Is Wipro’s revamp strategy showing results?

by Shweta Verma    Oct 23, 2013

wiprobuilding

After the IT biggies TCS, Infosys and HCL Tech posted promising results, all eyes were set on Wipro. The company’s September quarter results declared yesterday show that it has grown better than analyst expectations. Net profit increased by 28 percent to Rs 1,932 crore on a year-on-year basis, while the overall sequential growth was at 2.7%.

Having reported its highest quarterly revenue growth in the last two years, the company seems to be on the road to recovery. “Client confidence is on the uptick and we see it reflected in our results,” Wipro’s Chairman Azim Premji said in a statement. The company projects a better third quarter with revenues in the range of $1.66-1.69 billion, which would roughly translate into an annual growth of 6-7%.

Although Wipro still remains a bit slower than competitors like TCS and Infosys, the company seems to be moving at a steady pace.   

Aligning with new opportunities

The IT industry has been showing signs of recovery and Wipro could have benefited from that. But the organization has also been proactively taking measures to streamline operations and align with new opportunities in the market.

Earlier this month, Wipro had announced major changes in the top management. Senior Vice President Shaji Farooq was appointed as the Global Head of its Banking, Finance Services and Insurance (BFSI) unit, while Senior Vice President Soumitro Ghosh was made head of Wipro Infotech for the India and Middle East business. G K Prasanna was appointed Senior Vice President & Global Head for Global Infrastructure Services (GIS) in addition to his current role as SVP & Global Head for Product Engineering Solutions (PES), while Jeffrey (Jeff) Heenan Jalil was given the position of Vice President & Global Head of Advanced Technologies.

The top brass reshuffling was done in accordance with the current market situation and emerging growth areas. Wipro CEO T K Kurien says, “Our leadership team has spent considerable time reviewing market opportunities, and sharply defining the focus areas that would fuel our growth ambition. The exercise reaffirmed our conviction in our chosen strategy.  We are committed to better aligning our internal organization with our clients’ needs and to make investments in driving predictability and automation in our delivery.”

Mehraboon Irani of Nirmal Bang Securities said on CNBC-TV18, “I think whatever the management has done over the last six quarters, I personally feel that the results will show ultimately.”

The growth areas

It might be too early to say if Wipro has benefited from its realignment strategy, but signs of improvement do point to a step in the direction. Wipro’s Q2 financials show that revenues from IT services have grown by 20 percent on a year-on-year basis to Rs 10,068 crore ($1.6 billion). Healthcare services have grown the highest at 5.5 percent quarter-on-quarter, revenues from APAC and emerging economies increased by 6.3 percent, US 2.9 percent and Europe 2.3 percent.

According to Kurien, the company has been able to achieve “broad-based revenue growth across all industry verticals.” The recent management reshuffle also indicates that Wipro is trying to strengthen its base in the BFSI sector. The company has recently won a large contract from a large US bank, say reports.

Following an improvement in demand from US and European clients, the company has also upped its antennae. In the last quarter, its revenue from top 10 clients was up 4.1 percent from the previous quarter.

Wipro is seeking more business from its existing clients and that strategy has “started to pay off, it is doing so, although a little belatedly,” Harit Shah, Analyst, Nirmal Bang Institutional Equities, told Reuters. “There are certain signs that the turnaround is happening, it’s not happened yet, but it’s getting there.”

Analysts remain cautious

Even though Wipro is making efforts to brace up with the market changes, industry observers say it is still early too early to predict if it can match up with its peers.

An ET report says, “Expectations have remained low for Wipro… with signs of return of steady growth at Infosys, time may be running out for Wipro chief executive TK Kurien who has been at the helm since February 2011. The overall revival in growth for the sector may be a boon for Wipro, but more definite signs may be required to convince investors that Wipro can match its industry peers.”

“Is this a turning point? I would say we have plenty of work to do,” Kurien was quoted as saying. While Wipro says it would be better placed in the next fiscal, market analysts remain cautious in their optimism.