Indian outsourcer Wipro posts 29 percent revenue growth

Company is shifting focus from call center services to nonvoice transaction processing services

BANGALORE, INDIA -- Wipro, India's third largest software and services outsourcer, reported gains in both revenue and profit for the quarter ended June 30, reflecting a growth in volume of business and higher prices for its IT services, the company announced Friday.

However, revenue growth in the company's business process outsourcing (BPO) business was low, as the company is shifting the focus of this business from call center services to higher-margin, nonvoice transaction processing services, the company said.

On the upside, the company does not expect significant increases in salaries of its IT services and BPO staff over the next two years. Indian outsourcing companies take advantage of low cost staff in India to offer lower priced services to customers abroad.

Wipro's revenue for the quarter was 22.9 billion rupees ($524 million as of June 30, the last day of the period reported), up by 29 percent from the same quarter last year. Profit for the quarter increased by 31 percent from a year earlier to 4.3 billion rupees. The results are based on U.S. generally accepted accounting principles (GAAP).

The results announced by Wipro in Bangalore refer to the first quarter of its fiscal year which runs from April 1 to March 31.

Wipro has both a domestic and export business. Exports for the quarter were 17.3 billion rupees, up by 31 percent over exports in the same quarter last year. The company added 29 clients in the quarter in its exports business, which consists of outsourced services.

Wipro had a total of 41,911 employees at the end of the quarter. Although the company added 2,097 staff in IT services during the quarter, it reduced the number of staff in its BPO business by over 2,000 staff, reflecting the restructuring of that business, Suresh Senapaty, chief financial officer of Wipro, said Friday.

The growth in revenue of the BPO business will continue to be slack over the next two quarters, until the transition to nonvoice services is complete, Senapaty added.

The company's operating margins were affected by increased costs of visas to the U.S., and the appreciation of the Indian Rupee, Azim Premji, chairman of Wipro, told reporters Friday. India's outsourcing industry has a large number of staff working on-site at customer premises in the U.S., and the increase in costs of visas to the U.S. have affected many IT services companies in the country.

Wipro's strong showing is in line with that of other large outsourcing companies in India. India's two largest outsourcers, Tata Consultancy Services in Mumbai, and Infosys Technologies in Bangalore, both reported strong growth in revenue and profits for the quarter ended June 30 this year.

India's software and services exports were $17.2 billion in the fiscal year to March 31, up 35 percent from the previous year, according to the National Association of Software Companies (NASSCOM), in Delhi. Exports of software and services are expected to grow by between 30 percent and 32 percent in the current fiscal year, according to NASSCOM.

High attrition rates and an increase in wages have affected India's outsourcing industry, particularly after the offshore services operations in India of multinational companies like IBM in Armonk, New York, and Accenture in Bermuda started hiring in India about two years ago.

However, the scenario is changing, with Wipro hiring more people from these operations than it is losing to them, according to Premji. Staff find that their career opportunities are better in leading Indian companies than in the Indian operation of a multinational company, Premji said. "Staff see that our global delivery model is the front end for us, while for the multinational companies their global delivery operations in India are at the back end," he added. The foreign operations have also moderated the salaries offered to attract staff, which is driven by their need to offer more value to their customers, according to Premji.

As a result, increases in salaries are likely to average at about 12 percent to 14 percent per year for experienced staff over the next two years, while salaries of campus recruits are expected to go up by about 7 percent to 8 percent a year, Premji said. "We are not expecting a significant wage inflation to get excessively frightened about," he added.

The enrollment in engineering institutes in the country has also been going up year after year, and this year over 275,000 engineers will be graduating, Premji added. Companies like Wipro have also teamed up with engineering institutes to train plain science graduates in computer science.

About 63.5 percent of Wipro's exports during the quarter came from exports to the US, with another 31.8 percent from Europe. The company plans to open a BPO services center in Eastern Europe to service customers in Europe, according to Premji. The center will also offer software services, he added.