Wipro results cheer, but outlook baffles investors

BANGALORE, INDIA: Despite delivering an better-than-expected results boasting an 18 per cent YoY growth, Wipro Limited's revenue guidance continues to remain flat.

At the announcement of its Q3 FY2013 results on Friday, the company indicated that the growth of its outsourcing business might hit a maximum of 3 per cent in the fourth quarter, thereby disappointing investors, who were hoping for a turnaround, as it happened with Wipro's peers, Infosys Limited and HCL.

According to the company, the next quarter's revenues would be in the range of $1,585 million to $1,625 million, as against $1,577 million posted in third quarter FY 2013.

"The overall mood on economic growth continues to be muted," Wipro Chairman Azim Premji stated, which was attested by chief executive officer of IT Services business, T.K. Kurien. He said that the company is a bit cautious in its outlook, owing to the fiscal issues in the U.S..

The IT Services business of the company added 2,336 people during the Oct-Dec quarter taking the total headcount to around 142,905 employees as of December 31, 2012. During the quarter, it added 50 new clients.

On the results, Dipen Shah, head of Private Client Group Research, Kotak Securities, said, "The 1 per cent de-growth in volumes was disappointing, though productivity increases were significant. Increased efficiency in run-the-business projects has resulted in improved efficiencies though at the cost of volume growth, we understand."

"Margins were in line with expectations. The volume performance is much lower than that reported by peers. We expect the stock to attract better valuations once volume growth starts improving."

But, Kurien expressed confidence it is just a matter of time before volumes bounce back to a positive growth curve. "On the run side of the business, we are seeing a decline in the run budgets. While on the discretionary budgets, which are part of the change side, we see it coming in quarter-on-quarter and we see spikes in that part of the budget."

On the discretionary spend side, the CEO said that they foresee volume coming back, though that would depend on their customers' willingness to spend.

"On the run side of the business, we will continue to drive productivity as we move from time and materials contracts into more fixed price and outcome-based contracts. So, in that area, we will see a volume decline. On the other hand, on the chain side of the business, as we bring in more revenue, we would see a bump up in terms of volumes," explained Kurien.