Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Wipro: Standing firm - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Jan 1, 2001

    Wipro: Standing firm

    For those so apprehensive about the prospects of the software sector, this is another piece of news that will add fuel to their doubts. Its been reported that Wipro will finally end services to GE, one of its major clients. The reason for this dispute is believed to be billing rates. The present contract with GE is to end mid 2001.

    Reacting to the rumors, Wipro has refused to comment. According to the statement issued by the company, GE, which accounted for more than 19% of the revenues of the Global IT division of Wipro a couple of years ago, will only be about 5% by the end of FY01. But one thing is quite clear from the statement, that billing rates for GE are lower than that for other clients.

    Is it a start of things to come? What impact will this have on Wipro’s top and bottomlines?

    The first question is very critical. Will the software industry be seeing a decline in billing rates? It seems likely. Until now, Indian companies were offering low billing rates due to offshore development abilities. This was the reason for high growth rates for the all software success stories but now with the eminent economic slowdown in the US the companies will be looking to cut IT expenditure. The companies that will be the most affected will be those that are mainly in low tech-labour intensive jobs. Another force acting against the companies is the rising wage bill. With attrition rates averaging at 24% companies are finding it difficult to retain talent.

    The companies that will be able to avoid the billing rate pressure will be those that are higher up the value chain into areas like consulting, technology and products. This is due to the fact that entry barriers are high and due to lack of supply they can charge a premium. Companies like Wipro, Infosys, Hughes and Visualsoft belong to this segment.

    This brings us to Wipro. Its billing rates are around 45% lower compared to overseas competitors. The company had succeeded in increasing its billing rates by 12% in the first six months of financial 2000-01. If we look at the projections for Wipro it is expected to grow its FY02 revenues by 34%, which are estimated to be Rs 43, 050 m (FY01E is Rs 32,047 m).

    Even if the GE contract is not renewed, the effect is not going to be a big one. This will be offset by Wipro’s focus on new areas like ASP and business intelligence.

    Impact Analysis Rs (m)
    FY02E 42,050
    Software earnings (56%) 23,548
    GE contributions (5%) 1,177

    But its trump card is the R&D services that accounts for almost half of the revenues of the Global IT group. This group provides solutions for the software industry. The billing rates have been traditionally higher than other areas. Also, Wipro has a vast experience in the area.

    To conclude, neither the economic slowdown in the US economy nor the loss of GE account will have any material impact on Wipro. There is no reason for irrational anxiety.



    Equitymaster requests your view! Post a comment on "Wipro: Standing firm". Click here!


    More Views on News

    Wipro: A Decent Start to the Year (Quarterly Results Update - Detailed)

    Jul 27, 2017

    Digital services drive growth for Wipro in 1QFY18.

    Wipro: A Good Performance (Quarterly Results Update - Detailed)

    May 4, 2017

    Acquisitions and digital services aid growth.

    Wipro: Another Flat Quarter (Quarterly Results Update - Detailed)

    Feb 9, 2017

    Wipro has reported a 1% QoQ decrease in the consolidated topline and a 1.9% QoQ increase in the consolidated bottomline for the quarter ended December 2016.

    Tech Mahindra: Our Revised View (Quarterly Results Update - Detailed)

    Aug 2, 2017

    A better than expected turnaround in performance results in a change in view.

    Infosys: A Decent Start to FY18 (Quarterly Results Update - Detailed)

    Jul 14, 2017

    Infosys starts FY18 on an encouraging note with a stable performance.

    More Views on News

    Most Popular

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)(The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 23, 2017 10:05 AM



    Detailed Financial Information With Charts