Wipro Ltd (WIT) 2006 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the first earnings call for quarter ended December 31, 2006.

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

Later we will conduct a question and answer session.

Instructions will be given at that time. [OPERATOR INSTRUCTIONS].

As a reminder this conference is being recorded.

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

Please go ahead.

Thanks Gloria, and thanks everyone for joining us for Wipro's quarter ended results for December 31, 2006.

Jatin, [Lalit] and Rajesh from the IR team join me in conveying a warm welcome and our New Year greetings to everyone.

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

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

Let me give you quickly the agenda for today's call.

Azim Premji will share his thoughts on our performance and prospects.

And Suresh will take you through the financial highlights of this quarter.

As a reminder, when we [discuss] the results for this call, some of the issues we discuss may be forward looking and I would like to advise you that these statements may be 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 the information presented during today's call.

The call is scheduled for an hour.

The entire earnings call proceedings are being archived and transcripts will be made available after the call at our website www.wipro.com.

I'm online and email and if you have any specific questions, which you are unable to ask, please send me email and we will we 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 Wipro.

Ladies and gentlemen, by now you will have seen our results for the quarter ended September 30, [for second] quarter and December 31, 2006.

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

For the quarter ended December 31, 2006 Wipro Limited recorded revenue growth of 41%.

Hello?

Hello?

We've got a line problem, just give us a second please.

Gloria, are you there?

Yes sir, I am here.

I think they'll come back in a minute.

I think there is some line issue.

Yes.

I'll see a line is still established?

Established?

Are you seeing this line on or you think it's disconnected?

His line is still connected.

Connected?

Sridhar, hang on a minute, we're checking some lines.

Just give us a second.

Okay.

And make a short announcement, Gloria, that we'll be back in a minute and ask them to hold on.

I'm sorry about this interruption.

We've had another satisfying quarter.

Wipro Limited recorded revenue growth of 43% year-on-year and profit growth of 40% [sic - see presentation] year-on-year.

Revenues from our Global IT Services at $641m for the quarter.

We're well ahead of our guidance of around $633m.

This was driven by strong growth in our Energy and Utilities vertical, Technology Infrastructure Services and Enterprise Application Services.

Continuing the good momentum, our financial services and retail businesses delivered 50% year-on-year growth.

Manufacturing vertical and Europe geography [posed] sequential growth rates ahead of the Company [technical difficulty].

We saw some [marked clear] wins in our BPO business.

We added 37 new clients, of which 8 were global, 500 [inaudible] clients.

On the operations front, we saw a lowering of our rate of attrition in both the IT and the BPO business.

That coupled with improvement in other operational metrics, helped us largely offset the profitability pressures from wage increase, and rupee appreciation.

As a result we were able to maintain and deliver an operating margin within our net per nano range in our Global IT business.

Continuing this strong momentum, our India, Middle East and Asia-Pac IT business, recorded strong y-o-y revenue growth of 74% and profit before interest and tax growth of 29%.

Consumer Care and Lighting business also grew well with 32% year-on-year revenue growth and 26% year-on-year profit growth.

On the global delivery front, we continued to pursue our approach of focused expansion of our geographical footprint.

Our Romania center is now operational and we have created a third center in China and we will be expanding our Brazil center that came through our Enabler acquisition.

We continue to be leaders in the [quality] earnings.

This quarter we were assessed at maturity level five based on the new CMMi V 1.2 model, which was released in September 2006.

We are among the first organizations, globally, to achieve this milestone and, importantly, this includes all our locations including overseas locations.

Wipro Infotech, our India, Middle East and Asia-Pac II business won the employer branding award conducted by the India Times Mindshape.

IT and Bangalore and [stars of the] industry, an independent body based in the U.S., which has been regularly conducting the awards in service excellence.

Looking ahead, we think the capabilities we have built and the investments we are making on our initiatives will help us deliver value to our customers and enable us to continue to grow ahead of the industry.

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

Good morning ladies and gentlemen and good evening to ladies and gentlemen here in India and Asia-Pac.

And best wishes for the New Year to all of you.

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

GAAP financial statement has been translated into dollars at the noon buying rate in New York City on December 29, as certified by the Federal Bank of New York, which is a dollar is equal to INR44.11.

Accordingly, revenue of our Global IT services segment, that were $640.5m, or in rupee terms, INR28.67b appears in our earnings release as $650m based on this [convenient] translation.

Global IT Services revenue for the quarter of $640.5m included $587.5m from IT Services and $53m from BPO Services.

The sequential revenue growth of 8.8% in Global IT Services segment comprises of 8.9% growth in revenues of IT Services and 7.1% growth in revenues of BPO Services.

Sequential revenue growth of 8.9% in IT Services was primarily driven by volume growth of 9.3%.

On the Foreign -- ForEx front, a realized rate for the quarter was INR44.77, which is the rate of INR46.14, realized for the quarter ended September 30.

Asset [inaudible] after assigning to the assets on the balance sheet, we had about $188m of contracts at rates between 44.80 to 45.77.

During the quarter we've [effected] salary hikes in [inaudible] for remaining eligible offshore-based employees, which impacted our margins by 180 basis points.

Operational improvements in supply chain and scale advantage [inaudible] SG&A costs offset most portion of the margin dilution due to wage hikes and ForEx impact.

Operating margins of our acquisition portfolio improved by more than 500 basis points sequentially.

The acquisition by Hydrauto Group in Wipro Infrastructure and Engineering and [inaudible] a growth in our India, Middle East and Asia-Pac IT Services business, was consolidated in our financials, effective November 1, 2006.

The integration of these units is on plan.

For the quarter ending March 2007, we expect volume-led growth will stable price realization.

In line with our plan, we will have effect wage hikes for our on-site employees during quarter four of this year.

