Wipro Q1 net profit tanks 21% amid higher employee cost; says tech demand environment strong

New Delhi: Wipro Ltd on Wednesday reported a 21 per cent decline in its June quarter net profit as higher employee-related costs pushed up the firm's overall expenses.

Consolidated net profit at Rs 2,563.6 crore in April-June (the first quarter of 2022-23 fiscal) was 20.6 per cent, lower than Rs 3,242.6 crore net profit in the same period a year back. Seen sequentially, the profit fell 16.9 per cent.

Its expenses, which includes employee cost, jumped almost 23 per cent to Rs 18,647.5 crore, with attrition at 23.3 per cent. Of the expenses, employee benefit cost was Rs 12,613.4 crore, up almost 23 per cent from last year.

Retaining employees is leading to cost pressure on IT companies, denting their margins.

Wipro's revenue for the quarter rose 17.9 per cent year-on-year to Rs 21,528.6 crore.

"Despite the uncertainties of the macro-economic environment, if I look at our pipeline, our order bookings, and the discussions we are having with our customers, there has been no slowdown or pull back of spends for us," CEO and Managing Director Thierry Delaporte said.

The operating margin in the IT services segment decreased by 200 basis points to 15 per cent quarter-on-quarter.

Wipro CFO Jatin Dalal said the operating margins have bottomed out.

On the outlook for Q2, the firm said, "We expect revenue from our IT Services business to be in the range of USD 2,817 million to USD 2,872 million. This translates to a sequential growth of 3 per cent to 5 per cent".

The company asserted that demand for its IT services and the deal pipeline is robust.

With its Q2 guidance, the company exuded confidence it will "very comfortably" grow in double-digits for fiscal 2023.

"I am very optimistic about the rest of the year," Delaporte said during the Q1 earnings call.

The demand for IT services is robust, and the overall pipeline is at an all-time high, Delaporte pointed out.

High-growth services like cloud, digital, engineering services and cybersecurity have seen "strong interest" from clients, the company said, adding bookings in cloud are up 35 per cent year-on-year, while engineering services bookings have doubled.

"We believe this rotation to high-growth areas is going to accelerate," said the Wipro top honcho.

The company's bookings in Total Contract Value terms grew at about 30 per cent year-on-year and in annual contract value terms, it grew nearly 18 per cent.

Wipro said it is investing heavily in talent to support its ambitious growth plans for the year. The company onboarded over 10,000 freshers in Q1.

All markets for Wipro grew double-digit, with Americas and Europe – the top two markets, growing at 18 per cent and 16 per cent year-on-year in constant currency terms.

Attrition cooled off, although just a tad, to 23.3 per cent in Q1 FY23 (on a trailing twelve-month basis) from 23.8 per cent recorded in Q4 FY22.

The company is pulling out all stops to retain talent, in an industry where a war for tech professionals and a dynamic demand environment have kept the sector's attrition levels woefully high.

"Our talent investments are paying off. If you recall, we announced moving to a quarterly promotion cycle, which will be effective July 2022, and salary increases for all those eligible, in September 2022," Delaporte said.

Wipro expects attrition levels to further moderate ahead.

It had 2,58,574 employees as of June 30, 2022.

Apart from the rise in employee benefit expenses, Wipro's finance costs too went up during Q1.

Asked about the reasons for the 21 per cent drop in net profit, Dalal said that in Q1 FY22, the company had seen a large reversal based on a settlement or a closure of an audit overseas.

"Second is other income (factor), which is significantly lower...roughly 50 per cent compared to where it was in Q1 last year," Dalal added.

Larger rival and India's biggest software exporter Tata Consultancy Services earlier this month reported a 5.2 per cent rise in the June quarter net profit to Rs 9,478 crore, restricted by the impact of annual wage hikes and promotions that took operating profit margins to multi-quarter lows.

Infosys is yet to announce its results.