Wipro Ltd (WIT) 2005 Q4 法說會逐字稿

Welcome to the Wipro Earnings for the period ending March 31, 2006 Conference Call.

At this time all participants are in a listen-only mode.

Later we will conduct a question and answer session with instructions given at that time. [OPERATOR INSTRUCTIONS].

As a reminder, this conference is being recorded.

I would now like to turn the conference over for our host, Mr. Sridhar Ramasubbu.

Please go ahead sir.

Thanks Julie and thanks everyone for joining us for the first -- fourth quarter results and earnings call for the quarter ended March 31, 2006.

Jatin and [Lan] from the IR team join me in conveying a warm welcome.

I appreciate you joining the call at this early hour.

With us today we have Mr. Azim Premji, Chairman, Mr. Suresh Senapaty, CFO, and other members of the senior management team including the Business and Accounts.

I hope you have had an opportunity to review the press release we issued today morning under U.S. GAAP.

Let me give you the [procedure] for today's call.

Azim Premji will share his perspective beginning with an overview of the results and Suresh will take us through the financial highlights of this quarter.

As a reminder, when we discuss our results in today's call, some of the issues we discuss may be forward-looking.

I’d like to advise you that these statements maybe subject to known and unknown risks and uncertainties that could cause actual results to vary materially.

Such risks and uncertainties are discussed in detail in our filings with the SEC.

Wipro assumes no obligation to update information presented within today's call.

The call is scheduled for an hour, then the earnings call proceedings are being archived and transcripts will be made available to after the call at www.wipro.com.

I'm only on e-mail and if you have any specific question which you were unable to ask, please send me a mail and we will address those questions as well at the end of the Q&A.

So with that, let me turn over the call to Mr. Azim Premji, Chairman of Wipro.

Good morning to all of you.

Thank you for being present.

By now you will have seen our results for the year and quarter ended March 31 2006.

Although the management team will be happy to answer your queries, I would like to take some time before that to share some of our thoughts on our performance and our prospects.

The results for 2005/2006 were immensely satisfying on many fronts.

During the year we made strategic acquisitions, made several organic investments for accelerating growth, drew up an aggressive strategic plan, added highest ever number of people to our team, and streamlined and flattened our organization structure.

Through all this we delivered industry-leading revenue growth in all our businesses, recorded strong profit growth, stabilized margins and crossed several landmarks in the process.

I believe that our solid performance is yet another pointer to the resilience of our business model.

And, more importantly, the unflinching spirit of the [inaudible].

The results also prove yet again that to reap benefits tomorrow, you need to sow the seeds today.

In the past we invested in incubating newer services such as technology infrastructure services, testing services and total outsourcing.

And in new geographies such as Europe, particularly Continental Europe, and the Middle East.

Notably our R&D services and Europe [view] crossed milestones of INR0.5b in revenues this year each.

It is very heartening to note that a strong growth in our global IT business last year was driven by areas where we have invested proactively in the past.

Similarly our investments in innovation initiatives are beginning to pay off.

Innovation initiatives contributed 5% of our revenues for fiscal year.

Many of our strategic customer wins, including some key wins in the quarter, remain possible because of the breadth of our services and because of our innovation initiatives.

Similarly in India, Middle East and Asia/Pac IT business, we delivered strong revenue growth of 23% and profit growth of 45% in '05/'06.

But more importantly by winning five total outsourcing contracts, we have set a platform for sustaining our high growth.

The most recent win of $80m total outsourcing contract from HDFC Bank in India is an indicator not only of India's maturing IT market, but also Wipro's growing confidence in this unique specialized service line.

The strategic as well as operational success of 2005/2006 behind us, we look forward to 2006/2007, and beyond, with excitement and with enthusiasm.

The offshore IT industry is evolving from a simple service provision mode to a more complex and higher value-added knowledge-creation mode.

Delivering value to customers in the emerging scenario will require a comprehensive but tightly knit combination of domain expertise, integrated service offerings, innovative solutions structuring and deep technical expertise.