The impact of these wages -- wage hikes for quarter four of '06 '07, will be around 120 basis points.

We will endeavor to offset the impact, through factors like improved utilization and employee mix, better profitability on acquisitions and expect the margin to be in a narrow range, excluding the impact of exchange rate.

We'll now be glad to take questions.

Gloria, we are open for questions now.

You can start the Q&A.

Yes, sir. [OPERATOR INSTRUCTIONS].

One moment please for our first question.

We have a question from the line of Trip Chowdhry with GBO Equities.

Please go ahead.

Congratulations on a solid quarter.

I've two questions.

First, on the mega deal that you won with CSSB.

It seems to be really unique.

Do you think you can provide some more color in terms of the ramp up and the kind of activities this deal will conduct?

And then I have a follow-on question.

Yes. [Girish] thank you.

This particular win has been, as announced by the customer, about two moths back.

And what the customer had talked about was that this is a contract which will engage Wipro with this customer on multiple areas of service.

It will be BPO, IT Services as well as Infrastructure Support Services.

And [Ounar] will be the center of excellence and the customer had talked about ramping it up to about 1,500 people in a 12 month timeframe.

The operation is supposed to commence this quarter.

So, we will let you know if and when we get much more higher visibility on that.

But as of now, the -- well, the progress is fairly smooth.

The second question I had was regarding the Enterprise business.

It seems to be very strong, at least in this quarter.

Are you seeing any shifts or changes in this space?

And how is the competitive dynamics been shaping out?

Thank you, and again, congratulations on a solid quarter.

Hi.

This is Sudip Banerjee here.

In the Enterprise business we saw a growth from the Energy and Utilities vertical as well as from Retail Manufacturing.

Yes, we had a particularly strong quarter.

We see a good demand environment.

Some of the large wins that we talked about in quarter 2, beginning.

They have started now in billing and, therefore, we saw part of that reflected in the quarter 3 numbers.

The number of customers that we are currently having as also the number of pieces in the pipeline, continues to be very robust for us, both in the Energy and Utilities as well as in Retail.

We also see good customer traction in verticals like Media and Services.

So, overall, we continue to see a positive momentum.

And that has been factored in the guidance that we have given.

We'll go to next question.

We have a question from the line of Joseph Foresi with Janney Montgomery Scott.

Please go ahead.

Hi guys and nice job this quarter.

My first question here is, I was hoping you could talk a little bit about growth rate into '07.

What's your feel for sort of the spending in the IT Services market?

And do you still plan to focus on some acquisition growth in the upcoming year?

[Shaker] would you like to take the call?

Okay.

If you look at the 2000 timeframe -- 2007 timeframe for both U.S. and Europe, I think the -- as far as the U.S. is concerned, the overall economy, we feel will remains -- continue to remain fairly stable.

There might be some marginal slowdowns in IT spending.

Having said that, we still expect that spending on our business and the offshoring will continue fairly strong.

We haven't seen any impact and we don't really see any changes in terms of customer outsourcing trends, customer visits to India across the board, whether it be the Financial Services business or whether it be the Enterprise business.

So I think U.S. will continue to remain strong and we are seeing opportunities both in the multiple --

[Shaker] your voice is breaking.

Operator, is everybody able to hear him properly?

Yes, we are able to hear well Senapaty.

Okay.

Okay.

So we are seeing it across multiple service lines.

And also I think the market is opening up in terms of the nature of the deals as the mega deals, as well as especially the smaller deals across powers where we have greater opportunities.

Similarly, I think Europe is looking better.

Continental Europe is beginning to open up more.

We are also seeing opportunities in The Nordics.

So we continue to see 2007 as a strong year for us.

Okay.

And I guess my second question here would be on the BPO front.

You guys have done a good job of stabilizing the business in the last two quarters.

Is this something we can expect to continue?

Do you feel like you've stabilized the business in that business segment?

From our perspective, what we see -- it's T.K. Kurien.

From our perspective, what we see is that we see top line growth in line with the industry and, as far as operating margin is concerned, I think we've been pretty consistent in our guidance in the past, where we've said we'll hold the operating margin in a narrow range between 20 and 22%.

And that's primarily where we will be.

So from an [inaudible] similar perspective, the answer is, yes.

I think we have stabilized the business.

Is there more work to do?

As always, there is.

The question is also on the revenue growth Kurien.

I've mentioned that.

We expect to be in line with the industry growth in that segment.

And then I guess, just on the metrics side.

Pricing came in a little bit this quarter as opposed to some of the other vendors who had big pricing increases.

Any reason for this?

And where do you expect that to go in the upcoming quarter?

Yes.

This is primarily because of the lesser number of working days in the quarter 3 compared to quarter 2.

And it is broadly that is the basic impact and we hope a fair amount of recovery of that in the coming quarter, which is a much better number of working days.

Sure.

And just one last question?

[Inaudible] looks a much more stable environment.

Okay.

And just one last quick question if I could, on the attrition side.

Obviously, attrition came in this quarter and you guys did a very good job there.

I'm just curious, is that a result of the wage hikes this quarter and do you expect that to continue to trend down or to stabilize?

Thanks guys.

Hi.

It's Pratik here.

What you observed is something which we have commented on in our last quarter's call as well, that we expected the attrition to climb down.

It has -- wage increases have played a key role in our own view, but we do think that several other measures which we have initiated, focused on people and their initiatives has also helped in bringing down the attrition.

Despite having been able to bring it down by about a percentage and a half, we still think that there is call for us to be able to bring it down further.

Hello?

We have a question from the line of Bryan Keane of Prudential.

Please go ahead.

Yes, hi.

Congratulations on the solid quarter.

Just a question on the customer relationships.

It looks like the number of new customers adds were 37, that's been down a little bit from 53 and 60 the last two quarters.

