Wipro Ltd (WIT) 2004 Q1 法說會逐字稿

Good morning ladies and gentlemen and good evening to the participants across the globe. We extend a warm welcome to all the participants from US, UK and elsewhere to Wipro's first quarter results and earnings call for the period ended June 30, 2004. We have with us today Mr. Azim Premji, Chairman and Managing Director; Mr. Suresh Senapaty, CFO, who will comment on the US GAAP results for the quarter ended June 30, 2004. They are joined by Mr. Vivek Paul, Vice Chairman; Mr. Suresh Vaswani, President of Wipro Infotech; Mr. Raman Roy and other senior members of the management team who will be happy to answer the questions you have. The call is scheduled for one hour. The presentation of the first quarter results will be followed by a question-answer session. The operator will walk you through the procedure for asking questions. The entire earnings call proceedings are being archived and transcripts would be made available after the call at www.wipro.com. Before we go into the call, let me draw your attention that during the call we might make certain forward-looking statements within the meaning of the Private Securities Litigation Reforms Act of 1995. These statements are based on management's current expectations and are associated with uncertainty and risks, and these uncertainties and risks factors have been explained in detail in our filings with Securities and Exchange Commission of the USA. Wipro does not undertake any obligations to update forward-looking statements. Ladies and gentlemen, over to Mr. Azim Premji, Chairman and Managing Director, Wipro.

Good morning ladies and gentlemen. Your Board of Directors in the meeting held this morning approved the accounts for the quarter ended June 30, 2004. Our results have been mailed to those registered with us and are also available on our Web site. Let me share with you some of our thoughts on our performance and prospects. Building business momentum is a tough task, sustaining it is even tougher. It is gratifying to note that we have been successful in both so far. For the quarter ended June 30, 2004, revenues in our Global IT Services business was $300m, ahead of our guidance of $292m. Consistent with our performance in recent quarters; every single vertical, every single geography, and key service lines witnessed robust revenue growth. A sequential revenue growth of 8.4% in dollar terms was the result of a 10.5% growth in our Enterprise business, and a 7.1% growth in our R&D business. In terms of geographies, Europe led the growth with 20.3% sequential revenue growth. Among our services, package implementation continued its robust growth with an 8.9% sequential increase. Equally importantly, we witnessed healthy improvements in our price realization for the second consecutive quarter. While it is too early to claim a return to a period of price increases, pricing pressures are clearly on the wane. Consequent to this and combined with improving operating efficiencies, we improved our operating margins for the fourth consecutive quarter. In line with our articulation in the last quarter conference call, our BPO business had subdued growth in June quarter. However, we see improvement in the outlook for that business and are confident that it should be back to better growth rates in the current quarter and grow ahead of the industry during the year.

Looking ahead, the environment we see is one of strong volume growth and stable prices. As more corporates realize the benefits for global delivery of IT services, the share of outsourcing in the IT pie continues to grow in terms of quantum of work, as well as in terms of different service lines. This signals well for strong growth in Indian IT services industry. However, wage pressure may pose a challenge to sustaining business profitability. In summary, the prospects are encouraging, but there are challenges as well. We may rest assure that Wipro is as committed to growing revenues and profits as we are to building a global organization. I will request Suresh Senapaty, our Chief Financial Officer to comment on financial results before we take questions.

A very good morning to ladies and gentleman. Mr. Premji said our view on the business environment. I'll touch upon a few aspects of the financial and operational significance. For the quarter ended June 30, 2004, our profit after tax grew by 83% year-on-year. The return on capital employed of 33% at the Company level, comprised of return on capital employed in Global IT business of 62%, India and AsiaPac IT business of 19%, and Consumer Care and Lighting 82%. The return on capital employed at Company level was lower primarily on account of cash and cash equivalent, which constitutes 41% of capital employed. During the quarter we had sequential revenue growth of 8.4% in our Global IT Services business, which comprised of 9.2% revenue growth in the IT services component of that segment, and 2.1% growth in the IT-enabled services business component of that segment. The 9.2% growth in the services component was driven by a 6.9% growth in the volume of business, combined with a 3% increase in our realization rate of work performed offshore, and 2.8% increase in our realization rate, for the work performed onsite at our clients' offices. With 2.1% in growth in our IT-enabled services business was primarily due to growth in volume of business partially offset by the sequential decline in price realization. On product front, our realized rate for the quarter was 44.01 Rupees versus the rate of 45.89 Rupees realized for the quarter ended March '04. The primary goal of our product strategy was to endeavor to the extent possible, business results from fluctuations in the currency market, and to provide a high degree of certainty on our capsule arriving from foreign exchange transactions. In order to ensure that our financial statements reflect the intent of our strategy, we have adopted cash flow hedge accounting in the quarter ended March 31, 2004.

