Q2 Results: Wipro’s Other Businesses Come To Rescue As IT Services Remains Flat
Wipro’s net profit rose 6.6 percent sequentially to Rs 2.561 crore in the July-September quarter.
Wipro Ltd.’s consolidated operating margin and profit beat estimates in a quarter where the company absorbed the impact of wage hikes and its core IT services business witnessed subdued growth.
Net profit rose 6.6 percent sequentially to Rs 2,561 crore in the quarter ended September, according to its exchange filing. That compares with the Rs 2,280-crore consensus estimate of analysts tracked by Bloomberg.
- Revenue rose 2.3 percent quarter-on-quarter to Rs 15,130 crore.
- Operating profit increased 6.6 percent over last quarter to Rs 2,613 crore.
- Operating margin widened 60 basis points to 17.3 percent.
“We delivered operating margins in a tight range after absorbing the impact of two months of wage hike,” Jatin Dalal, chief financial officer at the Bengaluru-based company, said in a media statement. “Growth remains our priority and we remain invested for future.”
Wipro’s IT services business, that contributes majority of its revenue, rebounded but remained weak, growing at 0.5 percent in dollar terms. The margin of Wipro’s IT business contracted for the fourth straight quarter. The company forecasts its IT services business revenue to range between $2,065 million and $2,106 million—translating to a sequential growth of 0.8-2.8 percent in the next quarter.
The big hit to IT services came from a slowdown in the U.S. and Europe’s financial sector. “The impact of a slowdown in BFSI is very visible in Wipro,” said Urmil Shah, analyst at IDBI Capital. “We’ve heard that from other IT players also.”
Shah said other businesses of Wipro—IT Products and India State Run Enterprises—kept its margin afloat and helped the company to outperform.
“The IT Products business had a loss of $407 million in the first quarter. That has turned green this quarter at $149 million, an improvement of over $500 million. The loss at the India SRE business, too, has reduced by around $500 million,” Shah said. “That added 70 basis points to the margin. This is what has moved the needle according to me.”
But concerns loom large for Indian IT companies with global headwinds shrouding the future. A deepening economic slowdown in Europe, greater Brexit-related uncertainty and increased trade tensions between the U.S. and China could result in slower sales growth as clients delay spending. Research firm Gartner expects the risk of an economic downturn “high enough” to warrant preparation and planning.
Shares of Wipro closed 0.14 percent higher ahead of the results, compared with the S&P BSE Sensex’s 0.76 percent gain.
Watch the management commentary on Q2 results.