Wednesday, 25 April 2012

News Hour- Wipro expected to have one of the fastest growth rates in IT industry

BANGALORE: Software services firm Wipro, which will announce its earnings on Wednesday, is expected to have one of the fastest growth rates in the industry in the March quarter, giving conclusive proof that the firm's turnaround strategy is working. 

The company, which has undergone a dramatic makeover since chairman Azim Premji dismantled the co-chief executive model in 2011, has been showing signs of a comeback in the past two quarters and a third quarter of good growth will be taken as a sure sign of vitality returning to the company. 

Unlike its peers, Wipro had given a relatively bullish forecast for the January to March quarter guiding for 1-3% growth. Analysts expect a 2-3% growth in dollar terms, over the previous three months, between $1,535-$1,545 million in the quarter. Peer Infosys missed its March quarter forecast with a 2% fall in revenues. 

Analysts expect Wipro to forecast 2-4% growth for the June quarter. Infosys has a flattish forecast of 0-1% growth. On the profitability front, analysts expect Wipro to do better than competition. 

While rupee appreciation is expected to be a headwind, higher proportion of fresher hiring over the past few months is expected to help keep costs under control. Operating profit margins are expected to remain flat at around 21% for the IT services business. 

"Wipro's composition of freshers addition to total gross addition in FY12F (YTD) has improved to almost 60% versus 40-45% in FY11. It expects this ratio to be maintained in FY13. In our view this change will lead to material margin improvement starting fiscal 2013," RBS analysts Sandeep Shah and Srinivas Sheshadri wrote in a report last month. "Secondly, despite regaining the efficiencies within fixed price projects to normal levels in 3QFY12, Wipro is still hopeful of pulling out further efficiencies within fixed price projects going forward," they added. 

Wipro's strong performance is primarily led by the renewed focus on its sales and delivery engines. In the past few months it has streamlined its structure and changed the compensation model for employees, linking it more closely to client satisfaction and attrition, among other parameters. 

From just one $100 million client at the end of the third quarter of fiscal 2011, Wipro has grown it to six clients at the end of the December quarter of just concluded fiscal. That was the first sign of revival at Wipro, which have been criticised in the past for its inability to increase wallet-share in key client accounts and winning large deals. 

Employee attrition levels also dropped significantly at the end of the December quarter when it beat its revenue growth guidance in constant currency terms with growth of over 4%. 

Wipro, which lost the position of the third largest Indian IT firm in terms of quarterly revenues to Cognizant in FY12, brought on board TK Kurien as the new chief executive who collapsed overlapping business units, service lines and geographic operations into fewer divisions headed by 'mini CEO-like' leaders. Apart from empowering a new set of leaders, Wipro also made strategic acquisitions that are beginning to pay off. 

"Phase 1 of realignment and refocusing of the organisation on the 137 focus accounts, momentum verticals, and momentum geographies, as well as on standardising delivery is largely done," analysts Mitali Ghosh, Pratish Krishnan and Kunal Tayal of Bank of America-Merrill Lynch wrote to clients in a recent report. "Phase 2 has kicked off in terms of sharp focus on differentiating at the front end and standardising at the back end through senior hires and investments in IP in areas like cloud, big data, analytics, mobility." 

Despite stabilising economies in the US and Europe though the environment for Indian information technology services firms still remains tough as clients delay taking decisions around technology spending. Research firm Gartner has said worldwide IT spending will increase 2.5% in 2012 to $3.7 trillion, revising it down from a previous forecast of 3.7% growth for 2012.


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