Wipro's latest deal, by far its largest, brought cheer to its stock on Monday. Analysts feel that the IT services firm's digital strategy has finally started to deliver.
On Sunday, India's third largest software services company signed its biggest deal till date - a $1.5 billion 10-year deal with Illinois-based Alight Solutions. The latter deals in technology-enabled health, wealth, human resource and finance solutions.
"This is a great deal for Wipro, which has seen it lag behind its peers for the past few quarters. It has been revamping its whole service model," said Rajesh Gupta, Partner, Digital Innovation and Technology at Information Services Group, a research and advisory firm.
Wipro has lately been struggling with client-specific issues that have had an impact on its bottomline. In the June-ended quarter, it reported a net profit of $307.55 million, up 2 percent from the same period last year. Revenue from IT services grew to $2 billion during the previous quarter, a rise of 5 percent year-on-year.
The deal is being viewed by analysts as a positive for Wipro's future performance as well. "With large deal wins and recovery in stressed verticals, we expect third quarter revenue growth guidance to be in line with the industry growth rate. We are enthused with the deal win and its growth outlook is improving gradually," said analysts Amit Chandra and Apurva Prasad of HDFC Securities.
As customers look at more digital-based work, the challenge for Indian technology services companies has been increasing competition from smaller and more nimble players such as Larsen & Toubro Infotech (LTI), Hexaware Technologies or Mphasis. Companies such as Accenture and Tata Consultancy Services have done better in bagging multi-year large deals because of their more mature digital capabilities.
Gupta said Wipro has been working on a more differentiated digital strategy. "They have a great strategy and have been very cautious and focused on differentiation. They have also been working on reshaping the mindset of employees," he added.
Bank of America Merrill Lynch said in a recent note that order bookings at Wipro have seen an uptick in the past two quarters, even though visibility on healthcare and manufacturing is still low for the next six months.
Wipro's healthcare business has suffered because of a client exit in the December quarter and manufacturing revenue growth has also slowed in the last year.
BofAML, however, expects an improving margin trajectory for Wipro for the rest of the year.