Wipro Ltd (WIT) 2003 Q2 法說會逐字稿

Good morning ladies and gentlemen. I'm Pratibha, the moderator for this conference. Welcome to Wipro's Q2 Earnings Call. For the duration of the presentation, all participants' lines will be in the listen-only mode. I will be standing by for the question and answer session. I would like to now hand over to the Wipro management. Thank you, and over to Wipro.

Thank you Pratibha. Ladies and gentlemen, a very good morning to you in America, and a good day to you in all other parts of the world. My name is Lakshminarayana, and I'm based in Bangalore. Along with Sridar in Mountain View and Anjan in Bangalore, we handle the investor interface for Wipro. We thank you for your interest in Wipro, and it's with great pleasure that I welcome to Wipro's teleconference post hour results of the second quarter of the fiscal 2003- 2004.

We have with us is Mr. Azim Premji, Chairman and Managing Director, Mr. Suresh Senapaty, Chief Financial Officer, who will comment on the results of Wipro for the quarter ended September 2003. They're joined by Mr. Vivek Paul, Vice Chairman; Mr. Suresh Vaswani, President, Wipro Infotech; Mr. Vineet Agarwal, President, Wipro Consumer Care & Lighting; Mr. Raman Roy, Chairman, Wipro Spectramind, and members of company's senior management will answer questions that you may have. This conference call will be archived and a transcript will be available on our website www.wipro.com. Before Mr. Premji starts the address, let me draw your attention that during the call we might make certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are associated with uncertainties and risks, which could cause the actual results to differ materially from those expected. These uncertainties and risk factors had been explained in detail in our filings with the SEC of the USC. Wipro does not undertake any obligations to update forward-looking statements to reflect events or circumstances after the date of filing thereof. Ladies and gentlemen, Mr. Azim Premji, Chairman and Managing Director of Wipro.

Good morning to all of you. The Board of Directors, in the meeting held this morning, approved the accounts for the quarter ended September 30, 2003. Our results have been mailed to those registered with us and are also available on our website. Let me share with you some of our thoughts on our performance and our prospects. Revenues grew smartly across all segments of our Global IT services business. The robust sequential growth was in every business sector, each geography, and every service line. Combined with this trend that India, Asia-Pacific, and Middle East business demonstrated, Wipro crossed the $1b annualized revenue run rate in its IT business. Within Global IT services, our technology business grew sequentially by 16% and the enterprise business by 12%. If you look at different service lines, technology, infrastructure services grew sequentially by 36%, business process outsourcing grew sequentially by 22%, and package implementation grew sequentially by 19%. On the profitability front, improvement in utilization and increased prosecution fees offset the impact of the rupee appreciation resulting in our operating margins being broadly at the same level as they were in the quarter ended June 30, 2003. During the conference call in July, I spoke of how our strategy to be a comprehensive IT solutions provider was beginning to be reflected in our operations and our results. The trend gained momentum in the last quarter. We continued to be successful in selling new and enhanced services to our existing customers and to new customers. More importantly we've been able to leverage the consulting skills and resources from our acquisitions in the energy and utilities practice, and the securities practice to other business practices of Wipro Technologies.

The potential for further synergies is significant and we are accelerating steps to realize this potential. Looking ahead, we expect robust volume growth across all business segments. Customer includes in the use of offshore services continues to be high. The pricing environment is encouraging. We witnessed a modest rise in pricing last quarter and the trend of better pricing for new customers continues. However, we are aware that the mix of customers, the mix of service lines can impact quarterly realizations. Further continued appreciation of the rupee puts significant pressure on business profitability. In summary, we believe that the current environment provides exciting opportunities and interesting challenges. We are well positioned to seize the opportunities and manage the challenges to create superior shareholder value. I would now request Suresh Senapaty, our Chief Financial Officer, to comment on the financial results before we start taking the question.

A very good morning to all of you. Mr. Premji shared our thinking on the business environment. I'll touch upon a few aspects of the financial and operational significance. During the quarter ended 09/30/2003, we had a sequential revenue growth of 14.2% in our IT global services and product segment. This is comprised of 13.4% sequential revenue growth in the IT software services and 21.8% sequential growth in the IT enabled services. The 13.4% growth in the software services component was driven by a 10.8% in the volume of business combined with a 0.1% increase in our realization base of work (ph) were found offshore and a 2.2% increase in our realization base of work were found onsite at our clients' offices. The growth IT enabled services business was primarily due to growth in the volume of business coupled with higher price realization of 2.7%. We've given an increase of approximately 12% on an average in offshore compensation effective 10/01/2003 in Wipro Technologies. This increase compensation cost will be reflected in our results commencing from the quarter ending December 2003. Rupee appreciation continues unabated, we have minimized the impact of this appreciation on our financial result by proactive hedging and as of 30 of September, we have borrowed dollars in excess of $100m. For the quarter ending 12/31/2003, we anticipate that we'll continue to see volume led growth with prices moving in a narrow band. We shall endeavor to offset this increase in compensation cost through an increase in the volume of offshore services, higher productivity and prudent cost management. We expect to retain operating margins at current levels excluding the probable impact of appreciating rupee. We'll now be glad to take questions from you all.

