Wipro: 10 key takeaways from Q2 earnings

Wipro: 10 key takeaways from Q2 earnings
Wipro, India's third largest software services provider, reported second quarter earnings on Friday sending its shares higher for a fifth straight day. Analysts said results were in line with estimates.

Here are 10 key takeaways from Wipro's earnings

  1. Operating profit beat estimates: Wipro reported Earnings before Interest and Tax (EBIT) margins of 20.7 per cent against consensus estimates of 20 per cent. The beat was impressive considering the company implemented wage hikes in the July to September quarter.

  2. Net profit for the second quarter rose 1.9 per cent sequentially to Rs 1,610 crore against expectations of marginal dip in profitability. The beat in profitability and margins sent shares soaring for a fifth straight day today. Net profit jumped 24 per cent from Rs 1,301 crore in the year-ago period.

  3. IT services revenue rose 1.7 per cent sequentially to $1541 million, meeting the forecast put out in June quarter.

  4. Guidance: Wipro, which gives IT services sales outlook on a quarterly basis, forecast 1.3-3.2 per cent sequential rise in December quarter revenue to $1560-$1590 million. Global investment bank JP Morgan said Wipro needs to clock 3-4 per cent sequential revenue growth in the coming quarters to regain investor confidence. However, this would be difficult because the third quarter is seasonally a weak quarter.

  5. Performance versus peers: Wipro continued to lag rivals in the September quarter. Wipro's 1.7 per cent growth in IT services revenue is in contrast to 4.6 per cent sequential growth seen at TCS, 2.6 per cent sequential growth for Infosys and 3.2 per cent sequential growth for HCL Tech in the July - September quarter. However, the performance was better than last quarter, when dollar sales fell 1.4 per cent sequentially. The management said the company's new strategy implement 18-month back, when chairman Azim Premji had replaced the two co-CEOs of the IT business with T.K. Kurien, had started showing results.

    "Growth is slightly subdued in comparison with peers, but they are taking all the steps in the right directions," said ICICI Securities analyst Kuldeep Koul, who has an "add" rating on the stock.

  6. Pricing and volume: Onsite pricing increased 1.9 per cent sequentially, while offshore pricing was up 1.5 per cent. However, volumes disappointed. Offshore volumes rose while onsite volumes were slightly down.

  7. Verticals and geography: Energy and utilities and finance solutions reported sequential growth of 8.4 per cent and 4 per cent in dollar terms. However, healthcare and life sciences and global media and telecom verticals dipped 4.4 per cent and 1.3 per cent respectively. Europe and Americas revenue growth was decent at 2.1 per cent and 1.4 per cent sequentially, but Japan contracted 11.1 per cent.

  8. Deal wins: Wipro acquired 53 new customers against 37 in the June quarter. It acquired one customer in the $100 million group taking the total number of such customers to 9.

  9. Attrition and utilisation: Total employee headcount in IT services rose 1.5 per cent sequentially to 140,569 at the end of the September quarter. The attrition rate came down sharply to 14.6 per cent from 15.6 per cent in the June quarter and 21.1 per cent in the September quarter last year. The BPO vertical saw a rise in attrition at 14.4 per cent in the September quarter as compared to 13.4 per cent in the June quarter. Utilisation declined to 66.8 per cent for the July to September period as compared to 68.3 per cent in the June quarter and 69.3 per cent in the September quarter last year.

  10. What brokers say: There were no instant upgrades or downgrades. Most brokerages retained their view on Wipro shares. JPMorgan has an "overweight" rating on Wipro stock with March 2013 target of Rs 405. Macquarie has an "underperform" call with a target of Rs 310.

    (With inputs from Reuters)