Wipro posted a 2.8% growth in net profit for the fiscal third quarter, beating estimates, but the IT services major warned that the sector was slowing down amidst a challenging macroeconomic environment.
India’s fourth largest software company said it expects its revenue in the current fourth quarter to be in the -0.6% to 1% range in constant currency, lower than analysts’ forecast of 0-2% growth.
Analysts added that the Bengaluru-based software major’s IT services revenue forecast for the full fiscal year of a growth of 11.5%-12.0% in constant currency terms factored in a tepid fiscal January-March period.
“There is no doubt the technology sector is slowing down after incredible growth after the last couple of quarters, particularly the spend in the retail sector in America might see a potential slowdown,” said Wipro CEO Thierry Delaporte.
Large deal wins
“(But) I believe clients continue to see technology as the driver of performance for them. It is clear when we look at the performance and bookings we have had in this quarter,” Delaporte told reporters at a post-earnings conference. “There is no real reason to believe that there is any slowdown in demand.”
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He added that fourth quarter bookings are expected to remain strong.
Read | Overall outlook for tech services industry is still strong: Wipro CEO Thierry Delaporte
The company reported large deal wins at $1 billion compared with $725 million worth of deals reported last quarter. The total deal wins stood at $4.3 billion, up 26% year on year.
Net profit for the three months ended December stood at Rs 3,053 crore compared with Rs 2,969 crore a year back. Revenue came in at Rs 23,229 crore, up 14.4% year on year. ET’s poll of analysts had pegged net profit to remain flat compared with the same quarter last year, on revenue of Rs 23,422 crore, up 15.3%.
Also, Wipro’s sequential IT services revenue growth in dollar terms of 0.6% met the company’s outlook of 0.5-2% in constant currency. The profit was up 14.8% while overall revenue grew 3.1% on a sequential basis.
The company declared an interim dividend of Re 1.
Wipro’s shares ended 0.3% higher at Rs 395.50 on the BSE Thursday. The results were declared after market hours.
Delaporte, however, cautioned of a “certain level of uncertainty” which might be reflected in the shifting of clients’ priorities towards focusing on efficiency or considering reducing their discretionary spending.
Cloud, data, engineering services and cybersecurity remains an area of significant client interest, he added.
This comes as analysts believe that the IT sector may be dragged down by delayed decision making or cuts in technology spends due to macroeconomic challenges such as high inflation and geopolitical tensions in Europe.
“Though the company posted double-digit revenue growth, the full-year guidance for FY23 suggests a tepid business performance in the fourth quarter,” said Manish Chowdhury, head of research at digital trading and broking platform Stoxbox. “We believe that an expected difficult macro environment in the US and Europe going forward would make it difficult for the company to sign new large deals.”
Earlier this week, Wipro’s rivals declared contrasting results, but both forecast a cloudy climate owing to macro slowdowns. Infosys reported a 13.4% growth in net profit for the quarter, beating estimates, and upgraded its annual revenue guidance to 16-16.5% on the back of its best deal wins in eight quarters at $3.3 billion. But Tata Consultancy Services, India’s largest software exporter, reported 11% on-year growth in fiscal third quarter net profit which missed estimates.
Wipro’s voluntary attrition for the quarter narrowed to 21.2% compared with 23% last quarter.
But net hiring was down by 435 compared to 605 added last quarter amidst a tightening hiring ecosystem, again reflecting the cloudy outlook.
The company has onboarded 17,000 freshers so far this year against a target of 30,000 candidates. The company expects to add 5,000 freshers in the ongoing quarter, implying it could fall short of target by 8,000 candidates.
“We had called out that we would be investing in our headcount ahead of time, so we could prepare ourselves for growth in the remaining quarters of the fiscal. There is headroom to increase utilisation for growth,” said chief human resources officer Saurabh Govil.
He added that lateral hiring will depend on business needs.
Wipro’s quarterly operating margins expanded 120 basis points sequentially to 16.3%, helped by operating efficiencies, despite the impact of higher holidays. It however fell 130 basis points on a year-on-year basis due to higher wage costs.
“I think this is a new base that we will work on and we will see where we go from here…,” said chief financial officer Jatin Dalal.
However, strong operational improvements and automation-led initiatives would help to cushion the downside at margin levels in the near-term, he added.