Thank you very much sir. We'll now begin the interactive session. To ask a question please press star one on your touchtone enabled telephone keypad. On pressing star one, participants will get a chance to present their questions on a first-in-line basis. To ask a question, please press star one now. First-in-line, we have Mr. Chetan Shah from Quantum.

So, these are now very encouraging results. Regarding this other (ph) had charges on account of acquisitions. And last quarter, it was around $100m has been on [Inaudible]. So, in the current quarter, are we exiting any more charges?

Like we had guided last quarter that quarter two will be having a loss similar to the quarter one, we have been able to contain the losses around that number. As you know, it is a new acquisition too early, so we are getting into integration plans, execution etcetera, etcetera, definitely because of some of the loss in bonuses of 100 days etcetera will not be there, the losses will be the lowest, but we can't guide any specific number for the next quarter.

Okay. And you had mentioned on the compensation increase, so I could not get the number basically 12% or?

12% is the average increase. So, you know the increase on specific [Inaudible] came at Wipro Technologies, and that had an impact about 1.5%.

1.5%. Okay. And yeah, percentage points are there?

That is right.

Okay, Sir. Thank you very much.

Thank you very much, sir. Our next question comes from Mr. Dudanga of CLSA.

Yeah, good afternoon. Very good results and congratulations on this. My question is on margins, basically, even though it's quite creditable that the margins have slightly increased, but last conference call you had mentioned specific about cost overruns and certain lesser product in IP sales hitting the margins. So, it would be useful if you can get a color on the fixed price contracts, how are they doing now, and also going forward also, you are indicating a stable margin even with a impact of 1.5. So, what is happening on the onsite salary numbers, have they been rationalized, reduced or increased?

I am taking the second question first, there is no change in the onsite salary as of now. We are changing only with respect to offshore salary. And then your question is with respect to the fixed priced projects and the overall margin. Yes, as we have stated before, there had been overruns in the fixed prices projects, lot of actions have been taken in terms of letters of [Inaudible] the projects have been reviewed. We have the frequency with which it has been reviewed, and some of the fixed income projects that have been reviewed. It is helping us to get back, but we will have some of the impacts seeing the last quarter as well as perhaps in the current quarter before we come to full normalization on that. So, we have been able to reduce part of it and part of the foreign exchange loss, we have been able to correlate (ph) with increased utilizations much more perhaps higher productivity in the SG&A expenses and so on. And therefore going forward, we expect some improvement like the negatives we talked about is the salary increases, negatives we are talking about is the foreign exchange, and it could be positives whether in terms of an offshore optimization [Inaudible] expect, little bit in terms of the utilization and certain other SG&A expenses etcetera. So, look forward to at least to mitigate the damage on account of various negative factors except the exchange factor, which we have no control of.

Okay. The second question is on the utilities practice. I mean according to numbers, it still continues to show a drop, is this correct and what are the reasons for that?

Hello, this is Sudip Banerjee. The utilities practice has actually shown a sequential growth of 2.9%.

Yes, but it is coming on a back of a huge fall and we were expecting that since the national grid has been now a client, so, there could be a substantial improvement in that. It would be useful if you could give as to, I mean, how was the integration going on the EMS side?

As far as the integration is concerned, that is moving along very smoothly. We have added on new clients this quarter and those clients have been added as a back strength of consulting practice. We have also introduced the Wipro Offshore services in many of the existing clients of the consulting practice that we narrated. We have moved people from both consulting to the existing business and from the existing business to the consulting business. So, in terms of the litigation, it is proceeding according to plan and we are currently quite happy with the state of things as far as that is concerned. 25% of the acquired EMS customers whether work was primarily onside consulting in nature, now have a significant offshore component for application development and maintenance.

Okay, so that is the main reason for maybe a slightly lower growth compared to the company in this practice?

Because there has been a shift in the mix.

Okay. Thanks.

Thank you very much, Sir. Next in line, we have Mr. Ashish from CSFB, Singapore.

Thank you so much. Congratulations on very good number. Sir, if you could comment first on, in the last six months, it seems based on results announced so far, there has been a material change for the industry and that change is towards positive. So, what has happened both on demand and supply side in the last six months?

This is Vivek. I think that on the demand side, what we are seeing is two things, one is, continued acceptance of our end-to-end services module as well as a propensity dispensed, a rise in propensity dispense. So, as a result, for our particular business we saw our tech customers beginning to see some stabilization in their own industries and therefore reinvesting in their product lines, which generated better business for us, and we also in the IT side, more customers now willing to do additional infrastructure which gave our infrastructure services a boost, additional package implementation and, of course, adding to all this has been the boost that our BPO business has given up.

