Cautiously optimistic on demand scenario: Wipro to analysts

Moneycontrol Bureau

Wipro remains cautiously optimistic on demand for IT services given the current global economic uncertainties led by the Eurozone debt crisis, the software services provider told analysts on Monday.

Several analysts who attended the company's analyst meet point out that the company's internal transformation remains on track, but slower decision making by clients could hurt near-term demand.

"Wipro remains on track to achieve the targeted strategy of differentiation in the front-end and standardisation in the back-end. In the short-term though, slower decision making due to sustained global uncertainty may lead to slower growth as per the management. We estimate a conservative 12% CAGR over FY12-14," according to a research report by IIFL India Private Clients.

The slower pace of decision making and the absence of discretionary projects is likely to hamper revenue growth in the near-term.

"Wipro highlighted that even though the total organizational budgets on the client side might not be shrinking, budgets in the hands of CIOs definitely is," said Pralay Das at Elara Securities.

Banking and Financial Services is among the key sector where demand remains sluggish, analysts say.

"Having hosted 30 of its top BFSI clients in the US, Wipro indicated that the budgets for  calendar 2012 were flat or negative, in most cases. Investment banking clients saw their budgets lowered by 5-15% and retail banking and insurance clients had largely flattish budgets. The management also indicated an increased allocation to run-the-bank projects, with regulatory projects getting pushed out, in the US," said Kawaljeet Saluja and Rohit Chordia of Kotak Institutional Equities.

Among other key sectors, Das of Elara Securities notes that Wipro has been a late entrant in healthcare and life sciences. But it is now looking to widen its footprint in the smaller deal within collaborative life sciences, data driven analytics and risk safety and compliance.

The India's third largest IT company had in April reported 7.7% year-on-year rise in Q4 consolidated net profit at Rs 1,481 crore, in-line with market expectations, while net sales were up 19% to Rs 9,836.3 crore. On a sequential basis, Wipro's net profit was up 1.7%, while revenue fell 0.5%.

The Bangalore-based company expects revenue from IT services in April-June will be in USD 1.52-1.55 billion range, just about 0.6% higher than that in Jan-March at the top end.

Here are some more takeaways from Wipro's analyst meet:

KOTAK INSTITUTIONAL: There is a change in decision-making process at the clients' end with budget spend decisions increasingly coming under the purview of CFOs and business heads.  Pricing remains stable with little pressure from clients to pass on the benefits of Rupee depreciation. However, clients are increasingly looking at new deal structures with fixed pricing or outcome-based payments. India business performance is likely to remain muted, with Government spending impacted by the persisting policy paralysis. Rating: Add. Target: Rs 460.

ELARA SECURITIES: Wipro is looking to invest in certain areas to build a portfolio in its areas of strength. However management is not looking to run up utilization in the shorter term as it still expects demand to come back in the back half of the year. Rating: Reduce. Target: Rs 410.

IIFL: As opposed to the erstwhile approach of separate selling efforts for separate service lines, the company now focuses on a wholesome portfolio approach and solutioning, to differentiate against competition. Investments in specialising in micro verticals within the momentum verticals of BFSI, Healthcare, Energy and Utilities and Retail are expected to continue as a part of the differentiation strategy. Rating: Buy.

Wipro shares closed down 1.8% at Rs 393.15 on NSE on Tuesday.

Nachiket Kelkar
nachiket.kelkar@moneycontrol.com