April 25, 2018 / 10:42 AM / a year ago

Wipro sees weak first quarter revenue growth after clients go bust

BENGALURU (Reuters) - India’s third-biggest software services exporter Wipro Ltd on Wednesday forecast weak growth in revenue during the current quarter after two clients went bankrupt and it lost business in the U.S.

FILE PHOTO: The logo of Wipro is seen inside the company's headquarters in Bengaluru, January 19, 2018. REUTERS/Abhishek N. Chinnappa/File Photo

Bengaluru-headquartered Wipro said on Wednesday it expected revenue from its key IT services business to be in a range of $2.02 billion to $2.07 billion in its fiscal first quarter to end-June as it reported a bigger-than-expected fall in fourth-quarter net profit.

That would mean a fall of 2.3 percent to a rise of 0.1 percent from the $2.06 billion revenue it posted in the March quarter.

Wipro’s finance chief Jatin Dalal said the impact on revenue could last “at least for a couple of quarters”, while salary increases effective June 1 will also add to costs.

“Through the year we will improve margins but in Q1 we will have the revenue headwind as well as the one-month impact of the salary increases,” he said.

In January, Wipro said a global client had filed for bankruptcy. Earlier in April it said its net profit would be hit by between 65 and 75 basis points after an Indian telecom client filed for insolvency. It has not named the clients.

Wipro’s unit HealthPlan Services in the United States is also losing revenue due to the weakening of Obamacare under the Donald Trump administration, Dalal said.

Mumbai brokerage Emkay called Wipro’s revenue guidance “disappointing” and said that actual growth may be lower as the company divests its hosted data centre services business to U.S.-based Ensono.

Wipro’s chief executive Abidali Neemuchwala, however, said he was betting on deals in the digital space which he said were getting bigger. Good execution of such deals will hopefully generate follow-on business, he told a news conference.

He also said Wipro’s goal to have an annual revenue of $15 billion by 2020 could take longer to achieve.

India’s $154 billion software services industry - led by Tata Consultancy Services and Infosys - is facing a margin squeeze in its legacy business such as routine infrastructure maintenance as clients increasingly demand more work for less money.

Digital services are the new, long-term opportunity for most Indian IT firms as they help western clients transform traditional businesses and prevent them from getting disrupted by tech-savvy and agile start-ups.

For the fiscal fourth quarter to end-March, Wipro’s net profit fell 20.3 percent from a year earlier to 18.03 billion rupees ($270 million), missing analysts’ expectations of 21.32 billion rupees.

Revenue from operations fell 1.6 percent from a year earlier to 137.69 billion rupees.

Reporting by Sankalp Phartiyal and Tanvi Mehta, additional reporting by Jessica Kuruthukulangara Editing by Mark Potter and Elaine Hardcastle

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