Okay. And, if I may ask one more question, I think it was two conference call back, you know, Vivek you had suggested and rightly so that the objective of the company is to maximize profits and not maximize profitability. With that in mind, would you agree with the statement that the recent pricing power that companies are seeing, that is increase in billing rates is partly because that companies, Indian companies were not fully prepared for the strong demand, and once hiring picks up again, and we go back to economic principal of maximizing profits, that billing rate upward movement may stop and we could see pressure again. So, could you comment on whether both, you agree with the statement and whether the objective continues to be maximizing profit?

I think the objective continues to be maximizing profit. I think as far as the billing is concerned, billing rates are concerned, I think we are already beginning to see more discipline from the Indian vendors in terms of pricing as all of us are out in the marketplace covering to get people. By the same token though, we are seeing the international players despoilers and they are in some sense trading off a lack of experience with lower prices. Customers are aware of that trade off, so it doesn't mean that lower prices automatically win, but I would say that's kind of the puts and takes. So, we do see the more discipline on the competitive behavior from Indian vendors. Also from the customers, it is not they had got drenched, I'm in big trouble, you have to lower your prices, you know, our customers themselves generally are beginning to feel better.

Thank you so much.

Thank you very much, Sir. Our next question comes from Mr. Pramod of ABN AMRO.

Hello. Congratulations on great results. [Inaudible] small things, you have added quite a lot of number of customers, can you detail how much of them are in which verticals or which horizontals? and also what is the net customer add during the quarter?

Okay, the customer add has been 35 and if you look at geography spread, North America is 17, Europe 9, Japan is 5, and the rest of the world is 4. And in terms of verticals, it is primarily in the embedded and product engineering, about 12. Telecom service providers take about 3, financial services 3, retail 2, utilities 4, manufacturing 2, and corporate 6 and so on. In terms of the net customer add, the total customer headcount now is about 327, up from 307.

How much is that sir?

327, up from 307.

307, okay thanks a lot.

Thank you very much sir. Coming up next is a question from Mr. Rahul Dhruv of Citigroup.

Hi, congratulations on a great set of numbers. My first question was on utilization, off-shore utilization has gone up to a 12-13 quarter high at 71%. Do you think, you can retain it at this level and any major changes put into place to take it above 70% and retain it at that level?

I think that we feel that we can retain this level.

Okay. My second question was on the fixed price projects that we talked about earlier, I guess that it's some amount of improvement that is likely as Mr. Senapaty mentioned. Can we see any - what kind of a price increase can we really see if these projects can been moved to an optimum level?

I not sure we could really quantify that specifically, because what we're saying, Rahul, is that we did get a price increase in the last quarter. We think there is slight amount of stabilization on that. The good news is some of the new customers who are getting it a little marginally, it's better than the current rate, but the mix change could swing in any manner, and therefore we think going forward with pricing will be in a narrow band.

Okay, great. One last one, and this is for Raman, if he can give us a quick run down on what's really happening with Spectramind in terms of number of new customers and how many customers are in transition, how many are likely to ramp up?

Yes, Rahul, we added three more customers for this quarter. We now have 17 customers in production and we had 15 customers last quarter. We were doing 51 different processes for our customers at the end of last quarter, that's grown to 60. Our total headcount has grown to 8,492, and we are seeing a significant traction for business both from our existing customers and the new customers that we've signed on last quarter and this quarter.

Great. Any number on the amount of non-voice business and also if you can kind of talk a little bit about the attrition, it has come down, but it is a great thing that - what do you see going over there?

Voice to non-voice makes us add about - 91% of our revenues are driven by voice business, we're increasing our non-voice business, but we're also increasing our voice business. So as a composite the voice continues to be the dominant part. Yes, as you've correctly pointed out our attrition for the quarter has gone down, but it continues to be the biggest challenge. As we grow and as we add on people to meet the needs of customers, we need to focus on this aspect. It's an industry wide problem and (Audio Gap) integrate, because we had about 1.3% hit in terms of the margins, because of foreign exchange in Quarter 2.

Okay, fine. Thank you.

Thank you very much sir. We have our next question from Mr. Ajay Sharma of Citigroup.

Yeah. Hi congratulations on great numbers. Maybe, if you could clarify on the margin stability which you're expecting in next quarter in spite of a salary impact of about 150 basis points. If you could break out where you are expecting to get that sort of neutralization in terms of onsite, offshore shift or further reduction in SG&A, etc.

Yeah. I do actually - it will be a combination of all factors, I think, everywhere, wherever you can get then 20, 30 basis points, we'll have to add that and get back. So, whether it is reserving or whether it is optimization or bigger price, better productivity in the D&A expenses, or even trying to leverage on the utilization better, or in terms of offshore, because we have definitely improved in the offshore last quarter also, if you look it at a vertical level. From a capacity level, we have remained constant. So, we see a -- looking at that also as to whether we could do some improvement there. So, combination of all these factors, we would like to use to be able to mitigate that impact.

Okay. And secondly, what was the difference in your Receiver Provisioning this quarter versus last quarter?

