Q4 COMMENT. Wipro’s run: Some hits, some misses

Wipro outdid both TCS and Infosys on revenue growth. The company’s dollar revenue from IT services grew 2.4 per cent sequentially in the March 2016 quarter; higher than TCS’ 1.5 per cent and Infosys’ 1.6 per cent growth.

Though results were announced only post market hours, the stock closed 2 per cent higher in the trading session.

The company’s strong revenue growth is thanks to a few verticals including healthcare and life sciences which recorded a 13.1 per cent sequential growth in constant currency terms. The manufacturing business saw a four per cent growth.

But the finance solutions segment which accounts for over 25 per cent of the revenue recorded a 0.3 per cent decline in revenue. Among geographies, the US market (half the revenues) recorded a 1.8 per cent sequential growth (in constant currency terms), up from 0.3 per cent growth in the December 2015 quarter. Europe too saw growth rebound to 6.6 per cent from 1.4 per cent in the December 2015 quarter.

Operating margins, however, were a disappointment. At 20.1 per cent, the operating margin was down 10 basis points sequentially and 190 basis points over the same quarter last year.

Increase in onsite revenues (to 54.2 per cent from 53.8 per cent in December quarter and 53.7 per cent last year) and margin dilutive acquisitions could be the reasons behind this drop in margins.

However Infosys had reported a good 60 basis points improvement in margins.

One other worry that continues to wrinkle the prospects is the drop in revenue from large clients. In the March 2016 quarter, revenue from top five clients was 11 per cent, down from 11.5 per cent from the December 2015 quarter and 12.6 per cent in the same quarter last year.

Bunching up of clients in the problematic sectors – energy, telecom and financial services – could be behind this.

Employee utilisation level was reported at 76.1 per cent, lower than 78 per cent in the March quarter last year.

This is lower than the top tier companies – Infosys and TCS, who have utilisation levels of 80 per cent plus.

Attrition rate was at 16.1 per cent, marginally lower than the 16.3 per cent in the December 2015 quarter, and lower than 16.5 per cent in the same period last fiscal year.