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How Wipro is gaining from a revamp

Last updated on: April 27, 2012 15:32 IST

How Wipro is gaining from a revamp

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Shivani Shinde in Mumbai

Wipro's IT business guidance for the first quarter of 2012-13 might have disappointed the street, but the restructuring that the company started a year ago seems to be delivering results, say analysts.

This is evident in the firm's client addition and mining abilities, and also in its ability to stabilise employee attrition.

A year back when T K Kurien was given the mandate to head the company, his priorities were to increase customer intimacy, focus and mine the existing client base.

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Image: Wipro campus, Bengaluru.
Photographs: Punit Paranjpe/Reuters
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How Wipro is gaining from a revamp

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The fourth-quarter and 2011-12 numbers substantiate this focus.

In terms of client addition in large accounts, Wipro has managed to take its $100-million customer number from just three in 2010-11 to seven by the end of this year.

Wipro generated only 20 per cent of its total revenues from its top 10 clients, compared to 24.4 per cent for Infosys and 27 per cent for TCS.

However, the proportion has improved from 19.4 per cent in first quarter of 2011-12 to 20 per cent in the fourth quarter.

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Image: Wipro campus.

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How Wipro is gaining from a revamp

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While revenue from the top customer was down by around eight per cent, revenue from top 2-5 clients grew by 3.3 per cent (in $ terms) and seven per cent in the case of top 6-10 clients.

Wipro has also increased investment in SG&A to 12.2 per cent of revenues (IT Services) for the fourth quarter of 2011-12.

"Wipro's restructuring delivered results rather quickly.

"Our interactions with management have indicated that the intensity with which the planning, execution and monitoring of the restructuring was done was high.

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How Wipro is gaining from a revamp

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"That said, we believe that its restructuring is still a work in progress," said Sandeep Muthangi of IIFL in his report.

One of the biggest challenges that the company faced was churn within its employee base.

That too seems to have been solved as attrition has been stable for the last two quarters. Voluntary quarterly annualised attrition in the first quarter of 2011-12 was 23.2 per cent. This has been stable at 14.4-14.2 per cent over the last two quarters.

"This implies that management and employees seem broadly settled and have bought in to the new management's strategy for change and the change itself.

"Wipro's voluntary attrition (quarterly annualised) continues to be lower than Infosys'. The company is taking a far better view on Friday.

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Image: Wipro campus.


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Rather conservative hiring in 4QFY12 (resulting to net decline in headcount) might be a manifestation of its discipline to ensure that the company does not have to take tough decision if demand environment worsens," said Viju K George, analyst from J P Morgan's Asia Pacific Research in his report.

Though like its peer Infosys, Wipro's guidance too disappointed the street, analyst feel that the management commentary was far better than the former and in line with TCS and HCL Technologies.

Highlighting that the demand environment is stable.

Other focus for Kurien was focus on areas that would give hyper growth opportunity.

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How Wipro is gaining from a revamp

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The company's bet on energy and utility seems to be on the right path.

During the quarter the segment grew five per cent. During the quarter, it completed 40 cloud projects, and the analytics business grew 33 per cent on a year-on-year basis.

 "Management seems confident on the demand environment and suggested that growth should come back after 1QFY13 as deal closures have already started improving in global business.

"We believe that the medium-to-long term growth prospects of Wipro remain intact as the structural changes implemented by the company are steps in the right direction.

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Image: Azim Premji.

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How Wipro is gaining from a revamp

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1QFY13 is likely to be a one-off disappointment and we expect the company to perform better going forward," said the JP Morgan report.

Moreover, the confidence in its business model is also reflected in the company's decision to go ahead with a wage hike in the month of June. Wipro might give a wage hike of around 8 per cent.

Concerns

But there are some concerns with regard to Wipro's future performance. For George of J P Morgan, the company needs to be consistent on delivering growth.

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Image: Suresh Senapaty, Chief Financial Officer of Wipro Ltd., speaks during an industry conference in Kolkata.
Photographs: Jayanta Shaw/Reuters

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"Post-restructuring, Wipro delivered strong performance in two quarters (2QFY12 and 3QFY12), which pleased investors. 4QFY12 is a decent show, but the weak guidance has been disappointing," he said.

Analysts also point out that though Wipro has been successful in adding $100 million customers, client addition in $75 million, $50 million and $10 million has been slow.

This has increased by just 3-4 clients for the fiscal.

"Our channel checks indicate that issues with delivery, most notably, project level churn is still relatively higher (vs peers).

Also, given the significant change in both the organisation structure as well as the functioning of front-end, anecdotal evidence indicates that the sales function still has to improve," said Muthangi.




Image: Azim Premji.
Photographs: Reuters
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