Wipro Q2 Net Profit In Line With Estimates But Guidance Disappoints

Wipro Ltd.'s profit rose more than estimated as the revenue from its mainstay banking, financial services and insurance business increased and digital services helped it cut costs.

Azim Premji-led conglomerate’s net profit rose 5.3 percent sequentially to Rs 2,192 crore in the quarter ended September, higher than the estimated Rs 2,085 crore.

Overall revenue missed analyst estimates as the healthcare software services business continued its decline for longer than the company expected amid uncertainty around Obamacare in the U.S. Revenue fell 1.5 percent over the previous quarter to Rs 13,423 crore. The consensus of analysts tracked by Bloomberg had estimated it at Rs 13,872 crore.

Revenue in dollar terms from I.T. services rose 2.1 percent to $2,013 million. This was higher than the $2 billion that the company had forecast. In constant-currency terms, it rose 0.3 percent.

“We surpassed the milestone of $2 billion in quarterly revenues for I.T. services on the back of rigorous execution of our strategy,” Chief Executive Officer Abidali Neemuchwala said in the exchange filing. “Our unique digital capabilities powered growth for top clients and position us well to drive our clients’ digital transformation.”

For the October-December quarter, the company guided for a revenue of $2,014-2,054 million.

Digital services now form nearly a quarter of Wipro's revenue from IT services. The contribution of digital services to the top line increased to 24.1 percent from 22 percent in the previous quarter.

Healthcare Bump In U.S.

The healthcare IT services business, which has been battered in the last two quarters, saw a 6 percent decline in revenue. The healthcare vertical's contribution to Wipro's top line fell from over 15 percent in March to 13.7 percent in September. Along with the communication vertical, it was the only one where revenue fell over the previous quarter.

Healthcare in the U.S. is expected to undergo a change as repealing the Affordable Care Act (or Obamacare) was one of President Donald Trump's campaign promises. Trump has been pushing hard to take down the act, and recently announced cutting off a subsidy to insurers. Obamacare was regarded as a lucrative source of new customers by health insurers.

The slowdown is more prolonged than Wipro's expectations. In March, Neemuchwala had explained that "several project cancellations" in healthcare will have an impact for one quarter, adding that Wipro expects growth returning in September.

• Revenue from the mainstay banking, financial services and insurance vertical rose 4 percent to Rs 3,634 crore.
• Wipro expects revenue from IT services to be $2,014-2,054 million in the October-December quarter.

Automation Boost To Margin

Bangalore-based Wipro saw its operating margin widen more than expected in the July-September quarter as it improved cost effectiveness and productivity using its its artificial intelligence platform.

Operating margin expanded 80 basis points over the previous quarter to 16.8 percent. Analysts tracked by Bloomberg had expected the margin at 15.8 percent. Margin in from IT services widened 50 basis points to 17.3 percent.

Wipro said that they managed to cut costs by leveraging their artificial intelligence platform which in turn expanded margin. "Productivity gains generated by our HOLMES automation suite and operational efficiencies overcame the incremental impact of wage hikes and expanded I.T. services margin to 17.3 percent," said chief financial officer, Jatin Dalal in the media statement.

Cost savings were also driven by a decline in headcount base in the quarter, according to brokerage Emkay Financial Services.

The Holmes suite "generated productivity of 2,500 people", Wipro said. The Bangalore-based outsourcer's employee headcount declined 1.8 over the quarter to 1.63 lakh employees. Wipro said it has trained 12,000 employees on digital skills.

Gross utilisation of employees improved by 90 basis points during the quarter to 72.9 percent.

Shares of Wipro closed 0.24 percent lower ahead of the results while the benchmark S&P BSE Sensex ended trade 0.1 percent down.

BloombergQuint’s Agam Vakil spoke to the Wipro management on the second quarter earnings. Watch the full video here.