Why Wipro needed a leadership change
Goutam Das January 31, 2020
Numbers rarely lie. If you were to scan the performance of Wipro Limited over the last four years, you would realise why the company needed a leadership change. Early on Friday, Wipro announced that its Chief Executive Officer and Managing Director Abidali Z Neemuchwala has decided to step down "due to family commitments".
The rumour mills of Neemuchwala stepping down were at works a couple of quarters ago. Here's why: Between 2015/16, when Neemuchwala became CEO, and 2018/19, Wipro added less than $800 million to its topline (Wipro closed with revenues of $8,120 million in FY19 versus $7,346 in FY16).
This underperformance is stark when compared to its peer group. TCS, India's largest IT services exporter, added over $4 billion in these three years - more than five times the dollar revenues Wipro added. Infosys had its own share of leadership and growth challenges but still managed to add over $2 billion between 2015/16 and 2018/19 to its topline. So did HCL Technologies. The much smaller Tech Mahindra added nearly a billion dollars in the same period.
The news from Wipro isn't great this fiscal either. The company has again under-performed its peers. IT services revenues could only inch up 3 per cent in the December quarter compared to the year-ago quarter. TCS grew at double the rate while Infosys grew three times.
Another lens to look at Wipro's underperformance: the company for a long time was India's third largest IT exporter, after TCS and Infosys. Recently, the fast growing HCL Technologies toppled Wipro to rearrange the pecking order. HCL's December quarter revenues totalled over $2.5 billion and the company exceeded the $10 billion annualised revenue run rate.
So how would Neemuchwala's tenure at Wipro be remembered?
He did put Wipro on the right track, investments in the right places. Just that the growth engine refused to fire because of a cocktail of many factors.
The company faces many headwinds. American banks are curtailing their spends. There are furloughs. There are macro challenges driven by the US-China trade, and slowness of the uptick of 5G. Wipro's contribution from its top client has slid to 3 per cent of existing revenues versus 3.7 per cent a year ago.
Sanjeev Hota, Vice President - Head of Research at Sharekhan says that Neemuchwala has done good work in tapping the digital part, stabilising the revenue. "The market had high hopes from him - to take Wipro to a point where it could meet industry growth levels," he says. "The news will be a negative. In the near-term, the overhand will stay. But Wipro is already trading at low multiples - how far would it go down?" he asks.
Neemuchwala sounded confident post the December quarter results about the company's prospects.
"The level of macro uncertainties do continue. But from a Wipro perspective, we had a very robust order booking in Q3, and we are entering the calendar year with a bigger pipeline than we entered last year," he told analysts. "Deal closures? We are not seeing any extended time compared to last year. So the time that deal closures are taking is pretty much the same. The deals are definitely getting larger especially in digital - the deal sizes are bigger than last year," he added.
One can only hope that his investments, in Digital, Cloud, Engineering and Cyber Security start showing results in 20