Wipro Navigates Q3: Profit Dips, But Big Deals and AI Bet Signal Future Focus

Against a backdrop of cautious global spending, the Bengaluru-headquartered IT services behemoth, Wipro Ltd., recently unveiled its financial performance for the third quarter of the fiscal year 2023-24, ending December 31, 2023. The numbers paint a somewhat mixed picture: while the company's consolidated net profit saw a modest sequential dip, a reassuring interim dividend for shareholders and strong strategic commentary offered a forward-looking perspective.

Digging into the specifics, Wipro reported a consolidated net profit of Rs 3,119 crore for the quarter. This figure represents a 4.02% sequential decline from the Rs 3,213.9 crore posted in the preceding September quarter. Looking at the bigger picture, on a year-on-year basis, the net profit also saw a decrease, falling by 11.9% from Rs 3,546 crore recorded in the same quarter last fiscal year. It's a noticeable shift, no doubt, reflecting the broader challenges in the IT services sector.

Revenue figures followed a similar trajectory. The company's consolidated revenue from operations for Q3 FY24 stood at Rs 22,150 crore, a 1.7% sequential drop from Rs 22,516 crore in Q2 FY24. Year-on-year, this translates to a 4.4% decline from Rs 23,229 crore. In constant currency terms, which provides a clearer view of underlying business performance without currency fluctuations, Wipro’s IT Services segment revenue dipped by 1.7% sequentially and by 6.9% year-on-year. For those tracking market expectations, the results align broadly with what many analysts had predicted.

However, it wasn't all about declines. In a move that often brings a smile to investors, Wipro’s board of directors greenlit an interim dividend of Rs 6 per equity share for the fiscal year 2023-24. The record date for this payout is set for January 24, 2024, with payment slated for February 10, 2024. A nice gesture, showing the company's commitment to returning value to its shareholders even during softer market conditions.

Leadership commentary provided further insight into the company's strategy. Thierry Delaporte, Wipro’s CEO and Managing Director, acknowledged the macro environment but emphasized a strong focus on client relationships and future growth drivers. "We are building a more resilient, agile, and efficient organization," he stated, highlighting a strategic intent to bolster Wipro's position. He particularly underscored the strong momentum in large deal bookings, which impressively crossed the $1 billion mark in Total Contract Value (TCV) for the third consecutive quarter. This brings the year-on-date large deal TCV to a robust $4.1 billion, a testament to their sales execution capabilities.

Aparna Iyer, the company’s Chief Financial Officer, echoed this sentiment, focusing on operational excellence. "Our strong operational execution has resulted in a 16.1% operating margin in our IT Services segment, a 69 basis points expansion," she shared. This demonstrates a clear effort to improve profitability even when top-line growth is challenging. She also pointed to healthy cash generation, with operating cash flows at 177.3% of net income, and a significant improvement in accounts receivable – all signs of tight financial management.

Looking ahead, Wipro provided a cautious outlook for the fourth quarter of FY24. The company anticipates revenue from its IT Services business segment to fall within the range of $2,610 million to $2,664 million. To put that in perspective, this guidance implies a sequential de-growth of 1.5% to 3.5% in constant currency terms. It suggests that management expects the current cautious spending environment to persist for at least another quarter.

Other key metrics from the quarter offer additional context. The IT Services attrition rate, measured on a trailing twelve-month basis, continued its downward trend, reaching 14.2%. This is a positive development, indicating better employee retention. However, the company’s overall headcount saw a decrease, falling by 4,473 employees sequentially to stand at 252,580 as of December 31, 2023. While often a cost-saving measure, a shrinking workforce can sometimes signal demand challenges.

In essence, Wipro’s Q3 FY24 results present a company actively navigating a complex market. While facing sequential dips in profit and revenue, the strategic focus on large deal wins, operational efficiency, and emerging areas like AI, coupled with a shareholder dividend, signals a company committed to long-term value creation. The journey ahead might involve continued caution, but the underlying strategic moves appear geared towards resilience and future growth.