Wipro's Q1 net profit declines 21% over acquisitions, talent cost

Despite a below-expectation showing, IT major expects double-digit growth in FY23

IT major Wipro’s net profit declined during the recently concluded June quarter on both year-on-year (YoY) and sequential bases because of acquisitions, cost of talent, and taxes. While its net profit in Q1FY23 declined 21 per cent YoY to Rs 2,563.6 crore, the figure was down 16 per cent sequentially.
 

The revenue for the quarter under review was Rs 21,528 crore, up 17.9 per cent YoY and 3.2 per cent sequentially. Its IT services revenue came in at $2.73 billion, an increase of 13.3 per cent YoY.
 

The company’s Q1 revenue and net income did not meet Bloomberg estimates, which projected revenue to be around Rs 21,545 crore and net income at Rs 2,996 crore.
 

Although Wipro’s performance did not meet Street estimates, it gave strong Q2 revenue guidance of 3-5 per cent. The company said it is expecting double-digit growth in FY23.
 

“The 3-5 per cent guidance translates into growth of 11.6 per cent-13.8 per cent year-on-year in constant currency terms. With this guidance, we are confident of growing in double digit in FY23,” said Thierry Delaporte, CEO & MD, Wipro.
 

The company management also appeared confident about the growth ahead and said, so far, there haven’t been client-related concerns. “Despite the uncertain macro environment, our order book and pipeline are strong. The discussions we have had with customers do not show any slowdown concern. Demand for IT services is robust,” said Delaporte.

The company said that its orderbook has grown substantially with TCVs growing at 30 per cent YoY and ACVs up 18 per cent you. It also said that during the quarter it signed large deals worth $1.1 billion, which was up 3x compared to last quarter.

Ashis Dash, IT analyst, Sharekhan by BNP Paribas, said: “Wipro reported below-than-expected headline numbers in Q1FY23. Still, net headcount addition, client mining, new logo addition, deal pipeline, and large deal bookings remained strong. The company missed the Street’s expectations on operating profitability, which could lead to an earnings downgrade. However, demand remains robust as it does not see any softening of decision-making on tech spending by clients. In addition, we believe the margin is likely to improve in subsequent quarters despite a wage revision on the back of improving utilisation. We have a ‘hold’ rating on Wipro.”

During the quarter Wipro announced the acquisition of Rizing, a SAP consulting firm for $540mn.

Wipro managed to bring down the attrition for the quarter at a time when every company has reported attrition heading north. Q1 attrition at Wipro was at 23.3 per cent. In Q4, the company’s attrition was at 23.8 per cent.
 

Unlike other companies, Wipro added more than 10,000 freshers during the quarter and said it is on track to hire 30,000 freshers and also lateral hiring will happen based on demand. During the quarter, Wipro added 15,446 employees.
 

The operating margin for the quarter came in at 15 per cent. It was impacted due to talent costs and the cost of acquisitions.

Jatin Dalal, chief financial officer, said: “We are consistently investing in solutions and capabilities for our growth to further strengthen our position of being a strategic partner for our clients. At 15 per cent of operating margin, we believe that we have bottomed out.”
 

Growth for the quarter was broad-based with all the geographies and services lines registering double-digit growth on a YoY basis.