Wipro’s guidance was impacted by lack of clarity on furloughs. Photo: Hemant Mishra/Mint
Wipro Ltd’s September quarter performance is unlikely to impress investors. The IT services revenues of the company increased 3.1% sequentially in constant currency terms, which was slightly better than the year-ago quarter and also better than the Street’s expectations.
Growth was led by the healthcare business, which grew 4.2%. The troubled energy business showed signs of stabilization, with a marginal growth of 0.3%. In the June quarter, this vertical’s revenues fell by 3%.
But the company’s growth guidance is likely to disappoint investors. Despite better deal momentum in several business verticals, Wipro gave a subdued 0.5-2.5% revenue growth guidance for the December quarter.
In July, the management had indicated a better second half, helped by stabilization in the energy vertical and improvement in infrastructure business vertical. “Guidance of less than 2-4% quarter-on-quarter revenue growth for 3QF would be negative,” Nomura had said in a results preview note.
Also, the third quarter has been a strong one for Wipro in recent years. In the year-ago December quarter, sequential revenues in constant currency terms increased 3.7%. Despite a subdued growth guidance for the current fiscal year’s December quarter, the management still expects a better second half.
The company’s guidance was impacted by lack of clarity on furloughs—leaves taken at the customer-end can’t be billed, T.K. Kurien, member of the board and chief executive officer of Wipro, told reporters. While the issue is seasonal, this time the company does not have an estimate of how many furloughs it is going to see, he added.
Two other aspects are weighing on growth prospects: client-specific issues and order conversions. Due to budget cuts, business from a top client is steadily falling. From 3.7% in 2014-15, the contribution of the top customer to overall revenues fell to 3.3% in the first quarter and 3.1% in the September quarter. The trend may continue as the customer is expected to reverse the budget cuts only next year.
Order transition cycles or slower ramp-ups are another problem. The company is winning orders in the energy space, which is seeing consolidation of vendors. But the contracts are in transition and revenues from some of these contracts are estimated to come in only from the January-March quarter of this fiscal year.
These reasons have weighed on Wipro’s guidance, which also puts a question mark on its growth prospects going forward, unless these issues are resolved.