Wipro Ltd (WIT) 2007 Q1 法說會逐字稿

Good morning, my name is Stephanie and I will be the conference operator today.

At this time, I'd like to welcome everyone to the Wipro first quarter earnings conference call.

All lines are placed on mute to prevent any background noise.

After the speakers' remarks there will be a question and answer session.

(OPERATOR INSTRUCTIONS).

Thank you.

At this time, I'd like to turn the conference over to your chairperson Mr.

Sridhar Ramasubbu.

Sir, you may begin the call.

Thanks, Stephanie.

Good morning, ladies and gentlemen, and good evening to the participants across the globe.

Rajendra, Lalit, Arvind join me from Bangalore in extending a very welcome to all the participants to Wipro's first quarter results and earnings call for the period ended June 30, 2008.

Joining us today are Mr.

Azim Premji, Chairman and Managing Director, Mr.

Suresh Senapaty, CFO, who will comment on the US GAAP results for the period ended June 30, 2008.

They are joined by Girish, Suresh Vaswani and other senior members of the Wipro management team who will be happy to answer your questions.

During the call we might make certain forward-looking statements within the meaning of the Private Securities Litigation Reforms Act 1995.

These statements are based on management's current expectations and are associated with uncertainty and risk which could cause the actual results to differ materially from those expected.

These uncertainties and risk factors have been explained in detail in our filings with the Securities Exchange Commission in the USA.

Wipro does not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date of filing thereof.

This call is scheduled for an hour.

The presentation of the first quarter results will be followed by a question and answer session.

The operator will walk you through the procedure for asking questions.

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

I'm available on email and through mobile as well to take any questions and table it to the Wipro team, in case you are unable to ask questions for any technical reasons.

Ladies and gentlemen, over to Mr.

Azim Premji, Chairman and Managing Director, Wipro.

Good morning to all of you all.

I am sure you would have seen our results posted on our website.

I'd like to spend some time reflecting on our performance for the quarter.

Following that, Suresh Senapaty, our CFO, will share financial highlights and the management team will be happy to take questions.

Let me start by sharing some of my thoughts on the environment.

With the oil prices spiraling out of control, we continue to see a lot of uncertainty.

Our focus is to retain close proximity with customers and partner with them in their business priorities.

With the completion of our revised organization structure we are in an excellent position to deliver better customer value.

Moving on to results.

Given the headwinds of macroeconomic uncertainty our results for quarter one '08/'09 have been satisfying.

Wipro Limited recorded revenue growth of 43% year on year and net profit grew 15% year on year on a GAAP basis.

And on a non-GAAP basis, adjusted net income grew 25% year on year.

In our IT business, services revenue for the quarter was $1,067m, with a year on year of 37% as against the guidance of $1,060m.

In rupee terms, the growth rate of our IT Services business was 40% year on year.

Growth continues to be driven by our differentiated service lines.

TIS, Testing and BPO grew upwards of 40% year on year.

Our Financial Services business continues to show resilience in the face of strong headwinds, with another quarter of 47% year on year growth.

We have also grown well in the Retail vertical.

Our early investments in the India and Middle East emerging markets continue to pay rich dividends, with another quarter of 50% plus growth year on year.

We have won a few multi-year, multi-million dollar deals in India and Middle East market and the deal pipeline is encouraging.

We are seeing our investments in global programs, leadership in infrastructure services and enhanced sales footprint start to pay dividends in terms of large deal wins.

We announced seven multi-year, multi-million dollar deals in Services business during the quarter and the pipeline looks healthy.

Our ability to provide end-to-end solutions on the Infrastructure Services and our enhanced global footprint helped us win a large deal with the worldwide leader in the manufacture of high quality audio and electronic products for management of infrastructure across Americas, Europe and Asia Pac.

Our Products business grew 53% year on year driven by systems integration wins and our leadership in IT business in India and Middle East markets.

Our strong presence in Products, in addition to services in these geographies, gives us a unique leadership on end-to-end systems integration and total outsourcing opportunities and deals.