We have identified and rolled out initiatives in our strategic and operation plans in this direction.

We are confident that this will be a significant differentiator for us that will enable us to continue to lead industry growth.

Additionally, inorganic initiatives can help accelerate this process and supplement organic growth rates.

Our experience with acquisitions so far has been quite satisfactory and this has boosted our confidence.

This will enable us to pursue the strategy more aggressively in the future.

We'll severely pursue strategic innovation initiatives identified in our strategic plan to deliver strong growth in the future in all our businesses.

Clearly Wipro's businesses are all in the sweet spot of strong growth.

We have the game plan to leverage opportunities and realize our growth potential.

At the same time we will continue to invest to build the next step of growth engines that will help Wipro deliver a sustainable and profitable growth in the future too.

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

A very good morning to all of you in the U.S. and good evening to all of you in the Asia region.

Before we take on questions, I'll touch upon areas in our performance and financials that will be of interest, and then we'll offering questions and answers.

Let me start by highlighting the fact that for the convenience of our readers, our U.S.

GAAP financial statement has been translated into dollars at the noon buying rate in New York City on March 31, 2006. [inaudible] Bank of New York which is a dollar is equal to INR44.48.

Our revenues of our global IT services segment, which is $512.3m, are in good return $23.1m. [inaudible] now starting to [inaudible] at $519m based on this convenient translation.

Revenue growth was in total 8.2% sequentially.

While IT Services grew sequentially by 8.2%, our BPO business registered 8.5% growth.

Volume growth was 7.4%, an improvement in offshore and on-site realization of 0.2% and 3% respectively, continuing to contribute to this growth.

Revenue from acquisition of New Logic and mPower contributed 1.8% to revenue growth of global IT segment.

On the ForEx front, our realized rate for the quarter was INR45.10 versus the rate of INR44.79 realized at the quarter ended December 2005.

And at period end we had about $600m of hedges at rates between INR44.60 and INR45.50.

We had effected an increase of approximately 3% in compensation of our on-site staff effective January 1, 2006.

We also saw the full impact of salary hikes given to our offshore staff during the quarter.

The impact of this compensation [inaudible] was 1.4% on our operating margin.

Operating margins were also affected by losses in the [inaudible] New Logic, which was in line with our expectation.

On the other hand we saw better price realization, improvement in utilization, including a proportion of offshore projects and better project realization.

Our Wipro business continues on the right track by delivering yet another quarter of operating margin expansion, apart from improved revenue growth.

These factors have helped not only to absorb the downward pressure but also improve our operating margin by about 10 basis points.

For the quarter ended June 2006 we expect volume-led growth with broadly stable price realization.

While lower profitability from acquisitions will continue to impact profitability, we will endeavor to maintain our operating margin in a narrow range.

New we'd like to take questions.

[Vasili] we can go to Q&A.

Thank you. [OPERATOR INSTRUCTIONS].

We go to the line Moshe Katri with Cowen & Company.

Please go ahead.

Hi, thank you very much.

And I have a couple of questions, maybe first, Suresh, you spoke a bit about the impact on margins during the quarter from FX.

And you did say the acquisitions had an impact as well.

Is there a way to quantify the impact of the acquisitions on margins during the quarter?

Yes, it was about 0.4% based [on it].

Okay.

And on a forward basis how far do we expect these acquisitions to continue to impact margins?

Is that a one-quarter thing or this continuous and for how long?

[inaudible] we are [inaudible] suffered [budget] and the [segment] [inaudible] is taken in the [inaudible] for about 2 to 4 quarters will show them separately in the [inaudible] before we're taking them [inaudible] global IT services [inaudible]. [inaudible] available for the finance side.

And Suresh, is that specifically related to utilization rates in those operations?

What's exactly bringing down those margins?

Two factors, one is that when we buy this company they're not necessarily operating at a margin which is similar to ours.

