Wipro quarterly profit falls 3.4% to Rs 2,465 cr; announces Rs 9,500 crore-buyback plan

IT services major Wipro on Tuesday posted a 3.4 per cent decline in consolidated net profit to Rs 2,465.7 crore in the three months ended September and projected revenue growth in the December quarter even as it announced a plan to buyback shares worth up to Rs 9,500 crore.

IT services major Wipro on Tuesday posted a 3.4 per cent decline in consolidated net profit to Rs 2,465.7 crore in the three months ended September and projected revenue growth in the December quarter even as it announced a plan to buyback shares worth up to Rs 9,500 crore. The Bengaluru-based company, which had registered a net profit (attributable to equity holders of the company) at Rs 2,552.7 crore in the year-ago period, registered an almost flat year-on-year revenue growth at Rs 15,114.5 crore in the latest September quarter.

On a quarter-on-quarter basis, the company's net profit climbed over 3 per cent while revenue was up by little over 1 per cent. Wipro CEO and Managing Director Thierry Delaporte said the demand environment has improved from the first quarter even though the pace of decision making remains a bit slower on the larger deals.

Under the buyback proposal, which is subject to shareholders' approval, will involve purchase of up to 23.75 crore equity shares, representing 4.16 per cent of the company's total paid up equity capital, at Rs 400 per share. The buyback size will be up to Rs 9,500 crore and the price of Rs 400 per scrip is more than 6 per cent higher than than the company's closing price of Rs 375.5 apiece on BSE on Tuesday. Wipro's announcement comes just a week after bigger rival Tata Consultancy Services' unveiled a Rs 16,000 crore-share buyback offer.

"Our payout policy is returning 45-50 per cent of net income, and we will choose a model that looks at the best for all our shareholders. We continue to talk to them and we continue to get feedback on what is the methodology that will augur well in the current context," Wipro Chief Financial Officer Jatin Dalal said. During a virtual briefing, he also told reporters that the buyback announcement is part of the company's philosophy to deliver consistent returns to shareholders.

Last year, Wipro had undertaken a buyback programme of 32.31 crore shares at Rs 325 apiece, aggregating to about Rs 10,500 crore. For the December quarter, the company expects revenue from IT services business to be in the range of USD 2,022-2,062 million. This will represent a sequential growth of 1.5-3.5 per cent.

In the three months ended September, revenue from the IT services segment stood at USD 1,992.4 million, an increase of 3.7 per cent on a quarter-on-quarter basis. Wipro's IT products segment revenue in the September quarter was about Rs 170 crore, while that from India State Run Enterprises (ISRE) segment was Rs 210 crore.

"We had an excellent quarter with growth in revenues, expansion of margins and robust cash generation. I am very excited about the opportunities that are ahead of us and encouraged by the acceleration in business momentum we have seen this quarter," Delaporte said. He added that the company's strategy is to focus on growth in prioritised sectors and markets led by vertical solution offerings.

"While traditional IT services will continue to be essential, the next big wave of opportunity will be driven by truly next generation services of cloud, digital transformation, Internet of Things, 5G. Enterprises in the post crisis world are transforming their technology stack so that it enables them to operate with flexibility and agility," he said. Delaporte, who took over the reins of the company in July this year, also said that five priority areas have been chartered to drive growth.

These include investing in existing accounts, prioritising sectors and markets relevant for growth, leveraging its ecosystem of partners, investing in talent and simplifying operating model. Talking about the September numbers, Delaporte said the company is seeing robust pickup in volumes, and the fresh volume added has been highest over the past many quarters.

"Our steady guidance for Q3, despite the seasonality of furloughs reflects this business momentum... From a sector view, the consumer sector will grow faster on the back of solid deal wins. We remain optimistic on the financial services sector though it will be impacted by furloughs," he said. Sanjeev Hota, Head of Research at Sharekhan by BNP Paribas, said Wipro's results were in-line with expectations, on both the revenue and margin front, while revenue guidance for Q3 FY21 was slightly higher than expectations.

"Q3 guidance and strong hiring indicate improvement in the demand environment," he added. Wipro also announced that it will acquire engineering services company Eximius Design for USD 80 million (about Rs 586.3 crore).

"These acquisitions that we've done are strategic but they're rather modest in size... We will continue to do tuck-in acquisitions that gives us a position in some areas that we consider as strategic. And we don't limit ourselves in terms of size," Delaporte said. Wipro added over 3,400 people in the September quarter to take its headcount to 1,85,243 at the end of September quarter while attrition rate stood at 11 per cent.

Wipro Chief Human Resources Officer Saurabh Govil said the company has announced a series of interventions during the current fiscal for employees. "In Q2, we have announced 100 per cent variable pay for our employees. Second, we have also committed for promotions for 80 per cent of people. In Q3, we are looking at our increment cycle for our junior employees...," he noted.

On the recently announced restrictions on H-1B non-immigrant visa programme in the US, Govil said the company does not see any impact. "... we are still looking at the new notification...for us, it's been a three-year strategy, we have been looking at localisation for the last three years and today, we are at least 71 per cent localised in the US. So from a business standpoint, we don't see that this is going to impact us," he said.