Wipro Ltd (WIT) 2006 Q4 法說會逐字稿

Good morning, thanks [Pam] and thanks everyone for joining us for Wipro's fourth quarter results and earnings call for the quarter ended March 31, 2007.

[Justin], [Lalit and Valesh] from the IR team join me in conveying our very warm welcome to all of you.

With us today we have Mr.

Azim Premji, Chairman, Mr.

Suresh Senapaty, CFO and other members of Senior Management team, including the BU 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 our results in today's 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 www.wipro.com.

I am online on 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.

I also understand that when you are to press for the questions you need not necessarily press star one, just press one and you get to the questions.

So, with that, let me turn over the call to Mr.

Azim Premji, Chairman of Wipro.

Good morning to all of you.

By now you have seen our results for the quarter ended March 31, 2007.

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

We've had a good year in 2006/2007.

Wipro Limited recorded revenue growth of 41% year on year for financial year '07, and net income growth of 44% year on year.

All our business segments contributed to this strong growth in revenue and profit.

Our combined IT business crossed $3b mark in 2006/2007.

During the year, we made investments in the form of strategic acquisitions, expanded our sales force, increased domain competency and solution focus, and launched new projects under the Quantum Innovation umbrella.

These have helped us in delivering good profit growth, winning a number of large deals and expanding our footprint with existing customers.

These results are also a testimony to the fact that investing in the right opportunities will yield good results.

We invested early in our differentiated service lines, namely, Technology Infrastructure Services, Testing Services and Enterprise Application Services.

All these service lines have grown well ahead of our Global IT growth.

Our BPO business, which went through a planned transformation, has delivered strong growth during the past two quarters and has been consistently improving profitability.

Our Financial Services business has grown with a CAGR of 50% for the last four years, and crossed the $0.5b mark in revenues for the year.

During the year, we have had excellent growth in Retail, TMTS and Healthcare verticals of our Enterprise business.

Our Enterprise Solutions business crossed $1b in annual revenues.

From a geography perspective, Europe continues to grow at a brisk pace.

We expanded our geographical presence by creating a center in Romania, which has gone live with its first customer.

And we now have a global delivery center in Portugal and Brazil.

We continue to invest in quality processes.

And we are one of the first few companies to get certified under the new CMMI version 1.2 models, across our onsite and offshore development centers.

We received the India Innovation Award under the Business Innovation category for our global command center.

And we were the only Indian Company to be profiled by Business Week as part of IN25 Champions of Innovation.

Similarly, our India, Middle East and Asia-Pac IT business continued its momentum, and grew at double the industry growth rates.

It recorded a revenue and profit growth of 45% for 2006/2007.

We won seven large total outsourcing deals during the year, including some [large] customers like Dena Bank a leading bank in India.

Our win ratio continues to be high at around 60%.

Our technology partners, like Cisco, Sun, Microsoft and Checkpoint have rated us as a top partner for the year.

We continue to invest in our non-IT business in the form of acquisitions, and also in product and geographic expansion.

For the fiscal we have delivered growth rates, which are double the industry growth rate.

To sum up, our investment and our focus on enhancing value to our customers and stakeholders has paid off.

As we start the new year, we see new challenges and exciting opportunities ahead.

We have drawn up an aggressive plan and a focused set of actions to drive profitable growth.

We believe we have the right ingredients in place to keep winning.

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

A very good morning to you, ladies and gentlemen.

Let me comment by highlighting the fact that, for the convenience of [you here], our U.S.

GAAP financial statement have been translated into dollars at the noon buying rate in New York City on March 30, 2007, as certified by the Federal Reserve Bank of New York, which is $1 is equal to INR43.10.

Accordingly, the [value] of our Global IT Services segment value was $690.7m or, in rupee terms, INR30.42b, appears in our earning release as $706m based on the [Indian] calculation.

Global IT Services revenue for the quarter of $690.7m included $631.1m from IT Services and $59.6m from BPO Services.

The sequential revenue growth of 7.8% in Global IT Services segment comprised of 7.4% growth in the revenue of IT Services, and 12.5% growth in revenue of BPO Services.

Sequential revenue growth of 7.4% in IT services was driven by volume growth of 5.4%; an increase in realization of 1.3%.

Importantly, our acquisitions grew 14% sequentially in the quarter.

On the ForEx front, our realized rate for the quarter was INR44.04 versus a rate of INR44.77 realized for the quarter ended December 31, 2006.

