Q1 Comment. Wipro lags peers in all key areas

Wipro once again fell behind peers TCS and Infosys by reporting lower growth in its key financials in the June quarter, though it has given a fairly healthy guidance for the September period. In a seasonally strong quarter for IT companies, a meatier performance was expected of Wipro.

During the quarter, the company managed to derive reasonable traction in many verticals, while its key geographies of operation such as the Americas and Europe held steady. But addition of large-size clients has been anaemic, utilisation rates are still well behind peers and relatively low-margin services have led the growth this time around.

In the June quarter, Wipro’s IT service revenues grew by 1.2 per cent sequentially, while operating profits fell 5.8 per cent, mainly due to salary hikes given from June. TCS and Infosys witnessed revenue growth of 5.5 per cent and 2 per cent, respectively. Operating margin, at 22.8 per cent is significantly lower than the 25-28 per cent levels achieved by TCS and Infosys.

Slow pickup For Wipro, telecom, manufacturing and healthcare grew by 2.3-4.7 per cent sequentially, though its finance solutions and retail segments lagged behind significantly. For TCS, all verticals except the BFSI segment such as telecom, retail and manufacturing, grew at a pace faster than its revenue rate. Its application, testing and infrastructure services witnessed significant traction.

Wipro’s relatively low-margin infrastructure services and BPO offerings led the growth during the quarter. But as with Infosys and TCS, discretionary spends were not that forthcoming from clients in the high-margin offerings.

Wipro managed just two additions in the $20 million category during the quarter.

TCS added five in the $50-million bucket, which trumps the solitary addition in the category by Infosys and none by Wipro. In the $20-million category too, TCS managed to add another eight customers.

Clearly, TCS has been managing to get a higher market share when compared to its peers.

North America led the growth for both TCS and Infosys, though the former managed to derive significant traction in Europe as well. But for Wipro both these geographies barely grew sequentially.

Healthy guidance TCS has been able to tap into all-client segments, making for broad-based growth. Wipro’s utilisation, at 77.9 per cent, is much lower than the 83.5 per cent level for TCS, and 80.1 per cent for Infosys during the quarter. But Wipro has guided for a 1.7-4 per cent sequential growth for the September quarter indicating a reasonably robust outlook, though it may be quite challenging to reach the upper end of the guidance.

TCS seems to be miles ahead compared to peers in the top-tier IT pack with only HCL Technologies looking to match its growth rates across parameters. Infosys has witnessed a slow pick up, while Wipro has been even slower to catch up.