UPDATE 2-Wipro profit, margins top expectations; shares up

Fri Nov 2, 2012 12:03pm IST

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* Q2 net profit at 16.11 bln rupees vs 15.37 bln estimates

* Sees Q3 IT services sales growing 1.3-3.2 percent from Q2

* Shares rise as much as 3.2 pct, extend Thursday's gain (Adds CEO and analyst comments, share movement)

By Harichandan Arakali

BANGALORE, Nov 2 (Reuters) - Wipro Ltd, India's No. 3 software services provider, topped quarterly profit estimates and forecast modest growth, sending its shares up more than 3 percent and easing fears that global economic woes will curb outsourcing spending.

India's $100 billion IT services sector has seen a sharp slowdown in growth in recent quarters as western clients hold back on spending amid Europe's economic struggles and sluggish corporate earnings growth in the United States.

Wipro, which has invested in sales and marketing to boost orders, posted better-than-expected margins and its revenue forecast for the current quarter met market estimates, a relief to investors worried that its growth has lagged rivals in recent quarters.

"Growth is slightly subdued in comparison with peers, but they are taking all the steps in the right directions," said ICICI Securities analyst Kuldeep Koul, who has an "add" rating on the stock.

Profit for the three months ended September rose 24 percent to 16.11 billion rupees ($286 million) from 13.01 billion rupees in the year-ago period, well above analysts' estimates of 15.37 billion rupees, according to Thomson Reuters I/B/E/S.

The company forecast IT services revenue for the three months ending December would rise 1.3-3.2 percent from the September quarter to $1.56-$1.59 billion, in line with analysts' expectations of 1 to 4 percent growth.

Operating margins at its IT services business fell by a smaller-than-expected 30 basis points to 20.7 percent from the previous quarter.

"Margins coming down by not even 100 basis points is definitely a positive," said Ankita Somani, an analyst with Angel Broking in Mumbai. She had expected operating margins of 19.3 percent due to wage hikes in June.

For a graphic on Wipro results, click: link.reuters.com/bek73t

Shares in Wipro, which has a market value of $16.5 billion, rose as much as 3.2 percent after the earnings announcement, before paring gains to trade up 1.0 percent. The benchmark Mumbai market index was up 0.8 percent.

The result follows a move early last year by the company's billionaire chairman Azim Premji to replace the two co-CEOs of its IT business with another company veteran, T.K. Kurien.

POSITIVE ON SECOND HALF

"We expect the second half to be better in terms of growth rate, we are already seeing some momentum," Chief Financial Officer Suresh Senapaty said.

Total revenue for July-September rose 17 percent on a year earlier to 106.57 billion rupees, while Wipro added 53 clients for its IT services during its fiscal second quarter.

"I think the pipeline has remained more or less the same. It has gone up a bit, but what we're hoping for is that after the (U.S.) elections, closures (of deals or orders) will start," Kurien told reporters.

India's IT sector index has lagged the broader market this year but has rallied more than 12 percent since a July low as investors became more optimistic for stability in the global economic environment.

India's outsourcing sector generates more than 90 percent of its sales from providing services, including setting up IT networks and developing software applications, for overseas clients and counts the United States and Europe as its biggest markets.

Wipro said on Thursday it will fold all its non-IT services including consumer care and medical diagnostics into a new firm to focus on outsourcing, which accounted for 86 percent of its revenue in the fiscal year that ended in March.

The move was seen as an effort to boost growth amid cutthroat competition from local rivals Infosys Ltd and Tata Consultancy Services as well as global majors such as IBM and Accenture.

Last month, India's top IT services company Tata Consultancy and fourth-ranked HCL Technologies beat expectations for their second-quarter earnings, while No. 2 player Infosys posted profit that was in line with forecasts. ($1 = 53.7600 Indian rupees) (Reporting By Harichandan Arakali; Additional reporting by Sumeet Chatterjee; Writing by Aradhana Aravindan; Editing by Richard Pullin)

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