Obviously, it looks like the size of some of those customers are bigger.

But anything to read into about the kind of customers you guys are trying to land or the amount in the particular quarter?

Or is it just kind of lumpy business and it tends to ebb and flow?

The customer additions in quarters -- in the previous two quarters had an element of customers which came into us through the acquisitions.

And in this quarter, we've had no additional customers coming in through that.

So, if we look at about three quarters back, the average number of customers we've had, and which we acquired in that quarter, and the number of this quarter is roughly the same.

So, we had two unusual quarters of high customer adds, primarily because new customers came in through acquisitions.

Okay, right.

And then just a follow-up question on the pricing that you guys think you'll get going forward.

Do you think -- or can you break that out between what you're seeing on pricing on renewals verse on new business?

Is there a distinction between the price that you're trying to get between those two sides of the business?

Well, actually the average prices that we are getting in the new business is a little better.

We've also been negotiating with the customers who've come up for annual contract negotiations.

We've had some success.

I'd say the overall increase that we've got has been between 3 and 5% in the cases where we have got those increases.

And the average increases that we've got in the new contracts is also in the range of 3 to 5% more than the average.

Bryan.

For the new customers -- for the renewals, we had a fair amount of success.

We had more than 65 to 70% of the customers whom we approached have given us price increases.

And with others we are still negotiating.

Okay.

But it definitely seems like the demand there seems to be -- I mean when you look at the environment, does it feel that pricing in general is definitely going higher than it was over a year ago period?

Well, you could say that for the majority of the customers.

But it's not universally true across all segments and all customers.

If you look at our blended rate for quarter 3 of last -- this year versus quarter 3 of last year, it was up by about 2.5%.

Okay.

And then just a last question I had is one of the drivers of the margin will be utilization, you guys mentioned.

Utilization dropped in the quarter.

Is there a target utilization that you're thinking about for the business going forward?

Yes.

This quarter -- this is Pratik again.

This quarter did see the utilization dipping, primarily on account of the rookie hiring.

This is a quarter that typically we get campus graduates joining us.

We do think that -- but that having -- that being out of the way, this quarter we should be able to see our utilization numbers picking up yet again.

Do we have a target?

Yes, we do have a target which we would like to hit quarter-on-quarter.

So, for this quarter as well.

But assuming the goal would probably be to get utilization back into the low 70s or you don't really put a number on it?

We don't put a number on that.

But on a net basis we are in our mid-70s and that's something which we think is -- it gives us a sense of comfort that we should be able to meet our fulfillment needs, be it on the bench which we have.

Okay.

Thanks a lot and congratulations.

We have a question from the line of Moshe Katri with Cowen and Company.

Please go ahead.

Hi, thanks.

Nice quarter.

Just wanted to -- looking at the revenue line, you had a pretty nice upside in India and A-Pac products during the quarter.

I think the offset was about 40, 50m.

And then other revenues also went up sequentially by 20m.

Can you address that upside, where it came from?

Okay.

This is Suresh Vaswani here.

The upsides have come from, one, there is a buoyancy in the Indian market.

So the market is growing rapidly.

Second, is we've got a fairly strong proposition of complete IT Solutions with which we address our domestic market with.

So we do products we do services, solutions, consulting.

So, it becomes a very compelling proposition for large customers and large-medium customers.

So, we've been winning a lot of deals in the domestic market.

Third is we recently completed an acquisition of a company called 3D Networks, which is extremely strong in the call center integration space and the voice and the unified communication space.

So that has also added revenues to our product revenues.

So, it's a combination of the market, our having a strong proposition, plus the acquisition that we did, which has given us the fillip in terms of product revenues.

Thanks.

And did you mention during the call how much revenues you've actually generated from acquisitions during the quarter?

Yes it's INR435m [inaudible] business.

Okay.

And then was there dilutive impact from any of the acquisitions still during the quarter?

We had in the other segments, [inaudible] business.

We had an acquisition of [inaudible], which was [inaudible] company.

We had revenues of [INR1,014m] added to the revenues this quarter.

Okay.

Was there a dilutive impact on EPS from that acquisition during the quarter?

We didn't have profits from those two businesses acquired so that has added to the EPS for the quarter.

Right.

Thanks.

We have a question from the line of Julio Quinteros with Goldman Sachs.

Please go ahead.

Thanks.

Good evening guys and good morning [sweetheart].

Real quickly, my question relates to -- first of all actually, just let me get some mechanics out.

Suresh, would you please walk through the positives and the negatives on the margin side.

If you can maybe just break them down by basis points in terms of impact, just so that I can make sure we have a handle on where the positives and the negatives were from the margins?

Yes, the positives versus the negatives were the competition increase of about 180 basis points.

180 --

180 basis points.

One eighty basis points.

Okay.

Thank you.

ForEx is about 80 basis points under the U.S. GAAP.

On the Indian GAAP it was only 60 basis points because the premium accounting is a little different between the Indian and the U.S. GAAP.

And the realization was about 20 basis points.

And the mitigating factors where improved profitability in the BPO as well as in the acquisitions.

We got some upside in terms of the scale advantage of the SG&A and, similarly, there has been significant improvement in certain other areas of operational efficiency, including [bulge both] on-site as well as offshore including rotation and many other such operational efficiencies.

So, net net, we had an impact of about 70 basis points. [Technical difficulty] on the U.S.

GAAP, while the ForEx was about 80 basis points.

Got you, okay great.

And then when we look at the pricing improvements.

I think you cited 5 to 6% improvements in new client bill rates.

But when we look at the rate realization that you reported for the quarter, it looked relatively flat.

Can you just talk about how quickly we should see the realization there?

Yes, because [inaudible] customers to scale up in terms of the contribution to the overall revenues.

