Wipro Posts Big Gains, But Outsourcer's Growth May Finally Be Cooling - InformationWeek

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IT Leadership // IT Strategy

Wipro Posts Big Gains, But Outsourcer's Growth May Finally Be Cooling

Wipro's revenues increased 30% year-over-year to $2.4 billion, while net income jumped 28% to $456 million.

Indian outsourcer Wipro Technologies, which recently won a contract to help support General Motors' worldwide operations, recorded sizeable increases in profits and revenue in its most recent fiscal year and fourth quarter, the company said Wednesday. However, there were also signs that growth at the company--one of the Indian juggernauts that's been living high amid the offshoring boom--is beginning to slow.

For its fiscal year ended March 31, Wipro's revenues increased 30% year-over-year to $2.4 billion, while net income jumped 28% to $456 million.

While the gains are impressive--especially compared to growth-challenged U.S. IT services vendors like IBM and EDS--there are indications that the so-called law of large numbers, which holds that it's easier to grow a small business than a large one, is beginning to catch up with the company. Wipro's annual revenue growth declined 23% compared to the gains it posted in its previous fiscal year, while its gains in net income were less than half of what they were in fiscal 2004-2005.

Wipro, along with Indian peers TCS, Satyam, and Infosys, find themselves more frequently competing for skilled IT workers and prime real estate with major Western IT vendors--all of which are aggressively hiring in the country in order to lower their service delivery costs. That's sparking inflation in India's IT sector. In a statement, Wipro noted that "increased compensation costs" contributed to a 2% decline in operating-income-to-revenue ratio for fiscal 2005-2006. Meanwhile, the company's operating expenses, excluding amortization costs, increased 29% compared to the previous year. Most observers believe wages in India are rising at a clip of about 15% per year. Wipro added more than 11,000 workers during fiscal 2005-2006, boosting its total workforce to beyond 53,000.

Still, indications are that Wipro for the foreseeable future will continue to enjoy robust growth rates. In the fourth quarter, its net income increased 34% to $134 million, while sales jumped 33% to $687 million. It also added 42 new customers during the period, including GM. In February, the automaker handed Wipro about $27 million worth of application work as part of a multivendor outsourcing initiative worth $15 billion over five years. Looking ahead, Wipro officials said the company expects second-quarter sales of $533 million, which would represent a 34% increase over the previous second quarter.

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