The provision to adopt this methodology did not exist in the Indian GAAP, in light of the clarification issued by the Institute of Charted Accountants of India in June 2004, and to bring about a higher conversion in reported results under two GAAP's. We have adopted cash flow hedge accounting in Indian GAAP, as well effective quarter ended June 30, 2004. In the absence of cash flow hedge accounting, the entire forward contracts would be mark to market, thereby inducing volatility in quarterly results, which defeats the basic objective of hedging, which is to minimize the volatility. We, therefore, believe that this methodology is a better reflection of the business intent. Our Forex strategy is yet another reflection of our approach of minimizing the impact of external factors on operational performance. More importantly, it provides reassurance to our stakeholders that our earnings are less susceptible to volatility in foreign currency markets. As of June 30, 2004, after our allocation for foreign currency assets on balance sheet, we have outstanding hedge of approximately $1b, deliverable over the next six quarters. The average rates of this contract are in the range of between Rs.44 to Rs.45.50 per US dollar. The average rate of the contract, maturing in the current financial year are in excess of Rs.45.20.

For the quarter ended June 30 2004, net income computed in accordance with the US GAAP is 91% of the profit after tax as per Indian GAAP. The difference is primarily on account of different revenue recognition standard, amortization of intangible assets and accounting for certain forward contracts. We are considering a review in compensation of our team in IT services and BPO business, during the quarter ending September 2004. The compensation increase as well as on certain IT sales, which are lumpy by nature, can impact operating margins for the quarter ending September 30, 2004, which we will be able to partially offset through productivity measures. We will now be glad to take questions.

And ladies and gentleman, if you would like to ask a question, please press the star, then one on your touchtone phone. You'll hear a tone indicating you've been placed in the queue. To remove yourself from the queue at anytime please press the pound key, and we ask if you're using a speakerphone, if you please pick up your handset before pressing any numbers. Once again, if you have a question now, please press star, one at this time. Now this is the line of George Price with Legg Mason. Please go ahead.

Hi, good morning. Thank you very much; I wanted to just ask a little bit about the package implementation growth, that you told was very strong. What's driving the software package implementation business, maybe if specifically what packages are in most demand? And then what do you see and think regarding the recent software company pre-announcements, and is that having any impact on demand for services?

Yes, this is Rich Garnick. What's driving the business is no specific package. It's our fundamental business model that's driving the business for us. All our packages have grown nicely; we have four major service lines, SAP, Oracle, PeopleSoft, and Siebel. Each of them had a double-digit quarter-to-quarter growth as units, and what we see as a sustainable growth of the business based on the value proposition, leveraging the global delivery model, and the execution excellence that we've been able to deliver to our client.

And then, in terms of the software pre-announcements?

Yes, when we got in the software announcements, we don't see that having, at least in a near-term, but you get a impact on our business because of -- as I said, the value proposition that we render and the fact that there is such a tremendous install base of packages that have been distributed throughout the marketplace that enable us to take advantage of the -- over hive of the implementation that is still out there, and the optimization customers are --

Q4.

Yes, if I can just add to that, it's Vivek Paul here. Basically, to look at the business that we do, a majority of it is around supporting an existing install. So, for example, on SAP, I said we typically will do what's called RICE, Reports, Interfaces, etcetera. And as a result, our business is more around being able to provide, as Rich mentioned the offshore delivery around an existing application. We also do new package implementation work. But again, there typically our work is not the grand -- you know, paid $60m upgrade, as much as it is around either implementing specific module add-ons etcetera. So, while we do not see any impact of the software pre-announcements that we've heard so far, obviously, we want to keep a very watchful eye.