Importantly, the revenue contribution was only 3.9% from the new customer that got it on.

Right.

[Inaudible].

Right Okay.

So, in terms of timing, though, how long before that 5 to 6% begins to translate?

[Inaudible] question?

The question is that when will we see the 5 to 6% increase in new customers start targeting translated into the numbers?

It is frustrating.

Only one is -- as ever, it's a mix of revenue coming from the new customers goes up, it will be flat.

As of [quarter 3] we had only 3.9% of the business coming from customers [inaudible].

Got it, okay.

Okay, great.

And then on the commentaries that you guys have made about the outlook for the U.S. side.

I think I agree with everything that you're saying.

The one thing that I'm just looking at and curious about is the Technology business, on the Product Engineering side and the Telecoms Service Providers side.

With all of the kind of moves that we're seeing there, in terms of M&A consolidation etc., can you just talk a little bit about how much visibility that vertical has and whether or not you're seeing any delays or impact from consolidation or M&A on that side of the business?

We've got Dr. Rao now to answer that question.

On the manufacture side, [the up to 10%] that has been announced and then the [inaudible] announced.

So, there is some progress and then [inaudible] started our discussions with [inaudible] product strategies.

But we will take some more time of the financing their strategies before the next [year] and then we'll stop.

And Nokia and Siemens [inaudible].

So, we feel that the distribution may come in the next [inaudible] quarter. [Already] started [inaudible] good growth [inaudible] to win a couple of deals -- good deals by [during this quarter].

And the full benefit of these deals, with respect to [inaudible] will happen in the coming quarters.

So, it's quite good growth in the [inaudible] coming quarter.

Dr. Rao, just in the visibility on the Technology business, can you just talk about that?

Is that visibility the same level that we would see on the traditional application side of the business?

[Inaudible] have been having the good growth [inaudible] growth that we have got for this telecom manufacture [side of the] business [inaudible].

However, good [inaudible] coming, good work coming from other segments of the Technology business, for example, very good growth in the [inaudible].

Good growth in the [inaudible], where there is also good growth in the industrial automation.

This is how these segments will [inaudible] been able to get good growth during the quarter.

[Inaudible] and perhaps a little bit of softness on the semiconductor space, otherwise, we're fairly finding the other space in the Product Engineering doing pretty well.

Okay.

Thank you guys.

Next we will go to the line of Ed Caso with Wachovia.

Please go ahead.

Thank you, Edward Caso with Wachovia.

I was wondering if you could talk a little bit about any change you're seeing in the competitive landscape, particularly [Exensure], IBM and global firms.

And are you seeing any other global firms start to get the capability to [inaudible] organizations?

Shaker, I think Shaker has been asked.

Yes, can you just repeat that question please?

I think, [inaudible] the question really is, is the competitive marketplace for you changing at all, particularly, the large international firms, large global firms?

And are there any new firms joining in, in addition to Exensure and IBM?

You're referring to the global competition?

Yes.

We do continue to view Exensure and IBM primarily as very significant competitors, not only in the IT space but also in the BPO space, across the globe.

And we increasingly run into both these firms, as well as a host of local firms in the U.S. including EDS and, in Europe, people like [Ados Origin] or Logica CMG, Cat Gemini, [Deloitte], as we ourselves are moving up the value chain.

We are also seeing many of these firms leveraging and using their India offshore centers much more often and a lot more aggressively, both in Europe as well as in the U.S.

Recent additions and acquisitions of companies like [Camby] by CAT Gemini, have also added to this mix.

So the global delivery model which has become mainstream becomes even more mainstream, both in the U.S., and is becoming increasingly more accepted in U.S. and -- I'm sorry, in Europe as well.

So, I guess there are two ways to look at it.

On one front, the companies are growing more global in terms of their delivery, are increasingly leveraging their offshore delivery capabilities, or their global delivery capabilities.

The flip of that is that we see it significantly advantageous to us which is, one, the acceptance of this across marketplaces where maybe the acceptance of this was somewhat less than in the U.S. and in the U.K.

Particularly continental Europe is increasing, one.

Two, we are also getting invited into opportunities of also a much larger scale as these companies are being forced to give a global delivery model in their solutions.

So, overall yes, we are seeing a lot more activity from these firms for using this global model and because their using it.

Two, we are running into them more often because we are moving up the chain in terms of the kind of solutions and the complexity of the projects we provide.

We're also running into them as we do more transaction processing and more BPO kind of work.

But it also validates our capabilities, gets us invited more often and, given some of the propositions we are able to provide in terms of a truly integrated offshore capability, we also have certain advantages.

So, I think overall, the competitive pressures are increasing but it is both a challenge as well as creating significant opportunities for us.

Great, thank you.

I was wondering if you -- on the level of activity on the volume side, can you differentiate between growth and traditional offerings and growth in some of your newer offerings?

I'm trying to understand if your base of service offerings continues to grow or is it just the growth being seen by adding on new offerings?

In terms -- if you look at the growth as -- in terms of service lines that we are offering, clearly, we are experiencing higher rates of growth in some of our more differentiated offerings specifically Infrastructure Services, Package Implementation as well as Testing.

So, the growth is coming from incremental growth in these areas.

So -- but at the same time, our traditional services, which you could say is ADM, is also continuing to grow.

But the other growth is faster.

Thank you very much.

[OPERATOR INSTRUCTIONS].

And we have a question or a comment from the line of Ashish Thadhani with Gifford Securities.

Please go ahead.

Yes, good evening, great quarter.

With the acquisitions is competed as of December 2005 in the Global IT segment, what are your short-term and long-term margin objectives?

And then also, is this base of acquisition activity likely to continue?

Or do you have more [stiffly] targeted components in place at this time?

[Inaudible] Sudip need to answer this question.

