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Wipro: Focus on systems integration

Krishnan Thiagarajan

DESPITE the tough external environment in the US and Europe, Wipro Technologies has managed to record a good performance for the first quarter ended June 30, 2001. The salient features of the earnings performance of Wipro Technologies (the software and s ervices division of Wipro) are:

*Wipro Technologies accounted for 65 per cent of the total revenues of Wipro and 93 per cent of the profit before interest and tax.

*The revenues grew by 46 per cent in the first quarter to Rs 521 crore, while the profit before interest and tax grew by 70 per cent to Rs 190 crore.

*In a tough quarter, Wipro has managed to maintain the operating profit margin at 36 per cent, about 1 per cent higher than the OPM for the fourth quarter ended March 31, 2001 and around 5 per cent higher than the corresponding quarter ended June 30, 200 0. This is attributable mainly to the sequential (quarter on quarter) increase in offshore realisation by 3.4 per cent and onsite realisation by 2.6 per cent.

The performance in the first quarter ended June 30, 2001 was critical to Wipro for two reasons. First of all, in this quarter, Wipro had planned to terminate its relationship with General Electric and obviously, the need to substitute it with new busines s was imperative. Secondly, its exposure to telecom equipment vendors was fairly high, leaving them vulnerable to a decline in business volumes.

From the earnings performance, it is clear that despite ramping down the exposure to GE and suffering a sequential decline in the telecom equipment business in this quarter, the company has managed to emerge in a much better shape. This is reflected in t he underlying business variables:

*The contribution of the R&D services unit, with significant exposure to telecom equipment business declined only marginally to 52 per cent in the first quarter, from 54 per cent in the fourth quarter ended March 31, 2001. The company is aiming to substi tute this decline by opening a new stream of revenues in the form of global systems integration business. In this quarter, it has made a pioneering foray into the systems integration business by bagging a contract of $70 million from the telecom subsidia ry of Lattice Group Plc., a UK-based company. The revenues from this business are likely to accrue in the second half of this financial year.

*The client concentration levels of Wipro continued to remain fairly stable. In the first quarter, the largest customer, top 5 and top 10 customers accounted for 8 per cent, 29 per cent and 42 per cent of the revenues compared to 9 per cent, 27 per cent and 43 per cent for the fourth quarter ended March 31, 2001.

*To reduce the risks associated with geographic concentration, Wipro has broadbased the contribution from Europe to 33 per cent in the first quarter compared to 31 per cent in the fourth quarter ended March 31, 2001. However, the decline in contribution from the US was only marginal, to 60 per cent from 61 per cent over the same period.

*There has been an encouraging growth in the contribution of fixed price projects which rose to 20 per cent in the first quarter compared to 16 per cent in the fourth quarter of last year.