Wipro Ltd (WIT) 2004 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Wipro Earnings for Quarter Ending September 2004 Conference Call. At this time all the participants are in a listen-only mode. Later we will conduct a question-and-answer session; instructions will be given at that time. If you should require assistance during the call please press "*" then "0" and as a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Mr. Sridhar Ramasubbu. Please go ahead.

Morning, ladies and gentlemen and good evening to the participants across the globe, I am Sridhar Ramasubbu along with Lan and Jatin in Bangalore. We handle the investor interface for Wipro. We extend a very warm welcome to all the participants for Wipro second quarter results and the earnings call for the period ended September 30, 2004. We have the entire Wipro management team, Mr. Azim Premji, Chairman and Managing Director; Mr. Suresh Senapaty, CFO; Mr. Vivek Paul, Vice Chairman; Suresh Vaswani, President of Wipro Infotech; Mr. Raman Roy and other senior members of the management team 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 ahead with 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 1995. These statements are based on management's current expectations and are associated with uncertainty and risks. These uncertainties and risk factors have been explained in detail in our filings with Securities Exchange Commission in the U.S. Wipro does not undertake obligations to update forward-looking statements. I am available on the e-mail as we are conversing and please feel free to send a mail and now I will turn it over to Mr. Azim Premji, Chairman and Managing Director, Wipro.

Good morning ladies and gentlemen. Our Board of Directors in the meeting held this morning approved the accounts for quarter ended September 30, 2004. 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 prospects. Team Wipro has delivered yet another quarter of solid performance. Robust growth in all our business segments resulted in Wipro posting is highest year-on-year growth in profit after-tax in the last 12 quarters. Reflecting the momentum we have been witnessing in recent times, revenues in global IT business was $327 million, a growth of 47% year-on-year. Growth continued to be broad based across key verticals, service lines and geographies. Notably our differentiated services, Business Process Outsourcing and Technology Infrastructure Services grew sequentially by 20% and 14% respectively. From a profitability perspective, in spite of growth addition of over 8,800 people to our team, we were able to expand our operating margins for the fifth successive quarter.

Our performance over the last 12 quarters is indicative of our willingness to take tough strategic decisions, and make necessary investments when required. And equally of our resolve and ability to execute the strategy effectively so that they reflect in operating result sooner rather than later.

This is a reflection of our belief that business decisions must be run for the long-term. And equally important, long-term goal should be broken up into a series of short-term milestone. This approach is equally evident in the results of our India, Middle East and AsiaPac business where we invested into new geographies such as Middle East and Australia with a long-term perspective

During the last quarter this business signed up its first multi-year, multi million IT services contract with AXA Australia. These successes have convinced us of the efficacy, of our approach to achieve our goal of global leadership in IT services industry.

Looking ahead, the environment we see is one of strong volume growth and stable prices. We believe that universal acceptance of the global delivery model will open up newer avenues and provide exciting opportunities for the Indian IT service companies This will also bring newer challenges in terms of managing scale and increasing competition from customers as well as for talent. You may rest assured that Wipro will be as proactive in seizing these opportunities as we will be in addressing the challenges.

I will now request Suresh Senapaty, our CFO to comment on financial results before we take questions.

A very good morning to all of you ladies and gentlemen and for those in India and Asia a good evening. Mr. Premji said our view on the business environment; I will touch upon a few aspects of financial and operational significance.

During the quarter we had a sequential revenue growth of 9% in our Global IT Services business, which comprised of 7.8% revenue growth in the IT Services component of that segment and 20% growth in the IT Enabled Services business component of that segment. The 7.8% growth in the Services component was driven by a 7.3% growth in the volume of business combined with a 2.9% increase in our realization rate for work performed on-site at our clients offices partially offset by a 0.5% decrease in our realization rate for our work performed offshore. The 20% growth in our IT Enabled Services business was primarily due to growth in volume of business partially offset by a sequential decline price realization.

For the quarter ended 30th September 2004 net income computed in accordance with the U.S. GAAP is 93% of the profit after-tax as per Indian GAAP. The difference is primarily on account of differences in treatment of FOREX gains, losses, amortization of intangibles, differences in revenue recognition norms, stock compensation and accounting for dilution arising from exercise of employee stock option in Wipro Spectramind. We had in June 2004 obtained a shareholder approval for issue of restricted stock units to our employees. We believe these units are an innovative tool not only of employee motivation and retention but also for better alignment of interest of our key employees with those of our shareholders. The compensation committee of the Board of Directors has awarded about 5.5 million of such units resting over a 5-year period to our employees effective October 2004. These awards cover a substantial portion of the eligible employees in senior and middle management.

We have given compensation increase for teams in part [of our] business effective 1st September 2004 and some more are being covered during this quarter. The impact of the compensation review would be an increasing wage cost in our Global IT business by about 15-18% of our offshore compensation. We would also have a non-cash charge on our profits arriving from the restricted stock units. These incremental charges coupled with lower number of billable days in the quarter ended December and, in fact, of our hedge position would lead to some contraction in operating margin for the next quarter. We will endeavor to contain the contraction through improved productivity over the next couple of quarters.