Hi this is Sudip.

In the quarter that's gone by, overall, we've had a 330 improvement from all the acquisitions within Global IT from December '05 onwards.

We've had one acquisition, the one of the semiconductor intellectual property company in Austria and France.

If we assume that, for the fist time the cumulative operating margin from all the acquisitions touched double digits for the first time.

Our longer-term objective is, of course, for all of the acquisitions to -- the margins to be in line with that of Global IT business margins.

We, however, understand that some of these are onshore based companies that will never reach the same level of margins, but we expect to get significant synergy out of these to be able to get significantly better margins.

So, we think that we are already on line for all but one of them to achieve those numbers in the next few quarters.

But, in the long-term, we expect that all of them to be in line with Global IT margins.

In terms of pace of activity, we have an active funnel.

We continue to look at acquisitions in North America, Europe and other parts of the world.

We have become more confident of the acquisitions and the way we've been able to integrate them and derive the synergy benefits.

So, we are looking at slightly large acquisitions, a little more complex acquisitions so that we can extract the right synergy and stimulate growth from them.

We are not going to look at accretive -- at revenue aggregation of the strategy for our acquisitions.

We continue to look for deeper domain equities and extension of our service clients [inaudible] for our M&A going forward.

[Inaudible] just seen why we didn't do any acquisitions as far as the Global IT business is concerned.

We did one for the Indian IT Asia-pac business and we did one for the [inaudible].

And both of those acquisitions have been commuted effective November 1, and the response so far both from the customers and the new entities are very, very encouraging.

Thank you, that's very helpful.

Also Mr. Senapaty, on an organic basis, what was the quarter-on-quarter and year-on-year revenue growth rate?

Is it possible to break that out?

Sure.

I think the growth rate of the acquisition fees in the [WP] part of the business is almost similar to that of the organic growth.

So the percentages are not much different.

The entities we had in quarter 3 are the same as in quarter 2, so there is a complete like-to-like comparison and the growth has been similar.

We saw only a margin expansion in the acquisition portfolio.

Okay, terrific.

And then one or two smaller items, can you quantify the on-site salary increase that you referred to a little earlier?

And then second, how many $50m wins did Wipro get in the last quarter and in all of calendar '06?

As far as on-site salaries is concerned [it is] effective January 1, they will be about 2% to 4% increase [to the EBITDA] and that the impact about 1.2% in the current quarter.

So far as the last few wins are concerned, we have communicated on a quarter-to-quarter basis, and so far as the last quarter is concerned we had got good wins of the customers.

Some of them we talked about and we think those customers will be large wins for us in terms of converting them into large accounts.

Okay, terrific.

And one final question on the tax rate, what is the outlook for the fourth quarter and beyond?

Within 100 basis points we do not see a significant change in those tax rates [third quarter forward].

Thank you very much.

Thank you.

And we have a question from the line of [Steve Massou] with [Alban].

Please go ahead.

Hi guys.

I just wanted to get a bit more color on the European growth.

You talked about BPO, as well has obviously been a big driver of growth this quarter, and I just wanted to get a bit more detail on what have you actually been selling this quarter in Europe and the U.K. that has driven growth and perhaps diversified your business a bit more?

Could you give me some examples?

This is Shaker here.

In Europe we did have a strong quarter in the Enterprise business.

We continued to have a strong quarter as we have had in the last few in the Financial Services business.

PS, like in the U.S., was somewhat more diluted.

On the service provider side, as well, although the numbers don't quite indicate it, we had some good wins in Europe which we think will result in expanded opportunities going forward.

The wins have come within the Enterprise space in Energy and Utilities.

We have seen some good traction on the Manufacturing front in particular, not only in the U.K. but also in continental Europe.

We are also beginning to see some positive signs in The Nordics market, particularly in the area of Manufacturing.

In the Financial Services front, Insurance remains strong but we are also seeing some opening up of opportunities in the Banking sector.

From a Service Line standpoint the TIS, or our infrastructure business, was particularly strong as it has been in the U.S., as well, with some notable wins that we have got in Europe.

Testing has continued to grow and we think that it will give us some opportunities going forward and the Package Implementation business was also -- came in fairly strongly.

So, overall, both in terms of the verticals, as well as in terms of the service lines, it was a fairly strong showing.

Thanks.

Could you just remind me what you actually mean by the Enterprise business and TSPs, I just need to clear it and make sure we're on the same terms here?

Okay.

The Enterprise business I was referring to was broadly the Manufacturing, Energy and Utilities, the Transportation Media, Healthcare and the Manufacturing verticals.

I understand, I understand.

And TS, you're saying?

TSP is the Telecom Service Provider.

Yes of course, of course.

Sorry, I misheard that.

And could you tell me if there is any sort of difference between the U.K. and Continental Europe currently in terms of the types of services being taken on?

Is it more ADM in continental Europe?

I assume that as you're still breaking into those new markets they're particularly, like in The Nordics, is it sort of less mature in the types of services that are being taken up?

Or are you seeing what we might describe as full service deals which combine some Package Implementation, some ADM and also some BPO, something like that and, perhaps, Infrastructure as well?

No, our success in Continental Europe is fairly broad based.

In fact, interestingly enough, we have actually even made some account openings and new penetrations using both Infrastructure Services, as well as Package Implementation.

So actually our wins and our success in Continental Europe is, not only in ADM, but in other service lines as well.

Okay, that's great.

And just my final set of questions on the margins, I don't know if I'm missing something here but just my rough calculations showed that your acquisitions aren't either the profitable -- profitability of the acquisitions isn't actually that high.

With the nine months to 2006 you quote acquisitions, that operating income of that segment was actually a lot, 246.

Would you be able to just explain why we were talking earlier about acquisitions being margin -- having a positive effect on margins?

