Addressing Revenue Decline and Overdue Receivables Challenges”
Wipro, the Indian IT services company, has merged its Indian state-run enterprises (ISRE) sector with its broader IT Services segment. This decision comes after the IT Services segment experienced a significant decline of 20.18% in revenue during the financial year 2022-23. Wipro attributed this decline to the completion, closure, or scaling down of large government contracts.
One of the challenges Wipro faced was the collection of overdue accounts receivables from government-related businesses. The company operates across three segments: IT Services, IT Products, and ISRE. In FY23, IT Services accounted for 98.7% of Wipro’s revenue, while the IT Products segment contributed only 0.7%.
During FY23, the ISRE segment’s contribution to total revenue decreased from 0.9% in FY22 to 0.6%. Interestingly, revenue from government-related business surpassed sales from the IT Products segment in both FY21 and FY22.
Wipro mentioned in a filing that the general and administrative expenses as a percentage of revenue from the ISRE segment decreased from (1.01)% in FY22 to (2.59)% in FY23. This decrease was primarily due to increased write-backs in lifetime expected credit loss resulting from the collection of overdue accounts receivable. In absolute terms, the credit in general and administrative expenses increased by Rs 77 million. Consequently, the segment results of the ISRE segment declined by 851 basis points, from 16.08% to 7.57%, with an absolute decline of Rs 732 million.
Previously, the ISRE segment was a separate entity from Wipro’s global IT Services business, starting from FY19. Wipro emphasized that historically, ISRE projects involved system integration (SI) with complex deliverables, longer working capital cycles, and distinct downstream processes for billing and collections compared to the IT Services segment.
However, Wipro has now shifted its ISRE strategy to focus more on consulting and digital engagements. The company is being selective in bidding for SI projects with extended working capital cycles. As a result of this shift, the ISRE and IT Services segments now share similar sales cycles, billing, and collection processes due to the emphasis on consulting and digital engagements.