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Wipro: Unaffected growth - Views on News from Equitymaster
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  • Apr 20, 2001

    Wipro: Unaffected growth

    In the 4QFY01 the contribution of the R&D group to Global IT services division has gone up to 54% compared to 50% in 3QFY01. The contribution of the enterprise solutions division dropped to 41% from 45% in 3QFY01 and the share of support services held steady at 5%. The enterprise solutions division seems to have taken a hit.

    Global IT services division (Rs m) 3QFY01 4QFY01 Change
    R&D group 2,400 2,792 16.3%
    Enterprise solutions group 2,160 2,120 -1.8%
    support services 240 259 7.7%
    Total 4,800 5,171 7.7%

    The share of e-commerce to Global IT service division was up from 16% in 3QFY01 to 18% 4QFY01. But the company has taken a hit because the revenues from application development and maintenance in client server & mainframes (legacy systems) have reduced by 28% sequentially. This is due to a conscious effort by the company to move out of the area. During the quarter most of the software companies have in fact increased or have been forced to increase revenues from legacy systems due to the lack of business from other areas. This might be due to Wipro’s efforts to realize its objective of becoming one of the top 10 technology companies of the world. The company added another service, Data warehousing to its portfolio that has tremendous growth potential. As corporates all around the world have been collecting operational data through various software systems and therefore, would be looking to use this data for decision support. According to survery.com the market for business intelligence and data warehousing is expected to be US$ 148 bn in 2003 growing at a CAGR of 45%.

    Enterprise solutions group (Rs m) 3QFY01 4QFY01 Change
    E-commerce 768 931 21.2%
    ERP 96 155 61.6%
    Datawarehousing N. A. 103 -
    Application development and Maintenance 1296 931 -28.2%
    Total 2160 2120 -1.8%

    However, the growth driver has been the embedded systems and the Internet access practice that contributed to 20% of the revenues of the Global IT group. The group continues to operate at margins as high as 35%.

    R&D group (Rs m) 3QFY01 4QFY01 Change
    Telecom and Internet working 1,440.0 1,603.01 11.3%
    Embedded systems and Internet access 816.00 1,034.20 26.7%
    Telecom and internet service provider practice 144.00 155.13 7.7%
    Total 2,400.0 2,792 16.3%

    The company added 32 new clients in the quarter that contributed to around 15% of the revenues for the quarter. The contribution of offshore development to the revenues was 50% for 4QFY01 compared to 48% in 3QFY01.

    Wipro expects to grow ahead of industry growth rate pegged at 40% to 45% by NASSCOM. In the previous year the company has shown a 22% increase in onsite billing rate and 18% increase in offshore billing rates. If the company does not see the billing rates improving by the same amount in FY02 (which is very likely considering the drop in demand) it can offset this by controlling its employee costs. The company has already slashed down on its recruitment. The number of employee recruited in 4QFY01 was 444 compared to 912 in the 3QFY01.

    The company’s growth for the quarter was on the back of 56% jump in revenues in the Indian IT services and products division that accounts for 27% of its revenues (the share of Global IT division is 55% and consumer care and lighting division is 6%). The domestic sector is not the focus for Wipro and also the demand in the sector is not so strong so that this can continue. Also, the operating margins for the Indian IT services division at 13.7% is way below the Global IT division of 35%. It is very likely that Wipro in the next quarter might not show similar kind of topline growth, as the global scenario is not improving. Considering this the next quarter’s performance will be a far subdued one.



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