Wipro Consumer Care and Lighting business continues to see a good momentum, with industry-leading growth rates.

Our domestic business continued its robust revenue growth at 32% year on year; the tenth consecutive quarter of 25% plus growth.

Unza continues to grow well in all the countries we operate in.

Going beyond business, we recently launched Eco Eye, a corporation-wide initiative on ecological sustainability.

It is a comprehensive program that drives increasing ecological sustainability in all our operations, and also areas of our influence.

This initiative attempts to engage with increasing levels of intensity with all our stakeholders, Wipro's own employees, partners, suppliers, customers and immediate communities.

We work on the dimensions of carbon neutrality, water balance, waste management and biodiversity.

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

A very good morning to all of you in the United States, and good evening to those of you in Asia.

I'll touch upon areas in our performance and financials that I believe would be of interest to you all.

Let me commence by highlighting the fact that, for the convenience of the readers, our US GAAP financial statements have been translated into dollars at the noon buying rate in New York City on June 30, 2008 for cable transfers in Indian rupees as certified by the Federal Reserve Bank of New York which was INR42.93 to a dollar.

Secondly, revenues of our IT Services segment was $1,067.5m which is in rupee terms INR43.9b which, in our earnings release, appears as $1,023m based on the convenient translation.

After having given that clarification, let me proceed that our IT Services revenue for the quarter was $1,067m against a guidance of $1,060m; a sequential growth of 3.5%.

As communicated during our last earnings call we have revised the reporting segments, post the reorganization of our IT business.

We will now report Services margins at an overall level as we believe that, post our reorganization, there is integration of our BPO and Infocrossing business with our IT Services business and it makes more sense to view them as one rather than separate businesses.

Considering that we are in a transitory phase in reporting, we believe it would help analysts if we give an apple-to-apple number for quarter one, so as to compare with the quarter four.

Our Global IT business stood at $996m in quarter one as, against $960m for quarter four; a sequential growth of 3.7%.

Similarly, on the margin front our Global IT margin was 20.1% (sic - see Press Release) for quarter one versus 20.2% (sic - see Press Release) for quarter four of last year under US GAAP.

The margin for the combined IT Services was 20.1% in quarter one; a drop of 20 basis points.

I'm sorry.

On the margin front for Global IT business, the margin was 21.1% for quarter one as against 21% for quarter four; a 10 basis points expansion.

So on the total IT Services business it is 20.1% in quarter one versus 20.2% in quarter four.

The sequential growth is driven by strong performance of Financial Services and Retail, both growing 5.5% and 7.8% sequentially.

Our differentiated service line of Testing grew 6.4% sequentially.

The US and Japan geographies grew above Company average sequentially.

Infocrossing business continues to get well integrated and has a healthy pipeline of contracts.

We closed contracts with PCV valued at $42m during the last quarter.

During the quarter we added 31 new customers, four of which were Fortune 1000 Global 500 customers.

The number of clients more than $50m on a trailing 12-month basis has increased to 14 in quarter one from nine in quarter one of last year.

In the current quarter our realization improved by 3.9% (sic - see presentation) for onsite and 3% for offshore sequentially.

On a year-on-year basis, rates for onsite and offshore improved by 5.4% and 4.6% respectively.

The improvement in rates was mainly due to improved realization in fixed price projects and a few of our non-linearity initiatives.

During the quarter we were able to maintain our margins in spite of RSU grants etc.

to improve realization and utilization.

On the foreign exchange front, our realization -- our realized rate for the quarter was INR41.16 versus a rate of INR39.87 realized for the quarter ended March 31, 2008.

Our cost rates for foreign currency costs also went up during the quarter.

On a quarter-on-quarter basis foreign exchange gave us a positive impact on margins of 0.1%.

As at period end, after assigning to the assets on the balance sheet, we had about $2.6b of contracts at rates between INR39.50 to INR45 rupees a dollar.

We raised an external commercial borrowing of $350m in March 2008.

This is an effect hedge for our overseas investment.

