Wipro merges its government business with IT services segment after revenue drop

 

Wipro, one of the leading IT services companies in India, has announced that it has merged its Indian state-run enterprises (ISRE) sector with its broader IT Services segment. The decision comes after a significant decline in revenue from the ISRE segment in the financial year 2022-23.

What is the ISRE segment?

The ISRE segment is a part of Wipro’s business that focuses on providing IT solutions and services to government clients in India. These projects typically involve system integration (SI) with complex deliverables and longer working capital cycles. The ISRE segment was carved out as a separate entity from Wipro’s global IT Services business in FY19.

Why did Wipro merge the ISRE segment with IT Services?

According to Wipro’s filing, the revenue from the ISRE segment fell by 20.18% in FY23, from Rs 4,578 million to Rs 3,654 million. The company attributed this reduction to the completion, closure, or scaling down of large government contracts. Additionally, Wipro expressed challenges in collecting overdue accounts receivables from government-related businesses.

Wipro stated that it has pivoted its ISRE strategy to focus more on consulting and digital engagements and to be selective in bidding for SI projects with long working capital cycles. The company also said that it has improved its quality of revenue in the ISRE segment over the years.

By merging the ISRE segment with the IT Services segment, Wipro aims to streamline its operations and leverage its capabilities and expertise across both segments. The IT Services segment accounted for 98.7% of Wipro’s revenue in FY23, while the IT Products segment contributed 0.7%.

What are the implications of the merger?

The merger of the ISRE segment with the IT Services segment will have some implications for Wipro’s financial reporting and performance. For instance, the company will no longer disclose the revenue and segment results of the ISRE segment separately. Moreover, the merger will affect some of the key ratios and metrics that Wipro uses to measure its performance, such as operating margin, days sales outstanding (DSO), and return on capital employed (ROCE).

The merger may also have some impact on Wipro’s competitive position and growth prospects in the Indian IT market. On one hand, the merger may help Wipro to enhance its offerings and capabilities for government clients and increase its market share in this segment. On the other hand, the merger may also expose Wipro to more risks and uncertainties associated with government projects, such as regulatory changes, payment delays, and contractual disputes.

Conclusion

Wipro’s decision to merge its government business with its IT services segment is a strategic move that reflects its changing priorities and challenges in the Indian IT market. The merger may bring some benefits and opportunities for Wipro, but it may also entail some costs and risks. It remains to be seen how Wipro will manage these trade-offs and leverage its strengths in both segments.