And [inaudible] and therefore they tend to be diluted to start with before the synergies begin.

And the second thing is under the U.S.

GAAP the [reporting] intangibles we get [inaudible] and they have to be amortized over a two-year period.

And that has an additional impact.

And the third thing is, for example, the New Logic deal that we have, there is a complement of an [IP] which takes two quarters for it to build the synergy and getting together [inaudible] fully [inaudible] and what we [inaudible] and we definitely want [invested] in how exactly [inaudible] negative restructure.

So it will happen on time it does not affect the process of integration which is as planned from that perspective.

They are the two reasons why the margins tend to be diluted to start with and thereafter it’s kept in the mainstream.

Okay.

And then can you just remind us what sort of assumptions you have for the General Motors contract?

Did you start servicing GM under this new contract, what's the update on that?

Azim here.

I do know the new contract servicing would really start from July.

Therefore General Motors is an existing customer of ours even before we got this contract.

We're committed to do lot of work particularly in the application development area.

And that can be used [basically] and [inaudible] June and the last [call] you'll see some kind of a transition, and post July or post June the new contract will kick in.

So on a run-rate basis this is going to be also that the GM contract will also be dilutive to earnings or maybe margins at least initially?

The GM has been our [inaudible] several years to date.

So from that perspective whatever margin we currently have and what we will get in the new contract, they won't be significantly different.

Okay, that's very helpful.

And then finally, what sort of an effective tax rate do you think we should use for fiscal '07?

Well, if you look at the ETR that we got in this quarter it was little lower because we had some one-time write-backs.

And therefore they impacted about 80 basis points.

For the whole year they impacted about [40] basis points.

So which means on a normalized basis it will not [inaudible] and thereafter we think the ETR in the medium term would not be -- would be in the range of [100 to 120 points].

Okay, thank you very much.

Thank you.

We'll go to the line of Trip Chowdhry with Global Equities Research.

Please go ahead.

Thank you.

Again congratulation on good execution.

I have two questions.

First is regarding deal structuring.

There are certain Indian companies who go and -- for a deal alone, and there are certain companies and certain situations they partner, let's say, a U.S.-based company and they win they deal that way.

And I think in Wipro has two-pronged strategy.

I was wondering in terms of deal closure rates and also in terms of deal sizes, what are the different dynamics that get placed in these two different approaches?

And where do you think moving forward, will one of them will be [technical difficulty]?

Hi, Girish here, I'll try to answer that question.

You know every deal has its unique characteristic and we make a judgment when we look at a deal.

First to bid for it or not to bid for it.

Because I think that's a very careful screen that will be used because we could spend a lot of energy, time and money chasing a deal which we would -- in the end would not be productive for us.

So that is a screen that we go through.

The second screen we go through is whether we can -- we have best positioned to win it on our own steam, or we need partners and alliances to win those deals.

So again it goes through our own assessment of the competency and winning capability.

And based on that we make a call on whether we should make alliances or don't make alliances.

Given all of this it is difficult to give a straightforward answer on what is our [preferred] model.

Though [inaudible] many things on this is that we would prefer to win deals that make money sense for us on a long-term basis.

So part of the bench -- that is the kind of thing that we use and not get bothered by whether it is direct, indirect, whether leads to a short deal, long deal.

Those are kind of [inconsequential] issues.

Okay.

Next question is for Mr. Senapaty.

I was wondering regarding the outlook on tax policy.

I think that [the current] tax policy finishes, comes to a close in 2009.

And I was wondering based on special economic zones like probably you are taking advantage of, what would be the rate expectations on long-term tax rates?

Thank you.

Yes, I think the policy is already announced.

There are some details which are still to come about.

But based on what we have seen, and what we think has been envisaged, we think the special economic zone use -- making use of that we should be able to maintain the ETR at around -- within the 200 basis points level.

Excellent.

In the medium term.

Thank you.