Great, and then maybe also if you could give us an update, from your perspective on the competitive environment, both from your other competitors in India and as well as the multinational firms in terms of any progress they may or may not be making? Thank you.

Yes, from a competitive standpoint, I think our growth speaks for itself. I think we continue to win in the market place, it showed strong revenue growth and volume growth across -- as Mr. Premji pointed out, all geographies in all SBUs that the business has. So, I think we continue to win, and are in fact, we win more than we've been losing from a standpoint at our targeted customer base. We, as an organization and the -- the Indian IT industry still has a small percentage share of the overall IT services industry. And if that share that we were able to candidly take from the incumbents for the foreseeable future that I think would give us a sustainable growth model.

I think that, if I can just add to that, first of all, I'll just point out, the growth rate clearly indicates the differential competitive share that we are grabbing. I think that, if you look at the international players, we are seeing them expand in terms of the number of head counts in India, but we were not seeing any win rates that they've had in advance of ours. We are also hearing that while they've got the people, I think that outside the BPO business, particularly in the IT side, they haven't got as much demand traction, except unless they are doing that as part of their existing relationship. Relative to Indian competition, we do believe that we are winning more than our fair share of new business, in this quarter, we won 35 new accounts, 23 of them in the US, despite all those talk about the offshoring backlash, 22 in the IT space, which continues to be a good growth engine for us right now. So, I would say that net-to-net, we're feeling pretty good that based on our specialized knowledge of how the global delivery model works, we gain share against our global competitors and based on the breadth of our service minds, we have both the ability to offer our investors steady growth, but also to our customers a more effective package.

Great, thank you.

Our next question, is from the line of Tripp Chowdhry with Midwest Research. Please go ahead.

Thank you and again, good morning here. I would like to get a little bit color on the strength that you have on the package implementation. I was wondering if you can give us some insights into which verticals you are seeing more strength, and especially in modules, where do you see more business coming your way in that direction, then I have a follow-up too.

Okay, I mean, as I mentioned, we're seeing a broad growth of the business in our -- from a standpoint of which verticals, we are seeing strength in the enterprise base primarily in the retail, manufacturing and energy utilities verticals, both across North America and Europe. We also have done some significant wins in AsiaPac, where we've implemented and actually executed the complex engagements into Japan and the Mainland China, apparent Asian implementation giving up some real good traction on a global basis.

Now, regarding the BPO offering that you have -- I was wondering the -- what were the reasons that we may not have seen growth this quarter and probably what will make us feel that, there will be more growth in the coming quarters. What can you -- what makes you feel comfortable on that end?

Raman Roy is going to handle that.

Yes. I think on the sequential basis, the BPO business grew by about 2%. That was a 78% growth from the same quarter last year. Yes, we derive only a 2% growth, that's a combination of multiple factors for certain large customers, while the total business we do with those customers grew within that. Some of the components of their business, where we service the products that faced sluggishness in the market in which they operate, thereby reducing the number of transactions that are eminent for those products. So, cumulative growth -- overall growth that we had with those customers compensating some of that. We also had for one of our large retail customers a change in the business model, where instead of catalog as a mode of going to their customers, they decided to go for store sales. And that led to a dramatic decrease in the number of transactions that were emanating from the earlier model. We also had pieces of business that were one-time business that we brought out at last quarter. And all that aspects impacted some of the growth we had with the decline that we had here. We are bullish on the future essentially emanating from the requirements that our customers have articulated for what they need. We are now at about 10,750 people at the end of last quarter and that is to feed the growth that our customers are looking for, and we believe that we will grow in line with what the industry is growing, if not better.

Thank you. And lastly, this maybe a question for Mr. Premji. How is the new Indian government catering towards IT sector in India? And do you see them pulling out any incentives in short to mid-term?

Well, I think while you must appreciate that the current government has a very high sensitivity to generating rapid employment growth in the country. The IT sector today is growing almost 1m people directly, and probably close to another 3m people in terms of peripheral services. It's a sector which is growing at 30% a year. So, from the point of view of any government it is -- the government will continue to support this sector. Also it is a major foreign exchange earner. And IT, don't dismiss it in the current government.

Thank you, and congratulations on a good quarter.

Thank you.