We'll now be glad to take questions.

Thank you. Ladies and gentlemen if you wish to ask a question please press "*" then "1" on your touchtone phone. You will hear a tone indicating that you've been placed into queue and you may remove yourself from queue at anytime by pressing the "#" key. If you are using a speaker phone please pick up your handset before pressing the numbers. Once again, if you have a question or a comment, please press "*" then "1" at this time. And our first question will come from Mayank Tandon from Janney Montgomery. Please go ahead.

Thank you. Good morning from the U.S. I had a couple of questions. First, if you could comment on pricing, may be provide some color behind the improved realization on-site then the slight contraction offshore please?

Hi. This is Rich Garnick and with regard to pricing we are seeing as we stated already stability in our pricing strategies and what the marketplaces there allowing us to do. We are also able to deal with increased costs that we've talk about to dealers and employees there, salary increases by seeing some traction on new business where we are able to see some increased pricing across the board. So we feel comfortable that we will see better price realization due those factors and we also done some things in this regard to fixed price projects and managing those fixed price projects and getting better price realization across the board.

But besides newer deals coming in at higher price points are you also seeing the renewals coming in at higher price points or are they basically holding flat?

I am sorry, if you could you repeat that? I am having trouble hearing you.

In terms of pricing breakdown, are you only receiving pricing increases on the new contracts or are you also seeing pricing increases on renewals?

Yeah. On some existing business we have been able to get some better price increases. However, the majority of existing customers are holding steady and we are seeing majority of the price increases on those new contracts. We are also seeing a bit of mix of service offerings that are enabling us to strengthen our pricings as we reposition the mix of the business.

Okay, and my next question has to do with the wage inflation. Basically, I wanted to understand if you are going to smooth out the impact, the 15-18% increase is that over a course of several quarters or is that going to be a one quarter hit in the December quarter?

You know, the offshore compensation constitutes in Wipro Technologies about 16-17% of our revenue. So, what we are seeing is this impact of 15-18% would be off that 18% or off that 17%. And that will kick-in from this quarter because we had given a part of the increase on 1 of September and another balance will be given in this quarter.

Okay, so is that wage increase implemented in phases over several quarters or is that a one quarter phase?

No, it gets implemented starting from 1 of September to by the end of this quarter it will be implemented.

Okay and one more question if I may.

In fact, we spend over October some in October, some in November and December. So it will not be a full quarter impact but it will be a full quarter impact from next quarter onwards.

Sure, okay, understood. And one question I had on the hiring the aggressive hiring; was that -- could you actually give us a split between campus verses lateral?

Yeah, let [inaudible] to answer that.

Our campus mix is currently around 60% and 40% lateral.

And it has increased from 45 percentage in the previous quarter to 60% in the current quarter.

Okay.

The campus mix.

So this -- last quarter we have seen some amount of correction in the bulge that we have talked about in the previous calls. We have been steadily improving it from the quarter ending March to June quarter as well as September quarter and going forward we will see similar changes coming forward.

So is that rate is 60 to 40 expected to be maintained or due you expect to actually increase that campus level to close to may be 70% like some of your competitors?

It will be maintained or might be some slight increase in the course of this year.

Alright.

In terms of issuance.

I had one final question on the rupee impact if you could just breakdown how it impacted your margins and the other income item? Thank you.

Yes, so far as the last quarter was concerned in terms of the margin that was about 30 basis -- we had a margin expansion of 170 basis points under the U.S. GAAP and the exchange had impacted about 30 basis points in that.

That our net gain of 30 basis points lie in this quarter -- last quarter.

Okay, thank you.

Our next question will come from Aashish Ghandhi (phonetic) from Gilford Securities. Please go ahead.

Yes, good evening. I will just get to the point of operating margin, which has reached, I believe, it is 27% up for the last five quarters. Do you believe that it has reached an equilibrium or do you expect there will be further quarters where it will continue to rise, not counting the impact obviously of what you just mentioned which is the weight increases

Yeah, but for the -- no, let me explain this. I think what we talk about is A) a wage increase; B) FOREX impact for the current quarter as compared to the last quarter because we have last quarter at 30 basis points improvement in the operating margin; but this quarter we are expecting a decline based on the forward covers we have; and C) was a non-cash charge on account of the restricted stock in it that has been granted. But there are many levers based on which there could be improvement in the margins such as utilization, such as change in the mix, change in price realization because of change in the mix of business offerings and so on, which we have a fairly different track record of having made some improvement in the past. So, what we are saying is if you leave aside the non-cash charge and you leave aside the FOREX component impact our objective and here that it would be to mitigate the pressures on account of the compensation.

I understood. And just one housekeeping item, Suresh you mentioned the 9% sequential increase in Global IT Services revenue, the release says 13%, I am not quite sure which is the right number?

9% was in dollar terms and the 13% is actually decimal of 12 point in rupee term.

Got it. Okay. Thank you, great quarter.

Thank you.