I got the impression that they are actually pulling your margins back.

Yes, what you said is right.

For the nine months it was 247m.

What we have said is [this is improved] by about [five] basis points from the previous quarter.

And if we exclude one of our acquisitions which is what we [talked] about, which is an acquisition for the IT [based] revenues, the margins are in excess of double digits for the [inaudible] acquisitions.

So one acquisition is making a lot, which is having a big impact there.

And that's not an IT related acquisition?

This is an IT related and we are expecting to break even by quarter 1 of next financial year.

Okay, okay.

[Inaudible] R&D side.

Sorry?

[Inaudible] on the R&D side.

Yes, okay.

And also just a bit more on margins, your margins overall for IT Services and BPO are notably lower than your rivals;

Infosys and TCS.

Could you perhaps explain why you think this, is that your attrition is higher?

I wonder if you guys are finding it a bit harder on the labor front and this is having a large effect.

I just wanted to get your qualitative or anecdotal view on this.

[Technical difficulty].

Hello?

Yeah, I think there is --

[Inaudible] the question [inaudible] was it with respect to the BPO segment or was it [inaudible]?

No, I'm looking across the margins for IT Services and the -- yes, BPO, as well.

It seems that your attrition rates are higher and I wondered if you guys are actually having a bit of a tougher time on the labor front in India.

Would you be able to comment on that?

This is Pratik here.

Just on the overall margins and the margin pressure, I'm sure Senapaty will respond.

But I thought I would just pick on your observation on the attrition front.

A little while earlier we just shared how we performed on the attrition front in this particular quarter, which was an improvement over the previous quarter, which we anticipated.

We think we can do better than that.

I must at this stage clarify that our attrition numbers, what we publish and what we report is the quarterly number, analyzed number which we give, unlike some other peers where the method of calculation reporting is on their trailing 12 months.

So it's not naturally apple-to-apple comparison.

I thought I'd just point that out.

Just as a closing comment on the subject of attrition, as we said, this was an improvement over what we were able to report last quarter, and we think that our own efforts are geared towards the direction to bring it down further.

Hopefully, we should be able to see it in this quarter and going forward as well.

Senapaty, would you like to comment just on the operating front?

I think the way we've operated, the operating margins in the range of about around 25%, 24, 25 percentage kind of range, I think whatever margin we get more to be able to reinvest whether the sales and marketing and various new initiatives, whether it is innovation or R&D, to be able to deliver [technical difficulty] satisfaction to employees and the customer.

So some of the margins have been, because of the investments we are doing to acquisitions, the kind of expenditure enhancement we have done on the sales and marketing side [technical difficulty] investment has been done in that respect.

[Speaking] from a growth perspective, I think we have Financial Services that have grown amongst the top two, if you look at over the last [eight] quarters.

Similarly, our Enterprise Solutions also growth has been very decent, again, amongst the top three.

So far as the product engineering side is concerned, I would say we had some softness with respect to the telecom OEM side and there has been some early [inaudible] on the semiconductor side also that we are seeing.

So in some form there has been some form of cyclicality there you could say.

Let's say '05/'06 our growth was very good so far as the tech business is concerned, '06/'07 has not been and, perhaps, it will be so for a few more quarters before we pick it up because there have been some more initiatives that have taken in the form of acquisitions which particularly the ones IT related will take its time because it is a little bit [inaudible].

And [inaudible] enhance our penetration into the existing customers.

For example, we have been a strong presence in some of our customers in the wireline area, broadband area.

We've done an acquisition to be able to address the [budget] area.

Similarly, the Joint Venture that we have planned with Motorola, particularly in the telecom [inaudible] space, all the acquisitions that we have done in the [Quantech] which is our computer aided design and engineering area, we think some of these initiatives that we are [seeding] in will show up in the next two quarters in terms of growth.

So, overall, similarly BPO, we talked about we had [inaudible] growth for the last [two] quarters.

You have seen quarter after quarter we are [inching up].

Like Kurien stated, I think in a few quarters we should be able to go ahead of the industry there.

We have already done well and stabilized on the margin front and we will now pick up on the growth front, too.

So, overall, I think we are growing faster than the industry [inaudible] initiatives we are taking to protect the growth faster.

And also from a sales [inaudible] side if you look at, we have [inaudible] in terms of acquiring more and more [inaudible] but so far as our [inaudible] declines are concerned we have not done as good a job compared to some of our peers.

So we over the last few quarters and going a few quarters more will be disproportionately spending more of our allocation onto the [farming] side of our [search engine] so that we can enhance our share of wallet, to be able to do more and more value-added services and make those accounts much more profitable and also enhance customers' delight.

So that is the kind of approach we are taking and, hopefully, you will see results two quarters hence.

Thank you very much, that's very useful.

Next we'll go to the land of Sameet Kanade with Canaccord Adams.

Please, go ahead.

Yes.

Hi, thanks for taking my call.

I've been listening to, following the Company for a little while and I just wanted to make sure that my understanding is correct.

As you said, you are trying to move up the value chain, trying to acquire more customers, moving into Western Europe and Nordic countries.

And, as you do that, is it safe to assume as you are going forward that there are pricing pressures, given that the [combination] increases and everyone's going after the same clientele, the same dollars, so you'll have pressure on your prices going forward?

Hello, this is Sudip here.

The pricing pressures are [inaudible] situation but the general market situation today is that the prices that are being offered on most deals are also related to the kinds of skills that you bring to the table.

So wherever you can show differentiation through either the skills that you bring in or the solution that you propose, or the innovation that you promise to the customers who [inaudible] [gain], so all that has a bearing on how the customer treats your price.

So, as we said earlier, that we've been seeing steady movement on the price front in all new contracts, which is an upward movement.

