Wipro Expected to Post Lower First Quarter Profits

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India's third biggest software company, Wipro Ltd (NYSE:WIT), is expected to follow the current weakness in the IT sector and post lower first-quarter profits than the preceding period due to declining revenues and margins and the strength of the rupee.

The NYSE-listed company's first-quarter profits could fall 9-13 percent against the fourth quarter, though earnings could rise 20-25 percent from the year-ago period, analysts said. They added that Wipros revenues will be adversely affected by a poor quarter in its infotech division as products were not delivered in the period, and that its margins will be hit by a strengthening Indian rupee.

A seasonally weak first quarter for Wipro Infotech could affect the consolidated results, ABN-AMRO said in its brokerage note. Analysts polled by Thomson Financial expect Wipro to report a first-quarter net profit of 7.79 billion rupees on revenue of 42.62 billion.

In the same period last year, the company had a net profit of 6.2 billion rupees on revenue of 31.42 billion. For the fourth quarter, Wipros net profit was 8.56 billion rupees on revenue of 43.33 billion. Analysts also said revenues from the company's Global IT Services, which account for most of Wipro's total business, might slip by 2-3 percent in rupee terms. CLSA expects Wipro to post Global IT sales of 722 million USD. The company had forecast Global IT revenue of 711 million USD for the first quarter, which is down 1.9 percent from the fourth quarter but up 22 percent year-on-year. Head of research at IL & FS Investmart, R Sreesankar said:

There will be an increase in net profit as well as revenues year-on-year as the non-IT businesses that the company acquired last year will start contributing to its total revenues from the first quarter.

Although Wipro is not making its annual salary hikes in the first quarter, the company's operating margins are expected to fall.

"Despite wage hikes not yet reflected in June quarter, margin decline could be 150 basis points quarter on quarter in Global IT given relatively lower hedges for the company and also its accounting policies that aggregate all currency losses and gains in the EBIT line itself," CLSA said.

An analyst at Edelweiss Securities, however, said no additional pressure is seen on the margins as there is no wage inflation in the quarter, but added that pressure will be on EBITDA due to forex issues. The Indian rupee has appreciated 8.76 pct since the beginning of the year to 40.41 rupees against the US dollar, causing concern in the Indian IT industry as most software exporters derive more than 60 pct of their revenues from the US.

Over the past week, the company's competitor and IT bellwether Infosys Technologies Ltd (NASDAQ:INFY) reported a first-quarter net profit of 10.79 billion rupees on revenues of 37.73 billion rupees, down 8.5 percent from the preceding quarter. Tata Consultancy Services Ltd's first-quarter consolidated net profit rose to 12.03 billion rupees from 11.95 billion rupees in the fourth quarter and sales grew to 53.64 billion rupees from 52.66 billion rupees.

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