Wipro’s Outsourcing Profit beyond Estimation

Recent reports say the profit of Wipro Ltd. (WIPRO), the third largest software service outsourcer, is much higher than the value estimated by analysts. For Jul-Sept 2012 period the net income for the company has increased from 24 percent to Rs 16.1 billion. This number is in contrast to Rs 15.5 billion estimated by 42 analysts in the report compiled by Bloomberg.

wipro logo

The revenue reported by WIPRO [stock quote] is now nearing that of Tata Consultancy (TCS) Services Ltd [stock quote], the second largest player in Indian BPM industry. This increased profit margin had also bought a positive response on the share trading of Wipro (in Bombay Stock Exchange). IT outsourcing is flourishing highly in the country as businesses are relying much on BPM services to cut down costs. In effect, BPM services in IT sector are incurring growth and are getting better revenue margins.

Wipro is now looking for a proactive approach to restructure its business units. Now they are taking initiative to set apart units like consumer care and lighting, infrastructure engineering and medical diagnostic businesses. This will be good attempt to improve the present profit margin of the company.

Revenue Stance of Wipro

More precisely, net sales for the company increased by 17 percent to Rs 106.2 billion. This is much different from the Rs 108.5 billion estimated by 45 analyst reports compiled by Bloomberg.

In the current quarter, returns from IT outsourcing services may range between $1.56 billion and $1.59 billion. This statement is supported by the fact that the sales in the unit for the last three months increased by 4.6 percent ie $1.54 billion. The company is quite happy on their turn over and is hoping for new deals by investing the extra revenue attained

Splitting Businesses

As mentioned above Wipro is looking for the separation of certain services from IT outsourcing and to group it under a separate heading called Wipro Enterprises Ltd. So the main businesses that are piled under this new company are

  • Wipro Consumer Care & Lighting
  • Wipro Infrastructure Engineering
  • Medical Diagnostic Product & Services

The main reason behind such a shift is to engage more on IT outsourcing services, which forms the main revenue source for the company. About 86 percent of company revenue is earned from IT outsourcing services. Another motive behind this splitting to business is to increase the public ownership of the company under share trading business.

Cognizant Technology Solutions Corp. (CTSH), TCS, and Infosys are the major competitors of the company in BPM sector. Bangalore-based Infosys had cut down the revenue projection to 395.8 billion rupees from previous estimate of 403.6 billion rupees, citing the reason that high wages and market fluctuations will affect the profitability of the business. But TCS is still moving at a faster rate in the industry. They concentrate mainly in trendy areas like social media, data, analytics and cloud computing.

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