Thank you, and our next question comes from the line Joseph Foresi from Janney Montgomery and Scott.

Please go ahead.

Hello.

I was wondering if you guys could give us some color on the IT services revenue guidance for the June quarter?

And also how maybe how we could expect to look at revenue growth throughout 2007?

Yes, if you look at -- so far as quarter one is concerned the real guidance comes out to be about 34% y-o-y, for the June quarter.

So far as the year is concerned, as you've seen over these several years that we have been operating in this part the industry, we've always grown faster than the industry.

And we continue to look forward to growing faster than industry even in the current year.

If you've seen the last year’s results we have got good addition of customers in terms of 171 customers.

We've got a good decent employee [inaudible] net, 11,000-plus people.

So what is that [inaudible] just confirm.

We have got about 221 $1m customers which significantly up if compared to last year.

And so all this plus the kind of investments we have done in the various growth and admin drivers as well as the acquisitions that we have done we see a lot of traction, we see [inaudible] of optimism that we [inaudible] very good year.

And as far as seasonality's concerned, I think the September quarter has more days, am I correct, and so we expect a bump in September and just sort of flatten out throughout the back side of the year?

I would say longer [inaudible].

And just one more quick question here.

I was wondering if you guys could give us a little more color on how you see the margin levers.

Your on-site offshore revenue mix and utilization playing out throughout '07.

And do you guys see a lot of headroom in those areas should there be an increase in margin pressure?

Yes, actually we have seen in last quarter itself we have bought somewhat thick on the utilization and therefore get a comfortable margin expansion.

We have about 50 basis points of improvement in the offshore, the last few quarters were increased about 200 basis points.

Going forward yes, we look at opportunities under both these areas.

Also we have about 42% of our employees based in the offshore which are less [inaudible] and which has improved from about 35% a year back.

We look forward to further optimization in that area without compromising on the customer delivery and the complexity of the project that we are handling.

So combination of these three factors, we think the margins will be in a narrow range movement going forward and whatever [average] percentage that we get we will want to reinvest in terms of growth.

And just one last question if I could.

I know you described your approach to the market is continuing to go after large deals and strategic M&A activity.

Any color on that going into '07?

Is that still the focus there and any details you can give on that?

Thank you.

Yes, I think we have seen some of -- we wish to have -- we have a partnership going [inaudible] operations in India.

We have this total outsourcing.

And there has been significant [outsourcing] in India.

For [inaudible] about 3 to 4 months back we launched a global offering and we're still on traction in that including some wins in that respect.

We're not able to announce all of -- some of them because of the confidentiality.

But [inaudible] respect we think we have a decent funnel on which we are working now.

And we should be looking forward to for some time now for some kind of wins in that area.

So what is M&A concerned?

We have already done three which we've announced.

I’d like to say that as part of our strategic plan we go –- geography-wise we go back [inaudible] wise and we go vertical-wise and so vertical-wise we would have to fill one of those gaps which will help us enhance our share of [inaudible] existing customer base that we have.

And because some of these must have accounted with classify to [inaudible] driven to them and grow our business there.

That is now we identify the demand if so called for the M&A activity.

Then we go into the market and what is available in the target company and we try to deal with that or we try to do some change of some of the deals.

As we said that we are not looking at trying to get cheap deals but trying to get deals which are of a strategic nature and reasonably priced.

And we're a very high level of comfort to be able to exploit the synergy benefit.

So that is then the criteria on which we've done these three deals over the last three, four months.

The experience has been very good and we'll -- are more encouraged to pursue that.

And therefore we look at [inaudible] '07 we will be fairly active.

There is very senior management team working on it on a full-time basis and we have done a lot of operation and the overall skill levels to be able to handle that both from a [deliverance] perspective, negotiation and [also an] integration perspective.

And therefore we'll continue to pursue such things.

Great, thank you.

Thank you.

And our next question comes from line of Ashwin Shirvaikar from Citigroup.

Please go ahead.

Hi, thanks for taking my question.

