Wipro results seen supported by domestic sales

Rosemary Arackaparambil

Better sales at home could help India's Wipro Ltd. defy a fourth-quarter

downturn in overseas business, but earnings to be announced on Friday may not

close the gap with rival Infosys Technologies, analysts say.

A Reuters poll last week showed January-March net profit at Rs 2.35 billion

($48 million), up 5.1 per cent against October-December's 3.3 per cent growth.

Sales are expected to have grown 4.9 per cent to Rs 9.19 billion.

But analysts see Wipro's anticipated 8.05 per cent growth in net profit for

Q4 on the year as less impressive than Infosys Technologies' 16 per cent rise in

the same period.

Wipro, an IT services provider with a larger exposure to the troubled

telecoms sector than Infosys, is estimated to see sales on the year fall 2.14

per cent.

Pramod Gupta, analyst at Enam Securities, whose net profit forecast is a high

Rs 2.5 billion, believes Wipro's global IT revenues are generally improving, but

a non-recurring hardware deal with U.K. utility Lattice Group skews the picture

this quarter.

"So even after discounting a 2-3 per cent pricing decline, the margins

should actually expand as the staff utilization rate seems to have gone

up," he said. Telecoms account for about 17 per cent of Wipro's revenue,

down from a peak of 25-30 per cent, but still a worry for earnings. Telecomm

equipment makers like Nortel and Lucent are among top clients.

Wipro has resisted cutting its billing rates too boost competitiveness. But

after the third quarter, Vice-Chairman Vivek Paul indicated Wipro could

reconsider the strategy. There was no point "sitting in an ivory tower and

watching the market go by," he said.

"This may be the first quarter of decline in billing rates for

Wipro," said Inquire's Vaze.

Lattice revenue slows

Wipro has said global IT revenue -- which contributes about 70 per cent of

the total -- could drop five per cent over the third quarter. The lower forecast

is believed to be accounting for lower revenue from the Lattice group -- its

largest client in the third quarter -- for which it is implementing a systems

integration project.

But a large component of the revenue it earned from that project in the

quarter was from selling a hardware product, which is not expected to recur in

January-March, analysts say.

Margins on hardware tend to be lower than software services and the larger

proportion of software sales in global IT revenues in the fourth quarter will

improve overall margins of the business, Inquire Indian Equity Research's Mahesh

Vaze said.

Guidance key

Analysts are keen to hear about Wipro's outlook and forecast for the current

financial year, after Infosys cheered the markets last week with a projection

for current year revenue growth of 17-20 per cent, which was at the upper end of

expectations. Paul told employees at a conference in March that he expects to

see more business from abroad, as more overseas customers look to get cheaper

billing rates for large volume contracts offshore.

New York Stock Exchange-listed Wipro had 225 clients at end-December and 80

per cent of its 9,000-strong workforce are based in India while the rest work at

client sites abroad. Wipro also has interests in computer hardware and consumer

goods.

The fourth quarter performance of Wipro Infotech -- its hardware and

maintenance business, which mainly caters to the domestic market -- would have

to be watched, said Dipankar Choudhury, analyst with I-Sec.

This division, which contributes about 20 per cent of Wipro's revenue, tends

to show higher income in the fourth quarter as businesses use up their budgets

at the year-end, he said.

Wipro's shares have gained 12 per cent since the start of 2002, ending

Wednesday at 1,794.55 rupees. They have outperformed the Bombay exchange

infotech index, which rose over four per cent.