Our next question is from Mayank Tandon with Janney Montgomery Scott. Please go ahead.

Thank you. I had a couple of questions on pricing and wages. If Vivek, you could maybe talk a little bit more about pricing on newer deals versus the mix issue that may have also helped pricing in your current quarter?

Sure, I will. I think that if you look at pricing, we had 3% sequential price growth and that came in back of a quarter prior that also had very good price growth. So, our outlook is more on price stability, but perhaps not at the fueling pricing growth pace that we've been at. If I was to break down the pricing into four pieces, one is negotiation with existing customer; we are charging $1.10 for what you were charging a $1.04 a day ago. And there, frankly we haven't really seen the environment turn so much that we can be very aggressive, we've had anecdotal price improvements on a negotiated basis as contracts have come up, but that's not something that we are willing to go to the bank with. The second is getting price increases from new customers and of course then getting the benefit as they blend into the existing volume base. There we have seen substantial improvements and we are seeing new customers coming in at a substantially higher rate than existing customers. The third is, we are looking at improvements as for example we drive package implementation business, our infrastructure services, our chip design all of which are elements where we charge higher than our vanilla ADM and product maintenance business. And there we are also seeing, as that mix is shifting in our favor, we are beginning to see more pricing leverage. Finally, where we've seen versus as year ago and even versus a couple of quarters ago, more productivity in the fixed-price projects, where we've been able to do better than we had in the past. So, I think those are the things that contributed into our last quarter's pricing growth. If you look at on a go-forward basis we should see stability, but not necessarily quantum jumps in those areas.

That's very helpful. And also could you comment on offshore wages and when do we expect to see the next increase pass through the P&L? And also, what is the percentage of offshore salaries as a percentage of revenue and the total cost structure for the Company?

If you look at the BPO business, the BPO business passed a salary increase of 15% to 18% in the last quarter, the quarter that's I am now announcing results of. And that is what we have -- we've been able to already factor in. To answer your third question first, which is offshore salary as a percentage of sales it's about 18%. And finally in terms of go-forward salary increases, we are expecting that we will see salary increases, we won't have a sort of mega day, where one day everybody will get a salary increase. We expect to spread this between September and January. And the quantum isn't fully decided, obviously the September ones are decided, but not the rest. We want to be as sensitive as we can to what's the requirements are. At the same time, what we are doing is given the fact that we will see compensation rise, we do want to manage our overall competition cost by blending in more people from campus and as a result, keeping our overall compensation bills the same. For example, we just did some analysis that says that for the salary increase we did in January in the last quarter, we were actually able to hold our compensation bill flat on per-head basis as a result of that blending in.

Okay. So, the impact of wages from September through January would be similar to last year as well. So, the impact would be over a quarter or two or does it flow through the entire year?

Well I am not sure how to answer your question. I think that we would -- once it comes in obviously the employees get salary increases that go on. So --

Do we see a one-time bump in a given quarter or they tend to be more even across the several quarters?

It's going to be -- well, you are going to see a bump in the September to January time frame, which is when as I said the salary increases kick in, so you are going to see a bit of a bump in the quarter that we are currently in, a bit of a bump in the quarter subsequently. At the same time, we will have the mitigating factors that I just described in terms of managing the overall mix of employees.

Okay. And I wanted to also get the rupee assumption for the rest of the year, I think, it already have been mentioned, and related to that I wanted to understand why, if I am not mistaking, you used end of period dollar rupee exchange to recognize US GAAP when the other companies in the space seem to be using the monthly average for P&L purposes.

I think you are right that we do also monthly average, but just for the purpose of understanding the numbers, we are just giving a translation to that piece, which means, while these numbers are reported, because we use rupee as a functional currency. So, just for a better understanding in dollar terms the June 30 end date, we convert all the numbers for people to understand, but in the P&L it's based on the average dollar exchange, but it is not the translation, convenience translation reporting.

Okay. So, which revenue numbers should we use the $300m or the $294m?

Yes, $300m will be the basic average, but if I do a translation, it comes down to $294m. So, $300m is the right number in terms of actual dollars billed by the Company.

Okay. And then the impact or the rupee assumption for the rest of the year and how do the rupee impact the current quarter?

