Wipro CEO Abidali Neemuchwala. Photo: Mint
Bengaluru: Wipro Ltd expects two of its fastest growing business units—analytics and infrastructure management—to grow much slower in the next four years than the near 20% compounded annual growth rate (CAGR) needed for India’s third largest software services firm to achieve its ambitious target of $15 billion in revenue by 2020.
Together, the two units made up 36% of Bengaluru-based Wipro’s $7.08 billion revenue in the last financial year.
The management’s projection of lower CAGR of 13% for analytics and 12.5% for infrastructure management will raise questions about how chief executive officer (CEO) Abidali Z. Neemuchwala will guide Wipro to achieve its target of more than doubling business in four years.
Wipro, controlled by billionaire Azim Premji, is estimated to grow at 4.2% in the financial year ending March, translating to $7.38 billion in revenue. This means Wipro needs a compounded growth of at least 19.4% to become a $15 billion firm by 2020.
After taking over as CEO on 1 February, Neemuchwala, who joined the company as chief operating officer in April 2015 after spending 22 years at Tata Consultancy Services Ltd, shared his vision of making Wipro a $15 billion firm with operating margins of 23% by 2020 in an e-mail addressed to 170,664 employees.
Wipro’s analytics unit, which is projected to be a $550 million division by the end of March 2016, is expected to become a $900 million division by 2020, according to an internal presentation reviewed by Mint.
Wipro generates about 28% of its total revenues from maintaining servers and computers for its clients, which it clubs under the global infrastructure services business. Wipro’s infrastructure business will end the current fiscal year with a little over $2 billion in revenue, and is estimated to be a $3.2 billion division in the coming four years, according to an executive familiar with the development.
Wipro declined to comment for this story.
Wipro’s analytics and infrastructure businesses are estimated to generate over $4.1 billion in revenue by 2020; both the businesses have grown more than 9% in each of the last five years even as the company struggled to record an annual revenue growth of more than 7% since 2011.
Mint could not independently ascertain the growth estimates for Wipro’s five remaining service-offering business units, which for now account for 64% of revenue.
These five remaining service line units now have to grow at a compounded growth rate of more than 23% over the next four years if the company wants to achieve its long-term goal. This, according to analysts, is a tall task, if not impossible, as most of these units have struggled to outpace the company’s overall growth.
All Indian technology vendors have seen application development and maintenance grow slowly over the last five years.
Wipro’s research and development service in the year to March 2015 earned $693.99 million in revenue, compared with $734.2 million in the year to March 2012. Its consulting business brought $134.55 million in revenue, down from $177.63 million in 2012.
Wipro’s business process outsourcing (BPO) business has managed a compounded growth rate of 9.3% since 2012 and brought $672.75 million in revenue at the end of last year.
“(Wipro) has struggled for revenue growth in recent years, and also lost some EBIT (earnings before interest and tax) margin over the past year or so. The FY20 targets look a tall order at this stage, given there is still little publicly available colour on how the company aims to achieve them,” BNP Paribas analyst Abhiram Eleswarapu wrote in a note dated 16 March on the Indian IT industry.
At Wipro and bigger cross-city rival Infosys Ltd, setting of long-term aspirational goals by CEOs has again become fashionable as they look to assuage concerns of investors, many of whom are questioning if the outsourcing industry’s growth story has taken a hit.
“These (long-term) targets help, for all employees are seen working towards a goal,” said a senior executive at Wipro, who declined to be named.
Infosys’ first non-founder CEO Vishal Sikka has set an ambitious target of making Infosys a $20 billion firm with operating margins of 30% by calendar year 2020.
To Sikka’s credit, Infosys has started on a respectable note, with the company expected to end the current financial year in March with industry-leading revenue growth of over 9% in US dollar terms.
Also, the board of Infosys has aligned Sikka’s higher compensation of $11 million a year to the company’s success in achieving its goal. Neemuchwala is yet to share details of how he plans to make Wipro a $15 billion firm.
“Any sales target is more or less meaningless until you discuss the vision and the strategy to actually implement concrete steps of achieving it,” said Thomas Reuner, managing director of IT outsourcing research at HfS Research. Reuner said that he expects Neemuchwala to spell out a plan, including expected incremental revenue from buyouts.
To be sure, Neemuchwala is not the first CEO at Wipro to outline a long-term goal for the company.
In August 2000, when Wipro’s technology and consumer care businesses were part of one listed entity, then CEO Vivek Paul spelt out his famous “4×4” vision, under which he envisaged the technology arm of Wipro becoming a $4 billion division by the year 2004.
Wipro managed to earn $943 million in revenue from the IT business at the end of 2004, with Paul quitting the company in 2005.