The translation loss of INR660m has been recognized in translation reserves in our balance sheet which offsets the gain on translating our overseas investment.

Although in US GAAP, the translation losses of external commercial borrowing are recognized in our P&L.

Similarly, there is a fringe benefit tax of INR46m on ESOPs recognized in our P&L account.

This is reimbursed from employees, which show up in equity rather than as a P&L expense credit.

We believe that, in the shorter term, accounting principles sometimes do not completely reflect our effective economic results.

We will affective this quarter provide additional information in the form of an adjusted non-GAAP net income statement, excluding currency translation impact of swaps and India fringe benefit tax on ESOPs.

We believe this will help our stakeholders to see our underlying business results even clearer.

In arriving at adjusted non-GAAP net income for the quarter, we have excluded the translation loss of the external commercial borrowing and the above-stated fringe benefit tax on ESOPs.

Of course, we will also continue to publish results as per GAAP and we will also provide a detailed reconciliation between GAAP, net income and adjusted non-GAAP net income.

For the quarter ended September 2008, we expect volume-led growth with stable pricing.

We will have the impact of salary increases of our offshore employees in the current quarter.

We will now be glad to take questions from you.

Stephanie?

Yes, sir.

Yes, we can go ahead with the Q&A.

(OPERATOR INSTRUCTIONS).

Your first question is from Joseph Foresi from Janney Montgomery.

Your line is open, sir.

Has there been any change in the tone of what you're seeing in that environment over the last couple of weeks?

And maybe you could talk about any particular client-specific issues both in your IT Services or Consumer Products area that you are -- you may be seeing some weakness.

Hi, this is Girish Paranjpe here.

There is no specific change of tone whereby we are seeing a change of direction or change of desire for clients to do work with us, or the type of work they would like to do with us.

However, having said that, there is no doubt that some our clients who are in the Financial Services space and in Retail space have witnessed a significant amount of turmoil, and that has been a reason for caution for us.

So I guess, then, help us reconcile if there's been no change in tone, why the -- what seems to be conservative guidance for the next quarter?

That is -- the conservative guidance for the next quarter is a function of what we have seen as current deals that have been closed and what we see as the potential billing for the next quarter.

Okay.

And then, just on the headcount side, I think there were some subtractions in some of the IT Services business.

I was wondering if you could tell us what you feel what the reason for that was and have you -- what you're doing with your campus offers at this point in time.

On campus offers, we typically make campus offers a year in advance and we made campus offers for people to join this year, a year ago.

And we have a schedule by which people will join this year, and that is in progress.

Apart from that, we continue to hire from the market both experienced people, as well as we run a special program for science grads which is outside the campus hires, so our talent pool is really a combination of these three streams.

So that's what makes up our talent pool.

In terms of the negative add that we've had this quarter, it's a function of two things.

One is that we had a particularly lumpy joining at the end of last quarter.

And also that we think that we'll be able to drive utilization and productivity strongly, which is why there is this aberration in our headcount.

So just to clarify, there hasn't been any changes?

You haven't delayed the taking on of any campus offers that were made last year?

Could you repeat that?

Your voice --

I'm wondering if there's any change in the program as far as the campus offers that you had put out last year.

Are you still taking them on at (multiple speakers) pace?

Is it the same amount of people?

Yes.

So we have not made any change so far.

We are -- there is a schedule that we have for people joining and people are joining as per that schedule.

Okay.

And any thoughts on the trajectory of growth just real quickly, lastly here.

Any thoughts on the trajectory of growth this year?

Do you expect September to be lower than the back half of the year?

Thank you.

If your question was what do you see the outlook for the next half -- was that your question?

That was it, yes.

Well, we certainly see a better outlook for the second half of the year, based on the pipeline that we have and on the deals that we won in quarter one.

So we did speak about, earlier in the day, about winning close to $0.5b worth of deals in terms of total contract value, and those deals in terms of revenue would kick in two or three quarters from now.

So, net net, we certainly see a better outlook for the second half of the year, based on our current deal pipeline and based on the sort of work that we are doing with customers in terms of building the deal pipeline.