The last quarter rupee impacted by about 50 basis points. For the rest of the year, we expect the rupee exchange to be about 45, in excess of Rs. 45.

The 50 basis point impact was a positive impact on operating margins.

Adverse impact in the last quarter.

Okay, because of the foreign currency loss, right?

That's right.

Okay. One final question, are you doing any people acquisition as part of your outsourcing deals and if so how does that change your model going forward?

We are doing that, so far we have done it in a very small amount, so it really -- I mean, I would say net-net cumulative maybe under 100 people. So, it hasn't really changed our model at all. As we go forward, we are very sensitive to trying to achieve our operating margin goals when we do things like that.

Are clients demanding people-based acquisitions or are they flexible for the vendor?

I would say that as you look at the deals so far, there have really been no major deals that has gone down like that. I think that there are deals out there that customers are talking to us about, but we have been down that pass before, we are not seeing any major deal happen and we will see how it plays out.

So, you don't lose a deal because of that.

No, we don't.

Thank you.

Our next question is from the line of Louis Miscioscia with Lehman Brothers. Please go ahead.

Okay great. Am I coming through okay?

Yes you are.

First question has to do with the US election coming up. I know there has been obviously a quite a bit of rhetoric tied down as the backdrop for the upcoming convention. Do you think I guess if you can share with us some thoughts leading up to the election as they might affect things, and then I guess after the elections that you think that things will change dramatically, in a sense that, maybe dissolve finally, dies down and goes away and maybe just back to business for you all.

Well, first of all, there really is a bit of guess on our part, so I don't want to paint like -- where we know it out, but I think that what we have seen is campaign rhetoric is down. I think it's down on the back of an improving economy and improving job situation. I think if that changes, we may see the rhetoric feedback. I think that regardless of the rhetoric, there is a genuine concern in the minds of the American population about outsourcing, I have seen from the opinion polls that indicate that this is an issue. So, I don't think that we should treat it lightly or we should think that the issue goes away. However, I think that the engagement on this topic has been very constructive. I think that the concerns around privacy, concerns around security are being addressed in a very cooperative way through the industry associations. I think that in terms of the trade issues, I think that people are viewing this as being a trade that sort of generally grows and there is not really anything that is coming down the pipe that we feel that poses a potential threat. And finally on the visa issue, I think that whole discussion around whether Indian companies are compliant or not has been settled generally in our favor. So, what we are seeing is the debate moving away from what global trade should be doing and what companies like Wipro should be doing or industry association should be doing and the discussion and debate is now moving more towards what needs to be done to take care of different franchise in terms of what needs to be done on employment side, on the re-training side, as well as on an ongoing basis and emphasis on education, which I think is good long term for everybody.

Okay. Pushing over to a different topic.

Louis, can you speak up a little bit?

Sure. Next question was on the software companies pre-announcement, have you all been able to do -- I guess to pertain anything as to why some of the software companies especially the smaller ones pulling down, and a number of different theories obviously the simplest one is that EIO has got more conservative going into the end of June, but others are pointing out that may be its just the software company is changing their licensing policy that impacted them or that obviously there is a aggregation in business to the really the biggest players and the smaller ones are suffering. So, could you just -- I know that you all work with them so much obviously with your customers you might pickup something a little bit different and what's the general conventional thought out there?

What I actually mean, let me jump in then. I think that the way that again not that I have been whispering in our ears what happens. So, this will be our best guess also which is that in talking to the software companies we work with, we did not see this problem coming. So, I think that, as a result, in some sense it was a bit of a end of the quarter event, and it could well be that people chose out in terms of buying software licenses at the end of the quarter. As I said, you know having said that our information is somewhat second hand given the fact that the bulk of our business is around existing installed bases and whatever feedback I can give you is more along the lines that because we do work on a distinct installed base, we do rub shoulders with the software companies, but that is the best that I can help do with.

Okay, great. Thank you.

Our next question is from Julio Quinteros with Goldman Sachs. Please go ahead.

Good morning or actually to say good evening to you guys in India. Vivek, may be I can start with you on the first question that I had with regards to your salary increases. Can you give us a sense on how much of your salary increases are actually variable?

I'd say that if you look at our variable length portion, it is something about 15%.