A question on the increasing complexity of deals that clients are asking for.

As the complexity of your business model increases, what kind of investments do you think you'd need to continue to make in your people, in management, as well as in infrastructure to support that demand?

And what's the timeframe for that investment?

Yes, this is Pratik here.

Well, we have a fairly clear view of the kind of emerging skill sets which we think we will need to build in our own organization to be able to achieve the kind of growth vision we have for ourselves.

It's linked to the delivery organization as well as the more market-facing roles which we have.

We do think that we will have to create a catalog for our own program managers as deals become more complex, that the execution responsibility becomes of a different dimension.

We require more experienced people who have been able to handle such programs to be able to do it effectively.

We just rolled out a program internally, along with Stanford University, where we are jointly working on that program and with an intention to be able to create very solid training in-house [lead] 100 program managers in the organization.

That's one.

Two is again on the delivery side.

The project managers, and we do have a very intense program rollout, how to be able to identify these project managers, how we go about figuring out the skill gaps, how we go about investing in it.

Besides this of course the more consulting-led skills which is a transformation journey we have been on.

We continue to -- we are conscious of the fact that it's not a question of [inaudible] we've got to actually bring in the right kind of role models who will be able to train people internally.

And all [inaudible] of time we have been able to execute that very successfully.

The last is just around building the technical [river] in the organization.

And we have rolled out a very detailed technical stream in the organization, which creates career paths for people to be able to grow doing deep technical work and be able to skill up and continue to progress in their own organization.

And above all this we have made adequate investment in being able to train our senior leadership as they begin to take on challenges of managing across the globe leadership responsibilities, and be able to rise up to the demands of that.

So that in a nutshell are some of the things we identify and we have invested in and will continue to do so going forward.

And so far as the operating [inaudible] are concerned we are investing quite a lot in terms of new locations, development centers, not only in multiple other locations in India, but also overseas.

So [inaudible] centers in China, about two centers and perhaps we will start a third one pretty soon.

We are looking at other countries.

We are putting a [inaudible] center in Bucharest in Romania, which is operational this quarter.

We are looking at several other centers also in the [inaudible].

And perhaps in the next two or three years we will have multiple more countries where we will be having our presence in terms of servicing or making the global delivery model much more mature.

Okay.

That doesn’t sound like you have really a skill gap where you need to make an acquisition though.

These are all organic initiatives, internal initiatives, right?

So this [inaudible] six months out of that to supplement that.

Like I said, we have identified the gaps in each area, whether it is vertical, [practical] or geography.

And based on that, we will be pursuing in all our activities.

Hi, Girish here.

I just wanted to add on, you know the gaps that we face and what we try to fill through acquisitions are much more niche than the kind of gaps that you brought up, either on program management or else.

To give you an example, the acquisition we did on the -- in the payment space actually filled the gap that we had on the payment processing area, which is what we didn’t have based on the work that we had done.

Similarly, the other acquisition that we did recently was on the business service management space.

The third acquisition is on analog devices.

So it’s very niche areas where we do acquisition to build competency, where we think organic process will be too slow or will not happen.

Okay.

And separate question, if I may, on the margin outlook.

If you could perhaps go through the margin outlook assumptions, excluding acquisition and large deal impact, suggest how is the core business likely to do for separately for IT and BPO, that would be helpful.

Thanks.

Yes.

On the IT services side, we think the margin will be moving in a narrow range.

As far as the BPO is concerned, I think we’re seeing a fair amount of expansion margins through the last quarter.

And, of course, the next two quarters we will see better improvement then also.

But we are talking about a range which is 18 to 20%.

And we think we will be there pretty soon.

And is that 18 to 20% sustainable?

It is. [22%], yes.

We think that is a range where the margin of the BPO business can sustain.

Okay.

Thank you.

Thank you.

We have a question from the line of [Julio Quintero] of Goldman Sachs.

Please go ahead.

Thanks.

Good evening guys.

