About the company

Wipro is the third largest software services exporter from the country and also has interests in the consumer care and lighting businesses. However, the largest contribution to its revenues comes from the global IT services and products division (74% of consolidated revenues). Within the global IT services and products business, the company derives revenues from R&D services (33%), enterprise business (56%) and BPO services (11%). The company provides BPO services through its subsidiary, Spectramind, which it plans to merge with Wipro Ltd. this year.

What has driven performance in 4QFY05?

Global IT services drives topline again:  Wipro’s Global IT services segment (74% of consolidated revenues) continues to guide the topline growth for the company. In 4QFY05, revenues from the segment have grown sequentially by 3.4%, aided mainly by an 8.5% increase in volumes. A 2.9% decline in onsite billing rates and 3% appreciation of the rupee against the dollar has, however, constrained the growth. For FY05, however, on a YoY basis, revenues have grown sharply by 39% despite pressure due to the appreciating rupee and pricing pressure, reflecting continued strength in volumes, increased utilisation rates and increased revenues from offshore services. Revenues of the BPO business (Spectramind) now form 11% of the Global IT services revenues and have grown sequentially by 3% in 4QFY05. The management has indicated in the conference call that it is seeing slowness on the R&D side, which forms 33% of revenues of the global IT services and products business. Going forward, the management expects new service lines like testing, package implementation and infrastructure management services to drive growth.

Wipro’s addition to the employee base has been considerably higher than Infosys, which witnessed a relatively muted increase to its employee base. The company hired a net of 2,520 employees in the quarter, with almost 53% (1,333) being added in the BPO segment. Despite these aggressive levels of hiring, the company still managed to increase its utilisation rates, reflecting robust business in the pipeline. At the end of FY05, the company had an employee base of 41,857, including 15,673 in the BPO business.

Strong revenue growth powers margins:  An impressive 330 basis points expansion in margins for FY05 has been a consequence of the strong revenue growth witnessed during the period, aided by a lesser than proportionate rise in expenses. However, during 4QFY05, the scenario is exactly the opposite, with higher than proportionate expenses being the chief culprit for the 180 basis points fall in margins. The rupee has also appreciated by 3% during this period. On a PBIT basis, for FY05 YoY, margins for the Global IT services business have risen by as much as 451 basis points.

Net profit growth powered by higher margins:  The strong net profit growth in FY05 has chiefly been a consequence of margin expansion. Despite lower other income, and a significant rise in depreciation and taxes paid, net profits have risen by as much as 58% YoY for the fiscal. For 4QFY05, the situation reverses - net profit growth has remained flat at 1.5% despite higher other income, lower interest and lower taxes, mainly due to margins remaining flat. This has also been a factor of a 3% appreciation in the rupee during 4QFY05, which has kept margins under pressure.

What to expect?