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Wipro profit up 14 pct but forecasts tepid growth

Wipro profit up 14 pct but forecasts tepid growth

April 27th, 2011 in News

MUMBAI, India (AP) - India's number three outsourcer Wipro forecast tepid growth and margin pressure from wage hikes despite a 14 percent rise in quarterly profit Wednesday.

The numbers beat expectations but the dour forecast sent the stock tumbling over 3 percent in midmorning Mumbai trade.

Net income for the March quarter was 13.8 billion rupees ($309 million) under international accounting standards. Revenues were 83.0 billion rupees ($1.9 billion), up 18 percent from the same period last year.

Analysts surveyed by FactSet had forecast profit of 13.6 billion rupees on revenues of 81.3 billion rupees.

Wipro said revenues from its core information technology services business would be $1.39 billion to $1.42 billion this quarter, compared with $1.40 billion last quarter.

At best that represents a 1.4 percent uptick in revenue, slower than the 4.2 percent quarter-on-quarter growth seen in the January to March quarter.

Kotak Securities analyst Dipen Shah said the muted forecast likely reflected company restructuring, rather than a softening demand environment. "They are restructuring the overall business to get more focus on higher growth areas," he said. "That will probably drive growth down the line."

In February, the company said it would reorganize its core IT services business and reshuffle mid-management. That same month, T.K. Kurien took over as chief executive of the key information technology business, after joint CEOs Girish Paranjpe and Suresh Vaswani stepped down.

Shah said wage hikes in India's $60 billion software services export sector are higher than anticipated, indicating that the war for talent is not over in Asia's third-largest economy.

Wipro's planned wage hike of 12 to 15 percent for India employees is higher than rivals Infosys and Tata Consultancy Services, which said they would raise salaries by 10 to 12 percent and 12 to 14 percent respectively.

"The war for talent is becoming intense," Shah said, but added that rising billing rates could help offset the impact of higher staff costs.