Case Analysis of Wipro Limited | India | Accounting

The below mentioned article provides a case analysis of Wipro limited.

Audited Segment Wise Business Performance for the Three Months Period Ended December 31, 2003.

Note to segment report:

1. The segment report of Wipro Limited and its consolidated subsidiaries and associates has been prepared in accordance with the Accounting Standard 17 “Segment Reporting” issued by the Institute of Chartered Accountants of India.

2. The Company has three geographic segments: India, USA and Rest of the World. Significant portion of the segment assets are in India.

Revenue from geographic segments based on domicile of the customers is outlined below:

3. For the purpose of reporting, business segments are considered as primary segments and geographic segments are considered as second­ary segment.

4. Effective April 1, 2003, Wipro Spectra mind is included in the Global IT Services segment. Wipro Nerve wire, the business acquired in May 2003, has been included in Global IT Services segment. In April 2003, the Company restructured the Health Science business segment. The Health Science business which addresses the IT requirement of clients in healthcare and life sciences sector and Wipro Healthcare IT, the Com­pany acquired in August 2002, will now form part of the Global IT Services and Products segment. Wipro Biomed, a business segment that was reported as part of the Health Science segment has now been reported as part of ‘others’. Segment data for previous periods has been reclassified to make it comparable.

5. In accordance with Accounting Standard 21 “Consolidated Financial Statements” issued by the Institute of Chartered Accountants of India, the consolidated financial statements of Wipro Limited include the financial statements of all subsidiaries which are more than 5096 owned and controlled.

6. The company has a 49% equity interest in Wipro GE Medical Systems Limited (WGE), a joint venture with General Electric, USA. The joint venture agreement provides specific rights to the joint venture partners. The rights conferred to Wipro are primarily protective in nature. There­fore, WGE is not considered as a joint venture and consolidation of financial statements are carried out as per equity method in terms of Accounting Standard 23 “Accounting for Investments in Associates in Consolidated Financial Statements”.

7. In accordance with the guidance provided in Accounting Standard 23 “Accounting for Investments in Associates in Consolidated Financial Statements” Wipro Peripherals have been accounted for by equity method of accounting.

Outlook for the Quarter ending March 31, 2004:

Azim Premji, Chairman of Wipro commenting on the results said “Sus­tained volume growth coupled with stable pricing environment and operational improvements resulted in Wipro posting its highest ever quarterly Profit after Tax. Revenue in our Global IT Services business was $250 million, ahead of the guidance of $241 million. Business momentum continues to be strong. Looking ahead, for the quarter ending March 2004, we expect our Revenue from our Global IT services business to be approximately $269 million.”

Vivek Paul, Vice-Chairman, said “We continued to build a solid founda­tion for the future with the highest ever net addition of employees to our team in the IT services businesses on the back of multiple large customer wins. We witnessed double digit sequential Revenue growth for the second consecutive quarter. The broad-based nature of growth- 13% sequential growth in Technology and 10% in IT business- was particu­larly satisfying. In terms of service lines too, sequentially, BPO grew by 29%, Technology Infrastructure Services grew by 17% and Package Implementation grew by 14%, reflecting customer confidence in our ability to provide comprehensive solutions and our deepening domain strength.”

Suresh Senapaty, Corporate Executive Vice-President Finance said, “During the quarter, strong operational improvements helped us to absorb the impact of an increase in Offshore compensation and appre­ciation of the Rupee against the Dollar and improve the Operating Margin in our Global IT Services business. During the quarter, we were able to leverage the resources and skill sets in Wipro Nerve Wire to offer Consulting and Architecting solutions to customers in other verticals of our Global IT Services business. We believe that this integrated approach will continue and have therefore consolidated the business operations and resources of Wipro Nerve Wire into the results of our Global IT Services and Products segment.”

Wipro Limited:

Revenues for the quarter ended December 31, 2003, were Rs.15.21 billion, representing a 37% increase over the previous year. Profit after Tax was Rs.2.74 billion, representing an increase of 19% over Profit after

Tax for quarter-ended December 31, 2002. Revenues for the nine-month ended December 31, 2003, were Rs.40.95 billion, representing a 32% increase over the previous year. Profit after Tax for the nine-month period was Rs.7.1 billion, a growth of 19%.

Global IT Services and Products:

Effective quarter ended December 31, 2003; the results of Wipro Nerve Wire have been consolidated with the results of Global IT Services & Products segment. Global IT Services & Products grew its Revenue by 41 % over Revenue for corresponding quarter last year to Rs.11.47 billion and PBIT increased by 13% to Rs.2.51 billion. Operating Income to Revenue at 22% increased by 1% sequentially and declined by 6% year on year. R&D Services contributed 32% of the Revenue of Global IT Services. Enterprise Business contributed 57% of Revenues with the balance 11% being contributed by IT Enabled services.

