Business and financial services boost Wipro's first quarter profits

24 July 2018 Consultancy.in

Indian IT services giant Wipro has exceeded most expectations by posting growth in the first financial quarter of 2018, no thanks to its work in the US healthcare sector, which is facing significant barriers much like its business in India. Growth was driven by its financial services segment.

Wipro has reported growth of 2% for the financial quarter ending June 30th, taking its net profit for the period up to nearly $308 million. The growth is impressive in light of the challenges being face by the firm, and exceeds the profit forecasted by most experts, which averaged at around $283 million.

Having reached a size of 40 facilities in 23 states, the firm’s US operations are now proving more lucrative than its India business, accounting for more than half of its sales. The US business is thriving, but its dominance of sales is also partly due to Wipro’s ongoing struggles in the Indian market.

On the one hand, the firm is having to contend with the dip in relevance of IT infrastructure maintenance, which traditionally made up the lion’s share of its services. On the other hand, its expansion into more specialised services is blocked by significant competition in the Indian market from players such as Infosys and TCS (now the largest IT services firm in India).

Business and financial services boost Wipro's first quarter profits

Nevertheless, the firm recorded substantial growth in revenues, which it attributes to its banking, financial services and insurance (BFSI) arm, riding the wave of growth that the market is experiencing in India. Last year, the BFSI segment accounted for nearly 26% of Wipro’s revenues.

In this quarter, BFSI made up 30% of the firm’s revenues, although the effect counteracted by a dip in its revenues from the healthcare sector in the US. Wipro has been active in the US healthcare segment, the most recent example of which is its development of a new AI-based product for the health insurance sector, in partnership with Opera Solutions.

However, since the Trump administration’s targeted efforts to systematically dismantle Obamacare, stakeholders in various segments of the health insurance industry have become tentative in their expenditure, leading to a dip in healthcare revenues for professional services firms such as Wipro.

Abidali Z. Neemuchwala, CEO at Wipro explained, “While we see continuing challenges in our India business and the ACA (Affordable Care Act)-related decline in healthcare, we do see stronger momentum in the rest of our business led by BFSI and the Americas.”

One aspect of its operations that the firm hopes to improve on is its roster of big-money clients. Currently, only eight of Wipro’s clients worldwide are on annual contracts in excess of $100 million. “I wish we were doing better on that.We are pushing up from the base and you hopefully will see an acceleration from here on,” said Jatin Dalal, Chief Financial Officer at Wipro.

Profile

More news on

×

TCS becomes first Indian IT firm to cross $100 billion market capitalisation

24 April 2018 Consultancy.in

Tata Consultancy Services reached a special milestone on Monday, as the Indian consulting firm’s market capitalisation shot past the $100 billion mark — a feat which has occurred only once before on the Indian stock exchange. The firm’s IT services, in particular, have driven the spectacular growth of the Mumbai-based consultancy. 

Much has been written in recent months about the IT services market in India. While the segment has traditionally thrived due to business from international clients in particular, the incremental digitalisation of the Indian economy in recent times has boosted the domestic market for IT services as well.

As a result, the segment has become highly competitive, drawing investment from major global players in consulting. Professional services firm Grant Thornton launched a digital arm in India last year, while Big Four accounting and advisory firm Deloitte launched its Deloitte Digital vertical earlier this year. 

In the domestic environment, Indian firms have been devising substantial expansion strategies, not only to gear up for the large demand but also to fend off competition from large international players entering the market. One firm that appears to have found its balance in this competitive scenario is Tata Consultancy Services (TCS).

Tata Consultancy Services

The firm signaled its intent to capitalise on the Indian IT market last year, when it inaugurated an integrated software development facility in Mumbai, fully equipped with state-of-the-art software facilities, advanced recreational facilities, and designed to accommodate 30,000 employees when operating at full capacity.

TCS crosses $100 billion market capitalisation

As testament to TCS’ quality of service, two major companies that have had long term contracts with the firm extended their partnership by another five years. Market research firm Nielsen extended a decade-long outsourcing contract, while airline company Virgin Atlantic decided to continue a fifteen-year-long partnership for IT architecture. In addition, Malaysian Airlines also employed the firm’s services to transition its operations to a cloud platform.

Investments in software development have paid off in terms of recognition, as TCS was named a global market leader in software product engineering by the Everest Group, while market research consultancy NelsonHall named the firm a global leader in digital marketing services

Now, the monetary returns on investment in the IT segment have materialised in spectacular fashion. In a quarterly report released by TCS last week, the firm reported net profits of nearly $70 billion, which exceeds the already generous expectations of market analysts, who predicted returns of just under $68 billion in a survey conducted by Reuters. 

Encouraged by this tremendous success, the firm’s value on the stock market has soared. Share-value increased by nearly 4.5% to cross Rs.3,500 per share, driving the firm’s overall market capitalisation up to $102.7 billion. TCS now stands atop the Indian stock market, ahead of even major industrial actors like Reliance, HDFC, ITC, and Unilever.

The growth, driven by the firm’s IT services, has taken it past the $100 billion market capitalisation milestone, a level reached only once before — by Reliance Industries in 2007. TCS Chairman Natarajan Chandarsekaran was clear and concise in his assessment of the situation, stating, “As the industry goes through the adoption of robotics and deep learning, the opportunities for TCS are only on the increase, because there are more skills that are required.”