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)
Enterprise solutions group
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)
Application development and Maintenance
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)
Telecom and Internet working
Embedded systems and Internet access
Telecom and internet service provider practice
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.
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: email@example.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407