Wipro’s focus pays off; it now needs momentum

ET Intelligence Group: Wipro delivered higher-than-expected profit margin, a strong cash flow generation and lower employee attrition rate for the June quarter amid tough operating environment marred by the impact of the pandemic. In the absence of a guidance on the revenue front and any client specific commentary, investors would have to wait and watch whether the country’s fourth largest software exporter is able to sustain the momentum in the coming quarters.Revenue across verticals fell sequentially during the quarter as Covid-19 disrupted client activities. For the major vertical of banking, financial services and insurance, which contributes nearly 31 per cent to the topline, revenue fell 6.6 per cent sequentially. The drop at 14.7 per cent was sharper for the consumer business unit, which constitutes 16 per cent of the revenue. Other verticals of energy and healthcare, with a combined contribution of over one-fourth to the topline, posted a 4-7 per cent drop in revenue.As a result, the reported revenue fell sharply by 7.3 per cent to $1,921.6 million from the previous quarter compared with the analysts’ expectation of 6.9 per cent drop. But, a steeper fall of 9.1 per cent in cost of sales and a weaker rupee against the dollar expanded the operating margin by 140 basis points (bps) to 19 per cent, once again beating the expectation of a 75-140 bps contraction. The company also reported a sharp jump in the operating cashflow to Rs 4,181.2 crore from Rs 2,875.3 crore a year ago, aided by improved collection of receivables and higher payables and accrued expenses. Wipro’s ability to improve profitability through cost rationalisation and to augment cash flow in a tough scenario may offer some relief to investors even as the company may tend to report pressure on its revenue.76970300The company continued to report lower attrition for the fourth consecutive quarter. It fell to 13 per cent in the April to June period from 14.7 per cent in the previous quarter. This may reduce the cost of hiring in the near term.At Tuesday’s closing price of Rs 225.1, Wipro’s stock was traded at a trailing price-earnings multiple of 13.2 compared with the three-year average of 16.3. In addition, investors may react positively to its efforts to protect profitability, which may support the stock in the near term. In the medium term, the stock performance will depend upon how fast the company resumes the business momentum relative to its peers.

from Economic Times https://ift.tt/2C40BxX