April 18, 2008 / 7:13 AM / 10 years ago

Wipro Q4 net up, but slowest growth in 5 years

BANGALORE (Reuters) - Wipro Ltd, India’s third-largest software services exporter, posted its slowest quarterly earnings growth in about 5 years, and said it was cautious about its near-term prospects because of global market uncertainty.

Wipro on Friday forecast its combined IT services revenue -- including those of its India and Asia-Pacific IT services and product arms -- would rise to $1.06 billion in April-June from $1.03 billion in January-March.

“The global economic outlook has changed significantly since the beginning of the calendar year,” Chairman Azim Premji said.

“We look at fiscal 2009 with cautious optimism. The market situation is changing rapidly, which has a bearing on our immediate business dynamics. Given the uncertainty in the environment, we remain cautious, but resilient,” he said.

The Indian stock market is closed on Friday for a local holiday. Trading resumes on Monday.

Wipro, which offers IT solutions such as systems integration, software application development and back-office services, said January-March net profit rose 1.7 percent to 8.75 billion rupees ($220 million) from 8.6 billion rupees a year ago.

A Reuters poll had forecast a mean net profit of 8.8 billion rupees for Wipro, which counts Cisco, Nortel, and Credit Suisse among its clients.

Wipro said wage increases in the March quarter impacted margins by 100 basis points. It added 29 new clients in the quarter, and won three multi-year, multi-million dollar deals.

The deal pipeline looked good, Chief Financial Officer Suresh Senapaty said, but there could be delays.

“Customers are talking about flattish to maybe slightly lower budgets, but they are all wanting to do more offshoring.”

“Since the decision-making could get delayed, given the uncertain situation, we think most of the fructification would happen after 3-6 months,” he said.


India’s No.2 software exporter, Infosys Technologies, on Tuesday posted a near-10 percent rise in profit and gave a confident medium-term outlook, but sounded a note of caution on its near-term prospects.

Fifth-ranked software service exporter, HCL Technologies Ltd, increased its quarterly profit by 3.2 percent, and kept its full-year outlook for revenue growth of 35 percent.

Leader Tata Consultancy Services Ltd, which is expected to report a 17 percent rise in quarterly profit on Monday, said last month that two of its 15 biggest clients had delayed some projects during the March quarter.

Growing evidence of a U.S. recession is a major concern for India’s $64 billion software services sector, which gets more than half its revenue from the world’s largest economy.

But IBM on Wednesday posted stronger-than-expected earnings and raised its 2008 outlook, sending an encouraging signal about technology earnings.

Wipro, where U.S. revenue made up 61 percent of its overall revenue in the March quarter, expects an improved second-half to hold or grow margins in 2008/09, Senapaty said.

“We think, by talking to various customers, that offshoring will continue to be the main driver for them, particularly to deal with the lower or flattish budgets they have,” he said.

“(But) we would expect more of the growth back-ended,” or in the second half of the year to March 2009.

Comparatively lower wages and competent English-speaking workers have helped India’s software services firms thrive by winning outsourcing contracts from overseas clients like Goldman Sachs, Airbus and Qantas.

But the boom of recent years has given way to rapidly slowing profit growth, as export-driven software services companies battle for new customers and raise prices in a sluggish economy.

Most software firms’ sales cycles are growing longer as their western clients either delay or put on hold non-essential spending on technology in an uncertain business environment.

Indian software exporters get the bulk of their revenue from banks and financial firms, sectors which have been battered by the turmoil in global financial markets.

Shares in Wipro, majority-owned by its billionaire chairman, fell 19 percent in the March quarter, outperforming a 22 percent decline in the IT sector index and a 23 percent drop in the main index.

Wipro, which Premji took charge of at the age of 21 after the sudden death of his father when the company was making cooking fat, on Friday said it appointed Girish Paranjpe and Suresh Vaswani as joint-CEOs of its IT business.

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