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Wipro Q2 Profit Beats Forecast

31 October, 2011

Wipro Ltd, India’s No. 3 software services exporter, on Monday beat street estimates with a 1 per cent increase in quarterly profit and forecast better-than-expected IT services revenue growth, sending its shares higher in a weak market.

Bangalore-based Wipro forecast third-quarter revenue of $1.50 billion to $1.53 billion from its IT services unit, which accounts for three-quarters of its total revenue, a rise of 2 per cent to 4.1 per cent from the second quarter.

“After many quarters of under performance, the company is showing the first signs of getting back on the track,” said Pralay Kumar Das, an analyst with Mumbai-based Elara Securities.

“The guidance for this quarter is reasonably aggressive. I was expecting at most a 3 per cent growth at the top end.”

Wipro has lagged bigger rivals TCS and Infosys in earnings growth in recent quarters, prompting a reorganisation of its key IT outsourcing business earlier this year.

As part of the restructuring, the company, which is also listed on the New York Stock Exchange, removed the joint chiefs of its IT business and named company veteran T.K. Kurien as the new chief executive.

Wipro added 5,240 staff in the September quarter in its IT services business, its strongest pace of headcount addition in seven quarters, a sign it expects outsourcing demand to improve in the months ahead.

“There is no immediate trigger for the valuation discount of Wipro to narrow with its more illustrious peers, but given the stock price and this quarter’s results, downside is limited,” Das said.

Wipro shares rose as much as 2.9 per cent after the results to Rs 385 in a Mumbai market that was down 0.7 per cent. Infosys, the No. 2 software services exporter and a trend-setter for the sector, was trading 1 per cent higher.

India’s showpiece $76 billion industry gets more than 90 per cent of its revenue from providing technology services to overseas clients and counts the United States and Europe as its biggest markets.

Europe is the second largest market for the software firms, and the euro zone debt crisis is a worry for the sector that has been looking to increase its sales to the region to hedge against their excessive exposure to the United States.

“Macroeconomic sentiments continue to remain uncertain,” Wipro’s billionaire Chairman Azim Premji said in a statement.

“We have seen growth momentum build up in our IT business with healthy volume growth,” he added.

Profit Beats Estimates

Indian outsourcing services firms including Wipro face fierce competition from bigger global rivals including IBM and Accenture.

Wipro, which develops software applications, integrates IT systems and manages call centres, said profit in the quarter rose to Rs 13.01 billion ($267 million) under international accounting standards from Rs 12.85 billion a year earlier.

Total revenue rose 18 per cent to Rs 90.94 billion, as the company added 44 new clients in its IT services business.

This compares with a Reuters poll profit forecast of Rs 12.76 billion on net sales of Rs 89.28 billion for the company, which counts Citigroup, Cisco and Credit Suisse among its clients.

Top Indian software exporter TCS posted a slightly lower-than-expected rise in quarterly profit earlier this month, while No. 2 Infosys met street forecasts in its earnings.

The top two outsourcing companies, however, sounded caution about the business outlook in the near-term due to global economic uncertainty.

Wipro’s shares, valued at about $18.3 billion, fell nearly 24 per cent this year through Friday, underperforming the 16 per cent drop in the sector index and a 12.6 per cent fall in the Mumbai index.

 

 


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Wipro Q2 Profit Beats Forecast

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