15%? Okay. And secondly, I guess maybe Vivek you can answer this since you touched a little bit on the visa issue. Can you give us a sense on how you guys are planning for visas in the upcoming government fiscal year? I think we have heard a couple of your competitors already say that they were also proactively planning. What's in your current visa pipeline for H1B's?

1000.

1000?

Exactly.

Those are new applications?

Yes. We have 1000 H1B visa ready people. In addition, if you look at the mix of visa that we use, we are more oriented towards L1's versus H1's.

Okay.

So as a result, we are in fact generally protected, but that's the number, 1000.

Okay. So, those are -- I am sorry. I was making sure to I understand this. In the upcoming fiscal year, have you guys put in applications for the next government fiscal year?

Yes. We did advance planning and we have filed the application and got the approval for the above.

Okay, and I guess if I can, kind of switchover to, maybe Rich, you can answer this question, whoever can please feel free to jump in. Can you give us a sense on your large mega outsourcing contract with Shell, I don't need specifics on kind of the numbers, but can you give us a sense on how the contract is ramping up, what you guys are seeing, and is the pace of the ramp up there inline with your expectations given the actual size of the contract here with the opportunity?

Sudeep Banerjee will handle that.

Sudeep, here.

Hi, how are you Sudeep?

Hi, good. How are you?

Good.

I just want to make the comments, which I can make because we don't give details about individual customer engagement. What has happened with Shell is that they after an extensive evaluation, they have selected us as one of the two large outsourcing vendors, and the engagements have started from June onwards. The ramp up plans for them are very very steep, and we've started seeing those ramp up starting from early July. So, we do expect this quarter to have revenues from Shell, but as we go through the rest of the year, we will have hopefully more ramp ups in that account.

And, have you disclosed how many total people you plan on ramping that up to over the next couple of years?

Unfortunately, that's the number I can't give you.

Okay. No problem. And, I am not sure which one of you guys can answer this, but I'm just wondering about the strength in your European business? Can somebody address that, please?

To continue on the European business, we had an excellent quarter in Europe. We have got more than 20% sequential growth.

Yes. It was pretty strong.

And lot of that has come from the UK and part of it has also come from the Netherlands. In the last two or three quarters, we have started a number of engagements in France and Germany. So, we are seeing the positive effect of all the customers that we are growing in the European territory.

Okay. And of the first of the four countries that you indicated, I believe that UK is your biggest market, is that correct?

That is right.

Okay, and most of that is Energy and Utilities?

Energy and Utilities is the largest constituent, but we also have business from -- in manufacturing, retail and financial services.

Okay, great.

Satisfying service provided it's also a major contributor.

Okay, great. And then I guess finally from me, can somebody just address the turnover in the current quarter please, employee turnover?

Well, the employee turnover for this quarter, has been 17% in IT Services, and about 20% in the BPO Services. The IT Services number is annualized, the BPO number is for the quarter.

This is Balki here. What is what worthwhile noting is that the voluntary attrition has dropped by one percentage point from 16% to 15% in this quarter.

Okay.

And also for the BPO Services, this 20% is a 100 basis point drop. But more importantly what we are seeing is we've broken up our attrition on -- attrition during training, and attrition post training where it is in fact the revenue. And the post training attrition is 14% for the quarter, and that is a two percentage point drop from the previous quarter.

And with regards to turnover, there maybe -- can you guys just talk a little about how the labor market is, in particular with regards to competition from multinationals both in the captive side and the IT Services side? I mean, are these guys are still going after your employees aggressively or have you seen some tapering off in those efforts?

Well, as far as the IT Services business is concerned, we are seeing a lot of demand for people as more and more Companies setup larger and larger offshore development centers. We had initially some losses to the people who have come in here, but that's not a significant number. In fact based on our analysis, we find that our hiring from peers companies including multinational majors operating here is more than what we have lost. But, the overall attrition level in the industry has gone up by -- because of the increased demand, and this is for people who are getting jobs here plus people who are moving to other places for jobs overseas as well.

Okay, great. Thank you, very much for your time this morning.

Next question is from line of Ashish Thadani with Brean Murray. Please go ahead.

