Spiralling oil prices causing uncertainty in BPO: Premji

July 18th, 2008 - 6:50 pm ICT by IANS  

Bangalore, July 18 (IANS) With oil prices spiralling out of control, the IT services business in India is facing a lot of uncertainty and is operating in a challenging environment, Wipro Ltd chairman Azim Premji said here Friday. “We continue to see a lot of uncertainty due to oil prices spiralling out of control. In such an environment, we are cautious in the near-term about IT services business, including outsourcing by global clients,” Premji told reporters while reviewing the company’s performance in the first quarter (April-June) of this fiscal (2008-09).

To sustain the growth momentum and make the best of the adverse situation, the IT bellwether intends to retain proximity with clients and partner them in their business priorities, Premji said. “Management restructuring has enabled us to deliver better customer value,” Premji asserted.

Sharing Premji’s concerns over the bleak outlook, Wipro chief finance officer Suresh Senapaty told IANS that the company’s financials were affected by the sub-prime crisis in the US which has not eased till date.

“The turmoil in the US financial market with ripple effect worldwide has not subsided. Environment remains uncertain in the second quarter. We hope to see better traction in the second half ((October-March of this fiscal (2008-09),” Senapaty noted.

Though a depreciating rupee is beneficial for export realisation, the volatility in the forex market makes dollar hedging risky, as is evident from the Rs.670 million loss incurred by the company while taking forward cover at Rs.40-43 per dollar in the first quarter (April-June).

Unlike its rival Infosys Technologies, Wipro hedges for longer periods and in higher amounts. For this fiscal, it has hedged $3.1 billion on gross basis and $2.6 billion on books (balance sheet).

“Though pricing environment is stable for offshore and onshore projects, a hike in offshore compensation during the second quarter (July-September) will have an adverse impact on our operating margins,” Senapaty averred.

Rupee depreciation during the quarter, however, helped the company to sustain operating margin at 21 percent as in the previous quarter in IT services, while it declined by two percent in IT products.

Of the seven multi-year multi-million dollar deals bagged during the first quarter, four are from Fortune 1000/Global 500 firms, including one large customer, with run-rate of $100 million spread over seven years.

“The large customer is a US-based manufacturer of audio and electronic products for management of infrastructure across Americas, Europe and Asia-Pacific,” Senapaty added.

A global apparel and footwear manufacturer has chosen Wipro as a strategic partner for revamping their application landscape.

Slowdown and lower IT budgets notwithstanding, the US continues to account for about 60 percent of the company’s global revenues, Senapaty said.

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