Wipro profit beats estimates, revenue forecast cheers street

By Sayantani Ghosh and Sumeet Chatterjee

BANGALORE/MUMBAI (Reuters) - Wipro Ltd, India's No. 3 software services exporter, beat brokerage estimates with its quarterly profit and forecast better-than-expected IT services revenue growth despite global uncertainty, sending its shares as much as 3 percent higher.

Wipro has lagged bigger rivals Tata Consultancy Services and Infosys Ltd in earnings growth in recent quarters, prompting a reorganisation of its key information technology outsourcing business earlier this year.

As part of the restructuring, the company, which is also listed on the New York Stock Exchange, removed the joint chiefs of its IT business and named company veteran T.K. Kurien as the new chief executive.

"After many quarters of under performance, the company is showing the first signs of getting back on the track," Pralay Kumar Das, an analyst with Mumbai-based Elara Securities, said.

Bangalore-based Wipro forecast third-quarter revenue of $1.50 billion to $1.53 billion from its IT services unit, which accounts for three-quarters of its total revenue, a rise of 2 percent to 4.1 percent from the second quarter.

"The guidance for this quarter is reasonably aggressive. I was expecting at most a 3 percent growth at the top end," Das said.

Wipro added 5,240 staff in the September quarter in its IT services business, its strongest pace of headcount addition in seven quarters, a sign it expects outsourcing demand to improve in the months ahead.

"There is no immediate trigger for the valuation discount of Wipro to narrow with its more illustrious peers, but given the stock price and this quarter's results, downside is limited," Das said.

Wipro trades at about 15 times one year forward earnings, while Tata Consulatancy and Infosys trade at 19 times, data from Thomson Reuters I/B/E/S showed.

Wipro shares rose as much as 2.9 percent after the results to 385 rupees in a Mumbai market that was down 0.7 percent. Infosys, the No. 2 software services exporter and a trend-setter for the sector, was trading 1 percent higher.

India's showpiece $76 billion industry gets more than 90 percent of its revenue from providing technology services to overseas clients and counts the United States and Europe as its biggest markets.

Europe is the second largest market for the software firms, and the euro zone debt crisis is a worry for the sector that has been looking to increase its sales to the region to hedge against their excessive exposure to the United States.

Wipro's billionaire Chairman Azim Premji said the global macroeconomic situation was uncertain, but it had not yet hurt demand for technology outsourcing services by western clients.

"The uncertain environment has not impacted business on the ground. Customers continue to look at IT strategically," said Premji, who quit Stanford to take over his father's ailing vegetable oil business in the mid-1960s.

He diversified the vegetable oil business into hydraulic cylinders in the 1970s and software services in 1980.

PROFIT BEATS ESTIMATES

Indian outsourcing services firms including Wipro and Tata Consultancy Services face fierce competition from bigger global rivals including IBM and Accenture .

Wipro, which develops software applications, integrates IT systems and manages call centres, said profit in the quarter rose to 13.01 billion rupees ($267 million) under international accounting standards from 12.85 billion rupees a year earlier.

Total revenue rose 18 percent to 90.94 billion rupees, as the company added 44 new clients in its IT services business.

This compares with a Reuters poll profit forecast of 12.76 billion rupees on net sales of 89.28 billion rupees for the company, which counts Citigroup, Cisco and Credit Suisse among its clients.

Wipro, which also makes computer hardware, electric bulbs, soaps and toiletries, saw its operating margins falling to 20 percent in the quarter from 22.2 percent in the year-earlier, period mainly due to staff wage hikes.

Chief Financial Officer Suresh Senapaty said Wipro would be able to sustain and improve margins in the medium to long term as growth picks up. The company is not seeing pressure on the prices that it charges for its services, he said.

Top Indian software exporter Tata Consultancy posted a slightly lower-than-expected rise in quarterly profit earlier this month, while No. 2 Infosys met street forecasts in its earnings.

The top two outsourcing companies, however, sounded caution about the business outlook in the near term due to global economic uncertainty.

Wipro's shares, valued at about $18.3 billion, fell nearly 24 percent this year through Friday, underperforming the 16 percent drop in the sector index and a 12.6 percent fall in the Mumbai index.

(Editing by Aradhana Aravindan and Tony Munroe)