Thank you and our next question will come from the line of Miscosia (phonetic) from Lehman Brothers. Please go ahead.

Okay, great. Did you happen to mention from, I guess, a sequential standpoint looking at operating margins how many -- what I guess basis points you are expecting for a decline given the different things you've decided?

Well, we have not specifically articulated any specific number in terms of decline in this particular quarter, but you said there are various factors on which there could be weaknesses and there are multiple other factors on which some of that will get mitigated. So, all we are saying is we will do the recovery over a few quarters.

Okay, and then compared to, I guess, the first call consensus number which I think is $0.11 would you expect that there would be a different comparative to the current consensus to the up or down side?

I am sorry, could you repeat the question please?

Yeah, the question is whether we are going to increase our -- what happens to the EPS guidance consensus estimate of $0.11, it's going to be up or down? Given the [guide] on EPS numbers look and what we are giving is a flavor of what will happen to the bottomline and there are both plus and minus factors so we have to look at that in that perspective.

Okay, alright for that. Now for more, I guess, if you take a picture question. You know, when you look at -- you are obviously growing your business and growing at these kinds of levels. What's the biggest barrier in the sense of you know normally I know in the past we asked a lot of questions about IBM and Accenture coming in; obviously you got a very bigger high quality company is also out there in India been TCS and Infosys, but right now is just running your business as a biggest thing or would you say that that some of these other factors are hiring a list and may be if you could just rank them?

[Paul], I think that if you look at the situation right now supply side seems to be a higher up on the [volume] list and the demands side, I think that we don't need to add service lines. We have demonstrated that our process quality is sustainable and competitive no matter what brand name we are up against. We are continuing to be able to drive bills, drive margins. So I think that the consumers that we have really rank around being able to get enough good talented people to see our business grow, being able to retain our quality systems and our culture as we scale and add so many people and being able to, in some sense, keep that pyramid alive so that we can keep adding more people and will be able -- to be able to have the program manager at the individual contributor ratios.

Okay, then last follow-up question. Do you have the attrition levels that you are currently running at?

The attrition in the IT -- sorry.

I look up at the HR Manager, Bijay Sahoo, our attrition rate for this quarter we have reported 18%.

And this 18% is --

Yes, it includes the voluntary, involuntary both attrition. During training period we have a very tough testing process before we send the people to the customer projects and the people who are getting low score we separate them, and from such people like 1.28% of the total attrition is for those people who have failed in the training test.

And this number is based on a quarterly annualized. So if you consider the last 12 months it will be a few notches lower.

And another pattern of attrition emerging is our July, August attrition is higher, in the month of September we had much lower attrition, and going forward we think based on our MSI which we have released which is [make solid increase] and RSU for the team managers, our attrition will, we think, come down. This is excluding the BPO attrition -- the BPO numbers; this is essentially for IT services, that is Wipro Technologies.

Okay. Thank you.

And soon our next question will come from Goldman Sachs. Please go ahead.

Good evening and good morning gentlemen. Real quickly, I just want to understand the issue of the restricted stock units what was the exact amount and the impact to the P&$; it sound like it's going to be a non-cash item; will it be amortized through the income statement?

Yes, you are right, it is a non-cash charge. It will be amortized starting from 1st of October '04 to a 5-year period which is over the 20 quarter respectively and it is a 5.5 million [are issued] from 1st of October and based on the market price and this will be typical, the exercise price will be the nominal value of the share, which is about 2 rupee.

Thank you and maybe if I can go back now to the new level of headcount additions that we are seeing at, you know, your company plus one of your competitors; how sustainable is this new level and perhaps more importantly for me is, you know, the number of people that you are bringing on are they already sort of year-marked for clients or do you still have to go out and win business to get this people working and I guess my concern would be with the headcount additions that you would see a [follow-up] in utilization or some risk to your utilization numbers.

Let me break that answer into several pieces. First of all, the sustainability of being able to hire that many people we are comfortable with that I think the recruiting teams have built a great engine here that continues to scale up as we need it. The second is in terms of, you know, whether this will result, as well they were hiring ahead of demand as well this will create an inventory of [unbilled] people or utilization problems, the answer is no; we hired to demand in fact we measured our hiring cycle times pretty aggressively, we mentioned that in prior quarters and we continue to do that.

The third is that as we expand the percentage of hiring from campus, in some sense the internship you usually have to go through is definitely longer than an experienced hirer and so the growth level, it does impact the utilization a little bit, but frankly that's another measure that we keep looking at [addressing] the cycle time on.

Okay, thank you. And may be one other quick question related to demand, I don't know if that was Vivek, you know, what are you guys seeing in terms of decision making cycles, are they shorter, long, elongating, can you just give us a flavor for sort of the pace of activity there, this is a difficult thing to track from the outside because of, you know, sort of the propensity to not put out a lot of press releases and you guys are kind of operating under the radar screen, if you will. Can you talk a little bit to the decision cycles and may be what you guys are seeing there?