Okay, thank you.

Your next question comes from -- please excuse the pronunciation, Mark Zgutowicz from Piper Jaffray.

Your line is open, sir.

Hi, good evening.

Just a couple of questions, first, with regard to BFSI.

That clearly held up much better than your peers this quarter.

I'm just curious what your pipeline looks like here for the next six to 12 months and what your existing BFSI clients are communicating to you in terms of further commitments for the next six to 12 months or in potential delays.

Hi, Girish here.

So, as you would have seen, our sequential growth in BFSI was fairly encouraging and probably better than what some of our peers have seen.

As of now, what we see as business as usual from clients continues fairly uninterrupted.

There is clearly caution in terms of kicking off new programs.

And there is some amount of extension of timelines for negotiating larger duration programs.

So those are the two signs that we have as of now from clients in the Financial Services segment.

Okay, and then just one other question.

In terms of your top 10 clients, could you just remind us again where your concentrations are there in terms of just industry focus?

And, secondly, sort of the same question I guess, what they've been communicating to you in terms of commitments over the next six to 12 months and what kind of visibility you feel you have on that [back part].

Well, if you look at our top-10 clients, they are multiple verticals.

They are in Technology, they are Energy [utilities] they are Financial Services, so fairly across the board kind of a thing.

So, clearly, so far as quarter one was concerned we did well so far as the number one, or top five, or top 10 are concerned.

And our objective is to continue to make sure that we harvest those accounts and increase our market share of wallet by investing more and more into those accounts.

And because we have multiple range of services we'll continue to add more and more of our service offerings to meet the needs so far as the customers are concerned.

And could you just provide maybe a little bit more granularity in terms of what your visibility is on -- just specifically those top-10 clients over the next six to 12 months?

Obviously, you have difficult times here to get visibility, but maybe if you just put some parameters around that.

This is Suresh Vaswani here.

If your question is to do with visibility insofar as the top-10 clients is concerned going forward, we've shown a sequential growth in terms of revenues from top-10 clients.

And we do believe that we can continue with that trend, given the fact that we have a strong program addressing our top customers, and given the fact that we're also working on putting together proactive opportunities in context of our larger mega-accounts.

So the quick answer to this is we see the top-10 accounts, the top accounts with Wipro, clearly leading the growth.

Most of them -- to clarify, the top account is just about 2.7% of our net (inaudible).

So we are not having any one particular customer where there is very high level of over-dependence.

Great, that's very helpful.

Thank you.

Your next question is from Trip Chowdhry from Global Equities.

Your line is open, sir.

I was just wondering, since the market conditions are not so good, probably the acquisitions you were looking last year could be, this year, pretty much on sale.

Have you thought about acquiring some companies?

Because our research is showing some of the companies who were trying to be shopped around, today they are willing to be sold at least 60% [lower] value than last year.

Have you thought about maybe taking this slowdown as an advantage and going shopping at probably much better prices, because now the ball is in your court versus the other person's court?

Thank you.

Yes, Trip, I think our strategy has been to be able to -- [string our pearls] and that has to be first -- the set up has to be that there has to be a strategic need for it.

There has to be a fulfillment, like we said, whether it is a skill set or whether it is a geography.

There has to be a strategic need and then follows the financial aspects of it and multiple other stuff.

So just because financially it becomes more viable or economical and it does not make a strategic fit, we wouldn't want to jump the gun there.

It has to be matched -- meeting our three filters which we talked about, strategic, cultural as well as financial.

So just because the market is good in terms of from an acquisition perspective, we would not like to jump in.

Your next question is from Arvind Ramnani from Bank of America Securities.

Your line is open.

Can you provide some color on the existing deal pipeline for IFOX as well as -- IFOX-related contracts as well as the margins for that business?

This is Suresh Vaswani here.

IFOX has won last quarter roughly $42m worth of contracts in terms of PCV purely for IFOX-related services.

So we see the good momentum in terms of sales build up in IFOX.

We see a good healthy pipeline building up for IFOX.

