Wipro Expects decline in volumes in Q1 & Q2

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Wipro held its conference call to discuss the fourth quarter of FY2009 and future prospects. Mr Azim Premji, Chairman alongwith others addressed the call.

Highlights of Call

  • For the quarter ending June 2009, Wipro expects IT Services Revenue to be in the range of US$ 1009 – 1025 million a sequential de-growth of 3.5 – 2%.
  • The management expects volumes to decline on Q1 and Q2FY10. For Q4FY09, volumes declined 6.3% in IT services.
  • The Company is seeing pricing pressure from clients. The pricing could be down in the range of 0-5%. For Q4FY09, price realization was up for onsite by 0.8% and offshore was down 0.1%.
  • The management believes that the take on IT budgets has changed over last 6 months. Though it is expecting budget cuts of 0-10%, it has seen some clients keeping budgets flat, some actually enhancing budgets whereas other cutting budgets. The management believes that the funnel is strong. On the demand front, the management has seen pick up in February – March 2009 period.
  • The management believes that offshore spending by customers would increase due to drive towards lower costs.
  • The management believes that Wipro is in a better position due to its wide service lines, high customer focus spending, its geographical spread and its delivery capabilities.
  • Citi Technology Services contributed about US$ 20 million for the quarter.
  • The margins would be maintained in narrow range going forward.
  • The IT services segment revenues dipped 4.9% at US$ 1046 million. In constant currency terms, the revenues stood at US$ 1058 million. The volume dip was 6.3%, CTS contributed US$ 20 million and realization was up. In rupee terms, the dip was 3% with rupee depreciation benefited 1.9%.
  • In industry verticals, the management is seeing some positive outlook in Retail, Consumer Products and Manufacturing whereas there is still negative outlook in Financial Services, Hi-tech, Technology and Telecom.
  • The management is seeing some turnaround in consulting.
  • The pipeline is good across all verticals.
  • The OCI at the end of the quarter stood at Rs 1615 crore. As per the management, if the rupee stays at current levels, one third of OCI will be debited to profit & loss account.
  • The effective tax rate for the quarter was 15.1%. Going forward, the tax rate would be in the range of 100-200bps.
  • On constant currency basis, Europe has grown by 11.3% on y-o-y basis and down 4% on q-o-q basis for the quarter. Of the total Europe revenues, UK contributes about 60%. Europe is growing at 20% on yearly basis on constant currency.
  • As of March 31, 2009, the Company has hedge position of about US$ 1.3 – 1.4 billion. The Company had derivative financial instruments to sell US$ 1060 million, GBP 54 million, and JPY 6130 million and Cross Currency Interest Rate Swaps (CCIRS) of JPY 8 billion. As of December 31, 2008, the Company had derivative financial instruments to sell US$ 1837 million, GBP 60 million, EUR 6 million, and JPY 6518 million and buy US$ 4 million. The balance in Hedging reserve was Rs 1615 crore up from Rs 1499.6 crore at the end of sequential quarter.
  • Cash & Bank balance of Rs 4911.7 crore and investments in money market mutual funds of Rs 1513.6 crore and Certificate of Deposits of Rs 94.7 crore.
  • The Fixed Price contracts improved 210bps at 38.1%. Onsite contribution to revenues decreased 200bps at 51.2% for the quarter.
  • Wipro had 97810 employees as of March 31, 2009, which included 74986 employees in IT Business and 22824 employees in BPO business. This represents a net addition of 845 employees comprised of Global IT services addition of 591 employees, addition of 1246 people in BPO business and India/Middle East reduction of 992 employees and for the quarter.
  • The utilization in Global IT services (net) was 75.4% down 120bps and excluding trainees was 76.8% down 260bps. The utilization in India/Middle East IT services improved 110bps at 81.7%.
  • Total IT Services business added 20 new clients during the quarter, with total active clients at 863 down from 882 in the sequential quarter. Top client contribution was down at 2.4% against 2.5% in the sequential quarter. The contribution of top 2-5 was down at 8.4% against 8.8% in the sequential quarter and top 6-10 client contribution was same at 8.9%.
  • In the industry verticals, Technology de-grew 11.8% contributing 10.3%, Telecom de-grew 12.8% at 8.8% and Communication & Media service providers de-grew 6.1% at 8.2%. Financial services de-grew 4.9% at 26%, Manufacturing & Healthcare grew 1.5% at 20.7%, Retail & transportation de-grew 1.1% at 18.2% and Energy & Utilities de-grew 8.4% contributing 7.8%.
  • In service verticals, Technology Infrastructure services grew 2.4% contributing 20.9%, Package Implementation grew 4% contributing 12.8% and BPO grew 1.8% at 9.1% whereas, product engineering de-grew 14.8% at 5.2%, Testing de-grew 1.6% contributing 11.9% and ADM de-grew 11.5% at 40.1%. Consulting de-grew 13.2% contributing 2.1%.
  • Geographically, USA de-grew 4.1% sequentially at 60.5%, Europe de-grew 7.1% at 25.5%, Japan de-grew 8.9% at 2.3%, India/Middle East de-grew 2.4% at 7.7% and Rest of World de-grew 4.9% at 4%.

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