Wipro Technologies Q2 FY15 performance can be slower than industry avg growth rate

BANGALORE, INDIA: A series of consolidations and internal reorganization exercises seem to have pushed Wipro Technologies to be a more inward focused company than one mining and winning customers in the market place. This was pretty evident in Wipro's quarterly result declared for Q1FY15.

Wipro Technologies though showed some small recovery in its performance compared to its Q1 FY14. This close to 10 pc growth during Q1 FY15 is a shade better of its own performance compared to last financial year's Q1 and it was a 1.2pc growth QoQ, when compared with Q4FY14. Though, it's the best for Wipro since Q4 in FY12, but lower than the industry forecast of 14pc growth.

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Incidentally, Wipro's performance remained the lowest when compared with its peers like TCS, Cognizant, HCL Tech, Infosys and TechM.

Wipro's major vertical had shown encouraging growth in comparisons to its last year's Q1 results. The industry verticals like Manufacturing, Banking and Financial Services, Health Care and Telecom all grew like 4.3pc, 10 pc, 20pc and 15.5 pc respectively, which were a tad better than its Q1 FY14 performance, but for verticals like retail and energy and utilities. The incremental growth was contributed by India & Middle East business, Emerging Markets and BPO services. Americas and Europe did not come to party during this quarter and these geographies were weaker.

Junior level attrition could also put pressure on margins in future. With an attrition rate close to 17 per cent especially in the junior group of employees with 2 to 5 year experience, will lead to wage inflation and it might eliminate the partial advantage brought by better utilization rates in the coming quarters. The current utilization rate is close to 76pc and management expect it to rise to 80pc.

The second quarter guidance is not very exciting and appears to be weaker even after including Atco contributions. The 10 year deal of Atco will contribute to Wipro's future quarter revenues. Wipro need more such deals for its future growth.

Wipro added 20 more customers in the 1 million and above category compared to Q1 last year first quarter. The way forward will be to have more aggressive go-to-market approach for larger deals with the agenda of customer win and mining deeper in the mid-sized and small-sized customers' category deals.

Wipro saw a decline in number of customer in the 75million and to 100 million and above category due to top customers ramping down their projects. Though, there were some consolation spikes in deals within 5 million and 50 million and above categories. Wipro could take a leaf out of many global software companies inorganic growth route, where it can utilize its large cash pool to acquire companies in order to supplement and enhance their organization capabilities along with the acquisition of customers in the new segments and markets.

It will be keenly watched whether T. K Kurian's and his team aggressive strategy can help Wipro springboard on increasing discretionary IT spends and simultaneously signing of multi-year deals with larger scope and value customers like Outokumpu, Corning, Sanoma, Takeda and Atco etc. signed during this quarter.

(The author is head of Cyber Media Research)