As at the year end, after assigning to the asset on the balance sheet, we have about $195m of contracts that range between INR44 to INR45.77.

During the quarter, we added 44 new customers, several of which were Fortune 1000 Global 500 customers.

We continue to see good traction in the marketplace across our service offerings.

During financial year '07 we won 10 large multi-year multi-million deals.

We have seven customers with annual revenues in excess of $50m, as compared to three in FY '06.

During the year, we crossed the milestone of 250 customers with $1m in [bond] rate.

Our realization for the year was higher by 1% on a blended basis.

On an organic basis, we improved offshore mix by approximately 150 basis points.

The quarterly revenue run rate of our acquisitions have improved by 40% since their [culmination].

And we are happy to share that all our acquisitions have reported profit for the quarter ended March 31, 2007.

During the quarter, we effected salary hikes in January for our onsite employees, which impacted our margins by 60 basis points.

Increase in billing rates and improved profitability in our acquisitions and BPO significantly offset adverse impacts of wage hikes and rupee appreciation.

Operating margin of our acquisitions portfolio improved by more than 1,050 basis points sequentially.

For the full year, we have delivered a margin of 24% in our Global IT business, almost flat compared to fiscal '06, despite making investments in acquisitions, sales and marketing and the impact on the [comparable] wage hikes and [REC] brands.

The BPO business has completed its first phase of transformation.

It has delivered good growth in the last two quarters and has held margins steady about 22% range.

We are confident that we have created a robust platform for future growth.

For the quarter ending June 2007, we expect volume led growth with stable price realization.

Recent appreciation in the exchange rate will impact our margins adversely.

We have communicated that we will report financials of acquisitions on a standalone basis for a period of two to four quarters.

Since this period is complete for all our acquisitions, we will be merging the acquisitions in the respective segments from quarter 1 of fiscal '08.

We will now be glad to take questions.

[Pam], you can start [inaudible] now.

Yes, I am here.

Yes, you can start the questions and answers now.

I have given instructions for pressing one or star one whatever the right one is.

[OPERATOR INSTRUCTIONS].

Our first question comes from Joseph Foresi from Janney Montgomery Scott.

Your line is open.

Hello guys, a couple of quick questions here.

The first is on guidance for the June period, it seems to be a little bit lighter than what I was expecting.

Any commentary on that?

Is that basically the law of numbers here, because the December quarter was so strong?

And how are you seeing the environment right now in North America, as far as IT Services spending is concerned?

Yes, before I request [Mr.

Shekar] who heads our North American and Europe geography, let me respond to your question on the guidance.

Yes, we have given the guidance of about $711m against a $690m last quarter.

And this is based on what we will see, particularly at this point in time, [as the] run rate etc, etc.

Also if you look at historically the first quarter has not been always a very good quarter.

Last year the numbers we had, we had about two acquisitions which got fully [consolidated] during the quarter and, therefore, exactly does not apply for comparison.

But all I can say is, although our environment outlook has not undergone any change, but for quarter 1 we thought, at this point in time, it was appropriate to estimate a guidance of approximately $711m.

Now I will hand it over -- let me hand it over to Shekar.

Joe, this is Shekar.

Regarding the environment in the U.S., I am not going to comment on the state of the economy, because there are so many aspects to it that, frankly, its hard to figure out the impact of how the interest rates, the sub-prime situation etc.

But with regards to the IT market itself, frankly, based on everything that we have seen in the U.S.

market; the customers, our sales force, the discussions we have had, there has been nothing to indicate to us that there is any material slowdown in the offing, or anything that we have seen.

We haven't seen any cancellation of visits.

We haven't seen any postponement of discussions.

Interest in demand remains fairly high.

Our last quarter in the U.S.

has been very, very strong; in excess of 8% sequential.

We've opened a bunch of new accounts; we've opened 40 accounts across the board, of which 35 are based in the U.S.

Out of it seven are Global 1000 Fortune 500 accounts.

And the sequential growth has been good.

We've got 200 -- [amounted] to a number of $1m accounts.

We've added to the number of $20m accounts.

And service line and vertical expansion has been, frankly, uniform across the board.

We believe that we continue to have a fair amount of room on the table to sell across even the install base that we have with the breadth and depth of services that we can offer.

And we still believe that the demand for the -- in the U.S., for that matter in Europe as well, remains quite healthy.

And there is no reason for us to think that this is anything which is more than a first quarter situation.

