The Hindu Business Line : Wage hike may see Wipro Q3 margins shrinking

The Wipro Chairman, Mr Azim Premji, arriving to address a press conference to announce the second quarter results in Bangalore on Friday. — G.R.N. Somashekar

Bangalore , Oct. 15

DESPITE a stable pricing environment, Wipro predicted on Friday that its operating margins for the third quarter ending December 2004 may shrink as the company expects to effect a wage hike of 15 to 18 per cent for its employees in India.

However, the company did not comment on the possible shrinkage of margins. It reported a one-per cent improvement in operating margins for global IT business at 28 per cent during Q2.

"The improvement was driven by better price realising for onsite projects, an increase in the proportions of revenues from offshore projects and also due to continued operational improvements partially, offset by lower utilisation rates primarily due to the net addition of over 5,500 employees," said the company's Chief Financial Officer, Mr Suresh Senapaty.

Wipro sees a stable pricing environment, and new customer wins were at a higher rate, said Mr Senapaty.

For the September quarter, the company took a hit of Rs 11.4 crore due to volatility in the foreign exchange markets, he said. However, the average realisations were higher during the quarter and the forward contract outstanding at the end of the quarter stood at $860 million (about Rs 3,938 crore).

Meanwhile, the Wipro Infotech President, Mr Suresh Vaswani, commenting on the hike in sales tax on IT products by the Karnataka Government, said the company had taken up the issue with the State and no solution had emerged so far.

"Sales tax at 13.8 per in Karnataka was higher by 6-7 per cent compared to other States," Mr Vaswani said adding that the high tax incidence was a retrograde step.

Commenting on the expansion plans, Mr Premji said Wipro planned to set up development centres in Coimbatore and Mysore. The proposed centre in Kolkata will soon be operational.

"It is not that we will stop growing in Bangalore, but we will grow at a faster rate outside Bangalore," he said, and declined to comment on infrastructure concerns in the city.

Headcount goes up by 5,500

WIPRO Ltd added about 5,500 people to its roll on a net basis during the quarter, taking overall headcount to 37,063.

About 3,300 professionals were added to Wipro's IT services business resulting in a total headcount of 24,050.

About 2,200 employees were hired for its business process outsourcing division, Wipro Spectramind, making it the largest BPO firm in the country with 13,013 people.

The company's IT services division faced an attrition of 18 per cent during the quarter, while Wipro Spectramind had an attrition of 20 per cent.

"The supply concerns have grown bigger than the demand in the sense that business is strong, things are settling in, we are seeing across-the-board growth," said the Wipro Vice-Chairman, Mr Vivek Paul.

"I think we continue to see on the supply side issues that relate both to the competition costs as well as being able to hire the number of people we need," he said.

Meanwhile, in a bid to reward its key employees, Wipro has issued restricted stock units to its employees.

About 5.5 million shares will be vested, or given to employees over a five-year period, said the Chief Financial Officer, Mr Suresh Senapaty, adding that the cost of Rs 342.8 crore would be amortised over 20 quarters.

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