Wipro Profit Beats Estimates as Outsourcing Orders Climb

Wipro Quarterly Net Beats Estimates as Outsourcing Orders Climb
Wipro Ltd. employees enter and exit the company's campus in Bangalore, India. Photographer: Namas Bhojani/Bloomberg

Wipro Ltd., India’s third-largest software-services exporter, reported profit that beat analysts’ estimates as businesses sought savings through outsourcing.

Net income rose 24 percent to 16.1 billion rupees ($300 million) in the second quarter ended September, Bangalore-based Wipro said in a statement today. That exceeded the 15.5 billion-rupee median of 42 analysts’ estimates compiled by Bloomberg.

Wipro joins larger rival Tata Consultancy Services Ltd. in reporting profit that exceeded analysts’ estimates, as businesses outsource more information technology services to cut costs. The board of the company, controlled by billionaire Chairman Azim Premji, yesterday agreed to separate Wipro’s consumer care and lighting, infrastructure engineering and medical diagnostic businesses into a closely held company.

“IT services got better margins and the restructuring of the business units is quite positive for the minority shareholders,” said Jigar Shah, an analyst at Kim Eng Securities Pvt. in Mumbai. “It should augur well for the stock going forward.”

Shares of Wipro rose 0.9 percent to 364.60 rupees at the close of trading in Mumbai, compared with a 1 percent gain in India’s benchmark Sensitive Index.

Revenue Outlook

Net sales rose 17 percent to 106.2 billion rupees, according to the to a stock exchange filing. That lagged behind the 108.5 billion-rupee median of 45 analysts’ estimates compiled by Bloomberg.

Revenue from its information-technology services business may range between $1.56 billion and $1.59 billion in the current quarter, according to the statement. Sales at the unit in the three months ended September rose 4.6 percent to $1.54 billion, Wipro said.

“We have been in the investment mode as far as mining accounts is concerned, putting a hunting engine in place,” Chief Financial Officer Suresh Senapaty said in a briefing today. The investments have led to a “very good pipeline” of new deals, he said.

Separating Businesses

Wipro’s board approved the separation of Wipro Consumer Care & Lighting, Wipro Infrastructure Engineering and Medical Diagnostic Product & Services business into a company called Wipro Enterprises Ltd., according to a filing made to exchanges.

Separating units that make baby soaps and light bulbs will help Premji increase focus on the IT business, which accounted for 86 percent of Wipro’s 372 billion-rupee revenue in the year ended March 31, amid intensifying competition from rivals including Cognizant Technology Solutions Corp.

The move will also help Premji increase Wipro’s public ownership and meet India’s shareholding requirement. Premji, his family and related entities, who own 80 percent of the company, need to reduce their stake to 75 percent.

Wipro, which provides services such as designing and building software programs, product-engineering and back-office support to companies including BP Plc, William Morrison Supermarkets Plc. and Verizon Communications Inc. added 53 new clients in the quarter.

Global spending on information technology may grow at a 3 percent pace in 2012 to $3.6 trillion, Gartner said in a July 9 report. That’s slower than 7.9 percent increase last year as the euro zone crisis, a weaker U.S. recovery and a slowdown in China curb economic growth, the researcher said.

Infosys Ltd., India’s second-largest software exporter, cut its annual sales forecast in rupee terms on Oct. 12, warning that higher wages and currency fluctuations will hurt profitability amid a business environment that continues to be “challenging.” Bangalore-based Infosys lowered the revenue projection for the fiscal year ending March 31 to 395.8 billion rupees from a July estimate of 403.6 billion rupees.

Still, Tata Consultancy said last month it would grow at a faster rate than the industry, driven by “tremendous traction” with projects in social media, data, analytics and cloud computing.

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