Indian outsourcing firm Wipro Ltd underscored the sector’s recovery with an upbeat outlook and forecast-beating quarterly profit, as a global recovery boosts demand from key financial clients.
India’s No. 3 software services exporter followed bigger rivals Tata Consultancy Services and Infosys Technologies in reporting a pick up, boosting investor confidence of a solid recovery from the global financial crisis.
Wipro added 4,855 employees, or about 5 percent, during the December quarter, its biggest pace of staff addition in more than two years.
“IT results have been good…and the commentary from the managements suggest that it is going to continue at least for the next 2-3 quarters,” said Jayesh Shroff, a fund manager at SBI Funds Management, which has more than $8 billion in assets.
The rebound in the export-driven sector’s growth, however, face risks from a firmer rupee, increasing staff wages, and growing competition from global rivals such as IBM (IBM.N) and Accenture (ACN.N).
The rupee is seen rising 4 percent this year, according to a Reuters poll, on top of its 4.7 percent gain in 2009.
“I think that the big message is growth is back and it looks sustainable and we have emerged out of the current slowdown stronger and hungrier,” said K.R. Lakshminarayana, Wipro’s chief strategy officer for IT business.
“It’s too early to talk of FY11, please remember the world has not yet declared victory on its economic woes and we need to be careful about that,” he told the Reuters Trading India chatroom, responding to a query on next year growth prospects.
Wipro expects its IT services revenue to rise 3.6-5.4 percent in January-March from the preceding quarter to $1.16-$1.18 billion, after it posted a 4.9 percent sequential rise in the latest quarter.
STOCK TAKES BREATHER
Shares in Wipro, valued at about $24 billion, rose as much as 2.1 percent to 753 rupees, their highest since April 2000. The stock gave up gains to be down 1.6 percent by 0851 GMT.
“Wipro’s guidance for this quarter is ahead of what we had expected and it’s quite positive,” said Srivathsan Ramachandran, analyst at Spark Capital Advisors. “But the stock will take a breather in the near term after the recent sharp rally.”
Shares in Wipro, majority-owned by billionaire Chairman Azim Premji, rose 13 percent in the quarter, in line with the sector index .BSEIT and more than the 2 percent rise in the main index . The stock nearly tripled in 2009.
Chief Financial Officer Suresh Senapaty said the deal pipeline was looking good and the company expected stable or slightly higher fees in the coming quarters, which would help it maintain margins despite wage hikes and a firmer rupee.
“The order wins are happening,” Senapaty said. “We are constantly in negotiations for large deals and that’s actually is giving us little bit of optimism.”
Wipro is seeing a sharp rebound in demand from financial services clients, which accounts for a quarter of its revenue, and also in regions such as India, the Middle East and Asia Pacific where it is looking to boost its presence.
Premji said in a statement the company expected IT budgets to be flat to marginally positive in 2010.
Indian outsourcing companies, which manage complex computer networks and maintain technology operations for many of the Fortune 500 clients, are back to their hiring ways and are also boosting salaries, reflecting a rebound in demand.
Wipro will raise wages for its more than 100,000 staff later this quarter after freezing them early this year due to slowing business momentum. Senapaty said the size of the hike had not been decided yet.
Senapaty said a media report last week Wipro was likely to launch a $1 billion sponsored ADR issue to cut Premji’s majority stake could only be considered a rumour. [ID:nSGE60D0AR]
New York-listed Wipro (WIT.N), which integrates IT systems, develops software applications and manages call centres, said October-December net profit rose to 12.03 billion rupees ($263 million) under international accounting rules from 10.10 billion a year ago.
A Reuters poll had forecast a net profit of 11.59 billion rupees for Wipro. Revenue rose 5.6 percent to 69.77 billion rupees, as it added 31 clients for its IT services business.
Tata Consultancy and Infosys both beat quarterly profit estimates last week, and forecast a positive outlook on hopes of an increase in outsourcing demand from western clients. [ID:nSGE6070CJ] [ID:nSGE60E0GH]
IBM on Tuesday raised its 2010 profit target and reported a stronger-than-expected 9 percent increase in fourth-quarter earnings, as cost cuts and a shift to more profitable contracts helped it weather a slump in corporate spending. [ID:nN19218960] ($1=45.8 rupees)