And we also see a strong pipeline building up for integrated deals between Wipro's Infrastructure Services and IFOX.

So, all in all, we are fairly excited by the opportunity our Infrastructure Services business presents along with the IFOX acquisition.

And can you comment on the margins?

We have integrated the IFOX business into Wipro's Infrastructure Services business.

So we are no longer talking about specific margins in the context of IFOX because a lot of deals are really integrated.

But to just give you a broad perspective, the IFOX business is very strongly driven by the revenue build up.

So certainly, going forward, we see the Infrastructure Services business and IFOX businesses merging in terms of operating margin over the next few quarters -- merging or being very similar in terms of margins over the next few quarters.

Great.

And then, you booked a ForEx loss pertaining to an external commercial borrowing to the tune of INR660m under the US GAAP.

Can you just provide some color on this?

Like we do investments in a -- the foreign currencies, whenever rupee depreciates or appreciates we tend to account for the difference between the rate at which we purchased versus the spot rate and carry them in the books and the balance sheet as a translation capital reserve.

Just to make sure that we do not lose out on that, we have taken a commercial -- an external commercial borrowing of about $350m against that investment.

And on that investment it just works on [a counter], which means on the capital account you'll lose, on the borrowing you gain, and vice versa.

So from an economic standpoint, it is exactly hedged.

But under the US GAAP, because the currencies are different in terms of the borrowing and the investment, it does not qualify as the hedge accounting while on the International Accounting Standard and the Indian Accounting Standard it does qualify.

So, consequently, the INR660m which is the exchange difference from April 1 to June 30 of INR660m has been taken as a hit to the P&L account.

And to make sure that we have a proper understanding of the business operations, there are two items which we have tried to give an adjustment to, to give a non-GAAP number which is -- one is this INR660m and the other one is the fringe benefit tax on ESOPs.

Because after the ESOPs were granted, there was a law in India which started taxing the fringe benefit tax, including on the existing grants.

And, consequently, we have decided to recover those fringe benefit tax from the employee.

Which means from the economic point of view what the Company pays versus what the Company recovers squares off.

Yet, from a US GAAP perspective, the recovery from the employee is treated into the capital account and the payment out of the Company is treated as a charge to the P&L.

So these are the two items where we are capturing that separately and giving an adjusted GAAP number so as to read our financial reports more appropriately.

Great, that was very helpful.

I also wanted to find out what is your outlook on pricing?

This is Suresh Vaswani here.

I think our outlook for pricing is pricing will continue to be stable.

We have seen a better price realization this quarter, and that was thanks to some of the price pick ups we had been able to negotiate with our customers over the last couple of quarters.

And, of course, we were able to drive productivity a lot more in some of our fixed price contracts, which is the reason why you're seeing the price realization being up in quarter one.

But, going forward, we see a steady sort of environment in terms of pricing.

We do believe that new contracts will come in at higher pricing than our existing contracts.

Great.

And how is your new joint CEO structure working out?

And how does Mr.

Premji's role change or get enhanced through this?

So I am going to first talk about how is that joint CEO structure is working and then, of course, Mr.

Premji will speak.

I think it's working wonderfully.

We've had a great first three months.

Results are in line with what we expected to deliver to the market.

We are teaming up together strongly.

And we clearly believe in the power of two CEOs to deliver stronger strategic thrust to our business, as well as stronger operational thrust to our business.

So I think it's working wonderfully well.

And so far as I am concerned, this is Azim Premji speaking, I see my role going back to being a Chairman of Wipro Limited versus being the Chief Executive Officer running Wipro Technologies and Wipro Infotech.

So I'm very comfortable in terms of the job which I've got settled back into.

Great.

Just one last question.

How is sales being organized?

Is it -- are you guys hiring someone new or how is really sales being organized?

How sales --

Sales organization.

So sales are -- Girish here.

Sales is organized by geographies and they are all -- the sales people are also aligned to industry verticals and practices.

We have geo heads for North America, for Europe, for Japan and China, as well as for Asia Pac.

India and Middle East, of course, is kind of run separately.