This is Sudip Banerjee, the decision cycles have not changed dramatically in the last couple of quarters. I think what has happened is that customers' sensitivity to disclosures have increased and therefore, we are unable to disclose customer names as we used to do in the past, but we continue to see great demand, we continue to see customers coming and visiting us to evaluate our product and services, we get a lot more RFPs now than we used to get a quarter ago. And this reflected in the results that we've achieved and the guidance that we've given for the next quarter.

Okay, can you put some specific numbers around, you know, how long it takes to go from, you know, sort of a RFI, RFP to decision?

Well, there is no one number to that. I mean there are some decisions which get closed within 60 days and there are others which go on for 180 days. So, I mean there is a full range. I mean, and these again just outlined, so there could be many, many variations in these.

Depending on the type of work as well, I am assuming?

Right, it's depending on the type of work, it's depending on the size of the RFP; it's also depending on the territory that we are talking about and there are different patterns and different geographies.

Okay.

Our one customer, I mean one of our two customers we have generally seen a trend of 3-8 months time for the sale cycle to conclude.

Your clients? Okay and then finally from me can you -- just to understand the wage increase that you are passing was it only offshore and then related to that will there -- have -- will you guys -- do you guys have a need to pass any wage increases on-site?

On-site, you know, what's happening today is with U.S. market opening up some, you know, attrition is there in U.S. So what we are doing is selectively based on skills the [predictability] of the skills and the managers, although they have managerial talent; we are considering very, very select people to be covered by merit salary increase on-site.

Okay and when was the last time you passed one on-site?

It is almost two years ago.

Okay and the -- I think you guys gave us a statistics about the cost composition of your offshore, what would be the cost composition for on-site?

Our 31 site is about --

-- 50%

30%.

30%, sorry.

On-site salary costs constitute 30% of the revenue.

Hi [Lan] thanks [Lan].

But what Bijay Sahoo stated it will be very, very selective and the impact is not expected to be huge.

And the percentage of the increase is also not as high as we give in India.

Right, right it's going to be in low single-digits most likely?

Absolutely.

Okay great thank you very much.

Thank you and our next question will come from [inaudible] from Camelot Capital. Please go ahead.

Yes good morning, or afternoon to you. Could you just possibly give us an idea of your hiring to demand; can you give us a sense of --as you look at those new hirees where is the demand that going to be the greatest of the opportunity, the greatest within your -- I guess your service base at this point?

Some of the question --

Yeah I think it's -- you know we don't really give guidance in terms of where and by, you know, how much the growth will be. The hiring is directly correlated to revenue outlooks. You know, if you look at this quarter gone by, we had a very nice increase in these 9 months much higher than our 5-quarter average And so in some sense we had a good volume that quarter, we hired to that and, you know, particularly for campus hires we do hire little bit in advance as well, but I would, you know, I would not read too much into campus hiring but certainly its -- I mean to overall hiring but certainly co-related to revenue and we are hiring to demand

Right, I was actually looking more for some of the directional --something from a directional standpoint is it happening --are you looking -- when you look at demand and you look at what's coming from your customer base or what you are seeing in the way of RFPs is it going to be in the application at all then the maintenance in consulting is it BPO? You know which -- which I guess are going to be the better growth areas for you as you look out over the next, you know, 6-12 months

Well, if you look at 2, 3 quarters ago we used to have more BPO hiring then IT hiring. That trend reversed itself this quarter. We are now hiring more IT people than BPO people. So I think that in some sense we continue to expect that, you know, we are going to have a hiring on the IT side within that again it's directly co-related to the growth in the businesses, you know, our growth -- we are fortunate to have across the board growth. Specialty factors is growing fast so if they are going to see more hiring in our Infrastructure Services business, in our Testing business, in our Package Implementation business. So really, I mean -- it's not a different picture than what you see when you look at the split by service line in terms of revenue

Okay and I guess -- when you referred to the fact that there is probably going to be or there is mixed shift that may be taking place here, when you say mixed shift you are taking about within the respective lines of the business or you are talking about in the way the contracts are been priced, fixed term, excuse me, fixed price versus tied in materials or is there going to be a shift in that as well?

No, I think that what Rich was mentioning was that the mix is in towards the most specialty services because they are growing faster than the overall average so their mix is rising and those specialty services typically give us a higher price point and therefore, our average prices rise as a result of that mix shift.

Okay then in that -- I am assuming that's where you think that some of the margin will offset against the higher wages is going to take place?

Yeah, I mean if you look at the pressure points on the margin expansion, certainly is, you know, I would not say large price increases but the moderated price increases is been in the past. I think that we would look at utilization as been another lever that we can hit. In addition, and the offshore mix is the one that we continue to look at, we've had some good improvements on that quarter-after-quarter and this quarter we saw 2% more offshore; so I think that there were some of the levers that we can address and, you know, we are investing heavily in productivity program. I mean if you think about it we've always been the leader, we were the first ones that came under 5, first ones to use Six Sigma and now we are first one to use Lean Manufacturing techniques, which really are from the manufacturing [sharp growth] in software. It's an interesting journey, we are just getting started on it but we are the first; we are discovering a lot and we are able to, you know, take our 10% of the cost and about 20% of the cycle time out.