This quarter it's just about 0.1%, that is quarter ending September.

I am sorry, what was it last quarter?

1%.

Okay. Thank you very much.

Thank you very much sir. Next in line, we have Mr. Lakshmikanth from HSBC.

Yeah. Hi, actually this is Anupam here. Congratulations on an excellent result. Couple of questions. Very good year on the price increase, just wanted to get a flavor, is this price increase which we've seen -- is it due to a client giving you higher prices which means an old client actually revising prices, is it due to a new client coming at a higher than average price, or is it a change in the business mix?

I would say that of the three, actually I would bring in a fourth factor. So, I would say that, you know, one factor has been improvement in fixed price projects, which has resulted in realization improvement. Second is, as we have mentioned over the last couple of quarters, new accounts coming in at higher prices in general than on existing prices. So, I think that that has certainly helped. The third is that we crossed the zero mark in terms of existing customers giving us a slight increase. So, I can't grade you as many, but we are greater than zero. So I think, you know, that felt pretty good. And, the fourth is the mix, we talked about how the infrastructure services and package implementation grew as a percentage of the mix, that typically comes with higher prices.

Right, thanks. Actually second part is a - I mean if you look at our company whether it was Indian competition, we have acquired DMS (ph), we have the technology side of our business, we have the R&D side of our business. And we have taken risk by acquiring companies, leaving BPO side for the moment. I think I am trying to just simplify it, probably its not as simple. If a business model is taking these risk at a certain point of time it has to result either in a higher volume compared to competition or a better rate compared to competition. Am I correct in my part to say that there will be an inflection point where these risks will start playing out in terms of either volume or rate compared to the competition in India?

Well, I'd like to restructure the question in the following way, which is, we would always like to exceed both volume and rate of our competition, but in some ways you might view this not as a risk that we are taking, but as a risk mitigation we are taking. At the end of the day, if you are going to architect the future that looks at the fact that pure offshore factories will decline over time in terms of an entitlement margin, then this is what gives us that extra stickiness. So, I would say it really is, if you will, not a deliberate step on our parts to increase the risk but a view of the world and actions to decrease the risk.

Right. So, again turning it on this head, normally higher risk would mean higher reward and given the last four to five quarters, our movement was that this competition has followed two different model which - in a way `can be a higher risk model`, so I think you are agreeing to that. so...?

[Inaudible] .

Okay. Just a final question, which will make me understand this, will I be correct in saying that if we move higher up the value chain, which means we do more services like outsourcing, system integration, package implementation, it might be higher revenue per employee as you articulated in the infrastructure services, but it may not necessarily be higher margin per employee, the reason I say this because of two, it may be higher onsite centric for one, and two, the labor arbitrage or the wage arbitrage reduces as you move higher up the value chain. Would I be correct in my thought process here?

I think that the key to look at is - that - there are three steps here. One is you got the labor arbitrage and you got the operating margin in terms of dollars per person and percentage per person. Let me move to package implementation side where you have got the higher price, you get the same dollars per person, lets say, but a lower percentage per person. So, in percentage terms your margin begins to compress. When you look at onsite delivery of consulting, using local hires, and there you do have the compression in terms of dollars per person and percentage. So net-net, as I was trying say in the earlier question, ultimately when you do this you do have a percentage margin compression. The only reason you want to do this is because you take a view that says long-term, which is the entitlement margin and some best way to make it sustainable is to have this mix of percentage (ph) .

Right. So, finally a quick housekeeping question, of the number of people hired, how much would be lateral and how much would be fresh?

Of the 1089 people you have been hired in the global IT services, 68 are from campus and balance are from lateral.

Right.

Sorry, of the 1573 people we have hired in this quarter, 742 are lateral and 831 are from campus

831 you said, right?

Yes.

Right great. Thank you very much, I think I will come back later, congratulations and best of luck for the future guys.

Thank you.

Thank you very much, sir. Next, we have Mr. Trideep Bhatacharya from UBS.

Yeah, hi, congratulations on your results, two questions, first, [Inaudible] peeping into the next calendar year, what do you reckon could be the pricing negotiations scenario this time around and how do you reckon this could be different from what you had previous year?

It is tough to recall. As I said, when you are coming off the back of six quarters of margin compression, the first quarter in margin expansion, [Inaudible] when you see realization improvements, it's pretty good, but we don't want to be having a party yet. I think we've got to figure out how we manage our customers, because it's still an uncertain environment and I don't think customers still are accepting a big price increase. That's why I said we have got the courage to go and ask, and as I said, get at least more than a few of customers, but I am not ready to call it a trend yet.

Okay, by the price increases is it fair to say that again looking into the next calendar year, at least a stabilization in the pricing shows as something to expect?

I think it is a fair comment.

I see, then second, that's regarding the NerveWire acquisition. In your assessment, when do you reckon this acquisition will actually start delivering results?