WIPRO had 27,137 employees as of December 31, 2003, which includes 17,681 employees in IT Services business and 9,456 employees in IT Enabled services business. This represents a net addition of 2,872 people comprising of 1,908 in IT Services and 964 people in IT Enabled services. During the quarter, we added 24 new customers comprising 8 customers in R&D Services, 14 customers in Enterprise Services and 2 new custom­ers in the IT Enabled services business. Global IT Services and Products accounted for 75% of the Revenue and 88% of the PBIT for the quarter ended December 31, 2003.

Wipro Infotech – Our India, Middle East & Asia Pacific IT Services & Products Business:

For the quarter ended December 31, 2003, Wipro Infotech recorded Revenues of Rs.2.4 billion representing an increase of 28% over the same period last year. Profit before Interest and Tax grew by 45% to Rs.161 Million. Services business contributed to 32% of total Revenue during the quarter. Services revenues grew by 53% compared to the previous year, fuelled by growth in Infrastructure Management Services, System Integration, Software Solutions and Consulting.

Key India wins include Infrastructure Management Services at Henkel SPIC & Bharti Cellular, Remote Management Services for Xerox, core banking application deployment and Infrastructure Management Services at Vijaya Bank, Application development for Karnataka State Police, Data warehousing solution for a large Insurance company in India and an Information Security Consulting project from DCM Shriram Consolidated Ltd. Our Middle East & Asia Pacific wins include a Technology Consulting project with Qatar Petroleum and Application sustenance for a large petroleum company as well as a leading Bank, both based in Saudi Arabia. Wipro Infotech accounted fori5% of Revenue and 6% of the PBIT for the quarter ended December 31, 2003.

Wipro Consumer Care & Lighting:

Wipro Consumer Care and Lighting business recorded Revenue of Rs. 949 million with PBIT of Rs. 141 million contributing 6% of total Revenue and 5% of the Profit before Interest and Taxes for the quarter. PBIT to Revenue was 15% for the quarter.

Wipro Limited:

For the quarter ended December 31, 2003, the annualized Return on Capital Employed in Global IT Services was 52%, Wipro Infotech was 47%, Consumer Care and Lighting was 107%. At the Company level, the Return on Capital Employed was 27%, lower due to inclusion of cash and cash equivalents of Rs.21.3 billion in Capital Employed (49% of Capital Employed).

For Wipro Limited, Profit after Tax from continuing opera­tions computed in accordance with US GAAP for the quarter ended December 2003 was Rs. 2.66 billion, an increase of 22% over the profits for the corresponding quarter ended December 2002. The net difference between profits computed in accordance with Indian GAAP and US GAAP is primarily due to different Revenue recognition standards, accounting for deferred stock compensation expenses and amortization of intangible assets.

Global IT Services & Products Segment Revenues were Rs. 11.51 billion for the quarter ended December 31, 2003 under US GAAP. The difference of Rs. 36 million ($0.8 million) is attributable to different Revenue recognition standards under Indian GAAP and US GAAP.

Forward looking and cautionary statements:

Certain statements in this release concerning our future growth pros­pects are forward looking statements, which involve a number of risks, and uncertainties that could cause actual results to differ materially from those in such forward looking statements.

The risks and uncertain­ties relating to these statements include, but are not limited to, risks and uncertainties regarding fluctuations in earnings, our ability to manage growth, intense competition in IT services including those factors which may affect our cost advantage, wage increases in India, our ability to attract and retain highly skilled professionals, time and cost overruns on fixed-price, fixed-time frame contracts, client concentration, restric­tions on immigration, our ability to manage our international operations, reduced demand for technology in our key focus areas, disruptions in telecommunication networks, our ability to successfully complete and integrate potential acquisitions, liability for damages on our service contracts, the success of the companies in which Wipro has made strategic investments, withdrawal of fiscal governmental incentives, political instability, legal restrictions on raising capital or acquiring companies outside India, unauthorized use of our intellectual property and general economic conditions affecting our industry.

Update:

Wipro Limited Consolidated:

Audited Segment Wise Business Performance for the Three Months Period Ended March 31, 2004.

Note the changes and comment upon.

Market report:

Wipro Q4 net up 55 pc; issues 2-for-1 bonus

Mumbai:

Software major Wipro reported a 55 per cent rise in net profit to Rs. 321 crore ($73.9 million) during the fourth quarter ended March 2004 as against Rs. 225 crore in the same period previous year.

The company’s revenue during the quarter has increased to Rs. 1,786 crore as compared to Rs. 1,238 crore. While the revenue from global IT services has risen to Rs. 1,255 crore (Rs. 869 cr.) and that of India & Asia Pacific Services, Rs. 367 crore as against Rs. 245 crore.

The company has announced a bonus in the ratio of two shares for every one held.