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Krishnan Thiagarajan

DESPITE reasonably strong volume growth, Wipro Technologies — the global IT services division of the diversified Wipro, continued to experience margin pressure in the fourth quarter ended March 31, 2003. And after Infosys Technologies indicating pressure on margins in its earnings announcement on April 10, Wipro's performance has reiterated this trend.

Clearly, `margin pressure and its steady erosion' is sticking out like a sore thumb in the earnings performance of frontline software companies in India.

The salient features of Wipro Technologies' performance are:

For the fourth consecutive quarter, the company has recorded strong revenue growth on a sequential basis (quarter-on-quarter basis). The revenue at Rs 793.2 crore ($167 million) is higher than the projected revenue of $162 million.

But the actual sequential growth of 6.45 per cent is lower than 9.7 per cent recorded in the previous quarter. The lower sequential volume growth may be attributable to no revenues accruing from the Lattice group systems' integration contract in this quarter and integration of the two acquisitions — Global Energy Practice of AMS Inc and R & D Labs of Ericsson in this quarter. Wipro Technologies contributed 64 per cent of the total revenues of the parent company and 75 per cent of its profit before interest and tax (PBIT).

For the first time in the four quarters of 2002-03, the PBIT declined in absolute terms on a sequential basis. It declined to Rs 195.3 crore in the fourth quarter compared to Rs 212.8 crore in the previous quarter.

A part of this decline is attributable to losses of Rs 7.3 crore incurred by the acquired energy consulting division from AMS Inc.

Wipro Technologies also recorded the sixth consecutive quarter PBIT margin decline in the fourth quarter of 2002-03.

At 24.6 per cent, it has touched the lowest level in the last six quarters and almost 10 percentage points lower than 34.3 per cent recorded in the third quarter of 2001-02.n a sequential basis, the PBIT margins have declined by 3.8 percentage points in the fourth quarter.

The combination of pricing pressure (offshore realisation decreasing by 2.3 per cent), relatively higher onsite contribution and losses from the energy practice of AMS Inc seem to account for the lower PBIT margins.

To compound matters, the management of Wipro has projected an almost flat sequential growth in revenue of $172 million (Rs 816.95 crore) of Wipro Technologies for the first quarter of 2003-04.

From the first quarter ended June 30, 2003, Wipro Technologies' revenues will include that of Wipro HealthSciences, another business segment of the diversified Wipro.

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