Tuesday, Feb 22, 2011
By Dhanya Ann Thoppil
Of DOW JONES NEWSWIRES
BANGALORE (Dow Jones)--Wipro Ltd.'s (507685.BY) unit that runs the software exporter's technology business in India, the Middle East and Africa is close to signing outsourcing deals with two African telecommunications operators, in a bid to target the fast-growing sector in the continent.
Anand Sankaran, head of Wipro Infotech Ltd., didn't name the telecom companies or give the exact contract values, but said the deals are "reasonably large" and would be together worth less than $100 million.
Software companies are increasingly looking to tap the fast-expanding African telecom market, where mobile telephony providers are adopting the model of outsourcing their technology requirements to cut costs.
In 2010, India's Bharti Airtel Ltd., which entered the African market through a $9 billion acquisition of Kuwait-based Mobile Telecommunications Co.'s assets, outsourced its IT operations to International Business Machines Corp. in a deal pegged by analysts to be worth more than $1 billion.
For Wipro, the segment offering services to telecom companies was a major drag on its muted results in the quarter ended Dec. 31, as the telecom sector is the slowest to recover from the economic meltdown.
Under the five-year contracts, Wipro Infotech will manage the software applications services of one operator and support the telecom infrastructure of the other, Sankaran, who's also a senior vice president at Wipro, said.
The deals "have got a huge potential for growth... we're getting a reasonably good chunk of their businesses," he said.
The contracts are likely to be signed by the end of February, Sankaran said.
Sankaran expects Wipro Infotech's products business, which contributes 65% of its total revenue, to post a slower growth--less than 10%--in the current fiscal year ending March 31, due to the absence of revenue flowing from big-ticket deals as in the previous fiscal year.
The previous fiscal year saw robust revenue flowing from large IT deals signed with new Indian telecom operators Aircel Ltd. and Unitech Wireless Ltd., Sankaran said.
Wipro Infotech reported a 17% increase in revenue to INR65 billion ($1.44 billion) in the fiscal year ended March 31.
The company received a setback when its 10-year contract to develop and manage the information technology operations of Lavasa Corp. was put on hold after a recent standoff between Hindustan Construction Co. (500185.BY)--the parent of Lavasa--and the government over alleged violation of environmental laws at Lavasa's hill city project in western India.
"Whatever were the projects that we were supposed to do in the first year of operations, we completed those," Sankaran said. The company was in discussions with Lavasa to offer city management solutions, when the entire deal was put on hold.
Wipro Infotech has so far earned only $5 million-$6 million of the $100 million revenue deal that it struck with Lavasa back in 2009 for several small contracts, Sankaran said.
Despite the setback, Sankaran forecasts about 30% sales growth at the company's services business in the current fiscal year, backed partly by the strong growth seen in the government business segment.
The recent unrest in North Africa and the Middle East remains a major concern for Wipro. The company has a software development center in Egypt, that houses employees of Wipro Infotech, as well as Wipro Technologies--the global IT services business division.
The Cairo center has resumed work last week after a temporary shutdown for almost 10 days, following the political turmoil in the country, Sankaran said.
But the center is yet to begin full operations, he said, adding that parts of the work are being done out of India.
-By Dhanya Ann Thoppil, Dow Jones Newswires; +91-9886929464; dhanya.thoppil@dowjones.com
(END) Dow Jones Newswires
22-02-11 0627GMT
