Wipro Posts Jump in Q2 Profit, Says Furloughs Will Impact Q3

IT services major Wipro posted a 7.2 percent rise in consolidated net profit for the September quarter, meeting street expectations, but warned for a tepid third quarter due to furloughs in the US and Europe.

The city-headquartered firm's net profit (after tax, minority interest and share of profit of associates) stood at Rs. 2,235.4 crores for the quarter ended September 30 as against Rs. 2,084.8 crores in the same quarter last year.

Net sales of the country's third largest software services firm rose by 6.3 percent to Rs. 12,566.8 crores in the reported quarter from Rs. 11,816 crores in the year-ago period. "In Q2, our IT services revenue grew 3.1 percent sequentially in constant currency, ahead of the mid point of our guidance. It has been a quarter of all-round growth. As we look forward, we are seeing a stable demand environment," Wipro Chief Executive Officer T K Kurien told reporters in Bengaluru.

Revenue from IT services registered a quarter-on-quarter growth of 2.1 percent at USD 1.83 billion, in line with its guidance of $1.82 billion to $1.85 billion (roughly Rs. 11,840 crores to Rs. 12,036 crores). However, for the October-December quarter, Wipro expects its revenues from IT services business to be in the range of $1.84 billion to $1.87 billion (roughly Rs. 11,972 crores to Rs. 12,167 crores), impacted by the holiday season in Europe and the US and a slower ramp-up in deals closed. This would translate into a sequential growth of 0.5-2.5 percent.

"The one component that is still difficult for us to estimate in this quarter is the impact of furloughs...Normally for us as Wipro, Q3 is stronger than all the other quarters... The second reason is the fact we have lesser number of working days which has has been the case with the industry itself. So that is the real big reason for giving the guidance of 0.5-2.5 percent because we don't know where it will end up," he said.

Asked if this was a vertical-specific issue, Kurien answered in the negative. "It is not a few specific verticals. We would see it in financial services and manufacturing... We are also seeing furloughs coming in from some parts of retail but we are not sure. Early guidance may not pan out towards the end of the quarter," he said.

Wipro's larger rivals TCS and Infosys have also warned of a slower third quarter on account of lesser number of working days and furloughs.

The company announced its results after the markets closed. Wipro's shares closed at Rs 577.90, up 1.04 percent from previous close on BSE.

Kurien said there was pricing pressure with new deals. "We continue to see strong competition around large deals and there is pressure on pricing with respect to new deals. The deal sizes are getting smaller and number of multi-million dollar deals have reduced in the market place," he said.