Wage hike dips Wipro net, projects flat growth

July 20th, 2011 - 3:20 pm ICT by IANS  

Bangalore, July 20 (IANS) Wage hikes and a higher tax rate impacted IT bellwether Wipro Ltd’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 had a sequential impact on our net profit in the first quarter (Q1) of this fiscal (FY 2012). We see a similar impact on operating margin in second quarter (July-September) from these twin factors,” Wipro chief financial officer Suresh Senapaty told IANS Wednesday.

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

Operating margin for the company’s global IT services business declined to 22 percent year-on-year (YoY) from 24.7 percent a 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-September) 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.

“We are seeing early signs of positive momentum after the re-organisation. Clients continue to focus on optimising operations, creating new products and getting access to newer markets,” Wipro chairman Azim Premji said in a statement, commenting on the first quarterly results.

Earnings before interest and tax (Ebit) increased four percent YoY to Rs.14.07 billion (Rs.1,407 crore/$315 million).

“We will continue to make investments that bring superior value to our clients as they try to win in this market,” Premji added.

Senior vice president (treasury) Rajendra Sreeman said the IT services division won two large deals in the banking, financial services and insurance (BFSI) sector and energy & utilities sector during the quarter.

“The combined value of the deals are about $1 billion in the long term,” Sreeman told IANS on the margins of the briefing on the quarterly performance.

IT services business accounted for 75 percent of the company’s total revenue and 94 percent of the operating income for the quarter under review.

“Enterprises are variabalising their IT to position themselves for winning in the world of constraints. We are building assets that allow consumerisation of enterprise technology and performance analytics, two trends that will help us differentiate,” chief executive T.K. Kurien said.

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

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