And all the geo heads actually report to me and Suresh.

They also -- the people in the territories, the sales people, also report to their respective verticals and to service lines.

Great, thank you.

Your next question, and please excuse the pronunciation, is from Kanchana Vydianathan: from Pacific Crest Securities.

Your line is open.

Hi, thank you.

I guess my first question is, looking at the revenue from the various industries, it's interesting that you mentioned that Financial Services and Retail is where -- if you look at the clients, are the ones that are having the issues, but that's where you seem to have posted the strongest growth.

Can you help us reconcile that?

And also help us understand what's happening in the technology and the communications service provider space, because that seems to be weak.

Hi, Girish here.

Let me talk about Financial Services and Retail and I'll refer to my colleague, Sudip Nandy, to talk about Technology and Media.

So you're right that, if we look at our sequential growth in Financial Services, it has kind of bucked the trend and it has been ahead of what some of our peers have done.

And I think it's largely due to the strength of our relationship with clients and also the quality and depth of work that we do there.

I think in Retail also it has been the consequence of some large deals that we have won.

They are more managed services type of deals.

And we have -- even in the last quarter some of the big deals have been in that sector.

So we are quite confident that, especially in the Retail, we'll be able to continue to see the momentum going forward.

Financial Services there is a note of caution, given the significant turmoil that we see in that space.

But what we have seen so far is that what was business as usual to keep the business running, that part of work has not got affected.

There is a little bit of concern about large programs and funding and also extended cycles for, again, significant projects being kicked off.

Let me turn it to Sudip to talk about the technology segment.

Hi, this is Sudip.

In the last quarter we have significantly reorganized our Technology business because we saw a couple of trends in the market and took the opportunity of the reorganization to take advantage to position us even better.

So we moved the Media and Entertainment business from elsewhere in the organization to combine with the Telecom Service Provider business and it's now called the Communications and Media vertical.

We also moved the IT Services and the BPO business for the telecom companies and technology companies and combined this to offer an end-to-end service as a genuine industry vertical offering tech solutions, IT and BPO.

So there are two additional verticals; one is called Hi-Tech, the other is called Telecom Equipment.

And then last thing we did was we converted the embedded systems and the VLSI design and the mechanical design part of the business as a horizontal, which allows us now to go and offer the same services to customers in the manufacturing space, in the medical devices space, in the retail automation space, in the energy utilities space and so on.

But this has been a quarter of change in all those fronts.

But we've now got the dots aligned properly.

We have -- we are now seeing a very good funnel in the -- and help create wins in the Communications Service Provider business and some wins in the Technology business.

In the Telecom Infrastructure business, we're seeing a lot of activity but not -- the funnel is not as strong.

And we are having equal number of ramp downs as ramp ups.

But the good news is that there is activity.

And there is not frozen-in-the-tracks syndrome that we have observed for the last four or six quarters.

So after the consolidation in that space, we have found people, they are rationalizing products, introducing new products.

Where they're rationalizing we're having ramp downs, where they're introducing new products, we're having new activity.

And I think these rationalizations will be over in a quarter or two and we'll see an uptake in these telecom equipment vendor space also.

So, all in all, I think we have made significant changes.

We are organized in a very unique way now and I think the future should be good.

Okay.

So that means -- if I understand it correctly, that means that then looking at your September quarter and for the rest of fiscal 2009, you're expecting a pick up in the Technology space.

And, I guess, with respect to the -- if you look at the retail space, then you're expecting the trend to continue, or the strength to continue.

Yes, that's --

And the uncertainty is the Financial Services?

That's right.

Okay.

Are you seeing a weakness in Financial Services only in North America or even in Europe?

As of now, I think more North America.

Europe, we still have to see.

Okay.

One question with respect to your pricing.

It's actually interesting that -- your pricing has significantly improved this quarter.

I was wondering are you running into any situations where clients are coming back and you're seeing sporadic renegotiation on your pricing contracts; anything of note?

Well, nothing substantial of note.

