Will Wipro bounce back?

This week, IT giant Wipro released its quarterly results, and what followed was a steep fall in its share price. Its share price fell 6% in a day and reached its all-time low. Here are some highlights of its results:

Its revenue jumped by 14.6% and stood at Rs 22,540 crore
Its profit after tax (PAT) decreased by 9.3% to Rs 2,660 crore

It wasn’t just one bad quarter for Wipro. 

Well, it wasn’t just one bad quarter for Wipro. The company has been underperforming for a decade now! Its five-year CAGR is approximately 7.4%, quite less when compared to its peers. 

In the early 2000s, Wipro was the top giant in the IT industry, but in the last two decades, it has lost its position to TCS, Infosys, and HCL. For instance, In the early 2000s, Wipro was the second-largest player in the industry, but then Infosys overtook it. It recorded a revenue of Rs.2603, while Wipro recorded revenue of Rs.2300 crore. 

This gap widened further in 2012, and the difference between their revenue reached $1 billion.

In FY10, Wipro was $1.8 billion ahead of HCL Tech in terms of revenues. It changed too in a decade.
In FY19, HCL Tech surpassed Wipro to become the third-largest IT service provider in the world. HCL Tech registered $8.6 billion in FY19 to Wipro’s $8.1 billion.

In just a span of one year, tables turned and the difference between the two firms is $1.70 billion, led by HCL Tech. In FY20, HCL Tech grew 15.1 percent to $9936 million whereas Wipro grew only 1.6 percent to $8256 million.
After underperforming for almost two decades, Wipro was looking for a turnaround. Premji’s shouldered the task on Thierry Delaporte, and appointed him the CEO in 2020.

Delaporte, who was earlier COO at Capgemini was bought in with a lot of expectations. He had to address all the shortcomings in the company.

Complex delivery structure, overdependence on US markets, slow decision-making, and weak client mining were some of the reasons it fell behind its peers. 

The first thing he did was simplify the company's structure. He changed the business model from a complicated multi-business units-geographies structure to one that was more streamlined. It now has two global business lines and four strategic 'market units' focusing on key geographies.

It now has a simplified client-focused operating model. Simplifying the structure paid off, as he won two mega deals worth a billion dollars last year. After years, the company witnessed double-digit growth last year.

In the last few months, he brought in some new leaders, and let out people who weren’t performing. Also, he made some major acquisitions, the most notable one was Capco, a UK-based consultancy firm.

Although Delaporte is on the right track, but to scale a giant like Wipro, he needs much more than that. The timing isn’t necessarily in favor of him.

The fears of a recession in the major economies have reached the boardrooms of Indian IT companies as well. While announcing the recent quarterly results, Delaporte was cautiously optimistic about the company’s future performance.

He quoted,

Wipro has seen robust deal wins and a strong order pipeline despite macroeconomic headwinds. However, inflationary pressures and recession fears may have strayed into client discussions, and the company is “cautiously optimistic”

His cautious optimism and lower-than-expected performance on the profitability front scared the investors and its share price tanked.

Well, after decades, the company has been working on a turnaround strategy. We'll have to wait and see whether Delaporte can revive the company or whether the recession will worsen its fate.