BANGALORE (Reuters) - Wipro Ltd, India's No.3 software services exporter, forecast growth below market expectations, signalling the widening gap between Indian technology firms and their bigger global rivals in winning new deals in a tough economy.
Shares in Bangalore-based Wipro, which also makes computer hardware, electric bulbs, soaps and toiletries, dropped nearly 5 percent on the disappointing outlook despite the firm posting forecast-beating fiscal first quarter net profit.
IBM and Accenture, who compete with Indian services providers such as Tata Consultancy Services, Infosys and Wipro, raised their annual earnings forecasts earlier this month after quarterly results beat Wall Street estimates.
Growth in India's $76 billion software services sector has slowed down in recent quarters due to global economic uncertainty, severe competition, rising wages, high staff turnover rates and management shakeups at Infosys and Wipro.
The rupee's rise against the dollar is another concern for the export-driven outsourcing sector, which exports a large chunk of its services to the United States but chalks up expenses in rupees.
"Apart from the global economy, wage hikes and attrition are additional challenges that IT firms will have to continue to grapple with," said Kaushik Dani, a fund manager with Peerless Mutual Fund, which owns Infosys and Tata Consultancy shares.
No. 2 software services provider Infosys last week reported quarterly profit that missed expectations and warned it could face slow client spending, while Tata Consultancy flagged concerns about economic uncertainty.
Wipro has been struggling to keep up with TCS and Infosys in winning large outsourcing contracts and reorganised its management earlier this year to boost growth.
Wipro in January surprised markets by removing the joint chiefs of the business and naming company veteran Kurien as the new chief executive. Later, it reorganised business units under the IT services and named new unit heads.
Wipro Chief Executive T.K. Kurien said the company, which gets three-quarters of its revenue from IT services, would see a positive impact of the management restructuring after couple of quarters and that would be sustained in the longer term.
"You can put lipstick on a pig and make it look good...but it is never going to be sustainable until and unless you go back to the core of the business and change the quality of the revenue," he said in a television interview.
The company forecast revenue from its IT services unit at $1.44 billion to $1.46 billion in the fiscal second quarter to end-September, indicating a rise of 2.1 to 3.5 percent from the first quarter.
Analysts had expected at least a 4 percent sequential rise in IT services revenue forecast.
"Given that this quarter is a seasonally strong quarter for the Indian IT sector, Wipro's growth forecast is decent but not outstanding," said Rohit Anand, a sector analyst with Mumbai-based PINC Research.
Wipro shares, which the market values at about $23 billion, were trading down 4.6 percent at 396.15 rupees by 0810 GMT, on course to post their biggest drop in more than three months. TheMumbai market was down 0.5 percent.
VOLATILE ECONOMY
Azim Premji, Wipro's billionaire chairman, said the uncertain economic environment had resulted in volatility in business, but the company was not seeing delays in the IT spending decision making process by customers.
"Customers are preparing for a longer period of uncertainty and are looking for new avenues to grow their business," said Premji, who had quit engineering degree at Stanford to take over his father's ailing vegetable oil business in the mid-1960s.
He diversified the vegetable oil business into hydraulic cylinders in the 1970s and software services in 1980.
Wipro said IT services revenue rose 0.5 percent in April-June to $1.41 billion from the quarter ago. Anand of PINC Research said he had expected the company to report more than 1 percent rise.
Wipro, which develops software applications, integrates IT systems and manages call centres, said consolidated net profit rose 1.2 percent to 13.35 billion rupees ($300 million) in the June quarter from 13.19 billion a year ago.
Revenue rose 18 percent to 85.64 billion rupees, as it added 49 new clients in the quarter and western clients increased spending on outsourced services to cut costs and boost efficiency amid global economic uncertainty.
This compares with a Reuters poll forecast of a profit of 13.16 billion rupees on revenue of 83.91 billion rupees for Wipro, which counts Citigroup, Cisco and Credit Suisse among its clients.
Wipro increased its IT services staff by 4,105 employees in the quarter to 126,490.
Still, the rate of attrition at Wipro was higher than rivals, rising to 23.2 percent despite 12-15 percent wage hikes.
Operating margins at its IT services business fell to 22 percent from 24.5 percent in year-ago period and Wipro said margins in this quarter would remain under pressure.
Wipro revenue growth in this fiscal year to March 2012 might be lower than the outsourcing sector's 16-18 percent growth, but the company does not see pressure on prices for its services in the coming quarters, Chief Financial Officer Suresh Senapaty said.
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