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Wipro: 5 reasons why shares fell 8% despite strong Q3

Wipro, among the leaders of India's $100 billion outsourcing industry, beat earnings estimates for the three months to December. Net profit was ahead of estimates while operating margins jumped against expectations of a dip. However, Wipro shares plunged 8 per cent, and the stock was the top loser on the 50-share Nifty.
Here's why:
  1. IT business disappointed: Traders said Wipro's performance in the core IT services segment was not as strong as expected. Wipro's IT business revenue rose 2.4 per cent from the September quarter to $1.577 billion. Wipro had guided for 1.2 - 3.5 per cent growth in the October to December quarter, so the reported numbers met median estimates.

  2. Muted guidance: For the three months ending March, Wipro said IT business revenue will be between $1.585 billion and $1.625 billion, or a sequential gain of 0.5 per cent to 3 per cent. That compares with analysts' expectations of a 1 per cent to 3.5 per cent increase. In contrast, Infosys, the only other top-tier IT firm that gives an outlook, is likely to grow by 2.7 per cent sequentially in Q4 to achieve its full year growth forecast of 5 per cent.

  3. Volumes declined: Wipro's IT business volumes, or the billable hours, declined 1 per cent sequentially (quarter-on-quarter) against estimates of 1.6 per cent QoQ growth. Volume growth indicates business momentum. Wipro was the worst performer in terms of volume growth as compared to other top-tier IT firms. In terms of volumes, Infosys grew 1.5 per cent, TCS by 1.25 per cent and HCL Tech grew by 3 per cent in Q3. Domestic brokerage Motilal Oswal said the decline in volume was a big negative surprise for Wipro.

  4. Dip in Utilization: Wipro's ratio of the total manpower that is billed to total billable hours declined sequentially. Net utilizations (excluding trainees) declined to 74.8 per cent in Q3 from 77.9 per cent in Q2.

  5. Profit taking: Wipro shares, valued at $19 billion, have risen about 9 per cent so far this year, compared with a 2 per cent increase in the Nifty, leading to some profit taking.

Story first published on: January 18, 2013 11:42 (IST)

Tags: Wipro, Infosys

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