Okay, but you -- if you had just on the point of mix shift on the offshore versus on-site is that something you will expect -- you expect that the offshore component to continue to increase at the gradual rate.

That's correct.

Okay thank you.

Thank you and our next question comes from Trip Chowdry from Midwest Research. Please go ahead.

Yes sir. Congratulations on a phenomenal execution here. I had a question on the acquisition strategy you may have -- you did extremely well by acquiring American Management System. You here and I was wondering they will be heading with future acquisitions and what kind of companies you may be acquiring or thinking to acquire?

I think that if you look at the acquisition strategy we continue to look at, you know acquisitions of all flavors. We have looked at acquisitions -- if I looked at it sort of just the last six-months of limited acquisitions that were similar to the ones we have already made. We've looked at acquisitions that were consolidation acquisitions that would give us maybe a wider footprint in a particular vertical. We have looked at acquisitions that were specialty practice lines that we could add, so I can't say that we have changed from the course we charted out early which is that our acquisition strategy should be extremely opportunistic and outside the IT services area we have made significant acquisitions in the Consumer Care and Lighting business as well.

Perfect. Also you know you have been very vocal about talking, telling publicly like the whole objective of Wipro is actually to be one of the top 10 leading IT services company in the world. I was thinking what kind of initiatives and strategies do you have in place to achieve this objective and when do you think we may see that happen?

Well, let me start by saying you know one of the things that we already top 10 in; we are already top 10 in net interest. We are already top 10 in market capitalization. We are just not top 10, we are a top 10 in headcount. We are just not top 10 in revenue. So basically what I mean is that we should be charging a lot more for headcount than we have been in the past. But anyways I would say if you look at that you know fixed loads of that mission are already accomplished, if you look at -- if you look at on the software side for example, you know there is a knowledge management association, they came out with a list of top knowledge management companies in the world. We were number six. You know, so if you look at analysts, if you look at all kinds of things that touch our business processes, we benchmark ourselves against in everything against the global top 10 and we are pretty proud that adjusts with the revenue line we are there. Now we always buy revenues but we’ve stayed away from that. I think that you know, we to answer your question of how do we go about it. There is no sort of you know brand thing that we do, it’s everyday, a check-away every process that we have to get up there.

Okay. Thank you.

Your next question will come from Moshe Katri from SG Cowen. Please go ahead.

Thanks and good evening. A couple of follow on comments. Richard, you spoke about pricing trends in general. Is there any way for you to kind of speak specifically about pricing trends by R&D looking at your R&D segment and then looking at the enterprise services segment that’s number one? Then, I just wanted to clarify that the 18% attrition rate excluded your IPS division and then you did comment on M&A, but in that context maybe you can comment on your willingness to complete acquisitions that could be dilutive to earnings? Thanks.

Okay. Let me break that up; first on the pricing trend. I think the trends of pricing are reflected based on supply and demand and competitive pressures in the marketplace. Customers tend to get what they ultimately want and you know currently you have seen the robust growth with our whole industry's experience over the last year, supply it seems tighten, so I think it’s going to be natural what happens over the long-term, we are doing things on a couple of different fronts to obviously mitigate the effect on profitability. We've talked about that already our focus is on productivity and bringing value to our clients through those measures. With regard to attrition, the attrition data is not the 18%, it is not including the BPO business, the IT-enabled services business and on their acquisitions like Vivek said we are looking at an array of different opportunities to bring value to the business both that effects various strategies or either service line expansion or geographic additions that add value and are accretive to the business. I don’t believe we have too much of an appetite to do things that are non-accretive to our existing business situation right now.

Excellent thanks, good quarter.

Thank you.

And once again if you do have a question please press "*" then "1" at this time. And we will go to the line of Richard Davis from Richard W. Davis. Please go ahead.

Congratulations on an excellent quarter. My only question is about the packaging implementation that continue to be strong, there were some concern about it last quarter?

Yes, it's rich again. Package implementation I think you know, I'm pretty happy with the results of last quarter. Yes, we did not have quite the quarter-to-quarter sequential growth. However, if you look over the last four quarters we had a compounded quarterly growth rate of 14% and we -- as we continue to balance our portfolio of revenue growth and manage profitability we did some things to improve the mix of the business and that enabled us to bring a balanced approached to revenue growth and profitability. Our outlook going forward based on our pipeline, large wins and large wins that we talked about last quarter that will ramping up in the subsequent quarters as we go to the knowledge acquisition phases. We feel pretty optimistic that we will continue to grow that business aggressively, and possibly look -- I don't want to get too much in the way of any guidance, but we are very optimistic about the framework of that business returning to the historic growth level.

Thank you very much.

Thank you. Your next question will come from Sameer Nadkarni from Hambrecht & Company. Please go ahead.

Yes, hi guys, nice quarter there. I have a couple of quick questions. You are up to about 370 customers in IT Services, and I was just curious what you see as the biggest hurdle, clearly you are targeting like equivalent thousand or beyond that, as your target market and so I'm just curious about any thoughts in terms of what you feel is your biggest hurdle in expanding that customer base?