One quick question regarding the guidance that you referred to.

I believe it was 533.

What percentage of that guidance to 34% growth is coming from acquisition -- the [inaudible] acquisition?

We haven’t talked about the number of [inaudible] separately.

But [inaudible] that acquisition number will be given in the second quarter.

If you look at the number which was in quarter four, which was about $10m.

About 10m?

$3m.

I’m sorry, $3m?

Around $3m.

Okay.

Got it.

And also related to that, as you look at the margin assumptions into the next quarter, I’m just wondering that there was two -- it sounded like you had a wage increase both on-site and offshore in the current quarter.

Was that out of plan, assuming that you guys normally pass through your wage increases in October?

Yes.

We did the offshore compensation increase in November, which is the big month, that’s right, for the offshore.

But the on-site we did it on January 1, 2006.

Got it.

And how much was the offshore increase?

It was -- earlier it was done on January 1, 2005.

So in fact it was January 1, 2006.

Okay.

Got it.

And then just maybe looking at the performance in the current quarter, can you talk a little bit about the package implementation business?

It looked like it might have been just on a percentage of revenue basis, it looks like it may be a little bit of a deceleration there.

I’m curious on why that would have happened given that’s one of the -- appears to be one of the faster-growing areas.

And also on a same basis, percentage of revenue basis, the European business had a little bit of a slip.

Can you talk a little bit about both of those modest declines?

The enterprise application services business, which is really our package consulting implement.

This is Suresh Vaswani speaking.

I am responsible for all the IT practices.

Hi Suresh.

Yes, hi.

The technology infrastructure, services, testing services and enterprise application services.

On your question on package implementation services, I think the business is doing well.

We’ve had good momentum during the year.

We’ve grown roughly 25% on a year-on-year basis for the full year gone by.

The package implementation business continues to win new customers for us and new contracts for us.

And some of the notable wins that we had in the last quarter was -- actually what was U.S. -- one from large U.S. retail organization where they’re doing a package implementation as well as a global roll-out.

And the other one was on application support side, where we are supporting a diverse range of applications across multiple platforms, including [Sebo], [Arriba], [PeopleSoft] and [Managistics].

So it’s a big area for focus from our side.

We’re investing especially in the application support area so that we get a regular stream of annuity business.

We’re strong on the package implementation and package integration side.

And one of the new initiatives that we have taken recently is building up what we call the business solution group, whereby we develop a consulting layer to the overall package implementation area, especially in the areas -- the new generation areas like supply chain management and CRM.

And just to supplement, I think the numbers that we give as package implementation or [EAF], does not include [EIA].

It doesn’t include EI, which many other peers of ours include that as part of that segment.

Alright.

Okay.

And last one from me was the 4% sequential guidance --

Okay.

Let me do that.

That is [inaudible] this business part of our package is also going through a [inaudible] transformation like we have said, because a significant component of this revenue was coming from the roll-out as opposed to sustained business.

And over the last 12 months we have seen a fair amount of increase in the percent of business.

And it’s the [better] time to get to a decent percentage of [inaudible] sustainable development tends to be a little lumpy sometimes.

So we think over the next few quarters much more stability and much more consistency we will be seeing in the growth.

Understood.

But on a y-o-y basis it has done pretty well.

Right.

You had a question on something on sequential growth.

Yes, I’m just trying to understand the guidance on sequential growth at 4% seems a little bit conservative.

Just given how well things are going, can you just help with a bottom-up look at what that 4% growth implies?

Bottom line has always been like that so far as the [group] is concerned, because if you look at the guidance that we have given, it comes out to be at 34% y-o-y growth, which is not bad at all compared to the kind of achievement that we have shown so far.

Right.

Okay.

Great.

Thank you guys.

Outlook looks very positive.

We are pretty excited on the [inaudible] working on and some of the [insight] we are working on, and all those deliver that we talked about, whether the customer footprint or whether the contact we have or the kind of practices and the acquisitions that we have done which will help us in exceeding the industry average growth.

