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April 22, 2005 9:06 am

Wipro bucks slowdown in technology spending

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Wipro said flat technology budgets in leading markets for offshore services forced the Bangalore-based company to aggressively mine existing?customers, lifting net profit to Rs15.83bn ($1.86bn) in the year to March, up 58 per cent year-on-year.

Turnover was Rs81.4bn, up 39 per cent year-on-year.

The company?s IT services unit,?the?third-largest?Indian software services exporter,?accounted for three-quarters of consolidated revenue and 89 per cent of operating income. The group is also engaged in other activies, including consumer lighting.

Wipro?s share price rose nearly 8 per cent in Mumbai on Friday in contrast to the that of rival Tata Consultancy Services which announced figures earlier this week. Shares in India?s largest IT company closed nearly 9 per cent down after unexpected accounting adjustments for staff incentives, while the valuation of Infosys, the second biggest IT exporter, fell heavily last week following guidance that the year ahead would be weak.

Vivek Paul, Wipro?s vice chairman, said the ?joy of anticipation? had prepared the group for the ?moderation in new spending?, and it had concentrated on getting more orders from long-standing clients such as Cisco, the telecom equipment manufacturer, and General Motors, the world?s largest car-maker.

Over the full year, new business accounted for just 4 per cent of revenue.

The focus on existing clients improved volumes by 8.5 per cent in the quarter to March from the previous quarter and operating margins by 500 basis points to 29.7 per cent over the full year.

?Wipro has traditionally lagged its peers in taking clients to a higher level. The fact that it has done so now explains the strong rise in margins,? said Ganesh Duvvuri, IT analyst at Motilal Securities in Mumbai.?

With global spending down on semiconductors and other IT products, Wipro has stepped up activity in traditional strengths, such as telecom and embedded services, which now account for 22.3 per cent and 14 per cent of sales.

One big disappointment was the group?s business process outsourcing unit, WiproSpectraMind, which accounted for 8.3 per cent of group revenues. The division continued to suffer from high attrition as it shifted its focus from low-value call-centre services to activities such as selling financial products. The transition was a challenge, said Ramon Roy, who heads the unit.

The unit saw 9.7 per cent attrition during training. ?This is when we prepare staff for international services and where many fail to meet standards. We have lots of distance to travel,? he said. WiproSpectraMInd employs nearly 16,000 people.

Mr Paul said moderate growth in new offshore business was likely to be offset by the ?gigantic? opportunity of India.

Most Indian technology companies have grown by largely ignoring domestic market and focusing on overseas markets where the equivalent cost for their expertise is around three times higher.

But with the economy expanding by about 7 per cent, top Indian companies were emerging as attractive customers, said Mr Paul, pointing to this week?s announcement that Hewlett-Packard would install IT infrastructure for Bank of Baroda, a fast-growing bank based in Gujarat.

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