We're doing two things in terms of the customer base, so one is looking at opportunities within the existing markets that we have and also addressing near markets that we've not been there. So what are the wins that we've talked about in this announcement has been the win that AXA in Australia for example. In the existing markets we think that there is still a lot more to be covered both in terms of farming our existing customers as well as for hunting more customers within the Fortune 1000, so one of the reasons why we've grown, is that we've been doing a lot more hunting than farming and much of our sequential growth and our year-on-year growth has come through new customer acquisitions. We think there is a play in much of the existing customer base as well, and we are going to be continuing to work on both, so we will work on, you know, getting more customers within the Fortune 1000 list and also expanding in territories where we've traditionally not been strong in the past.

Alright, okay, so just in terms of a follow-up to that, your outlook for the global IT services line for the next quarter seems to imply about a 6% growth rate sequential, and in the context of a pretty strong demand environment and your comments on price stabilization it appears to be very conservative so I am, just curious if you can comment and I will be curious for any thoughts from Vivek and Sudip on sort of what in your minds are the -- you know two or three biggest concerns going forward?

Actually before I do that I thought may be Suresh Vaswani can talk about the early part of your question about the enterprise accounts because he runs some of ours specialty services and we are using that really well to open up new accounts too.

So you know I will talk about two service lines which are major growth drivers for us one is the technology infrastructure services line. You know in this space we are increase -- we have actually become a full services provider. We do infrastructure management including data centre management and desktop management. We also do a lot of infrastructure integration, and we clearly leverage a completely global delivery model like we do for applications development and maintenance services. So we view this service to actually break-through into a very significant break-through in a UK in a company called QI which is one of the largest travel services company in the world I think, and here we are doing infrastructure management which spreads across 10,000 desktops, 300 servers, 800 locations in UK and it covers the entire range of our infrastructure management services like help-desk, desktops, server management security services like, you know, so we have used -- this is pretty unique to Wipro in terms of an end-to-end infrastructure management services offering, and we view this to expand our customer base and you know this is not a breakthrough in context of an application development which has been our traditional business, but a breakthrough in terms of the infrastructure management which then leads things for a lot of our other service line to go. Likewise we have a very interesting service line that Wipro offers which is the testing services line. It was traditionally very focused on our technology services but we now expanded the testing services to cover the enterprise into financial segment as well. And we've used this service to make entries into a lot of software product companies, a lot of telecom infrastructure companies as well as lot of enterprise companies. So clearly in terms of expanding our market reach either within the accounts or outside our existing accounts we are using new service lines.

And to answer your question -- you worry -- what you worry about, I think as what I captured earlier, which is a really more worry on the supply side than the demand side right now. And that's not to say, you know, business is jumping of the road and jumping into our pocket, I mean still lot of work to be done by the team. But really at this time it's how do we keep the demand and how do we do in a way that does not hurt our record of delivery.

So let me just elaborate one point, you know, the fact that we have a pretty wide service line offering gives us a very strong capability of growing in our existing customer base and I think we need to do that more and more. It also gives us the capability of opening up new accounts. You know because we have a pretty large service offering in terms of number of service lines. So whether it is Infrastructure Services or BPO or Application Development Maintenance or Testing, they are multiple openings that we can create in different customer situations.

While your comment on the guidance outlook I think what I think -- to remember is that this quarter we have less number of billable days then our normal traditional quarter and that's reflected in our in our guidance

Okay great just one other question in terms of the enterprise sales team, can you provide any headcount numbers in terms of the hunting versus the farming focus teams?

No, -- I am unable to give you the details of the number of sales force that we have in the field.

Okay, but just in terms of sort of, you know, what the mix would be on a relative basis is it evenly split or how that -- how the mix works out?

Yeah, about evenly split.

Okay, great thank you.

Later we will take the question out and I will explain to you.

Okay. [inaudible].

And our next question is from Ameed Khan (phonetic) from Elf Investment (phonetic). Please go ahead.

Do speak up, okay? Go ahead.

Mr. Khan line is open.

Yes please.

Hello, can you hear me?

Yeah.

Hello.

Yeah we can hear you.

Okay, yeah, just one thing if you could, you know, clarify a little bit more on the stock option plan that we came out with; just trying to understand would it be [capture] the cost activity level or the SG&A level of split across and if you would also give us a sense of what is the percentage of employees who will get covered by this stock option plan?

You know , the coverage is about -- for the key middle managers and senior managers here and if you look at this particular scheme it primarily substitutes the stock option plan that we used to have in the past because we found that the kind of expensing that is based on a [black insured] value that one does, the -- the value by the employee is not in line with that so we thought that this kind of schemes in terms of the non-cash charge you take into the account is in line with the pursuit value by employees. And this is a retention tool, this is rewarding tool and this is to motivate employees, this is also too align the interest of the employees with that of the shareholders and therefore, we have come out with this particular scheme and it has been pretty well received by the employees who have got them.

