Wednesday, 22 July 2009

Wipro Q1 ’10 update

(By Anthony Miller – Wednesday 22nd July 2009 3:15pm). Premji stuck to his guns on market conditions (see Wipro sees first signs of stability) and said he was “more hopeful of the future than (he had been) in the past”. That said, Wipro still very much echoed many peers’ concerns on customer dynamics, especially pricing. Like Infosys and TCS, Wipro has pretty much sorted contract renegotiations but didn’t rule out a further round if economic conditions failed to improve.

The picture in Europe is much as peers'. Revenues fell 5% sequentially (constant currencies), compared to -3% ccy at Infosys. Europe remains 25-26% of Wipro’s global IT services business. They are clearly winning deals; nine of its 26 new clients came from Europe. Indeed, sourcing advisors TPI reported today that Wipro appeared among the Top 5 vendors in AD&M and network services deals in EMEA last quarter as measured by TCV (total contract value). Wipro management said they are seeing ‘interesting outsourcing opportunities’ in Germany and France. However, having to deal with workers’ councils on the continent means major deals are taking 1-2 quarters longer to finalise. Wipro is also hiring in Europe, with another 45 local heads added last quarter.

Wipro still lags larger peers on operating margins. Though up 1.8 pts yoy and 1.5 pts seq to 19.7%, Wipro’s Global IT Services margins still trail TCS (24.8%) and Infosys (30.1%). Wipro’s ‘pure’ IT services margins (i.e. excluding product sales – which carry a 4% margin) sit at 22.2%. Although it gets very little mention on the concalls, Wipro’s legacy Consumer Care & Lighting business (cooking oils and soaps through to lightbulbs) grew revenues 9% and now comprises 8% of the total, and runs a 15.2% operating margin. In a recession we all go back to basics!

I will be meeting Wipro Head of Europe, Ayan Mukerji, next month and will bring you more then.

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