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Wipro posts better than expected numbers; underlines IT sector revival story

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Wipro posts better than expected numbers; underlines IT sector revival story

Wipro beats expectations largely riding on its two key sectors of BFSI, which constitutes to about 30% of revenue and consumer business unit, thereby making for about 16% revenue, says Sudheer Guntupalli, analyst, Ambit Capital.

Indian IT major, Wipro's results for the quarter ended June, beat some of the analyst and market expectations. The numbers also lend weight to a growing belief that the IT sector is perhaps finally out of the woods.

"The company beats expectations largely riding on its two key sectors of BFSI (Banking Financial Services and Insurance), which constitutes to about 30 per cent of revenues and Consumer Business Unit, which makes for about 16 per cent of revenues," says Sudheer Guntupalli, analyst at Ambit Capital.

Though there are some concerns on the important vertical of healthcare. However, with Wipro also showing improved numbers and optimism on BFSI, like TCS and Infosys earlier, analysts feel, there is perhaps reason to believe the emerging narrative on an IT sector revival.

Agreeing on the sector revival argument and pointing out that there have been clear indicators of this already, Harit Shah of Reliance Securities, says, the Wipro results as well its guidance, are well in line with his line with his expectations.

"The company had a one-time income of Rs 253 crore as they had divested one of their businesses. Excluding that, the EBITDA margins for IT services are about 15.6 per cent, which is as per our expectations," he says.

The Wipro results, he also says, "Do bear the fact that the IT sector recovery is on track." Analysts also believe that some of the client-specific issues bothering the company are behind it now. The company had to deal with those in its previous quarter.

In a note put out along with the results, Abidali Z. Neemuchwala, CEO and Member of the Wipro Board, has been quoted as saying: "We have seen pickup in spending in the developed markets, particularly in North America and BFSI. Our investments in Digital continue to help us build differentiation in key industry segments, which is resulting in a consistent improvement in our client metrics. We have had a good quarter of order bookings and I am confident we are moving in the right direction."

The note also quotes Jatin Dalal, Chief Financial Officer, saying: "We successfully concluded the sale of our hosted data center business in the quarter. We continue to improve our operating metrics and generated strong operating cash flows at 136 per cent of our Net Income during the quarter."

On the crucial large deal wins, the company listed out some of them and these included: Wipro winning an applications cloud migration contract from a European investment bank for their repository of applications. Then, a major US airline has renewed its multi-year contract with Wipro for global contact centre support and other business process services.

The company also won a multi-year business process operations transformation contract from an Australian construction and property management company. Wipro was also awarded a multi-year cargo management contract by LATAM Cargo S.A., a leader in air cargo transport to, from and within Latin America and the company will deploy its end to end cargo management system, CROAMIS, for the client.

On a sequential quarter basis, the company saw a 1.7 per cent decline in IT services revenue in dollar terms. Though there was a 0.1 per cent sequential growth in constant currency terms.

Here are some of the points it highlighted in the results for the quarter ended June 30, 2018:

  • Gross Revenue was Rs 139.8 billion ($2.0 billion), up 1.5 per cent sequentially and 2.6 per cent YoY (Year on Year).
  • IT Services Segment Revenue at Rs 137.0 billion ($2.0 billion1), up 2.2 per cent sequentially and 5.2 per cent YoY.
  • IT Services Segment Revenue in dollar terms at $2,026.5 million, down 1.7 per cent sequentially, up 2.8 per cent YoY.
  • Non-GAAP constant currency IT Services Segment Revenue up 0.1 per cent sequentially and 2.4 per cent YoY.
  • IT Services Margin for the quarter at 17.2 per cent. This includes a gain of Rs 2,529 million ($36.9 million) from the sale of our hosted data center business in the quarter ended June 30, 2018.
  • EPS for the quarter at Rs 4.71 ($0.071) per share, an increase of 9.9 per cent YoY.