Yeah, I am feeling that Mr. Senapaty just to clarify will this entirely be as affected at the gross level or it could also go down to the operating level, the SG&A level?

Yes, depending upon whether the particular employee is under the -- well cost of goods sold or the SG&A.

I see.

He will get [it] accordingly.

Alright.

But it is exactly like the stock option expensing generally takes place.

Yeah. Okay. That helps. Second, Vivek what are the, you know, concerns that whatever I have seen there in the last couple of quarters back was the, you know, the currency fluctuation and that moving [inaudible]. I was just wondering if you could throw some qualitative, you know, factors that you would consider before, you know, really taking this into consideration as that if you really moved the other way round of the [installs], I mean quantitatively I understand it maybe a little difficult thing to talk about, but how concerned are you about that and, you know, going forward what is the consideration that you will take while going back to clients to ask for the price hike based on this?

A little bit of -- with our heavily hedged position we would look brilliant and it will be really moved in our favor, but having said that, I think that what we are seeing is that in some sense jut the fact that compensation levels are rising is creating an environment where we can talk to customers about getting potential price increases. However, I have maintained in the past -- calls and I continue to do so that the biggest co-relation we see in getting the price increases particularly down the material projects is linked to the fact that they see their own employees getting higher wages and so it really isn't into that. That's why most of the pricing increases we've got have been through -- these are new accounts where we could reset the bar or through mixing in a higher level of services that [inaudible] specialty services, so we can get a higher average yield. But just going back to customers saying that the rupee is stronger, it’s not a very powerful argument. The more powerful argument is compensation increases and even that has limited play for existing customers under existing contracts.

Okay, fine. And the one final check, Mr. Senapaty, if you could give us the CapEx that you did for the half for the global IT business?

Yeah, Lan said he will give it to you offline.

All right. No problem. Thanks a lot and all the best.

Thank you.

Our next question is from Bhuvanesh Singh from CSFB. Please go ahead.

Hi, sir. Just wanted to have some color of renegotiations of various clients, has any of our large accounts renegotiated in the last quarter -- has anyone started renegotiation in there?

Yes. We have had some increases from some of the existing customers, particularly in the telecom side of our business.

Any of our top 10 accounts renegotiated?

Regarding the pricing on the existing customers, we feel that we should be able to keep the prices stable because for our existing accounts we have the annual contracts and then we feel that going forward we should be able to keep them.

That was our [telecom] head, Dr. Rao.

Okay.

Majority of them will come for renegotiation next year, which is January of 2005.

Okay and typically I think it has been a December or March quarter, which has seen the highest amount of renegotiations for us. So is there any sort of color as we go into that and like Vivek earlier said that wage hike could be key, but it sort of sounded that we are not expecting huge amount of price hike, but more like maintaining existing. So what could change that in next 3-6 months or should we take up that pricing as our briefcase?

I think that as I mentioned earlier, first of all head-to-head pricing discussions are very difficult. I think that we can -- we do have a reason to the compensation increases to be able to ask for and get some moderated price increases. I think that to get a, you know, fast picking up price increase, salary structures in the United States have to rise and Europe and we are not seeing that happening. So we are seeing moderate price increases.

Okay, and the last data question from me, can you give me the BPO billing rate for the current quarter, how they have changed over the previous?

No, we have said that there has been a marginal sequential decline.

Okay, thanks.

And our next question is from Mr. Kapoor (phonetic) from ABN AMRO. Please go ahead.

Yes, hi, this Pankaj (phonetic) here. Just wanted to know from you that what is -- are we listening from our customers in terms of what skills are they asking us to build us on in terms of domain skills or technology skills and what are you hearing from your major customers?

Hi, this is Girish Paranjpe. The kind of usual expectation from our customers is that we have a combination of technology and domain knowledge. And as we do more work on new application development, I think the requirement of having higher domain knowledge goes up. On the other hand, where we have more application management [handle to work], it is more technology-centric and the requirement of having domain-specific knowledge is somewhat lesser. So, again I don't think there is a big change in what has happened, it simply depends on what kind of business is done there.

But also similarly demands are there in the package implementation area, demands are there in the R&D side in the telecom space, particularly in the mobile and the embedded area. Those are some of the skills which are very hot and where demand is very high.

Okay, are the customers also asking us to look into different nature of contracts? For example, typically moving from the milestone based fixed-price contracts to more benefit sharing or SLA-based contracts?

Definitely, I think more customers are wanting to move to an SLA-based contract where it is on application management. Where it comes to new development, I think fixed price has been the preferred models for them to do work provided there is sufficient clarity about what is sought to be achieved. Benefit sharing contracts have been talked about, but I don't see them playing a big part of what we do for a [person].

In fact, our technology infrastructure support services primarily is SLA-based.

Okay, but these will be largely on a technology level SLAs, not business benefit related SLAs.

Yeah, that's right, but [multiple speakers] have been implication anyway.

I mean, the service level is in operational terms.

