Executives also struck a cautious tone on the near-term outlook. They said discretionary spending remains weak, some large contracts are taking longer than expected to ramp up, and lower employee utilisation is weighing on profitability.
Together, those factors explain why margins came under pressure this quarter, and why management isn’t yet willing to put a timeline on returning to its historical margin band.
By the numbers: Wipro‘s IT services EBIT margin fell to 16% in the June quarter from 17.3% in the March quarter, below Street expectations of 16.9%. IT services EBIT declined 5.7% sequentially to ₹3,919 crore, while revenue rose 1.8% quarter-on-quarter to ₹24,453 crore. The company also guided for -1.5% to +0.5% constant currency growth for the September quarter, signalling another subdued quarter ahead.
Why did margins decline?
Chief Financial Officer Aparna Iyer said the decline was largely driven by the impact of wage hikes and Wipro’s decision to invest ahead of expected growth.
“We have improved our profitability quite a bit. It will take a few quarters for us to recoup the impact from wage hikes on margins.”
She added that utilisation has dipped because the company is investing for growth, while Wipro’s earnings release also noted that continued investments in people and strategic priorities would create “near-term margin volatility.”
When will margins recover?
Management isn’t ready to commit to a timeline.
“I don’t want to put a timeline to when we will get back to our target margin growth band,” Iyer said.
Wipro has historically targeted an EBIT margin of 17% to 17.5%, but Thursday’s commentary suggests returning to that range will take longer than previously expected.
Demand remains sluggish
CEO Srini Pallia said there has been little change in the macro environment since the March quarter.
“Demand situation in the market has not changed.”
Pallia said, “Discretionary spend is becoming more intense,” adding, “Energy and manufacturing have been very soft for us.”
The cautious commentary aligns with Wipro’s September-quarter guidance, which points to another quarter of flat-to-negative constant currency growth.
Deal wins remain the silver lining
Despite the weak demand backdrop, Wipro continued to add to its order book.
The company signed 13 large deals during the quarter, with large deal bookings rising 12.9% sequentially to $1.63 billion, although total bookings fell 2.4% sequentially to $3.37 billion.
Pallia said execution, not demand, is delaying revenue recognition.
“Some of the deals are taking time to ramp up. That’s why some bookings don’t convert to revenues.”
Read more: Top earnings reports todayThe bottom line: According to Wipro’s latest quarter, its pipeline remains healthy, but margin recovery is unlikely to be immediate. With wage hikes, lower utilisation and continued investments weighing on profitability, management expects the benefits of its large deal momentum to take a few more quarters to show up in earnings.
