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Wipro guides for decline in organic business, a first since financial crisis

LiveMint logoLiveMint 25-04-2017 Mobis Philipose

Wipro Ltd, which has been lagging peers for years, may face the infamy of becoming the first top-tier Indian IT services company to report a decline in revenue growth. The company has forecast revenue of $1.955 billion at best for the June quarter, which translates to a growth of 1.25% against the reported revenue of $1.931 billion in the year ago period.

But Wipro has done a string of acquisitions in the past year or so, and adjusted for the contribution from these, organic revenues are estimated to fall by quite a margin. Based on Mint’s back-of-the-envelope calculations, organic revenues are estimated to fall by over 4% on a year-on-year basis in the June quarter. If one were to use the lower end of the company’s revenue guidance for the June quarter, organic revenues are estimated to fall by over 7%.

Indian IT services companies last reported year-on-year declines in revenue during the global financial crisis. And although growth has fallen for most companies, including industry leaders Tata Consultancy Services Ltd and Cognizant Technology Solutions Corp., these companies are still reporting growth in the mid-high single-digits.

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This newspaper had asked the question ‘Will Wipro soon post negative growth?’ after the company’s December 2016 quarter results; although hardly anyone expected the slide to be so quick. On a year-on-year basis, organic growth in constant currency terms had fallen to around 2% in the December quarter, and to around 1% in the March quarter.

The slide in the June quarter is expected to be particularly sharp; on a sequential basis the company has guided for flat revenues at best and a drop of 2% at worst. Considering that the June quarter is seasonally a stronger quarter, the company’s guidance is particularly worrying.

In the past, the company has said that it is facing growth headwinds in its India and Middle East business because of an ongoing restructuring. But analysts have been underwhelmed by the company’s overall execution.

Despite its weak performance, Wipro shares have risen by around 4% year-to-date, while the Nifty IT index has fallen 3%. After the March quarter results shocker, the stock looks ripe for a sharp fall.

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