Wipro held its conference call to discuss the third quarter of FY2009 and future prospects. Mr Azim Premji, Chairman alongwith others addressed the call.
Highlights of Call
- The Company is seeing pricing pressure from clients.
- The margins would be maintained in narrow range going forward.
- The IT services segment dipped 0.9% at US$ 1100.1 million. The volume growth was 2.2% and realization dipped 3.1%. In rupee terms, the growth was 6.9% with rupee depreciation benefited 7.9%. The billing rate: offshore down 1.6% and onsite down 3.9%. On constant currency the revenue growth would have been 3.5% with realization improvement of 1.2%.
- The operating margins were stable at 17% with one-time receivable provisioning impacting 60bps; impact of salary hike and drop in utilizations was set off against rupee depreciation benefit of 40bps and other operational parameters.
- The effective tax rate for the quarter was 13.9% down 50bps sequentially. Going forward, the tax rate would be 13-14%.
- The onsite salaries would not be hiked in January 2009.
- Wipro won 4 multi-year multi-million dollar deals in services segment.
- The realized rate for the quarter was Rs 46.17/US$ against Rs 42.8/US$ in the sequential quarter.
- As of December 31, 2008, the Company had derivative financial instruments to sell US$ 1837 million at Rs 39.50 – 49.90/US$, GBP 60 million, EUR 6 million, and JPY 6518 million and buy US$ 4 million. As of September 30, 2008 the Company had derivative financial instruments to sell US$ 2172 million 39.50 – 47/US$, GBP 65 million, EUR 12 million and JPY 6906 million. The balance in Hedging reserve was Rs 1499.6 crore up from Rs 1382.3 crore at the end of sequential quarter.
- UNZA operations are on track. On constant currency basis, it has grown 15% on y-o-y basis for nine months ended December 2008. It is seeing traction in Vietnam and Middle East but slower traction in Malaysia.
- Cash & Bank balance of Rs 3838.3 crore and investments in money market mutual funds of Rs 1702.9 crore and Certificate of Deposits of Rs 289.4 crore.
- Nortel accounts for less than 1.5% of Wipro’s IT business revenue, and the Company’s assessment is that a substantial portion is expected to continue. Outstanding amount subject to arbitration is approximately US$ 15 million. Wipro is also a partner to Nortel for system integration work in Asia and India, and it expects no impact to its clients.
- The Fixed Price contracts improved 440bps at 36%.
- Gross additions for the quarter were 1944 employees of which campus recruits were 1400. For the nine months gross recruits in IT services were 7300.
- Wipro had 96965 employees as of December 31, 2008, which included 75387 employees in IT Services business and 21578 employees in BPO business. This represents a net reduction of 587 employees comprised of Global IT services reduction of 1092 employees, India/Middle East addition of 731 employees and reduction of 262 people in BPO business for the quarter.
- The Company has made offers for 14000 fresher recruits for FY09 of which about 6000 have still to be called. The recruitment could spill over to FY10. For FY2010, the Company has already made 8000 offers.
- The utilization in Global IT services (net) was 76.6% down 40bps and excluding trainees was 79.4% up 10bps. The utilization in India/Middle East IT services improved 150bps at 80.6%.
- Total IT Services business added 31 new clients during the quarter, with total active clients at 882 down from 906 in the sequential quarter. Top client contribution was down at 2.5% against 2.7% in the sequential quarter. The contribution of top 2-5 was unchanged at 8.8% and top 6-10 client contribution was same at 8.9%.
- In the industry verticals, Technology de-grew 4.3% contributing 11.1%, Telecom grew 0.2% at 9.6% and Communication & Media service providers de-grew 3.2% at 8.3%. Financial services de-grew 2% at 26%, Manufacturing & Healthcare de-grew 0.9% at 19.4%, Retail & transportation grew 5.1% at 17.5% and Energy & Utilities de-grew 3.3% contributing 8.1%.
- On constant currency basis, Technology de-grew 3.8%, Telecom grew 4.6%, Communication & Media grew 5.5%, Financial Services grew 2.1%, Manufacturing & Healthcare grew 1.5%, Retail & transportation grew 11.4% and Energy & Utilities grew 3.5%.
- Telecom OEM vertical contributed 9.6%. The vertical is seeing some players going through re-structuring, consolidation and new management are being elected. The outlook will be clear only by the end of CY09.
- Infocrossing has had a good quarter and has won a multi-year multi-million dollar deal in USA. The pipeline is building. There has not been much improvement in margins as investments have been made and offshoring is not at full swing. The utilization has improved to 60% from 50% earlier.
- In service verticals, Technology Infrastructure services de-grew 1.4% contributing 19.4%, Testing grew 2.7% contributing 11.5%, Package Implementation grew 3.5% contributing 11.7%, BPO de-grew 0.9% at 8.5%, product engineering de-grew 4.2% at 5.8% and ADM de-grew 2.2% at 43.1%. Consulting de-grew 8.8% contributing 2.3%.
- Geographically, USA grew 0.1% sequentially at 60%, Europe de-grew 3.8% at 26.1%, Japan de-grew 4.8% at 2.4%, India/Middle East de-grew 4.7% at 7.5% and Rest of World grew 16.6% at 4%.
- Europe was up 24% on constant currency basis. Continental Europe is opening up to offshoring. The Company would be making investments in France and Germany.
- The Company’s outlook under US GAAP Consolidated for quarter ending March 2009: For the quarter ending March 2009, we expect our Combined IT Services Revenue to be approximately US$ 1045 million a sequential de-growth of 5% on constant currency basis.