Wipro Q2 results: A decent show but still a long way to go

MUMBAI: Wipro's September quarter performance shows signs of recovery in its core IT services operations with some large new projects in its bag and a relatively better third quarter revenue forecast. However, a significant employee attrition rate and slower volume growth due to weakness in key business verticals means the high-growth phase will still be a few more quarters away.

Wipro, the third largest among the IT exporters listed on Indian bourses, added 53 clients in the September quarter, the highest in six quarters. Its active client base in the above $75 million category increased by three from the quarter ago and by seven from the year ago. This shows that the momentum is back in the large deals category.

The company has guided for a dollar denominated revenue growth of 1.2-3.2% for the December quarter. On the higher side of $1,590 million of the guidance band, this is far better than what the company reported in each of the last five quarters reflecting a more confident stance of the management.

This however does not ensure smooth sailing in the future since the company still has a comparatively higher attrition rate even though it fell by 100 basis points to 14.6% in the September 2012 quarter. Its peers including TCS and HCL Technologies reported attrition at 11.4% and 13.6% respectively. In addition, key verticals including global media, manufacturing, and healthcare reported a sequential drop in revenue during the quarter. These divisions together contribute over 43% to the total IT services revenue.

The recent decision of hiving off the consumer lighting, FMCG and engineering divisions into a separate company would improve return ratios of the core IT business. On a consolidated basis, the stock trades at a trailing P/E of 14.6 at the price of 365.3 during the Friday morning trade. The change in the valuation will depend upon whether the company retains the current business momentum.