Sure.

Just three more actually quick questions.

My second one here is on product engineering in Europe.

It seems like there was some weakness in both of those particular areas in this quarter.

How should we look at both areas, and how do you see growth in both?

Hello, Joe, this is Ramesh Emani, and we -- I look after the Telecom and the Product Engineering business.

Regarding your question on the Product Engineering business, the softness what you are seeing.

The way I will put it is our Product Engineering business has broadly three components.

There is the business from the telecom equity vendors, there is the business from the IT vendors both computing [storage] software vendors, and there is the embedded business.

There is, indeed, softness in the telecom [vendors] market but, primarily, in our view, because of the large mergers that have happened in the marketplace.

And there is a product consolidation that has led to a review of sorting or even their own [individual] efforts.

We this with the consolidation and [inaudible] most of the [projects], we think the situation will start coming back to normal.

And we are already seeing some traction from many of these companies.

And we think in the next two quarters we will see good growth.

However, I must say that we had a very good growth in our [American] systems within this time [campaigns] from the American Automotive, or Industrial Automation business, which in some sense has offset part of the decline we had in the telecom [inaudible] business.

On Europe, Shekar [maybe] you can answer.

I didn't get the question, can you [tell me].

I just thought I had kind of talked about that with Joe.

We had a very good last quarter with about 14% sequential.

This quarter also in terms of year on year, our growth is 38%.

But that is Europe.

And same situation, Joe, we have the Securities business and the Insurance business growing strong.

And -- but we have some significant plans for Continental Europe and, therefore, we don't believe that there is any reason for any apprehensions in Europe.

Our next question comes from Trip Chowdhry from Global Equities Research.

Your line is open.

Thank you, congratulations on good execution.

A couple of questions, first on Retail.

The business seems to be very, very strong.

What is the reason for that?

This is Sudip Banerjee here, I hope you can hear me.

In Retail vertical we've had prospect build up starting in about January/February of 2006.

And many of those decisions came in at the early part of 2006 so, typically, our May/June timeframe.

Those also included a couple of very large deals which we have announced that we won.

And these are deals in excess of $75m.

Coupled with that, we also had an acquisition of a retail solutions company.

And that has given us access to more customers.

So, those three elements have combined to give Retail vertical a very solid boost during '06/'07.

And we've ended up with 72% Wipro growth from that vertical.

And also I see BPO showing some strength.

Do you think -- what is the reason for that trend?

And do you think that trend is sustainable for the next few quarters?

Trip, the answer is very simple.

The answer is that, if you look at our top line growth last quarter, it's primarily being driven by volume growth.

And the way we see is that the demand environment needs to be fairly decent.

What is -- what our top line [inaudible] typically by the timelines that our customers take for transition.

And that could be the only kind of variability that we have as part of the process, in terms of quarter revenue.

Okay, and an answer in the earlier call with -- you mentioned, I think when you mentioned that Wipro will be looking into large acquisitions.

I was wondering can you give us some color where would those acquisitions come from; U.S.

based companies or other parts of the world?

And which sector are you trying to enter by these large acquisitions that you mentioned in the previous call?

Trip, this is Sudip Banerjee.

We are looking at acquisitions in several of the verticals where we think there is a gap between what we can offer our customers to complete acquisition offerings.

And rather than look at smaller acquisitions because we are comfortable with them, we are now saying the bar is higher, we are more comfortable in looking at even a $100 or $200m company.

So we should look at that.

So one of the sheer same strategic areas of a Retail vertical or a Manufacturing vertical, whichever verticals we have identified as key verticals for [key service] lines, we are looking at bigger pieces there that's one.

The second piece is that we had earlier constrained ourselves by saying that we'd only go for a single vertical, or a single service line kind of acquisition.

We are now saying that, having done several acquisitions over the last 12 months, our confidence and our comfort is greater.

So we can now do even multi-vertical acquisitions.

That's the second area, so now that's immediately related to the size of acquisitions we can look at.

And the third area is that we have been more hesitant in doing acquisitions which were at the very high end, because we were not comfortable that we would be able to get the full value in the right manner.

We are now comfortable with the [enabler] acquisition that, even if we have high end consulting capability in a particular vertical, we can combine that consulting and domain knowledge with the great global delivery and technical competence and really make a difference to our customers.

So that has given us greater confidence.

And the three areas put together we are already looking at something -- number which are an order of magnitude bigger in terms of acquisitions.

