Wipro Q1 Results: Guidance Revised After Revenue Meets Estimates

Wipro Ltd.’s top line has declined but met estimates in what is seasonally the strongest quarter for India’s $245-billion IT services industry. Profitability was in line as well.

Revenue at India’s fourth largest outsourcer declined 1.54% from the previous three months to Rs 22,831 crore in the quarter ended June 30, according to an exchange filing Thursday. That compares with the Rs 22,992-crore consensus estimate of analysts tracked by Bloomberg.

Wipro Q1 Results: Key Highlights (QoQ)

• Revenue down 1.54% to Rs 22,831 crore (Estimate: Rs 22,992 crore)

• EBIT down 5.49% to Rs 3,458 crore (Estimate: Rs 3,612.4 crore)

• EBIT margin at 15.14% vs 15.77% in Q4 FY23 (Estimate: 15.7%)

• Net profit down 6.63% to Rs 2,870 crore (Estimate: Rs 2,989 crore)

• Operating cash flows at Rs 3,750 crore, or 130% of net income

• Subcontracting cost down 6.35% at Rs 2,638 crore 

In constant currency terms, revenue declined 2.8% sequentially but was up 1.1% annually to $2.78 billion in the April-June quarter, according to a company statement.

Revenue in the IT services business fell 2% sequentially to Rs 22,825 crore in April-June, with the Americas business still accounting for 60% of the earnings. In constant currency terms, it was down 2.8% from the January-March quarter, with an operating margin of 16%.

The company now expects revenue from its IT services business to be in the range of $2.72 billion to $2.80 billion in the July-September quarter. That equates to a sequential guidance of -2.0% to +1.0% in the constant currency terms. After Q4 FY23, Wipro had pegged its guidance at -3.0% to -1.0% in Q1 FY24.

“Wipro’s first quarter results come with a strong backbone of large deal bookings, robust client additions, and resilient margins,” Thierry Delaporte, chief executive officer at the Bengaluru-based IT services firm, said in a press statement. “Despite a gradual reduction in clients’ discretionary spending, we maintained new business momentum.”

Segment wise, the company’s crucial financial services vertical—accounting for nearly 34% of overall revenue—was the most impacted due to the decline in discretionary spending, but demand in the healthcare and manufacturing segments held up.

Wipro's total contract value, or TCV, fell 9.75% sequentially to $3.7 billion in the April-June quarter with large deal bookings at $1.2 billion. TCV has remained above the $3-billion mark for five quarters now.

The IT firm added two large contracts worth more than $100 million each, but reduced the number of active customers by 35 to 1,444. Sixty-five new clients were added during the quarter.

The decline in the number of active customers is due to the organisational restructuring the IT services firm has undergone in the past few years, Delaporte said.

“We want to focus on key clients, and invest in the relationships long-term,” he said in a post-earnings media scrum. “We prefer to reduce the tail of the account and really develop meaningful partnerships with clients… The number of $100-million-plus accounts has more than doubled to 25 from 10 two-and-a-half years ago.”

Wipro’s Top-10 customers are now bringing in 20.5% of the revenue as against 20.2% in the previous quarter, according to a statement.

Still, questions are being raised on Wipro’s consulting practice that is yet to reflect in the company’s financials. That’s despite the $1.45-billion Capco deal—the IT firm’s biggest acquisition till date—and a couple of smaller deals in the space.

Delaporte defended the M&A overdrive.

“We made those acquisitions consciously, knowing that consulting is a business that’ll make Wipro a transformation partner for clients,” the CEO said. The dip in discretionary spending, which is prevalent in the consulting space, doesn’t undermine the strategic importance of Wipro’s consulting acquisitions, he said.

The Paris-based CEO of India’s fourth largest IT firm is also bullish on his latest bet—Gen AI. On Wednesday, Wipro announced its plans to invest $1 billion over the next three years to integrate AI into every piece of software that’s offered to clients and train every employee in the novel technology.

