Wipro's Quarter Profit Meets Forecasts, Cuts Outlook

India's Wipro met expectations with an 8.7 percent rise in quarterly profit, but gave a muted forecast due to the global economic downturn and growing pressure from Western clients to cut its fees.

The company forecast its information technology services revenue, including revenue from its acquisition of Citi Technology Services, at $1.05 billion in the March quarter, down 7 percent from $1.13 billion in October-December. Wipro, which counts Citigroup, Credit Suisse and Cisco among its clients, said net profit rose to 8.98 billion rupees ($183 million) in October-December under U.S. accounting rules, up from 8.26 billion rupees a year ago.

A Reuters poll had forecast a net profit of 8.99 billion rupees for Wipro, which provides IT solutions and services such as system integration, software application development and maintenance and research services.

"Our price realisation improved sequentially in constant currency through higher productivity, while absorbing impact of lower working days during the quarter," Executive Director and Chief Financial Officer Suresh Senapaty said in a statement.

Total revenue rose 25 percent to 65.4 billion rupees, as its IT services business added 31 clients during the December quarter.   

Its margins during the quarter were impacted by 60 basis points due to one-time provision of receivables from a large customer, he said.

"Excluding this one-time impact we were able to expand margins by 10 basis points," he said. "The topline is below our expectations. The bottomline is in line," said Tarun Sisodia, head of research at Anand Rathi Securities.  "The guidance is seemingly indicating to a weak demand scenario. We are overall not very positive on this result."

Revelations of overstated profits and fictitious assets at fourth-ranked Satyam Computer Services have cast a shadow over India's outsourcing sector, which was already struggling with slowing growth due to global financial turmoil.

Analysts say recession in the United States, which accounts for more than half of India's $52 billion IT and back-office services revenue, and financial sector turmoil have significantly dented the outlook for the once-booming outsourcing sector.

Wipro said last week the World Bank had barred the company from direct contracts until 2011, citing a conflict of interest, adding to the glum outlook.

A bankruptcy filing by Canada's Nortel Networks last week is also a concern, though Wipro has said the firm accounts for less than 1.5 percent of its IT revenue and it expects a major portion of its business with North America's biggest telephone equipment maker would continue.

Wipro's earnings follow results from No. 2 exporter Infosys Technologies , which beat profit expectations but still trimmed its annual revenue forecast, while sector leader Tata Consultancy Services' profit lagged forecasts.

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Both Infosys and Tata Consultancy have said they were not trying to poach clients from smaller rival Satyam, whose founder and chairman quit earlier this month after revealing overstated profits and fictitious assets.

Shares in Wipro, which has a market value of about $7 billion, fell 31 percent in the December quarter, while the sector index slipped 28 percent and the main Mumbai index dropped by 25 percent.

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