Hi, this is Girish Paranjpe. We've already seen the first benefit of the acquisition as we go to customers and are able to provide

not only a traditional suite of services, but also something beyond that. And it is not only adding more service lines, but also creating a competitive differentiation. So, that benefit we also started seeing.

I see. I was more referring to on the striking of the financial side getting into profitability etc.

No, we said that we, like last quarter, we had calculated the losses to be inline with the quarter one and we've been able to work on it and manage it that way. Going forward, the losses have been lower, because some of the loss in bonuses will not be there, but we can't give a firm number on that, because this is going to be displayed.

I see. And my last question is going to be, what is the most worrying part currently to the top management? Are MNCs kind of - too much of MNCs, I mean the global players causing too much of a risk on increasing the salary side or what is worrying to you as things stand as of now?

I think that the two things that we've talked about many times before continue to of concern, one is the rupee, which is quite unpredictable still, and we don't know where that bottom is, and the second is on the attrition rates.

I see, thanks a lot and the best of luck for future.

Thank you.

Thank you very much, sir. Our next question comes from Mr. Sandeep Dhingra of JP Morgan, Singapore.

Yeah, hi, good afternoon, congratulations on a pretty phenomenal performance. I have a few questions, if I just look at the tone of your press releases in the last few quarters, there's a distinct positive tone you can sense this time around. So, I am just trying to understand how much of this would be really due to Wipro's specific factors and how much of it is due to the marketplace itself looking a lot better, if it's possible to quantify or qualitatively discuss these?

First of all, I'd like to say that I don't think we spent a lot thought on the tone of our press release. So, I am not sure I should read too much into feelings there, but I think that what I would look at is just really the hard facts, and as far as the hard facts are concerned, I think it's always tough to sort of get credit for or not get credit for, I won't respond to that except to say that certainly we're seeing the market, our customers being more confident in their own future, being willing to spend more, being willing more with us. We are seeing in terms of - there is percentage of wins, you know, we are getting our share of wins and particularly as we bring in the consulting fees into winning some of the IT businesses. Certainly the Technology business is seeing more of a seminal uplift in terms of their own customers, technology companies willing to spend more. And I think that we've seen some improvements in terms of, you know, whether it is utilization, whether it's receivable collection, whether it is pricing in terms of being able to get more from customers. So I think that it is really a combination of both and it will be very difficult for me to attribute, whether it is 80/20, or 20/80, or 50/50.

Great. Just the other thing, which we saw in the last few years, was when your technology business was probably facing a more difficult market environment, you did have this situation of having a bench built up on the technology side, which - and growth was one of the enterprise side. Are we seeing a reversal of that happening now? Are you seeing a mismatch of resources that you have with you given what the demand environment looks like?

I think we are seeing a shortage of resources.

Okay. Across the board?

Yes.

And just the last thing Vivek, I think one of the comments you made was that, you have actually gone to customers asking for price increases. Is this a new practice and is this something we should read as a beginning of a trend by any sense?

I would say yes to the first and no to the second. Yes to the first in the sense that, yes wouldn't have done that before. No, since it is an embarrassingly small number that I am sure in terms of price increase. So -- but as I said, all I [Inaudible] price fall is greater than zero. So I would just say that, it is still early to say that we can get this across the board, but we are tabling (ph) to our customers the fact that it's been a long time since we saw the last price increase.

Just one last question for Raman. Raman the shift utilization in Spectramind seems phenomenal, I mean what's behind that fantastic number?

Well, it's subject to the business and the way we've been able to architect our business across our various facilities. Large composition of our business comes from the US and we cater right from East coast to the West coast. And now we've a larger proportion of 24-hour servicing that we are doing for our customers, where a certain component continues to operate on the 24/7 basis.

Thank you very much.

Thanks.

Thank you very much sir. Next we have Mr. Akshay from JM Morgan Stanley.

Sir. Good morning everyone. This is Anantha from Morgan Stanley. My question is related on the Human Resource related issues. You know, given the strong volume growth and strong recruitment, which should possibly continue, is there a danger that would dilute the organization culture, lead to employee sort of demoralization, and are there any steps being taken by the company to counter some of these issues?

[Inaudible] -- your volume -- your question slightly is muffled. Can you just repeat it?

And if you are on a speakerphone we don't mind you speaking up.

This is related to the Human Resource related factor and given the strong recruitment and the volume growth is there danger that the organization culture could get diluted or employee moral could get lowered. And then are there any steps being taken by the company to counter some of these issues. I think that on the employee morale side, success only engenders higher morale. So, if you see the market continuing to decline as you see, some sort of a continued performance, I think that morale would not be issue. In terms of scaling culture, that's a challenge and it's a challenge we faced every year. Three and a half years ago, we were 3000 people, today we are 25,000 people. So, I think it's a problem, we address it, we address it through many means, so I don't think we are terribly concerned about that right now.

Also if you look at the last quarter analysis, our [Inaudible] higher than what it was before.

Okay. Thank you and wish you all the best.

Thanks.

