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May 24, 2018
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Wipro bucks profit trend on client insolvenciesProfit slumps 20.5% to ₹1,800 cr., revenue slips 1.5% to ₹13,768 cr. in Q4; IT company facing continuous slippage: Sharekhan

Wipro, India’s third-largest software services exporter, reported on Wednesday fourth-quarter net profit slumped 20.5% from a year earlier to ₹1,800 crore after it made provisions for two insolvent customers.

Wipro’s weak earnings contrast with the healthy profits posted by larger competitors Infosys and TCS. Earlier this month, Infosys said net profit for the fourth quarter rose 2.4% to ₹3,690 crore, while TCS reported a 4.5% rise in its Q4 net.

Wipro’s revenue also slid 1.5% to ₹13,768 crore in the three months ended March 31. The company forecast revenue from the IT services business in the current quarter to be in the range of $2,015 million to $2,065 million, Bengaluru-based Wipro said in a statement.

“The guidance for Q1FY19 was quite disappointing, with expectations of muted to negative sequential growth,” Sanjeev Hota, AVP Research, Sharekhan, who has a ‘reduce’ rating on the stock, said in a statement. “Wipro has been struggling to report consistent growth due to ramping down of its accounts, challenges in industry pockets and continuing slippage in its traditional business.”

Wipro had announced the divestiture of its hosted data centre services business to Ensono for a consideration of $405 million. “We expect the transaction to complete during the quarter ending June 30, 2018.

“For the purpose of the outlook we have not considered the impact of the divestment on the revenue for the quarter ending June 30, 2018. We will revise the outlook for the quarter based on the actual date of completion of the divestment.”

Earlier this month, Wipro, in a filing to the stock exchanges, had stated that because an Indian telecom services client declared bankruptcy, it expected an impact on profitability “at the net income level in the range of 65-75 basis points of the consolidated revenues for the quarter ended March 31, 2018.” After the insolvency of two of its customers, the company has recognised provision of ₹525 crore for impairment of receivables and deferred contract cost for the year ended March 2018. “For the quarter, we recognise provisions totalling ₹2,080 million with respect to insolvency of a customer and the impairment loss in one of our acquisitions,” Wipro said.

‘Investments in digital’

“Our investments in digital and our efforts in client mining are paying off well,” CEO Abidali Neemuchwala said in the statement. “Our strong order bookings in the last two quarters provide us the right foundation to grow as we progress through the year.”

The number of clients contributing revenue of more than $75 million increased from 17 to 20 last quarter, said Jatin Dalal, chief financial officer. “We generated robust operating cash flows of ₹84 billion at 105% of our net income.”

Bhanu Murthy, president and chief operating officer of Wipro, said that the guidance had two contexts. “One is the context of bankruptcy where cost impact was in Q4 and revenue impact will be in Q1,” he said in an interview. “The other is, there is still no clarity on the affordable healthcare Act in the U.S. Our platform is basically based on the Act. Customers are exiting from the market. Still, our order book in FY18 was the best so far.”

Digital revenue grew 27.6% year-on-year and in the fourth quarter, it contributed to 26.7% of Wipro’s revenue.

“We continue to improve our localisation levels in our global markets and have over 55% localisation levels in the U.S.,” Mr. Neemuchwala said. “ In APAC, more than three-fourths of our employees are now local and in Latin America almost our entire employee base is local.”