter while voluntary attrition continued to decline, suggesting Wipro is progressing in the right direction.

Analysts have also been encouraged by the firm’s improving momentum in the health care segment, where growth has been driven by the implementation of cloudbased solutions. The firm is also seeing increasing opportunities in the energy space as it attempts to lessen its exposure to telecom, which has served as a drag on the firm in recent quarters. Management articulated strong momentum in the services market, yet acknowledged that the firm must remain agile as technological and infrastructural demands continue to evolve.

 

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