When Thierry Delaporte assumed charge as CEO of Wipro, the singular problem before India’s fourth largest IT services firm was obvious -- it needed to rediscover its deal winning mojo and growth.
Between financial years 2016 and 2020 under Abidali Neemuchwala, Wipro’s revenue crawled at 2.3% to touch $8.3 billion. His predecessor TK Kurien had grown Wipro at 6% in five years, though revenue hardly moved in his final year as CEO.
More worryingly, the number of active customers dipped from 1,223 clients in 2015-16 to 1,074 in 2019-20. As did operating margins: from 20.5% to 18.1% in the same period. Wipro simply had to win deals to utilise its technology base in India and grow more profitably.
That’s why the first question Delaporte faced from investor analysts on Thursday was whether its robust third quarter for the 2021 fiscal—his second financial quarter in charge—was an anomaly. “Are we making a practice to win every quarter?” asked Sandeep Shah of Equirus Securities.
The number of active clients has recovered to 1,136 customers from 1,070 a year ago. Under Delaporte, Wipro has taken the number of new customers to 89, compared to 77 in Q3 FY2020. Its operating margin has improved to 21.7%.
Most crucially, the quarter featured 12 deals (a mix of new deals and renewals) to clock a total contract value of $1.2 billion.
“I think we are more present in the market, more ambitious and more active than ever,” Delaporte replied, expanding on an organisational overhaul that has come into effect from 1 January 2021. But the focus is clear. “Growth remains our top priority,” Delaporte said. “We have begun to make investments in our frontline sales and domain specialists.”
In the new order, effective fourth quarter, Wipro has fewer P&L divisions—down from 26 to four. “This means a lot less walls inside the organisation, a lot less silos and more opportunity for people to work together,” the 53-year-old executive told analysts.
Each strategic market unit that manages a client relationship in a given geography or industry vertical will now work more closely with the global delivery centres in India. “Instead of having an organisation where every unit was deciding its own priorities, we have an alignment of priorities. It helps us to move faster and stronger,” he explained.
This means fewer people focusing on internal operations, and more people involved on deals, “more people exposed to clients, fewer need to manage operations in the organisation,” he told analysts from his home in Paris. Further, Wipro now tracks sales activities every month, compared to every quarter.
The Frenchman has benefitted so far from arriving in a transformational year, as enterprises are not holding back decisions on items like moving to the public cloud. As supply chains have been disrupted by Covid-19, clients see the merit of remote-based digitised operations.
For Wipro, this reflected in improved margins too in the quarter. Benefits such as lower travel spend and lower facility costs associated with the pandemic alongside onshore hiring at the Bengaluru-headquartered firm helped its operating margin enter the 20 percentages club in the reported quarter, as its peers. “It cannot go out overnight in quarter four,” CFO Jatin Dalal told analysts.
Global advisory firm Information Services Group (ISG) noted in its recent analysis that the December-ended 2020 quarter’s $16 billion worth deals constitutes the best fourth quarter ever. Understandably, large managed services providers such as TCS and Infosys exceeded expectations.
Managed services providers (MSP) clocked $7 billion in the quarter, but the growth rates are higher for cloud-based service providers. For 2020, MSP deals dipped 4% (owing to reduced activity in the April to June quarter), but cloud services activity soared 17% despite (or, because of) the pandemic.
For managed service providers, the clients’ focus on cloud now means building expertise on infrastructure-as-a-service (IaaS) providers such as AWS, Azure and Google Cloud Platform, as well as developing applications across SaaS platforms such as ServiceNow, Workday and Salesforce.
From a regional standpoint, the Europe, Middle East and Africa (EMEA) region grew 18% in ISG’s analysis of the December quarter. Industry observers say Delaporte is well placed to capitalise on knowing Continental Europe innately, and with deep experience of the US from his stint there with Capgemini, which he left last year to join Wipro.
In this context, Wipro closed its largest deal ever in Continental Europe with wholesale food company Metro. This is a five-year deal, grossing $700 million, with the scope of extending the relationship by four more years and a potential to breach the $1 billion mark.
Another large win that Delaporte cited, this time from the US, is with a mortgage lender to provide digital operations and cloud infrastructure services to its growing retail client base.
“In America, the cloud journey started some years ago,” he told analysts. “(But) in Europe, traditionally, a lot of companies were suspicious or careful with the public cloud adoption. … With the pandemic, they have realised the necessity to accelerate. And therefore, we see now an increased volume of business in the pipeline in terms of cloud transformation.”
In its investment research report dated December 21, 2020, Goldman Sachs noted that it is encouraged by Delaporte’s strategy empowering global account executives and Sales Captains responsible for driving organic growth in strategic accounts.
However, it stated that Wipro’s revival will happen after it increases its performance in banking, financial services and insurance (BFSI). “Wipro saw very strong growth of 9.1% CAGR in the BFSI vertical in FY17-20 on the execution of large contracts with certain EU based clients,” according to the Goldman Sachs report. “These contracts are already in the base and in the absence of new large contracts in the pipeline, we expect Wipro’s BFSI vertical to see weak growth of 2.6% over FY20-23E.”
Currently, BFSI comprises 30.5% of Wipro’s revenue, which needs to move up by a couple of percentage points. This is another box Delaporte, who was global head for Capgemini’s financial services vertical, must tick for Wipro to get back into the reckoning.
But overall, analysts are heartened that Wipro has moved its eye from operations under Kurien and Neemuchwala to winning and growing large accounts. In the past decade, Cognizant Technology Solutions and HCL Technologies have overtaken Wipro. Its gap against Bengaluru headquartered peer Infosys has only widened. The only way to bridge that is to win deals.
“We have the ambition,” Delaporte said. “We don't want to shine (in) one quarter. We want to build solidly quarter after quarter and be consistent. We are building this growth engine solidly.”