It is not really a geography we are targeting, so I can't say that we are looking at U.S.

or Europe per se.

It could be anywhere, wherever the strategic needs gets fulfilled.

But suffice to say we are looking at vertical sales type acquisitions, and the [domain] type acquisitions as well as service line acquisitions.

Thank you, and congratulations on good execution.

Thank you, Trip.

Our next question comes from Mark Marostica from Piper Jaffray.

Your line is open.

It's Mark Marostica at Piper, just a broad question here in regards to your revenue mix.

Looking back to the beginning of fiscal '07, I think closer to 80% of your revenue came from Global IT Services and Products.

And I think you were wrapping up the year in the fourth quarter at around 70%.

And I am curious as you look out to maybe a longer-term operating model, where you think that mix will stabilize?

Actually, so far as the Wipro Infotech business is concerned there is a [fair amount of] broader company than that.

And in quarter four with the domestic market [with the tax law] becoming spending that happens at the [inaudible] it tends to peak in quarter four significantly than it does in the earlier parts -- other parts of the year.

So, otherwise you are seeing the growth rate of the [inaudible] IT, which [incorporate] as it [inaudible] almost similar, therefore, overall mix point of view there will be not much difference.

Again, there was an acquisition of [$3m] that was done by Wipro Infotech.

And we thought when [inaudible] in fact November '06 and that again the full impact was felt in the quarter.

And that bit of the share in, therefore, you are finding in quarter four the mix does slightly change.

But in general terms we would continue to expect the IT business to be still about 88 or 90% of the overall revenue, with Global IT at about 70% [at best].

And the profit still to be in excess of 90% of the opening profit will be the IT business.

Great, thanks for the color there.

In regards to pricing, I was wondering if you can comment on what you are seeing in terms of pricing trends on existing contracts.

Yes, as far as pricing on the existing contracts are concerned we have -- generally we have a very comfortable situation of paying the reserves [inaudible].

We are getting new customers at about 3 to 5% better rate.

And the existing customers, whenever it comes to a negotiation of the renewal, we are finding more often value added [will] get bigger increases.

But, net net, last year's reserves ['07] over '05/'06 we got a 1% base increase in realization.

Quarter on quarter, we had about 1.3% improvement in realization.

So we were look -- our outlook is that it will be fairly stable for '06 -- '07, '08.

And most of the growth will come through volume.

Great.

One follow-up question.

I noticed your BPO margins this quarter looked very good.

And I was wondering what you think about the sustainability of those margins as you look ahead.

Thank you?

Yes, the margins last quarter were pretty decent.

And from our perspective we've always guided the [streets] in the sense that we have said that our margins remained between 20 to 22%.

We've come at the higher end of the scale this time.

But I don't see anything that -- today that would make me change that 20 to 22% range that we've indicated in the past.

I think we will still remain within that range.

Our next question --

Does that answer your question?

Mark?

Mark do we have you?

Mark has, I think, finished his question.

Pam, can we get the next question please?

Okay, our next question comes from Bryan Keane from Prudential.

Your line is open.

Yes, hello.

Can you talk about operating margins next year, some of the headwinds you face, like the rupee and wage inflation and which levers do you guys plan to pull to offset that for fiscal year '08?

Well, [Mark], you should have seen, we have -- [Bryan].

If you have seen these markets of ours in '05, '06 or '06'/07 they have remained almost the same under the U.S.

GAAP.

And quarter on quarter there was a little reduction because of the rupee exchange difference and [from the month of February] that we took because of the exercise of the options that we [employed today] in view of the [HVP].

We agreed to -- the Company agreed to fund the [inaudible], and therefore we could get 1, 2% dip in the margin.

But on, net net, we are seeing on the year on year basis we have been able to maintain the margin.

So -- and we have seen, so far as there has been a weakening in the [sales] there has been a rapid strengthening of the rupee.

But there has been multiple other levers which we have been able to pull to be able to get overall [settlement or balance] in the market.

So going forward also [are difficulties], and within in the long term we think this is a sustainable margin.

And, yes, the rupee is an [inaudible], and we have to deal with it.

So far the kind of policy we have had has [inaudible] improved debt.

We have generally then able to mitigate the uncertainty and volatility of the exchange.

At this point in time we have a [inaudible] mark up about $195m over and above whatever [covers] we had for assigned assets in the book, and that cover is about a [43], 45.77.

