Wipro’s Q3 Results: Revenues Grow, Volumes Decline

Wipro announced its Q3FY13 result today (Jan 18, 2013), with numbers that beat the street’s expectations. However, the volumes growth has been subdued, having reduced by 1% on a sequential basis. Moreover, Wipro has given a guidance of USD 1.585-1.625 billion for Q4FY13, which translates into a projected sequential growth of 0.5%-3%.

Wipro’s IT service revenues rose by 2.4% sequentially to touch USD 1.577 billion. The operating margins grew by 10 basis points to 20.8%. Its net profit, however, received a larger boost due to a lower effective tax rate. This helped drive the company’s profits up by 6.5% to Rs 1716 crore.

The major growth drivers for Wipro in the Dec 2012 quarter were:

1. The verticals of Healthcare, Life Sciences & Services (7.1%), Energy, Natural Resources & Utilities (2.4%) and Retail & Transportation (3.1%)
2. The geographies of Europe (7.5%) and India & the Middle East (3.7%)
3. The practices of Technology Infrastructure Services (4.3%) and Business Application Services (4.7%)

Wipro’s management indicated that there has been significant pricing pressure in the vanilla service offerings of Applications and Infrastructure. Moreover, the company was hit on the service offering of Product Engineering & Mobility. While it saw growth on the Mobility front, Product Engineering took a hit because of the situation of the client base – while large semiconductor makers have been doing well, the rest are facing pressures. This has had a direct impact on spending, which is evident from the 6.1% decline in the service offering.

The management expressed its views on the improvement in the macro-economic conditions. While it is expecting ramp-ups, it said that anticipating discretionary spending would be difficult. This has led to the company estimating their revenues for the next quarter in a rather wide spread.

Despite the fact that the overall result has been better than the street expectations, it seems that profit booking from yesterday’s gains and the reduction in volume led to a drastic fall in Wipro’s share price. As of today, the stock price depreciated by 7.88%, closing at Rs 397.15 per share.