And we've also seen reasonable improvement on the contract negotiations but, again, we've seen an upward movement.

So we think that situation will continue.

We will still be able to get our realization based on what is our target for the -- for all those contracts.

Just a final question on that, and if that is the case then your outlook and [inaudible] just to give some sort of color guidance going ahead, if that is the scenario that you're painting for the next 12 months, 14 months and you've got this wage pressure at the bottom and you've got these other pressures to do farming out to expand your clientele.

So can we expect the margins to be stable or can we expect maybe a few bits reduction going ahead on an overall basis in IT Service and BPO?

So if you can just provide some color on that, that's it, thanks.

Our sense is that in medium to long term we should be seeing much more stability in the margins with it to be moving within [inaudible] range, because there are enough levers for us to be able to optimize on but there is a bulge, whether it is offshore, on-site mix, utilization and multiple other initiatives.

So from that perspective there are counter-initiatives already available and many of them can be used to be able to see much more stability.

And next we'll go to the line of George Price with Stifel Nicolaus.

Please go ahead.

Thanks very much for taking my question.

A number of my questions have been answered but I wanted to just follow up on some of the commentary around larger deals anticipated to come in 2007.

I wonder if you could maybe give us a little bit more color about what you're seeing in terms of large deal flow this calendar year and into, basically, into fiscal '08 in terms of number that you're actively pursuing.

Maybe the timeline when you think some of the more notable ones might be awarded or announced and just refresh my memory also on your views on how you look at margin impact of these deals in the near term and intermediate term.

Thank you.

Well, you know, [inaudible] Sudip, again.

The deals that we've been seeing in the last eight, nine months have been of a size which has been much larger than what we used to do in the previous 12 months or so.

We announced during the course of the second quarter some large wins and we continue to see many more customers coming up with [ISPs], many more prospects coming up with ISPs which are of significant size.

As far as the margin of these deals are concerned, well, you pick and choose the business that you can execute profitably.

So, we don't go after every single ISP.

We don't go after every single large deal in the marketplace but we think once [inaudible] when we think we have the strength to execute it well and which gives us a margin which is as per our expectations.

So while there will be many more such deals available in the market as we go forward, and while we are getting invited to play in many more large deals than ever before, we will continue to pick and choose the ones to play in which play to our strengths, both as a -- our service line strength, as well as our integrated strength of providing IT plus BPO skills together.

And we will also select those on the basis of profitability.

If I could ask a couple of follow ups related to that.

First, what -- in terms of near time ramp-up impact, what kind of impact is acceptable to you or within the range of what you're willing to sign up for?

And then the second is, what kind of influence or impact do you see in these deals, particularly, as more and more stuff goes offshore, from the outsourcing advisors out there.

You're seeing them play a lot more as intermediaries.

Thanks.

Well, as far as outsourcing advisers are concerned, we see the advisors like TPI, Bain, Gartner, neoIT, you know, some Indian players as all being very active in this market.

And we see many of them advising clients to move larger deals and also move in with more services -- integrated services with players who have a strong base in India.

As far as the ramp-up question is concerned, ramp-ups are different for different clients.

Some clients want to move very fast after they've signed the contract and some others actually sign the large-frame agreement and then give us a hunting license within their [inaudible] to then start going after the business and doing the ramp-up.

So we have a mixed picture as far as ramp-up is concerned.

Also, it depends on what services the client starts off first with.

If it's application maintenance, that's something which ramps up very fast.

On the other hand, if it's a package implementation then that requires us to go there studying the existing impact of what is being done; there is a consulting element involved upfront in that and that has a slower take-off period.

Thanks very much.

And next we'll go to the line of Anthony Miller with Arete Research.

Yes, hello again gentlemen.

A couple of questions please, one about pricing and one about salaries.

Earlier on in the call you said that you'd about 60 to 75% of the clients that you approach for salary increase -- pricing increases gave you those pricing increases.

I think the numbers might have been slightly different on the first con call, but let's work with that.

For those clients that you asked for salary increases but they said no, what was the outcome?

Did you hold your own or did you in fact have to reduce your prices and, if so, by how much?

[Inaudible] salaries?

Oh yes, sorry.

Do you want to answer that one first?

Let me answer that question.

This is Rajesh here.

The facts are, I said we had taken stock of top 100 customers which we have and which came up for renewal.

I said that 70% of them came up for renewal during 2006 and between 75% and 80% of them gave us a price increase between 3 and 5%; that's a fact.

So the balance [inaudible] are flat, and a very few of them were negative as well but that's a very small percentage.

But the others were kind of flat.

Okay, thanks.

That's fine.

And on salaries, as you sit here today, can you see any indicators which would suggest that your salary increases in next fiscal will be any way greater than the ones you've been giving this fiscal?

This is Pratik again.

At this stage we see nothing in the environment to suggest that some of the assumptions which we would be taking in for this year's increase would be any different from what we did in the previous year.

That's great.

Thank you very much.

[Freya], probably we'll take the last question.

Yes sir, the last question will come from the line of Michael Guilbault with Technology Business Research.

Please go ahead.

Hello, this is Michael with TBR. [We've looked and checked out] -- my question has to do with your IMS business, your Infrastructure Management business.

It seems you've constructed that global command center and really made a push for that.

I'm just wondering what percentage of the Infrastructure Management revenues actually come from Infotech, from the domestic market?

We report the infrastructure management services for the global market separately and for the domestic market separately.

So, from a large proportion of our business in the domestic market does come from the infrastructure side.

I suggest you give me some -- what exactly was your question?

Are you asking what proportion of the domestic business is Infrastructure Services?

Yes.

I'm curious about the percentage of your service revenue from Wipro Infotech that can be accounted for by Infrastructure Management Services.

Okay.