Yes, we have contributed to what the exchange is going to shape out in the current quarter and going forward.

But we would say, in the medium to long term, we should see sustainability of this [cover].

Okay, and on -- just on the top line I saw the quarterly revenue for the IT Services business.

Do you have any thoughts on the full-year fiscal year '08?

Should it be at or above industry averages, or any thoughts on that?

Yes, Bryan, we typically guide on a quarter-to-quarter basis.

We have generally delivered every year ahead of what the industry growth rate has been and, consequently, our endeavors will be continuing with that.

But we give guidance only quarter to quarter.

But the outlook looks very exciting, our pipeline looks exciting.

[Inaudible] bank relief grew due to our large deal [based in dollars].

There will be some [slide] on what we are seeing in terms of the [bigger connections].

I think since we started to focus on large deals late last year, we are seeing a very significant build-up of traction in that area.

Most of the deals that we have closed in '06/'07 are [doing] very well.

In addition, we continue to attract very strong [talent] into this large [team] group, because it's very different types of change.

So, all in all, market for large deals we are taking share away from the incumbent, as mega deals get broken up into smaller deals.

And that way it lends a little leverage for us to [play] with.

Okay, and then how many large deals have you won this fiscal year versus maybe last?

And then what's the pipeline?

Is there an amount of deals, 15, 20 or something that you are working at for large deals looking forward?

These are [two binary basis.

We would prefer not to give a number on the sizes of deals because in many situations, many clients [change the] outcome to the very last minute.

So, until the deal is signed, we'll prefer not to give a number on that.

And many clients, particularly, are hesitant to talk, as well, about going public.

But we can certainly show you that we are getting [traction in that area].

And last year, we took about 10 orders [inaudible] $2m [inaudible] contract.

And the traction, as we're seeing now, is nothing dissimilar.

Okay.

And then just a last question on the acquisitions.

You talked about doing bigger deals.

Would that include -- will that be all over the world or, in particular, how about the U.S.?

Will you be looking in the U.S.

to add there?

There is no geography specific details [inaudible].

The intention, primarily, in the different industry [inaudible] where we want to be able to bring the [inaudible] to add to what we already offer, or to strengthen our existing service line, where we are offering the infrastructure or [package] application, or testing, or BPO.

So, we're looking to add significant capability.

[Inaudible] could be consulting size.

[Inaudible] should be platform-based operations, BPO operations side, or [inaudible] model.

So, this is not a geography [thing].

This [inaudible] happens where we might find the particular acquisitions, like we mentioned about the [Anazar] acquisition in Portugal.

We were not looking for Portuguese acquisition.

We're looking for retail capabilities with [inaudible] implementation.

It just happens that the equity was in Brazil and Portugal.

So, I would say no to any U.S.

sites, but the type of requirements [inaudible] are looking at, the possibility of it in the U.S.

is higher because there are a higher number of U.S.

companies with that capability.

But we are not looking at that as the end objective.

Okay.

Thank you very much.

Our next question comes from Julio Quinteros from Goldman Sachs.

You're line is open.

Thanks.

I wanted to talk a little bit about the Telecom Technology business side, particularly the Product Engineering Services.

Can you just help us get a sense on visibility in that segment?

With a lot of the changes going on in that space, help us understand visibility and how you guys look at how your product plans, relative to your customers there and the ramps and revenue etc.?

Thank you.

Hello, Julio, this is Ramesh Emani, Telecom and Product Engineering Group.

So, the question what you are asking, in terms of trying to paint the landscape of the Telecom and Engineering market.

[We were], in the year 2006, saw a dramatic change in the reduction of the number of the leading players in that market.

I don't think [inaudible] happened [inaudible].

So, I think most of last year and even, I can say, the first -- up to this quarter, most of the [inaudible] customers were in terms of trying to [inaudible] or they will do the [inaudible] consolidation.

A [last] consolidation and it was not an easy task.

Of course, we also spent that much more time in terms of getting the regulatory approval [signed off].

In that sense, a lot of that time was spent on these things.

At the same time, there was also a lot of [inaudible] happening at the carrier side.

So, that was also making all of these people decide what it is the new carriers were wanting in terms of the solutions and the -- and their needs.

So, what we have seen is that, essentially, there was no inflow of [parts].

That is what has happened.

Okay.

The -- that had the last two [inaudible] reduction -- a complete softness in terms of the demand side in our business.

But the good news is that is past.