Thank you guys.

Good luck.

Thank you.

We will go to the line of [Abu Dami] with Banc of America.

Please go ahead.

Yes, thank you very much.

Your attrition rate in the global IT services business jumped up again during the quarter.

Is there anything in particular that’s going on behind that number?

And can you also remind us how you calculate that figure because I think it might be different than how some of your peers get that number.

Hi.

This is Pratik here.

So let me take the second part of your question.

Now the attrition rate, the way it is calculated is we take all employees who exit during the quarter, and we -- the denominator is the average employee trend during the quarter and we analyze it over four quarters.

So that’s the figure which we quarter on quarter we give out as a part of our release.

On attrition rate, yes, our attrition numbers have jumped.

And the primary reason why the jump has been because of involuntary attrition of about 1.5%, which was something which we triggered.

We, as a part of our due diligence, we figured out that there were a lot of employees who were able to get into the organization through consulting organizations - these are the placement consultants outside - based on fake experience as well as education certificates.

So when we ran into that situation, we got a complete investigation done on that.

And as a result of it we had [a lot of] people to separate.

And we think that process is nearly done.

So we should not be seeing what we ran into this quarter to be repeated going forward.

And we have put in some of the processes in place just to mitigate something like this happening again.

So that has been the primary reason why it has jumped up compared to the last quarter.

Okay.

Great.

And was that same issue -- did this issue exist in the prior quarter, or was the impact from the involuntary attrition really contained to the fourth quarter?

Part of it, yes.

So in the third quarter as well.

Okay.

Great.

If I can ask a further question, there is a lower utilization rate in BPO --

Can you speak up a little bit.

We’re not able to hear you well?

Sorry, is this better?

Yes, that’s okay.

The lower utilization rates in BPO during the quarter, was that planned or is that related to the mix shift in the change in service portfolio?

It’s really -- it’s TK Kurien.

It’s really determined by the change in mix.

But the utilization has actually gone up.

Okay.

Great.

And finally, within the vertical markets you’re servicing in BPO, it appears that the other category significantly increased during the fourth quarter.

Is there one particular new vertical that is emerging more rapidly?

Yes.

The technology and media segment is emerging pretty strongly for us, and that’s one area where we have actually created a separate focus group and we seem to be getting more business out of that.

Okay.

Great.

Thank you very much.

Thank you.

We will go to the line of Ashish Thadhani with Gilford Securities.

Please go ahead.

Yes.

Good evening.

Given the favorable demand environment, Infosys has indicated recently that it may be prepared to forego large deals that usually carry somewhat lower pricing and focus on more profitable work.

Does Wipro subscribe to the same line of thinking?

And also to the extent that Wipro does win large deals, is it safe to assume that these will not be margin dilutive?

Absolutely.

I think we have to be pretty selective in picking up deals, that [inaudible] which look at on a [profitable] over the lifecycle of the deal.

But with the deal, those which are standalone itself and there are no add-on business, or these are deals which allow you entering into the customer.

And on the top of it you can build some other business.

More and more you find that these deals are sustaining business and then you can build the [application] development and other value-added services on that.

So you have to look at it on a medium to long term what you are going to get out of these customers on all this multiple and the totality of the basket and therefore what is required to be done.

And we have to look it from the point of view that you cannot be choosing all and sundry, but you have to be selective in terms of dealing with the right customer and that kind of thing.

Okay.

That’s very helpful.

Also the $8b revenue target that has been talked about in the year 2010, that implies 35% annual growth.

Does this include acquisitions, and should it be relied on for modeling purposes?

I don’t know who’s talking about this $8b target in 2010, because our planning horizon for our three-year plan is 2006-2007, 2007-2008 and 2008-2009.

So I would suggest that you don’t use these kind of press speculations or employee speculations in your modeling.

It’s judgment in terms of the kind of charge which we have in the organization, the kind of run rate which we have in the organization, and the fact that we will be aggressive on acquisitions.