Thank you very much sir. Participants are requested to use their handsets when asking a question. Next in line, we have Mr. Shekhar Singh from DSP Merrill Lynch.

Hi, sir congratulations on the latest set of numbers. Just wanted to understand like one of the reasons for the billing date stabilizing has been quoted as the discipline among Indian vendors. What exactly does it mean, does it mean is there some sort of an explicit or implicit understanding that below this rate we're not going to quote? Or does it mean that below this quote, because we make -- say do not make decent margins, we won't for this is a not like an industry wide thing. But it is like every company deciding that okay face $17, $18 is the rate beyond below which we won't go.

I think that first and foremost, I just would like to be very clear that we do have an industry association, we do run into each other on aero-planes, but we never talk pricing. There is no explicit or implicit arrangement between any of us, at least not that I am aware of and certainly not with Wipro of having any joint pricing action. What I was referring to was simply what we see as a marketplace dynamic out there, driven by the understanding that everybody has, benches are gone and it's costing more to attract talent.

But, even for that, like you -- if I were to just talk about Wipro, how does it work within the process? You said that, okay we want to have this sort of margins and if you quote anything below this rate, we won't be having this margin and therefore we just hold on to this price and let the business go in case somebody else is offering a lower price?

I think that certainly we have the standard escalation processes in terms of -- if it's below this price it has to go to this level. And we made a recent judgment in terms of what we think is the volume and price rate as well as other terms and conditions. So, I think that we do have a fairly systematic way. We approach every single chase, but it's just [Inaudible] it's just the way you do business. I am not sure I am answering your question exactly.

But if I'd understand you correctly, then there is discipline among Indian vendors, what is the sustainability of it? It can be there for two quarters and then again it might just collapse.

Well. I think that you know if everybody is realizing that when we go out to the marketplace, we are paying more and it's getting tougher to get business, I would expect that same kind of a -- business manager would say, gee sounds like a, I should be asking more from my customers as well rather than dropping my prices on the demand side and raising my cost on the supply side.

Okay. Secondly like, just when you understand the salary hikes, like you have given one salary hike now, what is the differential say between Wipro salary vis-a-vis say an Accenture or IBM or any other standard that you might be using in terms of the salary at different levels, or if you can just give a broad number in terms of percentage that will do.

You know we don't really, we don't really have the benchmark data to be able to give you an exact answer. But we do hear of sort of anecdotes that talk about huge salary increases. And at the same time from these companies, we are actually hiring people as well. So, you sort of say, well, I am able to hire people and at the same time, I am losing people. So, it's difficult to get a full [Inaudible] percentage increase yet because we haven't done that benchmarking study.

Because this really exposes say a company like Wipro or Infosys or any other company to a huge amount of risk because one, the salaries are increasing. On the other hand, the billing dates though stabilized, they are not increasing. So, nor that Wipro is looking at or saying that the margins are stabilizing, what gives you the confidence that given the salary hike of 12%, you will be able to retain talent and you won't have to go in, say after a quarter or so to increase your salaries further?

We might and so, I don't want to close that door. I think that the reality is that at the end of the day, you have to stay competitive in terms of being able to attract the talent that fuels your growth, but at least for the foreseeable future, what we have said and coming to say is that except for the rupee appreciation, we should be able to manage our operating margins.

Okay. And lastly, one last question. On the embedded software side, you have again added quite a large number of clients if I heard it correctly. Even last year somewhere around this time, September, October period, large number of clients were added on the embedded software side, but I think they were lost over a period of time. So, is it something to do with the seasonality in that business?

No, actually, what it has to do with is that a lot of the embedded business comes from smaller companies and are project oriented. But I think that what distinguished this quarter was breakthrough in a couple of storage companies that made us feel particularly good.

Okay, thanks a lot sir.

Thank you very much, sir. Coming up next is a question from Mr. Nikunj Doshi of Kotak Securities.

Hi, good afternoon everyone. Just now that you mentioned that R&D plans you have added. So, do you see that R&D business growing faster than the other, rest of the businesses going forward?

Well, if you look at a sequential growth basis, that's the correct answer. If you look at year-on-year basis, Enterprise IT grew faster than R&D, but still, one quarter is not enough to be able to make an extrapolation.

Okay. And would it mean that your average billing rates would increase because of higher proportion of R&D-related business?

Actually it is the other way round. Our R&D-related business is slightly below our overall average.

Okay, fine. Okay, thanks very much.

Thank you very much, sir. Our next question comes from Ms. Priya of Karvy Stock Broking.

Good afternoon, sir, congratulations on good numbers. Well, Mr. Paul mentioned on three or four factors, which have resulted into increase in the billing rates. My question relates to the fact that you have seen increased traction in the Telecom domain. Do you see that translating into improved offshore composition in the coming quarters?

I think that that question basically reflects an understanding that our R&D business is actually more offshore-centric, and so as a result, what we do see is that as our R&D business rises, the offshore-centricity will rise.

Okay. And would it still imply that even in BPO segment, increase in billing dates is largely an account of better telecom contribution?