We are seeing the -- our customers making decisions and in terms of making the product line and through the development plans.

We are seeing, definitely, a large increase in action in terms of [inaudible] discussions with us.

Now, [inaudible] before, you should see some improvement in the outlook for this portion of the market in the next two quarters.

There is another development that his happening with the Telecom vendors even in terms of [inaudible].

They are trying to move it from being a pure [inaudible] player to the [total] solution providers.

We think that also gives us an opportunity to build a close relationship with many of the vendors to help them expand their own solutions portfolio.

Okay.

Just some color on [inaudible] results.

Okay.

So, [inaudible] you're asking me are [inaudible] business we do in Wipro is the embedded system.

So, the embedded systems [inaudible] essentially in the [inaudible] printing and [inaudible], medical electronics, automotive electronics, industrial automation and aerospace [inaudible] business.

We have seen a lot of action in terms of customers' readiness to work with outsourcing vendors like ourselves.

And I can say, the last year, we had a very good growth in the [inaudible] market.

Much higher than the average growth [inaudible].

Okay.

And one follow-up question for Senapaty on the tax rate for the current quarter.

Can you just walk us through what happened there, really quickly?

I might have missed it earlier.

And then what's your tax rate expectations going forward?

Thank you.

Right.

In order to look at the tax rates, or [inaudible] was about [14%] and tax, with a write back of about INR1,200m.

So, if you then write back [inaudible] about 15% [EDR].

So, we think the current year will be around the same number.

Okay.

Great.

Thank you.

Our next question comes from Michael Guilbault from Technology Business Research.

Your line is open.

Congratulations on a very good quarter.

Thank you.

Actually, I'm curious about you're new facilities in Romania, Portugal and Brazil.

Can you give us some light on how much staff you have in these facilities at this time and what your one-year staff level goals are for each location?

Yes.

[Inaudible] to talk about Portugal and Brazil [inaudible].

And Romania, I will say it's [inaudible].

Great.

Does this [inaudible]?

[Inaudible] relatively speaking actually.

So, let me start with Portugal and then I'll move on to Brazil.

Portugal, currently we have a strength of about roughly 230 people.

And in Brazil, we have about 70 people.

The total strength we have in the -- including the [enabled] acquisition, is 348.

The other people are in different other locations around Continental Europe.

Okay.

And is this the ongoing headcount that you'd like to maintain or do you plan to ramp these -- the staff levels at these facilities during the coming fiscal year?

Well, in -- both in Portugal and in Brazil, we have a little addition from the time we did the acquisition.

And as I said, the original headcount was 309 and it has now gone up to 348.

So, we've added on people in the enabled part of the acquisition.

And we will continue to do the people additions in both locations as well as add people in other locations as well for the Retail Solutions space.

Okay.

Right.

And in terms of your expansion in Brazil, is this being driven by the needs of your current customers or is the expansion being driven by expansions of expectations of forward need?

Or maybe it's a response TCS aggressive expansion of its own global delivery network?

Well, it's nothing to do with any other company's plans.

It is a factor of what we've proved our customers require and the best location to execute from.

We have certain type of skills which we think we can expand in Brazil and those skills are in the Engineering space, particularly around data warehousing as well some E-commerce people, in addition to Retail Solutions people.

We're looking at that in terms for some other skills as well.

And based on the customer needs, we would add more.

We have [inaudible] to go up to about 230, 240 people.

So, we have the strength, we have the infrastructure and we would also execute other working -- in other areas for other customers, not just in the Retail [delivery] from Brazil.

Okay.

And so then the Portugal and Romanian facilities, are they acting as near-shore facilities in support of Western European customers?

Or --

Well, when the Portugal facility started off with having people experienced in the Retail Solution as well [inaudible] service currently wholesale/retail customer.

We don't like to add new [inaudible] other than these two.

And, for the time being, we -- customers we will service from Portugal will be in that segment.

As far as Romania is concerned, the [inaudible] bring in this BPO [state], but we will add on more customers then.

And we'll also [inaudible].

Okay.

And then the last question, I guess, is that in terms of your location in Romania and Eastern Europe, is any of the presence you're building up there have to do with the anticipated forward demand for IT services in that region?

As [inaudible] the demand that we are currently seeing is [inaudible] customers in Continental Europe.

We look at Eastern Europe and possible offshore locations, given the [value] skills that is available in that place.

So, we will be adding on our headcount with the view of [inaudible] Continental European customers, French customers, German customers etc.

