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Global turmoil: Wipro arms feel the pinch

By Bibhu Ranjan Mishra in Bangalore
October 29, 2008 11:26 IST
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While the global economic downturn has already marked its imprint on the performance of Indian IT services companies, for Bangalore-based soaps-to-software major Wipro the problem is going to be manifold.

While the company's software business saw a near-flat growth in dollar terms in the second quarter ended September 30, 2008, insiders say certain other businesses, including Wipro Infrastructure Engineering and Consumer Care & Lighting, have already started feeling the pinch.

'The business of WIN was severely impacted due to slowdown in the overall infrastructure spend,' the company stated in its performance highlights for the second quarter. The company said its focus will be 'on managing the impact of slowdown by improving internal efficiencies till demand picks up.'

Company sources say WIN registered an almost 90 per cent drop in its net profit for the second quarter of FY09. However, when contacted for an official statement on the net profit of this vertical, Wipro maintained that it is their policy of not giving a break-up. The revenue of WIN also saw a dip of 30 per cent to Rs 278 crore (Rs 2.78 billion) on a y-o-y basis.

"The demand of our hydraulic cylinders that go with the excavators has fallen since the production of excavators has come down. This is happening because of most of the infrastructure projects have taken a backseat and no major road construction projects are underway at the moment. However, the mining sector continues to be robust, which has kept our faith alive," said company sources.

WIN, which contributes to close to 4 per cent of Wipro's revenue, supplies hydraulic cylinders, components and solutions to global construction equipment-makers, including Ashok Leyland, JCB and Caterpillar. The company has been in hydraulic cylinder business for 30 years now, and commands about 70 per cent market share.

On the other hand, Wipro Consumer Care and Lighting, which had been performing quite satisfactorily so far, is witnessing a demand slowdown, especially for its lighting and furniture products that is heavily dependent on the real estate sector.

Even though the WCCL posted 44 per cent growth in revenue, including the Unza business for Rs 526 crore (Rs 5.26 billion), the company is seeing some slowdown in certain segments.

"There is a slowdown in certain sectors for our institutional business which is lighting and furniture due to the deferment of expenses. Although the problem is now confined to sectors such as retail and IT/ ITeS, we have to figure out that what happens going forward. We have to focus on sectors that are not affected," said Vineet Agrawal, president, WCCL.

He, however, said the company is not seeing any change in the buyers' behaviour in case of consumer care products such as talcum powder. The consumer care and light business contributes close to 8 per cent to Wipro's top line.

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Bibhu Ranjan Mishra in Bangalore
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