Wipro Chief Rishad Premji Takes A 50% Salary Cut As Profits Fall

On today's episode, financial journalist Govindraj Ethiraj talks about the Wipro Chairman taking a 50% salary cut as profits fall, the slowing of Foreign Direct Investment in India, and how to tackle large numbers of fake GST registrations.

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TRANSCRIPT

NOTE: This transcript contains only the host's monologue and does not include any interviews or discussions that might be within the podcast. Please refer to the episode audio if you wish to quote the people interviewed. Email [email protected] for any queries.

Good morning, it's Friday the 26th of May and I'm Govindraj Ethiraj with The Core Report, coming to you from Mumbai, India's financial capital and most rocking city in the world.

Here are our two quick reports and theme and ‘Conversation of the Day'.

1. Wipro Chairman takes a 50% salary cut as profits fall, other CEOs may have to follow this year.
2. Foreign Direct Investment into India starts slowing down as global investors pull back and revalue investments.
3. Thousands of fake goods and service tax registrations have been detected..how can the Government respond in a way the majority don't suffer

Wipro Chairman Rishad Premji has taken a 50% cut in compensation because of the foregoing commission due to falling profits.

His compensation was down to $951,000 as compared to $1.8 million in FY2-21-22, according to a Wipro filing with the US SEC.

"Rishad A Premji is entitled to a commission at the rate of 0.35% on incremental consolidated net profits of Wipro Limited over the previous fiscal year. However, in light of the fact that the incremental consolidated net profits for the fiscal year 2023 was negative, the Company determined that no commission was payable for fiscal year 2023 to Mr. Rishad A. Premji," said the company.

The company's senior management has taken cuts too. Jatin Dalal, Wipro's chief financial officer, took a 32 per cent cut compared to $1,591,142 in FY22.

Wipro's Thierry Delaporte continued to be the highest-paid CEO in India, getting a total compensation of $10 million in FY23 but that was down almost 5 per cent from the previous year.
Wipro reported a net profit of Rs 3,074 crore for FY23, down 0.4 per cent YoY. So, net profits didn't exactly crash through the floor but were disappointing for investors nevertheless. Premji as part of the founder family will of course collect dividends if it is issued. Last year, founder and father Azim Premji got Rs 2,401 crore worth of dividends, just behind Mukesh Ambani family of Reliance at Rs 2,657 crore in dividends.

Wipro's salary cuts are a good trigger to dive a little deeper into how things are looking for the overall IT sector.

I looked at commentary from analysts at Standard & Poors Global Ratings who projected earlier this week that revenue for Indian IT firms will decelerate to 5% through 2024-25 or the next two years, from the highs of 12-18% in 2022-23.

S&P Global primary credit analyst Spencer NG says in this report macro conditions will likely cause customers to approach discretionary IT spending with more caution.

Projects that can deliver quantifiable outcomes will be the priority. These may include cost-efficiency projects and vendor consolidation projects. Non-critical projects may be delayed or canceled. Migration to cloud will remain on customers' agenda because it is a crucial part of digitalization, he says.

He also says, and this is critical because it goes beyond IT to other sectors too, that their pessimism (my term) aligns with their GDP forecasts for the U.S. and Europe - two of the biggest markets for Indian IT companies.

"We forecast the U.S. to slow to 0.7% in 2023 and 1.2% in 2024, compared with 2.1% in 2022. We also expect Europe to slow to 0.3% in 2023 and 1.0% in 2024, from 3.5% in 2022."

To put things back in context, India IT firms get almost 60% of their revenues from the United States and roughly 25-30% from Europe.

And by the way, it was revealed today that Europe's largest economy Germany has slipped into recession after its GDP fell 0.3% for the quarter, on the heels of a 0.5% contraction in the last quarter of 2022.

The IT industry has some tough times ahead.

And do bear with me as I take you through this

One problem for IT companies is high spending to retain staff and ensure project delivery has cut margins.
Employee costs contribute about 70% of total operating costs. Over the last two years, the industry faced massive attrition as people jumped and dumped ships for new pastures.

Companies tried hard to keep the boat afloat by hiking salaries and/or resorting to subcontractors. All this results in EBITDA margins shrinking 1-2% says S&P Global, compared to pre-Covid times.
While this is not to say that Wipro or others will get hit further, the industry has displayed resilience before and quite surely will now as well. But it does look like lower compensations and higher sleepless nights are in the offing for several IT company chiefs.

FDI Into India Declines, First In 10 Years

If major economies like Germany are slipping into recession and the world is slowing down it is but natural that investment flows will slow too.

Gross foreign direct investment flows, for the first time in a decade, declined on an annual basis in FY23 to $71 billion, data from the Reserve Bank of India has said.

.The annual decline works out to 16% in FY23 as compared to inflows in FY22.
That year gross FDI inflows in FY22 were $81.97 billion, up 10% over fiscal 2020.

The previous year-on-year contraction in FDI was in FY13 when the inflows declined by 26% to $34.298 billion.

There are a few takeaways from this. One, while we have every right to be optimistic about the economy, we have to be careful when we start believing we can crack it independently of what's happening around the world. I will do a data dive on this in the coming days but put simply, if the global economy slows down India will be affected, either because of exports shrinking, which is happening or via FDI as is clear now.

There is another point. Many of the billions that poured in in the last few years were in the startup world, riding on high valuations and expectations of an immensely rosy future. The year 2021-22 was a blowout year evidently with $84 billion of investments flowing in.

Changes in interest rates and the outlook in the West have changed that. Valuations have of course soured but many businesses that looked like slam dunk successes maybe just two years ago will not even be able to raise venture capital going ahead.

The other hope is of course that manufacturing-linked and led investments into India increase. We have several factors going for us here, ranging from global manufacturers in areas like semiconductors and phones like Apple looking at options beyond China and of course our own domestic market that continues to grow.

Many other ducks need to fall in line for this. Ensuring certainty and predictability of economic policy is important.

Fake GST Invoices

And maybe a slowing economy brings out the best or worst in us.
Central and state goods and services tax officials have detected about 10,000 fake Goods and Service Tax registrations in the first week of a joint drive that was launched earlier this month to unearth precisely such companies.

Officials are believed to be conducting door-to-door physical verification of addresses and will subsequently take action, The Economic Times reported people saying and something I have independently picked up as well. The campaign against fraudulent invoices and registration began May 15 and will run until July 15.

The amount of fake input tax credit is yet to be ascertained. "It is premature to assess numbers so far but initial estimates suggest it to be above ₹25,000 crore," an unnamed official told The Economic Times.
This is concerning for a few reasons. One is of course that there is - if these numbers are accurate or close to - such large-scale attempts to deny the Government the taxes that are due to it.
Second, and more worrying in some ways, the Government's response to this could well be in the form of more drastic compliance measures which could make life for everyone more difficult.
This has usually been the case in the past.

I posed this matter to Prasanth Agarwal, Partner, Tax and Regulatory Services at tax and consulting firm PWC India. But first I asked him what a GST registration means and what happens without it.

Agarwal there argued for out-of-the-box thinking and also highlighted the fact that past measures at widening the net have worked as well, leading to higher GST revenues.

April GST collections incidentally stood at a record 187,000 crore. Ensuring we collect more would also call for a lighter touch with the majority of taxpayers and sterner actions against the obvious crooks.

That's it from me for today, have a wonderful weekend and see you on Monday.