Right, just a related question, in terms of how are we approaching a customer in terms of an integrated offering among the application as well as the process side skill that we have, you know, basically from the Spectramind and from the Global IT service business, so how successful we have been in able to integrate and sell them as a joint offering to the customers?

Yeah, Wipro's overall value proposition is the breadth and depth of our services. I think that if you stand back and look at what our offering is and how we differentiate ourselves, it is because of that breadth of capabilities and we have seen through integrated selling organization the strength of the market acceptance of those capabilities. We have reported in past quarters a number of major wins where the key differentiator in our wining the engagement was the fact that we have strength from embedded technology, the high key services, the business process outsourcing, and even there high-end consulting services and even in there we have a capability set that you need in quality set consulting capabilities. So that integrated approach is giving us the clear differentiator in the eyes of the customer.

Just to add what [inaudible] just said, you know, we also have for our major accounts, you know, strategic account manager's position in those accounts and they are able to integrate the entire organization's offerings for different service lines and bring that to the field.

Okay, fine. Thank you.

Just to answer the previous question of Khurana, the CapEx for the quarter -- for the half year one was 278 crores in global IT services, of it about 153 crores is for the year -- for the quarter ending September.

Our next question is from the line from [inaudible]. Please go ahead.

Louise (phonetic) we will take the last two questions.

Thank you

Yeah, okay. Go ahead.

Yes, guys. Again, [inaudible] here. Can you guys speak to plan to potentially build more of a consulting present in the U.S and what the progress is on that track recently?

Yes, we have a consulting organization there in the U.S which is headed by Tim Matlack and this was part of the team which came in from AMS and there is another team which came in from Nerve Wire and between the two teams we have now formed a consulting horizontal which sells our consulting offerings to our various customers. We have focused in three or four specific areas; we've focused in the energy and utility space and the financial services space and in retail. The other consulting practice that we have is on six sigma and quality consulting and that's also a service offering hat we provide to our entire customer sets across the world.

All right. Can you speak to -- when you look at the value of that consulting op, how much of the value is from basically the direct consulting sales versus the sort of pull-through revenue that you give to that unit through cross-selling selling activity?

Maybe we can also talk a little bit about the Six Sigma consulting that we do.

My name is Vaid (phonetic) and I run the six sigma and quality consulting. In the last one year we have had about 30 assignments with 12 of our large customers, because in this particular business what we try to do is to help our clients improve their own quality process either through six sigma or through CMM, CMMi type of consulting, and we have had very large number of ongoing engagements that are still going on, and we see this business expanding reasonably overtime. There is a lot of research now in the U.S. especially of people wanting to improve their own software processes and seeing how they can get more bang out of the IT budget. To answer the question on the consulting as a percentage of revenue for this quarter, it's 2.1%

Hi, Girish here I just wanted to add that -- you asked for -- you are looking only for the consulting piece or looking for pull-through revenue. I think it's not only the full through revenues that we care about, but also the level of relationship that we are able to build in a customer. So we tend, we want to serve our customer in every possible way we can.

Sure. And for example in the six sigma practice, are you seeing pretty good progress in driving sort of IT services work through that consulting practice or is it currently, primarily sort of standalone six sigma deals?

Most of the time it has got both in it; some times accounts that will credit through the six sigma consulting and down stream in our other business and sometimes you look at existing customers who have a large amount of business and you help them improve their processes for the six sigma mentality.

Great. Thank you guys.

We are taking the last question Willis.

and the final question will come from the Mr. Davis (phonetic) from [inaudible]. Please go ahead.

Yeah one additional question. It looks like there is a shift in size in the area of $5 million to $20 million in revenue from the prior quarter and I wonder if that's a sustainable trend? And another question I will have is that, it appears that the billable offshore volume is -- rather billed offshore volume is increasing, therefore that's a shift to more profitable operations. Is that going to continue you think?

Absolutely. If your question is that are you looking forward to increased offshore mix; of course. I think you have to split the question and just repeat the question please.

Yeah, it appears that in terms of volume size that the area between $5 million to $10 million and $10 million to $20 million has, in fact, increased over the last quarter and I am wondering if that's likely to continue?

Well, we don't see any forward-looking outlook as specifically done to our customer mix, but I think that's indicative of our continued efforts to not only grow our customer base but further penetrate our existing customers and grow through expansion of service offering into that existing customer. And with that expansion, as we highlight it today, we have capabilities ranging from depth of technology capabilities from the embedded business, depth in the IT business to the IT enabled services BPO business and you talked just refilling about the quality consulting area which enables us to take a broader perspective of our engagements with our clients and that's reflected in the revenue mix and large customer growth

And if this is the way if I may add, I think I understood your question to be that we have seen growth in a number of accounts greater than $1 million, $5 million, $20 million, $10 million in revenue, and I am pleased to say you know at least as far my memory serves me this is at least sixtieth quarter that we have seen that happen. So we are not concerned that that's a one time spurt. I think we have steadily seen that growth for as long as I can remember.

Thank you for your comments sir.

You're most welcome.

Thank you very much, and if you have any further questions, please do email me or call me on my mobile or to Louis.

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