Wipro Q4: The story behind numbers

[dwarakesh]

India's third largest software exporter Wipro Technologies beat market expectations by posting a 15 per cent increase in Q4 profits helped by weaker rupee.

However, the software major forecast a drop in revenue for the current quarter amid a weakened outlook for the outsourcing orders. The January-March IT services revenue was the first decline on quarter in at least five years as the harsh economic climate hit global outsourcing demand. But the company still declared a dividend of Rs 4 per share.

Here's an unveiling of Wipro Q4 numbers: Deals, clients, employee additions, pricing and more.

[dwarakesh]

What do numbers say

Wipro reported a 14.77 per cent rise in consolidated net profit at Rs 1,010 crore for the fourth quarter ended March, 2009.

The Bangalore-based firm had a net profit of Rs 880 crore in the same quarter of FY'08, Wipro said in a filing to the Bombay Stock Exchange. The total income surged 13.55 per cent at Rs 6,583.20 crore in the March quarter from Rs 5,797.40 crore in the same period last fiscal.

For the financial year ended March 2009, Wipro posted a 18.79 per cent growth rate in consolidated net profit at Rs 3,899.90 crore, while it had a net profit of Rs 3,282.90 crore in FY'08.

The total income for the fiscal year rose 27.87 per cent to Rs 26,108.10 crore over the last year.

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What pushed the numbers

Earnings were boosted by the integration of Citi Technology Services, which Wipro bought for $127 million from Citigroup in December 2008.

Also, a weaker rupee helped margins by 40 basis points. The rupee fell nearly 4 per cent against the dollar in the quarter, adding some buffer to profit margins of exporters.

Wipro's IT business margin rose to 20.8 per cent in the quarter from 20 per cent in the December quarter.

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Gloomy outlook

The company, however, projected a grim outlook for Q1 of fiscal year 2009-10.

It forecast revenue of $1.009 billion-$1.025 billion from its global IT services business for the quarter ending June 30, below the $1.058 billion it recorded in the just-ended quarter. The forecast includes the revenue estimate of Citi Technology Services.

The software exporter forecast sales at its information- technology services business will decline between $1.01 billion and $1.03 billion in the quarter ending June 30, from $1.07 billion in the year-earlier period.

Chairman Azim Premji said the company did "a major re-organization" of its software business at the beginning of the last financial year and hopes to emerge stronger than before. He added, "During the year, we focused our energies on executing meticulously. We re-architected the operating structures of all our businesses and adapted ourselves to the changing needs of environment. We are confident that with our broad portfolio of services."

[dwarakesh]

Operating margins up

New-York listed Wipro said operating margin for the IT services business was 20.8 per cent in the March quarter, up from 20 per cent in the December quarter.

According to the company's chief financial officer Suresh Senapaty, "The striking facet of our performance for quarter ended March 2009 was that we delivered on all operating parameters. We expanded our margins despite the headwinds of reduction in volumes and lower tailwind of forex gains." The IT services operating profits were up a healthy 24 per cent to Rs 1,073 crore.

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Pricing under pressure

Wipro said pricing fell by 160 basis points in the March quarter from October-December, as the global downturn pushed clients to seek price cuts.

CFO Senapaty said, "Today the environment is such that every customer is asking for price reductions." "We think in the short term, the weakness will continue."

Earlier Infosys and TCS too had said that they are feeling the pricing pressure as the clients are going through tough times and are renegotiating the rates.

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Clients and deals

The company added 20 new clients during the quarter and 110 new clients overall during the year.

The total number of clients in its IT services business, contributing over $1 million in revenue, however, fell to 427 from 436 in the previous quarter ended December 31, 2008.

During the quarter, the company did not see any major contract cancellations, but decision-making by clients was slower, said Senapaty. Wipro won a multi-million dollar, multi-year contract from Englewood, Colorado-based CSG Systems International Inc during the quarter. In financial services space, Wipro won a multi-year multi-million dollar deal spanning IT and BPO.

According to Premji, Wipro has generated a robust pipeline of deals, increased productivity and is well-positioned to tackle the subdued environment. New York-listed Wipro counts Citigroup, telecoms gear makers Cisco, Nokia Siemens Networks and Credit Suisse as its biggest clients.

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Employee additions

The company said it had 97,810 employees as of March 31, 2009, which included 74,986 employees in IT services business and 22,824 employees in BPO business.

This represents a net addition of 845 employees comprising a decline of 401 employees in IT Services business and an addition of 1,246 people in BPO business for the quarter.

Pratik Kumar, head of human resources, said "The company won't increase salaries in the current fiscal year." On deferring the pay hike, Premji said this was being done to minimize expenses.

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'FY2008-09 worst-ever'

Premji said that the financial year 2008-09 saw the most severe economic meltdown the world has seen in this generation, ummatched both in its geographic spread as well as severity.

The crisis battered the financial sector and moved on to real sector of the economy with a total freeze in credit market, significant downturn in corporate profitability, loss of confidence in business prospects and tapering of consumer spending.

"This resulted in the world economy and trade almost coming to a standstill," Premji said. "Coordinated action of central banks and fiscal stimulus by key nations helped bring back some confidence in the last quarter but emerging economic indicators lead one to believe the world economy will take some time to recover from the aftermath of this crisis," he added. He said, "The global economy and the information technology sector are now entering unchartered territory."

"While environment is challenging, the value proposition of the outsourcing in general and offshoring in particular has only strengthened," Premji said.

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Good dividend

The board has declared a dividend of Rs 4 a share, on shares of face value of Rs two each for the financial year ended March 2009.

Interestingly, Premji, who himself owns over 1.1 billion shares, will get Rs 464 crore through dividends for the year FY09.

source: indiatimes