Wipro says price pressure easing, volumes rising

Wipro Ltd, the IT solutions-to-services major said on Thursday that pricing pressures have eased, and it expects attrition rates to climb further, thus pushing up wages.

"We are seeing pricing pressure continuing but at a much lower level," Wipro vice-chairman Vivek Paul said. Though the pressure has not gone away, the benches have cleared and volumes have emerged, he said.

"If you look at the last quarter, from a pure realisation level, there has been some improvement. From the perspective of mix of business, the lower-priced business grew faster than higher-priced business and, hence, the net effective realisation came down. But clearly I see the clouds part. There is not as much bad behaviour from the industry participants as there used to be," he said.

Paul said with the resurgence and revival in the industry, "We face two major risks. We are concerned that we may go back to attrition rate which is linked to the pressure on wages which is good for the employees, good for the economy but not necessarily good for the market capitalisation of IT companies," he said.

Paul said another problem was that 40 per cent of Wipro's workforce has less than two years' experience which was the industry norm.

"Once the market recovers, we have to ensure that we don't go into the revolving door syndrome which we experienced two years ago. That did more damage to the software industry in India than anything else," he said.

He said the companies have to maintain excellence in execution, keeping in mind the fact that there is a body of new entrants who are still learning their way around.

Paul said the industry will see a steady growth with technology spending growing at a similar speed.

"But we will never see those heady days of growth again. The problem with a bubble is that it only happens once in a lifetime," he said.

He said the current year saw Wipro making several acquisitions including eSpectramind, its biggest acquisition thus far.

"You have to think through how you integrate so many new employees successfully," Paul said.

He said one of the main factors behind acquiring a company was whether both the companies have a common cultural fit.

"It has been a very frustrating experience, because you have to kiss several toads before you find a prince. We must have looked at 100-plus acquisition candidates, analysed to a great level, including once coming within a couple of hours of signing the deal and walking away," he said.

Paul felt there are three factors which guide Wipro's acquisition strategy - whether a company has a strategic fit, financial fit and cultural fit with Wipro.

The acquisition has to be based on whether it strengthens their vertical presence and whether it adds to our knowledge base.

Paul said though there was some criticism about eSpectramind being bought for a higher valuation than it deserved, it turned out to be the right price.

"The market price is when the deal turns. The second element of a market price is how much value it gets me. If you look at it on a five-year discounted cash basis, you know you have got it right," he said.