Yes, good evening. Just wanted to focus a little bit on the SG&A, which is for the last quarter about 12% compared with 18% a year ago, when it peaked. Is it reasonable to assume that this has stabilized, and could you comment a little bit on your operating margin outlook for the balance of the year?

Yes according to the operating margin for outlook is concerned, I think, -- like we have discussed in the previous questions that, there will be -- in fact of the lumpy IT sales that it is uncertain and also in terms of the compensation increase. While we will continue with the momentum in terms of productivity increases whether it is in terms of the fixed price projects, utilization or more of offshore, and correcting the -- what we call the having the mix off the people marked different, in terms of having more freshers than the experienced guys so far we are been having. And so far as the SG&A, we think it will move in a narrower band going forward.

Okay, and just another question, a broader question. There has been a couple pretty important developments over the last month or two, specifically the annual budget in India as well as the decision by TCS to move ahead with its listing. Is there any information here that you need to pay particular attention to or redo, that could have a margin or other implications for Wipro?

Not that we know of, this budget really had no impact on us at all, and as far as the TCS IPO is concerned, that has no impact on us at all either.

Okay, does it give you any kind of a reaction based on the numbers that you have seen relative to what you might be able to do or not do with your margins going forward?

I mean, neither the budget, nor the TCS IPO have any impact on margin.

Okay. Thank you very much.

Our next question is from the line of Ashwin.

And before that, Ashish just to give you -- you talked about the SG&A having changed significantly. If you look at Global IT services, the SG&A was -- March '04 was 10.6% and June '04 was 10.8%. So, there is a marginal change, maybe you are looking at the entire, on a Wipro consolidated level, typically we base on the mix of the people. They will not be similar. In terms of the mix of the businesses that we are, Wipro Technology, Wipro Consumer and Wipro Infotech. So, YoY June '03 is what -- yes, you have said that 18% and 12% at June '04 at a Wipro consolidated level. But the way you should look at is, at a business unit level, how does it operate, business line wise. Business line wise they are more or less consistent.

Thanks Raman. Thank you very much.

Thank you.

And next from the line of Ashwin Shirvaikar with Citigroup. Please go ahead.

Thanks for taking the question. I just want to revisit the voice-based BPO issue. You made fairly strong statement in your release about voice-based BPO returning to, say, normal growth patterns after US elections. And just wanted to figure out, once again, does this confidence stands on what clients have told you or is it the best guess? And secondly, from a defensive standpoint, do you think you need US-based to North American-based call center infrastructure as an option to offer to clients?

This statement that we made was overall on the BPO business. We, at this point of time, for the quarter gone by, 85% of our BPO business is voice-based. Our comfort and confidence on having a sequential growth far better than the 2% that we had is based on what our customers are asking us to do. The way they see their markets evolving and whether the incremental business that they are wanting the give us to fulfill their growth of needs. We have a fair number of customers. If you look at the last three quarters, four quarters, we've added customers. It takes time within the BPO business for customers to get comfort or when they are doing the remote off shoring for the first time, and we are seeing customers cross that threshold and ask for an increase.

Okay, and in terms of -- do you need more of the US-based call center infrastructure if only as an option to offer?

As an option, yes. Do we see customers asking for it to fulfill to their needs? There have been some discussions on that with some customers, but at this point of time, we do not see the need of doing complete fulfillment of any customer need from a near shore or onshore fulfillment fees. Wipro BPO does not, at this point of time, do any near shore fulfillment, and we do not see a crying need for that.

Okay. An unrelated question. Flextronics recently acquired, one of your India-based competitor in R&D services. Do you see this as an emerging trend or a threat that you should need to tackle in any way?

I think that the trend of second tier companies being bought by overseas competitors is probably a real one. However, I think it still remains to be seen as to whether they are able to make the most advantage of it. Particularly, on Flextronics, frankly it's quite an intriguing play on their part, but really the jury is out and quite far out in terms of whether that's going to be a success or not.

Okay, thank you. Nice quarter.

Thank you.

Our next question is from Tim Byrne with Robert Baird. Please go ahead.

Thank you for taking my call. Question on -- today, what percent of your onsite or onshore workers are on visa?

