Demand environment better, but unsure about IT budgets, says Wipro

Country's third largest software services provider Wipro today said notwithstanding the improvement in demand scenario, there is still uncertainty over IT budgets for the next fiscal.

"There has been a big change in just the environment itself, it has become a little more positive. That's the good news.

"The bad news is that from our perspective we see two challenges - one is that we see the fiscal cliff talks still continuing and we don't know when finally the budgets would come in and what it would mean in terms of buying in this quarter," Wipro's CEO and executive director of IT business, T K Kurien, said.

Wipro registered a 18 per cent jump in net profit and 10 per cent increase in revenues in the October-December 2012 quarter.

The IT services revenue, which accounted for 78 per cent of its revenues, stood at $1.577 billion (Rs 8,602 crore) in the reported quarter, meeting its guidance of $1.560 billion to $1.590 billion for the quarter.

Wipro expects its revenues from IT services business to be in the range of $1.585 billion to $1.625 billion for the quarter ended March 31, 2013.

"Traditionally Q4 has been a strong quarter for us. The other little bit of concern that we have factored in (in the guidance) is that there are a lot of projects that we won last quarter... when execution will start, when ramp ups will begin? I think that is what we have factored in the guidance," Mr Kurien said.

He added that the company has "picked in a little bit on caution" on its guidance so that it does not "fall short in case the environment turns negative".

While Wipro joined larger rivals TCS and Infosys in posting strong profit numbers, its shares tanked eight per cent to finally close 7.88 per cent lower on account of the "soft" guidance. (Read: 5 reasons why Wipro shares fell 8% despite strong Q3)

"Wipro reported results soft on revenue but stronger on margin than expectation. Guidance looks softer than what consensus might be expecting," a Prabhudas Lilladher report said.

Dipen Shah, Head (Private Client Group) Research at Kotak Securities said the company's volume performance is much lower than that reported by peers. "We expect the stock to attract better valuations once volume growth starts improving," he added.

Economic uncertainty has led clients in the US and Europe to invest cautiously on IT. These markets together account for more than 75 per cent of India's IT sector business. (Read: Wipro results temper euphoria in IT stocks)

"The overall demand environment has not changed much over the last three months. We see momentum in certain areas and certain other areas continue to remain challenged," Wipro's chief financial officer, Suresh Senapaty, said.

However, reports by research firm Gartner forecast global IT services spending to increase 5.2 per cent to $927 billion this year, compared with growth of 1.8 per cent in 2012.

TCS, Infosys and HCL Technologies, which have announced their quarterly earnings over the last two weeks, have also indicated that IT budgets are likely to be flat or slightly higher this year.