Okay.

Alright.

My last question just has a -- to do with the 1,100 basis point margin expansion in your acquisition portfolio.

Do you consider this improvement in the margins to be a direct result of the lessons learned from acquisitions made prior to 2005?

In other words, don't those earlier acquisitions where, at sometimes, perhaps you aren't as satisfied with the speed to profitability that you saw.

I understood you went through and developed new plans and highly detailed approaches to be sure you could do a much better job with all forward acquisitions.

Does this -- has this been applied in the case and are we seeing good results as a result of that?

This is Sudip -- Sudip Banerjee.

To an extent the estimate will be partially because we have [inaudible] significantly more effort and gone -- drilled down to a lot of details in doing the integration planning for the Company.

But I think, most importantly, we've started small.

And we've found an -- a business manager who has good [ownership] of the [inaudible] acquisition.

Like, you've heard a little while back, [Pratik] talk about the enabled acquisition in great detail.

I think of the acquisitions we've had also been responsible for every asset of the acquisition.

We've identified very senior level people, GM and above level, individual [inaudible] out from the job.

And [inaudible] them to be in position for a full 100 days and then carry on to an operating role in the acquired entity.

These are some of the learnings we have had from these pre-2005 acquisitions and, to an extent, they have helped us in two things.

One is, utilize the sales strength of Wipro, to leverage the capability of the smaller companies.

And also, we've been able to really do some amount of, not very significant, but [inaudible] into the obvious areas where we could impact without impacting the capability in the [field].

So, a lot of these have actually been learning from the past.

And, also, we have learned, not only from our acquisitions, but we have gone to global experts and other people who do acquisition [of weak] kind of companies like Cisco and [Jeeves], and we have learnt from them as to how to go about realizing the benefit of these acquisitions.

So, a combination of internal learning and picking up from the experts.

That helped us turn them around quickly and try to realize the revenue synergies that we planned for rapidly.

And, also, [inaudible] in this quarter, all the acquisitions that we did in the last [16, 17] months have been profitable.

Okay.

Well, thank you very much and congratulations again.

Thank you.

Thank you so much.

Our next question comes from Ashish [Ipro] from Gilford Securities.

Your line is open.

Yes.

Good evening.

Nice quarter.

My question has to do with margin visibility.

Could you indicate the portion of the workforce that falls, currently, in the less than three years of experience category?

And where this figure stood last year as well as what the objective is longer term?

And the margin sensitivity to future improvements?

Hello, Ashish, this is [Pratik] here.

[Third] quarter number is [inaudible] in terms of [rest of the year].

[Inaudible].

A full year back, I think it was around 37%.

And what did you say the objective was?

[Inaudible] was a little bit more and [the value-added] will have much more higher results than [inaudible] to the other [inaudible] last year.

This year we're going to double it.

And we have already [over 40,000 offers] [inaudible] who'll be joining.

So, from that perspective, overall, [the initiatives are on] and we want to improve that.

We have not communicated a number because we definitely want to show a significant improvement in this area.

And, Mr.

Senapaty, do you have any margin sensitivity number for each percentage point, what the impact would be on your operating margin?

We are talking about the range of 0.2 to 0.3% [to the] impact.

You know, it is looking complex in the sense that while you can identify them into one category or saying that the economy is better [inaudible].

But [inaudible].

So, how will the [inaudible] happen?

I don't think it's going to [inaudible] in terms of saying the 0.1 percentage point change, like we have for foreign exchange impact.

But, just to give a one-time effect, you know, I wouldn't want to communicate [inaudible] [2.3] that's the number [you can give].

Okay.

[Inaudible] as [inaudible] changes [inaudible].

Understood.

And then [inaudible], the capacity expansion in [inaudible] to [17,006], when is that slated for completion?

Over what period of time?

Over the next two years.

Okay.

So, it's going from six to 17 over the next two years?

Yes.

Okay.

Thank you very much.

Thank you.

I'm not showing any further questions in the queue at this time.

Great.

So, why don't we close the call?

[Actually], one more [inaudible].

Sorry?

If there are no more questions, we can close.

Yes.

We can -- actually, Pam, you can close the call.

Thank you very much for your participation in this earnings call.

And if you have further questions please do reach out to Rajesh, myself and [Justin] who are available offline.

And the [whole availability of the quarter and [inaudible] will posted on the website shortly.

Thank you very much.

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