A way to look at it is that what we have guided in our vision in the [monthly] top ten global IT services business, and that will be done through organic growth, and will be supplemented with inorganic.

Okay.

And then finally, the revenue slowdown that we had seen in the last few quarters in the BPO unit, is that behind the company now?

Probably, yes.

Okay.

Excellent.

What re-engineering we had to do and repositioning we had to do, so it’s a continuous process.

The [inaudible] which are put into the system are behind us now.

So what you would see in terms of growth would be a stepladder kind of a growth because we will continue [inaudible] a little bit, just to make sure that we focus on margins.

Okay.

[inaudible] important why it’s going up better than what we have so far achieved in the last year.

Excellent.

Thank you very much and congratulations on a good quarter.

Thank you Ashish.

Thank you.

We go to the line of Michael Gibalt with Technology Business Research.

Please go ahead.

Hello.

My question has to do with margins, as many others have had.

I wonder if people are maybe, if some of the folks are missing a point, or I don’t hear it very much coming up, that with your research and development organization, for example, you have very, very high margins.

And in the case of attrition, and other factors might weigh down on margins, I wonder would it be a simple matter to just drive sales a little further in some of your higher margin existing businesses.

Could you comment on that please?

I think [inaudible] would it be possible to repeat the question [inaudible] please?

Mike, can you speak up?

Your voice is cracking and we couldn’t get that question clearly.

Okay.

Is this better?

Thank you.

Yes.

Okay.

My question has to do with margins, but from a different angle than we’ve been hearing the questions lately.

And that is that since Wipro has such a big revenue share coming from, for example, research and development and testing, and that these are very high margin, high offshore services that you already have in place.

Aren’t some of the speculators in the media missing the point when they’re wondering about your downward effects of attrition and salary increases because you could simply drive sales in, for example, R&D a little harder and make up for any such losses.

I wonder if you could just speak to that at all.

I don’t think we fully understood your question. [inaudible] as being in enterprise solutions as well as in the R&D part of the business.

And yes, the R&D part of the business because it is very highly offshore-centric.

It tends to be a margin better than the average margin.

And, of course, there are many areas of under-penetration in that part of the business and with the hard focus we will try to seek improvement on an overall [margin there].

I guess what I’m really trying to get to is don’t you have a lot of lever left in these high margin business lines to overcome any effects of salary increases or even short-term foreign exchange effects?

Yes, Mike.

What we do is we have in our business both positive and negative levers.

So we continue to balance that wherever we have [inaudible] any other downward pressure.

So that’s an ongoing exercise.

And what you’re mentioning about the positive levers, we do exercise that every quarter.

And that’s why you see a very balanced margins outcome.

Okay.

Thank you very much.

And congratulations on a great quarter and year.

Thank you.

Thank you.

We will go to the line of Moshe Katri with Cowen & Company.

Please go ahead.

Hi.

Suresh, can you talk a bit about pricing?

You mentioned that very briefly.

What sort of difference or different -- what’s different really on the pricing trends you’re seeing or you’ve seen so far compared to where you were a year ago?

I think if you compare our pricing this quarter with this quarter close last year, we are almost flattish.

We have been -- so far as our sequentials are concerned, I think we are seeing some kind of price increases in all these existing accounts.

And then all the new customers are coming with a little bit better price.

But on a -- [inaudible] pricing for the last two years has been decent.

But on a y-o-y basis we are more closer to flatness than -- which means it is [inaudible] it basically can be [adequate] as stability. [The impact is] a little bit of positive bias because the new customers are coming at a better pricing.

How about your existing customer base?

You do derive a significant portion of revenues from a recurring revenue base or recurring customer base.

When you’re up there for a renewal or renewals, is there -- how easy is it actually for you to raise pricing on these deals?

I think the other [side of this] has been positive better than what we have seen in previous years.

Thanks.

Thank you.

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