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Business News/ Market / Mark-to-market/  Wipro’s December quarter guidance belies hopes of pickup in growth
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Wipro’s December quarter guidance belies hopes of pickup in growth

The December quarter guidance suggests the expected pickup in growth rates is still some time away

But the company has disappointed with its guidance for the December quarter. It expects revenues to grow by 2-4% sequentially. It is no different from what it had guided for the June quarter. Photo: Hemant Mishra/MintPremium
But the company has disappointed with its guidance for the December quarter. It expects revenues to grow by 2-4% sequentially. It is no different from what it had guided for the June quarter. Photo: Hemant Mishra/Mint

Wipro Ltd has done far better in the September quarter than it did in the preceding one, but its showing won’t be good enough for investors. Revenues had grown by merely 0.3% sequentially in the June quarter in constant currency terms, while last quarter growth improved considerably to 3%. After a gap of three quarters, the company managed to meet at least the midpoint of its guidance range after adjusting for currency movements.

But the company has disappointed with its guidance for the December quarter. It expects revenues to grow by 2-4% sequentially. It is no different from what it had guided for the June quarter. The company had told analysts it expects growth in the second half of the year to be higher compared with the first half. But the guidance suggests that is no longer the case. Of course, one can argue that the December quarter has fewer working days and so on, but one had expected the company had factored that in while stating growth will pick up in the second half.

For perspective, on a call with analysts after the June quarter results, the company had said in the case of a few large clients, while some projects were completed, new projects haven’t started at a strong enough pace. As a result, growth was hit in the June quarter and this factor will continue to drag overall growth in the September quarter. It added that growth will pick up in the second half thanks to the large deal wins in the past few quarters.

It’s worth noting here that year-on-year growth rates stood at 8.6% and 9.6%, respectively, in dollar terms in the preceding two quarters. If Wipro meets the midpoint of its guidance range in the December quarter, year-on-year growth will be around 8.7%, which is hardly exciting.

Coming back to the September quarter, growth was led by the energy and utilities business and healthcare and life sciences. Revenues from the financial services industry grew by just 0.1% sequentially in constant currency terms. Margins fell by about 80 basis points, thanks to the full impact of the salary hikes given in June. One basis point is one-hundredth of a percentage point. The company’s margins will be keenly watched to see if recent large deal wins will impact overall profitability.

The Wipro stock has been a laggard owing to the company’s relatively lower growth rates; the December quarter guidance suggests the expected pickup in growth rates is still some time away. The company’s low valuations may well be justified.

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Published: 22 Oct 2014, 08:01 PM IST
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