Wipro chairman Azim Premji has termed the appreciation of the Indian rupee against the US dollar a new challenge the IT bellwether is facing, as majority of its revenues and costs were in the greenback.

Commenting on the company's performance during the first quarter (April-June) of the current fiscal year (2003-04) and the outlook for the second quarter (July-September) in Bangalore on Friday, the Wipro czar said the rising rupee may have an impact on its operating margins during the coming months.

Wipro net up 5% at Rs 178 cr

"Although proactive hedging did help us in maintaining the exchange rates in the first quarter, we believe this will remain a difficult challenge for us to manage effectively for long," Premji declared.

For the second quarter, Premji said the company could expect a slight recovery in the operating margins due to volume-led growth irrespective of the probable impact of rupee appreciation on its dollar revenues.

Wipro chief finance officer Suresh Senapathy told rediff.com that the company was taking a strong position in the currency market with a forward premium on the rupee to hedge against a weakening dollar.

"Though we do not trade actively in the forex market, we hedge on a stronger rupee to protect our margins arising out of the price realisation in dollar terms from our exports," Senapathy asserted.

For the first quarter under review, Senapathy claimed that the rupee appreciation had no impact on the company's revenues due to timely hedging and higher utilisation of its employees.

Reflecting on the tough environment in which the global IT major was operating, Premji said challenges would continue to remain in the near-term due to an appreciating rupee and pricing pressure.

"Looking ahead, we expect our revenue for the second quarter to be about $210 million from our global IT services and products segment as against $195 million during the first quarter of the current fiscal," Premji stated.

Admitting that acquisitions posed challenges in terms of integration, synergies and short-term dilution in margins, Premji said the company's experience was, however, satisfactory due to value addition to its gross revenue.

The acquisition of Spectramind and the US-based AMS Energy and Utilities consulting practice last year have demonstrated synergies and turned in profits for the quarter under review.

"Our strategy of becoming a comprehensive IT solutions provider is beginning to reflect in our operations and operating results. Revenues from Business Process Outsourcing, which was nil last year, is now 9 per cent of our service exports due to Spectramind," Premji pointed out.

As a result of a string of acquisitions by the group's flagship company in the recent past, revenues from consulting services has contributed 5 per cent revenue to its global it business segment.

"Customer interest in offshore IT services continues to be high. The market for IT-enabled services is also set to grow at a healthy pace. The improvement will be driven by increased offshore services, improved utilisation rates and prudent cost-management," Premji affirmed.

Wipro vice-chairman Vivek Paul said the company was seeing a decline in pricing pressure as its customers were realising the benefits of outsourcing from India.

"The outlook continues to be cautious. Customers are becoming responsible to stabilise billing rates. There is a turnaround in the IT sector of the United States. Enterprises and telecom firms are betting on higher spending in the remaining two quarters of this calendar year," Paul affirmed.