So, on a broad base, purely talking about Infrastructure Services, close to 25% of our business of Wipro Infotech is accounted for by Infrastructure Services. 25% of our total revenue is accounted for by Infrastructure Services.

That is Infotech.

Wipro Infotech.

While the -- [$71m] of the Infrastructure Services for quarter 3 we're talking about, that is only Wipro Technologies which is primarily the customer in North America, Europe and Japan.

So, from a global perspective, it's roughly 10% of our business which is accounted for by Infrastructure Services.

From a domestic perspective it is 25% of our business.

But the other clarification I would like to give is a large proportion of the business that we do in India is revolving around infrastructure.

So we do a lot of PC business.

We do a lot of system integration business which also generates a lot of Infrastructure Services.

Okay, I understand that.

And -- the question is, I understand a lot of the -- well, several of your competitors don't seem to be focusing very much on the domestic market.

And they say, they claim that the reason behind it is that the margins aren't so good there.

Can you give me any kind of visibility into why operating margins would be different domestically versus internationally?

Okay, let me just start and then I'll request Mr. Senapaty also to give his views.

But you know, the domestic focus which we give through Wipro Infotech is clearly a big differentiator for us, vis a vis, most of our Indian global competitors.

One is, we have historically been there in this market.

Our diversification into IT started off by focus on the domestic market.

Two, is we've always viewed the domestic market as a very strategic market for us and, therefore, we've continued to invest.

And if -- and actually the Indian market is beginning to look extremely exciting.

Yes.

The Indian market is beginning to look extremely exciting and we find ourselves in a very unique position of having built up tremendous capability and, therefore, we are able to drive quite substantial growth vis a vis market growth here.

So, just to give an example, the last quarter our growth was roughly three-eighths that of the market growth in India.

The business is also beginning to -- we're driving services heavily, so therefore the business is also looking pretty attractive from an operating margin perspective.

Now the margin will never be close to what the global margins are because the mix of the business is different.

Here we do product, we do services, we do solutions and consulting and the product business tends to be lower margin than what the services margins are.

While globally our business is largely all services where the margins tend to be higher.

Okay.

Having said that, the services margins in the domestic market are also pretty -- particularly exciting.

Okay.

Alright.

Well, that sounds good and it's clear that Wipro has a differentiator there in that you've long time been dedicated to the market.

So overall then --

And just one more point if I may add is that -- speaking about the domestic market, we certainly believe that we must be a major force in the domestic market to be a major force globally.

So that is one.

And second is the domestic market has been an incubator for a lot of services that we launch globally.

So the Infrastructure Services that we've launched --that we're very strong in and we lead globally has been thanks to the sort of dominant presence we've had in the Infrastructure Services market on the domestic market.

So it is an incubator for us in terms of services and propositions that we launch globally.

Just to give you another example, we launched Total Outsourcing as a service in the domestic market over the last one and a half to two years.

We've been very successful.

And we also launched that service in the global market and we've already had [to mention that] in the Total Outsourcing market globally last quarter.

Okay.

Very interesting.

Do you -- not only are you a clear leader in the domestic market services but also you're using it as an incubator.

Very interesting.

The question then is -- the last question is for Infrastructure Management Services, overall, what kind of a utilization rate do you get in that particular vertical seeing as it's growing?

Sorry, what kind of what?

Utilization rates.

Yes, utilization of your employees and headcounts.

If you have -- I'm wondering how many people you have dedicated to them as well?

See utilization -- well, our utilization runs -- it runs actually higher than our overall utilization of Wipro Technology.

And it's been consistently so.

So the utilization runs higher.

Because it has been growing well and [then when it continues] growing well, therefore, all [inaudible] tends to be much better utilized.

Infrastructure business is a big growth driver for us.

Even if you look at the last quarter performance, the performance was 20% plus sequential growth.

And last quarter we were on roughly 80% year-on-year.

So it is a high growth business and a big growth driver for us globally as well as a big differentiator for us globally.

Okay.

Can you give any color to -- about how much higher than the average 5 percentage points?

Are you getting 75 or 80% utilization or -- do you have a limit that you want on utilization?

Okay, we are not breaking -- we are talking about Infrastructure Management Services?

In particular.

Correct.

Yes, we are not breaking the utilization figures for the trend vertical for our service lines.

It's a couple of percentage points more than what we have for IT Services.

That should give you some color.

Great.

Thank you.

Just the very last question is about IMS.

Do you have -- how many employees do you have dedicated to that service line at this point with this growth?

You know, for the global market it is roughly close to 5,000 people dedicated for Infrastructure Services.

In the domestic market it is larger; it's close to around 8,000 people.

So totally, across Wipro, we have 13,000 people dedicated to infrastructure business, Infrastructure Services business.

Very good.

Well gentlemen, thank you very much [inaudible].

I appreciate you taking our time.

Okay.

Thank you. [Gloria] there's one question on email, just from a [inaudible] retail investor; [Cedric Disaloff] from [Kuwait].

He is asking when Wipro will consider next bonus.

The answer is the dividends, [inaudible] dividends, bonus issues get addressed at the end of the year, Cedric, and it will be decided somewhere in April 2007.

With this, we'll close the call and thank you very much for your participation.

The IR team will be available offline to answer any further questions you may have.

And the [inaudible] this replay will be available from 12 noon Pacific at the dial-in numbers communicated in our press release as well as email.

And just a reminder that we have scheduled a Wipro Analysts' Day in the U.S. on January 30, at NYS in New York and in India on February 9, and please [do just try] to participate in these events.

Thank you and good luck.

Over to Gloria.

Ladies and gentlemen this conference will be available for replay after noon today through January 31. [OPERATOR INSTRUCTIONS].

That does conclude our conference for today.

Thank you for your participation and for using AT&T Executive Teleconference.

You may now disconnect.