Client bankruptcies, healthcare business drag down Wipro Q4; forecast disappoints

Wipro, India's third largest software services provider, Wednesday forecast a degrowth in the June quarter revenue, hurt by a continued weakness in its healthcare business and impact of insolvency of two clients.

The company said it expects revenue to be 2 percent lower or at most inline (0.24 percent) in the first quarter of the 2019 financial year, in dollar terms.

In the March-ended quarter Wipro reported IT services revenue of USD 2.06 billion, and expects revenue to come in between USD 2.015 billion to USD 2.06 billion in the next quarter.

Sanjeev Hota, AVP Research, Sharekhan by BNP Paribas said "guidance for Q1FY19 was quite disappointing, with expectations of muted to negative sequential growth. Wipro has been struggling to report consistent growth due to ramping down of its accounts, challenges in industry pockets and continuing slippage in its traditional business."

The company also posted margins below expectations.

Wipro’s IT margins in the fourth quarter fell to 14.4 percent from 14.8 percent in the previous quarter.

Excluding the impact of insolvency of a customer and the impairment loss in one of its acquisitions, IT Services margin for the quarter was 16.0 percent, the company said in a statement.

"Wipro has delivered an in-line revenue performance for the quarter, however, there was a significant miss on the EBIT margins front owing to additional provisioning and impairment losses, which  was a negative surprise," Hota added.

Margins are likely to see an impact in the June quarter as well, but the management said the scenario might improve over the year.

"We believe through the year we will improve the margins, but in Q1 we will have the revenue headwind as well as the one month impact from the salary increases that we give from 1st June," said Chief Financial Officer Jatin Dalal.

In a post earnings interaction with the press, Chief Executive Abidali Neemuchwala said the company was "disappointed at the loss of momentum in Q1 due to surprises arising out of bankruptcies faced by 2 of our clients with a revenue run rate of over USD 50 million, additional impact in the HPS business as more clients exit the exchange market and weakness in our communications business unit."

The HPS business refers to HealthPlan Services, a US- based health insurance market based company which Wipro acquired in 2016.

"HPS run-rate revenues have gone down by about USD 150 million annualised...There has been a client exit impact both in Q4 and there is a further impact that we see in Q1 in the HPS business," Neemuchwala said.

Earlier this month, Wipro said it expected an impact on profitability because of a bankruptcy declaration by an Indian telecom client, widely believed to be Aircel. In the December quarter, profitability was hit by one of its energy and utilities business clients filing for bankruptcy. The client is widely believed to be UK-based Carillion Plc.