03 Jan 2018 12:33 IST

Wipro awaits payback from digital push

IT major has spent $1 b in the last two years on acquisitions

The country’s third largest IT player, Wipro, has made investments worth over $1 billion during the last 18-24 months as it bets on the digital business to revive its growth.

Wipro is looking to match industry growth rates by the fourth quarter of FY18 on the back of better client mining with an increasing contribution from digital and demand across certain business segments. A Wipro spokesperson said that these investments were made during the last 24 months.

Peter Schumacher, CEO of the company’s Value Leadership Group, said developing a deeper understanding of customers and their requirements in the light of economic, end user behaviour and business shifts has never been more important.

In a note to investors, ICICI Securities said Wipro has invested over $1 billion in acquisitions in the last 18 months, with digital now contributing 24.1 per cent to revenues. Early signs on this front are visible with top 10 clients growing at 8.1 per cent YoY in Q2FY18 on top of 1.5 per cent YoY growth in Q1FY18 and after consistent negative growth from Q3FY15 to Q4FY17.

“On the demand side, the management sees strength in the BFSI vertical and stability in demand in the consumer verticals as these two verticals are adopting digital ahead of the industry.”

BV Naidu, Managing Partner, StartupXseedVentures LLP, a former Software Technology Parks of India (STPI) head, said digital is an area where companies across the globe are struggling and Indian outsourcers need to quickly align their services and workforce with the changing needs.

Wipro’s push for digital is resonating across cross-town rival Infosys as well as others such as TCS and Cognizant. Digital contributes in double digits to these companies’ revenues.

While industry watchers seem to be optimistic about the digital push, they are still to be convinced about outsourcing companies’ ability to navigate clients’ expectations. “With digital offerings, IT services companies also need to interact more effectively with their clients’ business teams, move faster, become more agile and take a collaborative approach,” said Schumacher. Taken together these challenges are tough to master for most firms, he added.

Six-theme strategy

The note to the investors said adapting to changing industry trends, the company has embarked on its transformational journey by directing its strategy into six themes — digital, non-linearity, partner eco-system, integrated services, hyper automation and localisation.

On the margin front, Wipro’s IT services EBIT margin has declined from 23-24 per cent range in FY’14 to the approximately 17 per cent range currently on account of subdued growth and acquisitions.

However, with a revival in growth in topline and restructuring in India and West Asia operations, “we expect margins to witness gradual improvement. Wipro reported an IT service EBIT margin of 17.3 per cent in Q2FY18.