Wipro’s AI investments are already translating into revenue, the CEO said.

“We already have dozens of programs around Gen AI, and there’s an increased demand from clients,” he said. “We will probably see an evolution in the type of deals in that space.”

The IT outsourcer, whose offshore revenue as a percentage of services stood at 59.50% in Q1, clocked earnings before interest and taxes of Rs 3,458 crore—down 5.49% sequentially. That also missed Bloomberg’s estimate of Rs 3,612 crore. Operating margin in the crucial IT services vertical stood at 16%.

“Our ongoing focus on operational improvement has ensured that margin remains steady even in a softening revenue environment,” Jatin Dalal, chief financial officer at Wipro, said.

Wipro’s profitability won’t dip below the 15-16% band seen in the last five quarters, despite near-term uncertainties, Delaporte said. “We expect margins to be in the similar range (15-16%) as seen in the past few quarters. As we continue to work on our fundamentals, we’ll be able to gradually improve the margin. That’s how we look at it.”

Human resource management is one of the levers that Wipro has deployed to maintain steady profitability over the past few quarters.

The headcount at India’s fourth largest IT services firm has now dropped for three straight quarters to 249,748 as on June 30. Sequentially, it has dipped by 7,163 employees. The company had added 15,446 employees in April-June 2022. Wipro also didn’t onboard any freshers, or so-called next-gen associates, in Q1 FY24, after record hiring in FY23.

That’s par for the course in these uncertain times, Wipro indicated.

“This is a year where you have to stay agile,” Delaporte said. “There’s no value in giving big numbers, especially when the situation is going to evolve over the next quarters.”

Wipro has stuck to its variable payout policy. The promotion cycle is intact.

“Despite the tough environment, we will continue to do things that are required for employees, but calibrate as we go along,” Saurabh Govil, chief human resource officer at Wipro, said.

Net utilisation, excluding trainees, has improved to 83.7%. Subcontracting costs have reduced by 6.35%. The attrition rate stands at an eight-quarter low of 14%.

Wipro’s latest quarterly results come against the backdrop of a spate of senior-level exits, even as the turnaround promised by Chief Executive Officer Thierry Delaporte seemed far on the horizon amid an industry-wide slowdown. Two rounds of restructuring and an M&A overdrive over the past three years are yet to reflect meaningfully in the financials.

Delaporte defended the large-scale transformation that the company built by Azim Premji over five decades has undergone under him.

“Our focus on accelerating the transformation, along with maintaining undivided attention on client experience, on delivery excellence, will progressively translate into improved growth and margins,” he said.

He harped on the 45% growth seen in the first 10 quarters of his tenure. The slowdown is being seen only now and across industry, he said. “The market focus of the leadership team is complete, is total. That is not a concern on the ability to grow as an organisation.”

The reorganisation of Wipro’s IT business into four global business lines and four strategic market units has reduced overheads, wiped out layers and removed unproductivity. And that will keep the company competitive and resilient in the future. “I’m very confident that our long-term business strategy is correct and well suited to ride the changes we predict in the industry,” Delaporte said. “We are now more agile, efficient.”

Still, these are uncertain times. 

JPMorgan Chase & Co., in a June 14 research report, said India’s $245-billion IT services is staring at a longer-than-expected slowdown, even a complete washout, in FY24 as a revival in dealmaking appeared bleak.

Delaporte refused to comment on how the rest of the year will pan out.

“It’s too early to tell,” he said. “Companies are not really forward-looking at the moment on how much they are going to spend in the next six months. The large, longer-term deals are coming in, but smaller discretionary spends have been postponed or stopped.”

“For the time being, we are seeing more or less the same market as we saw a quarter ago.”

On Thursday, shares of Wipro rose 0.73% to Rs 394.45 apiece on the BSE, even as the benchmark Sensex ended the day 0.25% lower at 65,558.89 points. The quarterly results were declared after market hours.