And ladies and gentlemen, now we have lost the host site. I think Mr. Premji, everyone could just hold on while we reconnect. One moment please. Ladies and gentlemen, we do have the host site reconnected. And Mr. Byrne if you could restate your question?

Yes. Good evening. Thank you for taking my call. I wonder if you could share some insights as to what percent of your onsite or onshore resources in the US and Europe are on visa?

That will be the majority -- the predominant majority.

And going forward maybe not even with the next government fiscal year beginning in September here in the States, but I think some of the visa discussion has been around at least keeping the current limits if not rolling them back in, in terms of numbers. If you look out maybe two years, do you think that you will have access to a significant number of visas to continue that model or might you have to begin the higher more domestic resources?

Well, I think, it's really anybody's call right now. I think that in some sense as we grow our offshore percentage of revenue, we can get more leverage on the same number of people who are on visa in the country. So, first of all, we want to make sure that we exploit that. If I look at our offshore revenue, they are still a substantial percentage more of our revenue that we can move offshore and so I think that, to us that is the number one productivity tool in terms of being able to get the maximum leverage from visas. At the same time, we are not averse to hiring locally and as you know, we have got a center in Kiel, we have got local Germans there. We have got centers in Yokohama. We have got local Japanese and Chinese there. We have got centers in Canada and in the US. So, I think that we are not averse to it, but the economics work out, but we are certainly looking at moving more work offshore first, as the way to leverage the model.

And also just to supplement, these limits are every year, so which means you get additional every year those limits added on. So, A, you have an installed base. B, based on the new limit that comes in, you can add on. And these limits are applicable for H1B visas, while Vivek talked about there are other visas also like L1, which these limits do not apply.

Thank you. Second question is can you speak about the growth of your infrastructure services, in particular, what type of activities you are doing there and aside from maybe the Shell relationship, which is a terrific win, where else are you seeing success in some of those activities which might be characterized as moving a bit further up the stack?

I think that we clearly can't give customer-wise details, but what we are seeing is that as far as the infrastructure services business is concerned, we are getting traction and we expect to continue to see getting traction, but I am not sure we could state how to you what more we are doing. The good news is we are beginning to move more and more of that work offshore. It used to be very onsite centric, it's becoming a little bit less though.

I am sorry, I wasn't necessarily referring to customer specific, but can you tell us what type of activities you are doing regardless of the customers, what kind of activities are you taking on there that's a broad category of services?

Okay. This is Suresh Vaswani. On the Infrastructure Services side, we are doing -- our activities are primarily focused around data center management. We do server management, we do network management, we do security management, we do database administration. So, basically all the services that go around managing the data center we do in a global delivery model, which is onsite and offshore. In addition to that, we do a lot of IT Helpdesk type of services, which leverages on our BPO business. So, that is another aspect of IT infrastructure management that we do and we are also getting into contracts and into partnerships where -- which has some element of onsite support as well.

Thank you.

Our final question is from Sameer Nadkarni with W. R. Hambrecht. Please go ahead.

Yes, hi guys. Just a quick question on the macro environment, could you just comment specifically on any changes, if any, that you may have seen during June and July in the last couple of months in terms of sales cycles, close rates, and then also in particular in terms of the time it takes for a new account to ramp up to your milestones like $1m revenue contribution or $5m or any other similar milestone?

Hi Sameer, this is Rich Garnick. Now, we have not seen any affect of the macroeconomic environment affect our business. Because there is no change with the sales cycle to any significant magnitude. In fact as Vivek pointed out, we have significant number of new wins in North America, both across the business, across geographies, and across verticals. So, I think one nice thing about our model is whether the market or the economy is strong, we get more outsourcing. When the economy is soft, we have seen opportunities where we grew in the soft market because the pressure is on our client to cut costs and leverage the global delivery model and we have been able to grow in those markets. So, regardless of the economic conditions at a macro level, we've shown that we could demonstrate growth in either market and I think that goes well for the model.

Great. Thanks a lot. Great quarter, guys.

Thank you. John there are no more questions?

Yes, no further questions.

Okay, lets end the call and -- Thank you very much for your participation and if in case you want to reach out to me, please - you can call me on the cell phone or e-mail. Thank you very much.

And ladies and gentlemen, that does conclude your conference. You may now disconnect.