Financial Daily from THE HINDU group of publications
Saturday, Oct 19, 2002
Corporate - Outlook
Wipro sees no let-up in pressure on margins
BANGALORE, Oct. 18
WIPRO Ltd sees no relenting of the pressure on margins, which is expected to continue. However, it expects rates to stabilise and sustain the momentum in volume growth of its software business in the coming quarters.
The company reported its operating margins at 30.1 per cent in the September quarter, a sequential drop of close to 140 basis points. "The operating margins should not be substantially different for technology companies going forward," Mr Suresh Senapaty, Chief Financial Officer, Wipro Ltd, told analysts in post-earnings call.
However, increased utilisation level had offset price decline, easing the pressure on the margins in its September quarter. Rupee appreciation against dollar accounted for close to 130-basis point drop in margins. However, the company expects to better its margins through increasing utilisation levels in the next quarters.
Wipro reported its gross manpower utilisation level at 68.5 per cent, up one per cent from June quarter in the current fiscal. "Our endeavour is to take it up to 71 per cent in the coming quarters," Mr Senapaty said. Wipro's utilisation level had peaked at 71 per cent earlier, during the global e-business frenzy. It is also on the lookout for a buyout in the consultancy space to retain or better its operating margins, going forward, Mr Senapaty added.
However, the Chairman, Mr Azim H. Premji, said that the momentum in volume growth is likely to continue. The company reported a 12 per cent rise in volumes even as pricing pressure tends to have flattened.
The marginal decline in its prices for the second quarter was attributed to a shift in client mix. Clients with lower rates have grown faster than those with higher rates in the last quarter. There was no significant price negotiation with existing clients during the last quarter and the new wins came at higher rates than company average, Mr Premji said.
Wipro billed $4,050 per person/month on an average for its offshore efforts, a sequential drop of 2.7 per cent while the average rate for onsite engagement was $9,090 per person/month.
The Vice-Chairman and Chief Executive Officer of Wipro Technologies (global software arm of Wipro), Mr Vivek Paul, said fixed price projects are likely to increase over the next quarters. Close to 34 per cent of Wipro Technologies' second quarter revenue came from fixed price projects and "our goal is to be at 35 per cent", Mr Paul said. "Fixed price projects are a good way to win business in a competitive market without dropping rates," he added.
Maintaining that there is increased interest in offshore outsourcing, Mr Paul said that there were many "firsts" among the new clients who looked at outsourcing to India. Wipro is witnessing increased traction across its verticals. Though there are uncertainties in the telecom service providers space globally, engagements with telecom gear makers have shown an uptick in the last quarter, with increased efforts from Cisco, Lucent and others. Close to 250 billable engineers were added in the telecom practices last quarter, Mr Paul said. "IT spending has come back faster than technology spending... as a result, enterprise segment is growing faster", he said.
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