Say that again, Priya?

What I am saying is in BPO also, your billing rates have increased, is it largely on improved telecom contribution?

Telecom is a minor contributor. There are other productivity aspects of that contribution [Inaudible] .

Okay. My last question relates to the fact that enterprise application services have seen improved growth and if you could comment on the outlook in the coming quarters?

On the private implementation business, I mean, that has grown well for us, and there's no reason to expect some change.

Okay sir, thanks.

Thank you very much ma'am. Participants who wish to ask questions may please press star one now. We have our next question from Mr. Sandeep Shah of Tower Capital.

Yes, this quarter also we have recruited some significant number of employees. Can you just throw lights on the recruitment plan for the next two quarters?

Always our recruitment is in line with what the business requirements are. So, we do not have specific plans in terms of numbers. It clearly goes with the [Inaudible] and volume.

Okay, and in the R&D space, are we really witnessing increase in the spending with the clients, or the clients are moving more offshore to save their cost? What is the exact situation out there?

With regards to quarter one, it has always been in terms of more and more of the same projects getting offshore to get higher [Inaudible]. But in the last quarter, we've seen some visibility of new product introductions the telecom companies are planning towards the end of 2004, and therefore, some kind of new projects, new budgets being released.

Okay, thank you.

Thank you very much, sir. We have a follow-up question next coming from Mr. Mahesh Bazli (ph) of SS Gary Security (ph).

Hi, I wanted to know something on the BPO side of the business. The attrition is high for Spectramind as well as the industry. So, is this attrition lasting clearly within the industry or there are people who get tired of it and just move out of it?

Mahesh, it is our belief and the little analysis that [Inaudible] that shows that it is not the attrition from the industry, it is attrition of moving from one company to the other. At the industry level, the attrition is a significantly lower number. We've seems to indicate towards that it is to do with the Liverpool situation, rather than people moving out of this industry.

And on the shift to utilization front, what's the maximum possible shift to utilization?

Our theoretical shift utilization is 3.0.

Okay.

But, where it will is go is a function of which way -- the configuration is for the customer, what way they still utilize, when they're doing their beta backups, and where the machines are locked up for end of the day processing. So, there are too many factors that influence which way a peak utilization can be.

Okay, but still if you were to put a figure, what do you think is achievable, given the current business structure that you have got?

Well, again as I said, it's difficult to comment, but getting up to two would be absolutely outstanding in terms of being able to utilize those assets, and being able to contribute towards the margins.

Okay, have there been any instances where the clients had lots of expectations and actually the delivery. Azim, just the expectations going already, and the plant actually ramping down the number of people that you are using?

Fortunately, for Wipro's Spectramind, we've been able to live up to the expectations, and neither (ph) say exceeds the expectations of our customers. So we've not had to face the situation, where a customer is ramping down due to Wipro Spectramind not being able to meet the expectations. We see that as our strength, and we see that as something that brings in huge traction to us with our customers.

Okay. One last question on the software side. How does the marginal pricing during the quarter compares against the average pricing?

I'm sorry, could you repeat that. How is it?

The marginal pricing incrementally- the incremental pricing, how does it compare against the average price?

It's better.

It's?

Better.

Okay. Would that be significantly better or?

Significantly better. It is tough to really to quantify that significantly. So we'll have to leave it as better.

Okay. Fine. Thanks.

Thank you very much, sir. We have our next question from Mr. NeelKant Mishra of CSFB, Singapore.

Hi, this is Ashish again. Sir, if you could comment on the sales and marketing expenses as a percentage of revenue which we have for like most in the industry spent less than what the global player spend, and how long can it sustain at this level and do you see that it would eventually start inching up and when do you see that happen? Thank you.

Well Ashish though, on terms of credit, SG&A expenses have come down by 1.5% points from last quarter to this quarter, is still higher Y-o-Y 1.9%. So, all we are doing is that, how do we optimize on the current investment, but we have not held back any investments in terms of the headcount figures that we have been wanting to have having, hiring locals in the field. So, we have been more selective, more lets say, trying to achieve more of productivity in that area as opposed to cutting down any investment which could impact adversely our future growth. Bottom line is we are 1.9% higher Y-o-Y.

It seems that, you know, I did observe that I was also trying to understand that- do you see that eventually, Wipro, a global company will- they will start spending as much as some of your multinational peers do as a percentage of revenue on their sales and marketing.

You know, even in the sell side of marketing, there are lot of presales kind of expenditures that you incur, and the good feature of this Indian model is that that gets done executed from offshore. So, if you compare that with an MNC, that's a big difference.

Okay. Thank you, Sir.

Thank you.

Thank you very much, sir. Our next question comes from Mr. Bhupinder Ahuja of Deutsche Bank.

Hi. Do you have - I had a question on IT as a whole. Do you have clients who work with you across divisions like technology infrastructure, consulting, BPO, and ADM. If you could talk a little bit about, I mean, without naming the clients in terms of- if that as a trend you are seeing that picking up?

