Wipro Q4 net slips 6% to Rs 2,345 cr; suspends rev guidance amid uncertainty over COVID-19

IT major Wipro on Wednesday posted 6 per cent decline in net profit for March quarter that was battered by the fallout of COVID-19, and said it will not provide revenue forecast for the current quarter due to business uncertainty caused by the pandemic. Wipro, which posted a consolidated net profit of Rs 2,345.2 crore in March quarter compared to Rs 2,493.9 crore in the year-ago period, said it expects revenue in June quarter to decline that will put a huge pressure on margins.

The company also cautioned that it is already seeing budget reductions, cuts in discretionary spend, pricing pressures as well as restructuring of existing spends, and noted that sectors like retail, hospitality, airlines, energy and manufacturing will "experience a more immediate and deeper impact". Wipro, which is the first among its peers to announce financial numbers for the quarter, said it will resume providing revenue guidance after it sees "increased certainty" on demand and supply side factors.

The Bengaluru-based company's revenue increased 4.6 per cent to Rs 15,711 crore in January-March quarter as against Rs 15,006.3 crore in the year-ago period. "We are still very much in the middle of economic turbulence," Wipro CEO Abidali Neemuchwala said, citing estimates that said global GDP growth rates are expected to decline by about 2 per cent.

"The decline in GDP for the April-June quarter is likely to be a much steeper decline followed by a recovery in the following quarters. This is likely to have a significant impact on our customers' earnings and their IT spends," he said. Neemuchwala said given the uncertainty in the environment and inability to predict the course of health crisis, the company has decided to temporarily withdraw from providing guidance and resume when it has increased certainty of both demand and supply side factors.

Earlier this month, Cognizant had said it was withdrawing its growth forecast for 2020 given the uncertainty in environment amid the coronavirus outbreak. Accenture has also slashed its FY20 revenue growth expectation citing similar concerns.

Industry experts will keenly watch out for management commentary from Tata Consultancy Services and Infosys which are scheduled to announce their results on April 16 and April 20, respectively. Noting that the first two months of the quarter were strong for order book, closure of large deals and ramp up in projects but in March - as the health crisis rapidly progressed in key geographies like Europe, UK and US - the company "clearly saw an accelerating impact" to its business.

Terming the ongoing situation as "unprecedented", Neemuchwala said the company will have "trade-offs to make on hiring, salary increases, discretionary spends, variable costs such as sub-contracting costs amongst others", but added that defending revenues and gaining market share will remain a priority. "We do anticipate that our working capital will increase in the near term, but our gross cash in our balance sheet does provide us the confidence that we will emerge stronger and better," he added.

Wipro said its IT services revenues were negatively impacted by about USD 14-16 million on account of COVID-19. IT services - which is the mainstay of Wipro's business - had clocked revenue of USD 2,073.7 million in March, down sequentially by one per cent. "Wipro reported an in-line quarter with constant currency revenue growth of 0.4 per cent q-o-q (at the lower end of its guidance), while reported USD revenue and EBIT margin remained below our estimates," Sanjeev Hota, Head of Research at Sharekhan by BNP Paribas, said.

The results were announced after the close of trading hours. Shares of Wipro closed lower by 1.53 per cent at Rs 186.55 apiece. The Board has not recommended any final dividend and the interim dividend of Re 1 declared in January will be considered as the final dividend for the financial year 2019-20, Wipro said, adding that the total dividend for FY20 remains Re 1 per equity share.

Wipro's FY20 net profit grew 8.3 per cent to Rs 9,771.8 crore, while revenue rose 4.2 per cent to Rs 61,023.2 crore from FY19. Operations of businesses across the world have been impacted by the coronavirus outbreak that has claimed thousands of lives.

In India, 377 deaths have been reported, while there were 11,439 cases of COVID-19. The government has now extended the nationwide lockdown till May 3 in a bid to contain the spread of coronavirus infection. The Home Ministry on Wednesday issued detailed guidelines that allowed IT and IT-enabled services to operate with up to 50 per cent strength.

Wipro also said it is deferring salary increases of junior employees - scheduled in June - amid the uncertainty but promised that it will honour all campus offers made by the company. Also, the process of CEO search is still on and is expected to be completed in the June quarter..