UPDATE 2-Wipro's IT services sales forecast disappoints, shares slide

Tue Jul 24, 2012 1:57am EDT

* Q1 profit 15.80 bln rupees vs 15.95 bln expected by analysts

* IT services sales seen at $1.52-$1.55 bln in Sept quarter

* Shares fall to 9-month low

By Harichandan Arakali

BANGALORE, July 24 (Reuters) - Wipro Ltd, India's No. 3 software services exporter, joined sector bellwether Infosys in giving a muted forecast for its main IT services business as global spending on outsourcing services slows, pushing Wipro's shares down to a nine-month low.

The disappointing outlook from Wipro, controlled by billionaire Azim Premji, also renewed concerns about the Bangalore-based company's ability to preserve market share despite undertaking a major management reshuffle last year.

Wipro said on Tuesday it expects September-quarter IT services revenue of $1.52 billion to $1.55 billion, a rise of 0.3 to 2.3 percent from the June quarter. Analysts were expecting Wipro to forecast a 2-4 percent increase.

The IT services unit, including back-office operations outsourcing, accounts for more than 75 percent of sales at the company that also makes soaps, light bulbs and hydraulics equipment.

"The numbers look very bad...It looks like they are yet to be able to turn around their business despite all the restructuring," said Hardik Shah, an analyst at KR Choksey Shares and Securities.

The company last year named veteran T.K. Kurien as the chief executive of the IT services business in place of its joint CEOs to reverse its underperformance compared with larger rivals such as Tata Consultancy Services Ltd.

Kurien is also attempting to close the narrow lead U.S.-based Cognizant Technology Solutions Corp has established.

India's $100 billion export-driven outsourcing sector is facing diminishing hopes of an early revival in demand as its biggest markets, the United States and Europe, grapple with changes in the economic and political climate.

Earlier this month, Infosys Ltd, the no. 2 software exporter, made a bigger-than-expected cut in its revenue growth forecast for the current fiscal year.

"It's pretty obvious that the volume growth is an issue for the sector," said Apurva Shah, head of investment research at BNP Paribas Mutual Fund, which manages about $750 million in investments, including large-cap Indian software companies.

"I don't think there will be any serious improvement in the next few quarters."

Q1 RESULTS

Consolidated net profit rose to 15.80 billion rupees ($282.55 million) for the fiscal first quarter ended June 30 from 13.35 billion rupees a year earlier for Wipro, which counts Citigroup Inc and Cisco systems Inc among its clients.

Analysts, on average, had forecast a net profit of 15.95 billion rupees, according to Thomson Reuters I/B/E/S.

Wipro, which is also listed in New York, said total revenue rose 24 percent to 106.53 billion rupees as the company added 37 clients in the quarter, including the Royal Philips Electronics.

The company's IT services unit posted sales of $1.52 billion.

Wipro shares fell as much as 4.4 percent on Tuesday before erasing some of the losses to be down 3.3 percent at 344.70 rupees on the National Stock Exchange.

The shares, valued at about $16 billion, are down about 13 percent so far this year. In comparison, the broader Mumbai market has gained 9.2 percent, while the sector index is down 8.8 percent in 2012.

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