We do have customers who work across multiple service lines and the ones which we are - the most impressive are the ones who are across BPO as well as various designs in the IT services business. There are customers who are financial services BPO, customers in the manufacturing sector, we are into package implantation, we are on the ADM practice, we are embeddable, embedded. Similarly, we have many companies and many customers in the technology side with whom we're doing enterprise business. So, that's the beauty of this model where you are providing lot of range of services where you can address for the same customer.

So, we also have for example telecom customers who do work with us in the package implementation area as well in the BPO area.

Okay. Thanks a lot.

Thank you very much sir. We have the next question coming from Mr. Supratim Basu of ICICI securities.

Hi, thanks. Congratulations on a good quarter. I just want to pick up on one sales related question that you commented on earlier. You said that because you are driving your sales and marketing from India, your costs are, you know, as a corollary lower as a percentage of sales. My question is that do you actually have the same number of sales people for let's say $1 m of revenue or per $10 m of revenue as your global competitors?

Supratim, also you have to realize that for the same headcount the realization by the global competitors are much higher, for example, if we have an average realization of about $50,000, $60,000 a person, if we look at the -- our MNC peers they will have much larger, four times, that kind of realization. So, but I suppose if you look at the comparable terms in terms of the head count being billed versus the headcount not being billed, they could be comparable.

Okay just one further, if I could just take that one step forward. I mean basically if I were to normalize, if I were to normalize your global peers, at the revenue level basically, rebase the revenues to your billing rates or re-base the revenue on an offshore basis. In which case would the revenue productivity of the sales people be comparable?

We haven't done that math. So we don't know the answer to that.

Okay, great. Thanks very much.

Thank you very much sir. Our next question comes from Ms. Parul (ph) of Aziz C Mehta.

Yeah. Congratulations on a good set of numbers. Could you throw some light on the kind of CAPEX you are looking at for the balance half of this year?

Yet again, you know, we always try to be just in diamond terms of the requirements. Currently we have building facilities in Calcutta, we have building facilities in Bangalore and also trying to add-on in Hyderabad and Chennai and Pune. So it's a ongoing process based on the requirement projections we have, so we don't give any specifics of guidance, because the [Inaudible] has been fairly new, but last quarter if you ask me the expenditure was $104 m.

Okay and the quarter-to-quarter.

1043 m rupees.

Okay and the quarter before that? The June quarter.

It was about 800m, 850m.

860?

Five zero, eight five zero.

Eight five zero. Okay, fine sir.

Thank you very much ma'am.

Operator can we have the last question.

Sure sir. Our last question is a follow-up from Mr. Chetan Shah of Quantum.

Yeah, this is in connection with hardware business of the company. Do you see any kind of outsourcing opportunity coming out in even the hardware, that is the PC severs and Laptops?

Could you repeat the question Chetan.

Yeah. This was in connection with the hardware, PC hardware, rather the computer hardware business which the company has- just wondering whether you intend to have, I mean you see any kind of outsourcing opportunity there also?

We do see outsourcing opportunities in India in the overall IT space, which includes hardware services and software. And we're bidding for some of those opportunities.

Okay, what will be the market share of Wipro brand basically in that particular business?

See we're focused only on the corporate market, the government market, and the education market in India, and there we would be having a market share of around 5%.

We did fairly the large wins over the last three quarters, particularly Colgate-Palmolive.ok

Okay.

Will give some time and all that in terms of people outsourcing deals in the Indian subcontinent, because the focus in Wipro Infotech has been on IT services which we are doing in Middle East AsiaPac and even in India, though overall there has been a significant growth YOY in the services business.

Okay, and the corporate account, for example in the - Infotech maintenance division basically, I mean what will be the market share for Infotech versus Indian or overseas company?

See again, we are addressing a wide spectrum of product services and software in the domestic market. In the domestic market, we would have roughly overall a 5% market share, but in the markets that we address specifically we would have a much higher market share, for example the IT services space. Looking at the infrastructure management space, we are the number player in India as rated by Dataquest. We're the number one infrastructure management services provider in India.

Right.

We're also in the top two network integrators in India.

Okay.

We're in the top - we've launched a software business in India pretty recently, so we're in the top ten software players in India. We're developing a lot of traction in the AsiaPac and Middle East areas in so far as the services and software business is concerned.

Okay sir, thank you very much.

Thank you very much sir. At this moment, I would like to hand over the floor back to Wipro for final remarks.

Thank you ladies and gentlemen for participating in this call, should you have missed anything during the call the audio archive of this call will be available on our website, and we will also be putting up a transcript of this call very soon, and of course if you need any further information or clarification, the Investor Relations team would be delighted to talk to you. Thank you and we look forward to you - talking to you again, next quarter. Have a nice day.

Ladies and gentlemen thank you for choosing CyberBazaar conferencing service. That concludes this conference call, thank you for your participation. You may now disconnect your lines, thank you and have a nice day.