Offshoring trend drives up Wipro revenue and profit

Wipro's Indian competitors are growing faster and more profitably, though

Wipro, India's third largest outsourcer, said on Wednesday that its IT services business had grown by 20 percent to US$1.4 billion for the quarter ended March 31, reflecting strong demand from outside the country for offshore services.

IT services represented 76 percent of the company's overall revenue for the quarter, which increased by 18 percent year on year, to $1.83 billion.

Wipro has other businesses besides IT services, including consumer care and lighting, but does not break out net profit figures for each business unit. Overall net profit for the quarter grew by 14 percent year on year, to $300 million.

The company's IT services revenue for the fiscal year ended March 31 was $5.2 billion, a 19 percent increase over the previous fiscal year.

Looking ahead, the company said that revenue from IT services in the quarter ending June 30 will be steady at around $1.4 billion.

Wipro, like other Indian outsourcers, is benefiting from strong demand for offshore services, as clients in the U.S. and Europe focus on low-cost offshoring to increase the benefits from their flat IT budgets, analysts said.

Wipro's revenue growth was however lower than was achieved in the quarter by competitors including Tata Consultancy Services (TCS), India's largest outsourcer.

Earlier this month, TCS reported first-quarter revenue of $2.2 billion, up 33 percent year on year, and net profit up 25.4 percent year on year. HCL Technologies, another large Indian outsourcer, said its revenue was up 33.5 percent, while net profit was up 35 percent.

Wipro reports results in accordance with International Financial Reporting Standards (IFRS).

The IT services business added 2,894 employees in the quarter, taking the total to 122,385 employees as of March 31. It also added 68 new customers in the quarter.

Wipro said earlier this month that it is acquiring the oil and gas IT services practice of the Commercial Business Services business unit of Science Applications International Corp. (SAIC), for about $150 million in cash, subject to unspecified adjustments.

Wipro's "string-of-pearls" acquisition strategy consists of buying small companies that give it access to technology or domain expertise, and access to customers.

The acquisition of SAIC's oil and gas practice will give Wipro access to customers in government and the public sector, analysts said. SAIC also bundles its services with high-quality intellectual property, which will now be available to Wipro as it addresses the oil and gas sector.

As offshore outsourcing booms, problems of staff attrition and increasing wages have returned. Wipro said that it has hiked salaries with effect from June 1, which will affect its operating margins.

As the U.S. dollar weakens against the rupee, Indian outsourcers, who earn most of their revenue from abroad, find that they have fewer rupees to pay the bills in India, said Sudin Apte, principal analyst and CEO of Offshore Insights, a research and advisory firm in Pune, India.

As a result of the weaker dollar, increasing salaries, and inflation in the country, Indian outsourcers are looking for price increases of between 4 to 5 percent, even as customers are trying to get more out of their IT budgets, Apte said in a report this week.

John Ribeiro covers outsourcing and general technology breaking news from India for The IDG News Service. Follow John on Twitter at @Johnribeiro. John's e-mail address is john_ribeiro@idg.com

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