Tata Consultancy Services Ltd and HCL Technologies Ltd reporting subdued numbers. Peer Wipro Ltd was no exception as slowdown in discretionary technology spends by clients weighed on its revenue growth. Wipro's IT services revenues declined 2.8% sequentially, in constant currency terms, lower than Street’s expectations as well as competitors'. The decline was across geographies, indicating a broad-based impact.
“Wipro’s growth underperformance to peers is due to the higher mix of consulting services (Capco, Rizing) and steeper impact from discretionary projects in BFSI and Telecom verticals," pointed out a HDFC Securities Ltd report. IT services Ebit margin contracted by 20 basis points sequentially to 16%. Overall, the reported Ebit margin dipped by 110 basis points sequentially to 15.1%, hit by one-time cost incurred on right-sizing its employee base.
Ebit is earnings before interest and tax. In a post-earnings call with analysts, the management pointed out weakness in key verticals of BFSI, technology and communications. No clarity was provided with respect to a turnaround in near-term demand scenario.
Reacting to Q1 earnings, the Wipro stock was trading flat on Friday though with a positive bias. While Wipro’s total-bookings total contract value moderated sequentially, it remained healthy at $3.7billion. Further, large-deals total contract value increased to $1.2 billion in Q1. The company closed 10 large deals with total contract value of over $30 million.
But the road ahead is unlikely to be smooth. “A muted Q2 guidance (-2% to +1%) however indicates that the stress is not relenting yet. To its credit, Wipro’s seemingly conservative quarter beginning guidance has turned out to be a reliable gauge of next
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