No impact of uncertainty on IT business: Premji (Lead)

July 20th, 2011 - 9:02 pm ICT by IANS  

Bangalore, July 20 (IANS) Global IT services business continued to remain strong despite uncertainty and a volatile macro-economic environment, Wipro chairman Azim Premji said Wednesday.

“There is some uncertainty as macro-economic environment continues to be volatile. But IT services business continues to be strong,” Premji told reporters here after declaring the IT bellwether’s results for the first quarter (April-June) of this fiscal (2011-12).

Citing findings of global technology research firm Gartner, which revised its estimate on IT spending to 7.1 percent for this year from five percent in January, Premji said customers were prepared for longer period of economic uncertainty and looking for avenues to grow their business apart from reducing cost.

Referring to the sovereign debt crisis in Greece going back and forth, Premji said though it was more or less on (expected) line, its strategic effect on Spain, Italy and Portugal remained to be seen.

“So far as the US is concerned, it is the raising of the debt ceiling. Our judgement is that it will be passed by the Congress, though still vacillating back and forth.”

Noting that the US market had adjusted to the high rate of unemployment, Premji said it was not a variable thing that it would affect the company’s operations at this point of time.

“In the Middle East too, the uncertainty which occurred so far is unlikely to be ignited in Saudi Arabia,” he said.

Asserting that appropriate investments were being made to create a differentiation in the market place, Premji hoped the global software major would return to solid growth rates again in the coming quarters.

“Post-re-structuring, the management team has settled into a new rhythm and there is much more optimism in the organisation now than 3-6 months back. The new organization has settled down well and we are started seeing results,” he pointed out.

Wage hike and higher tax rate, however, impacted the company’s net profit in the first quarter (April-June) of this fiscal (2011-12) resulting in 2.9 percent sequential decline to Rs.13.35 billion (Rs.1,335 crore).

“A wage hike of 10-12 percent and 3.1 percent higher effective tax rate from 16 percent had a sequential impact on net income in the quarter under review. We see a similar impact on operating margin in second quarter (July-Sept) from these twin factors,” Wipro chief financial officer Suresh Senapaty told IANS.

On annualised basis, however, net profit grew marginally one percent.

Operating margin for the global IT services business declined to 22 percent year-on-year (YoY) from 24.7 percent year ago and 0.1 percent sequentially.

“We have maintained our operating margins in the first quarter despite one month impact of salary revision,” Senapaty said.

For the second quarter (July-Sept) of this fiscal (FY 2012), the company has projected an average revenue of $1.5 billion from its global IT services business, which is sequentially marginal to $1.4 billion achieved in the first quarter (Q1).

“We expect revenue from our IT services business to be in the range of $1,436-1464 million in the second quarter ending Sept 30,” Senapaty noted.

Total revenue for the quarter under review (Q1) grew 18 percent year-on-year (YoY) to Rs.85.64 billion (Rs.8,564 crore) and 3.2 percent sequentially from Rs.83.02 billion (Rs.8,302 crore) in the previous quarter (January-March) of previous fiscal (2010-11).

In rupee terms, revenue from IT services grew 17 percent (YoY) to Rs.64.05 billion (Rs.6,405 crore) though flat (0.5 percent) sequentially.

Under the International Financial Reporting Standards (IFRS), net income grew marginally one percent to $299 million and total income $1.92 billion, up 18 percent YoY.

The IT services division added 49 new clients during the quarter as against 22 year ago and 68 in the previous quarter.

Revenue from existing customers increased sequentially to 99.3 percent from 96.9 percent quarter ago but dipped fractionally from 99.6 percent year ago.

“Our investments in client mining are starting to show results, with four customers contributing over $100 million,” Senapaty added.

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