So, yes, there is the odd customer which -- who talks about price renegotiation but it is very, very marginal I would say.

The customers are not really coming back to us for any substantial price negotiation.

Got it.

And one final question.

Just looking at your OCI, I was wondering if you could help us understand, walk us through your hedging, as to what is remaining at the end of this June quarter?

And whatever loss that you have right now in the OCI, how that would play out depending on if the rupee appreciates or depreciates?

Beyond whatever the hedges has been applied to the exposures on the balance sheet, is about $2.6b.

And the OCI is about INR934 -- INR9,340m, and about one third of that would pertain to the current fiscal.

And the balance would be over a period of two to three years.

And --

If [it holds good] with the current spot, (inaudible) spot and the premium holds, if the rupee appreciates this amount will come down.

If the rupee depreciates this amount will go up.

And we have been following this strategy since 2004, trying to seek certainty as opposed to trying to be opportunistic, because these are against underlying transactions and not speculative in nature.

And there are clear forward contracts or options, the take-forward option which meets the (inaudible).

From that perspective, there have been many quarters where we have looked smart.

There are quite a few where we don't look smart.

Okay, thank you very much.

This is helpful.

Thank you.

(OPERATOR INSTRUCTIONS).

Your next question is from Ashish Thadhani of Gilford Securities.

Your line is open.

Yes, good evening.

I just want to go back to Europe.

Are you sensing any signs at all of an economic slowdown in that region?

And could that threaten the adoption trend witnessed in recent quarters?

Well, broadly from an IT Services perspective, we -- okay, so this quarter the sequential growth of ours in Europe has been marginally lower than what it is in the US.

But in terms of market potential, funnel build up and the opportunity, I do believe it is pretty similar to what we see in the US.

So we're not seeing a drying up of the funnel.

We are seeing quite a lot of openness when it comes to Continental Europe geographies, looking at outsourcing.

And we're seeing a fairly healthy funnel build up insofar as Europe is concerned, so nothing peculiar about Europe in terms of market trend.

Okay.

And --

If anything, there is more openness for some of the Continental Europe customers to look at outsourcing more aggressively.

Great.

And you earlier referred to business-as-usual work versus new projects.

Could you break down the relative size of these two components for you?

Business-as-usual work is about 55%, 60%.

New projects tend to be actually 20% or so.

And then there is consulting work which is -- and some smaller projects which are there.

Okay, that's very helpful.

And on the margin front, over the last year or so the IT operating margin has drifted down from about 24% to 20% or 21% due, primarily, to currency and acquisitions.

Is it reasonable to expect a return to prior levels, or has the margin philosophy changed since that time?

Okay, this is Suresh Vaswani here.

I think it's reasonable to expect a positive trend insofar as operating margins are concerned going forward.

I think there are levers that we have for productivity which we plan to drive.

There are levers that we have in terms of pricing when it comes to new customers.

So the broad outlook would be an operating out -- operating margin -- positive -- the broad outlook would be a positive operating margin outlook.

Okay.

And, finally, the tax rate appeared to be a little higher than what we had anticipated for the quarter.

What is the outlook for that for the rest of the year and beyond?

Ashish, this is Suresh Senapaty.

I think we will be within 100 basis points so far as the whole year is concerned, because of what we had in quarter one.

Quarter one to quarter one of last year looks a bit different because quarter one of last year we had a big write back pertaining to the past period which was nothing of that nature we had in quarter one.

And that's why -- and we have always stated that about 14% to 15% will be our ETRs.

And we hope to be the same the current year.

Okay, thank you very much.

Your next question is from Rachael Stormonth, NelsonHall.

Your line is open.

Thank you.

Congratulations on a good quarter, particularly in the FS vertical.

Could you give some light, please, onto India and Middle East region; that's where the headcount growth is coming from?

Of what period of time do you see before you're getting major managed services contracts out of that region, is my first question.

My second question is about the long-term pipeline in terms of service lines, where you're seeing the new opportunities coming through.

I haven't understood your first question, but I'll answer your second question and maybe you could repeat your first question later for me.

Okay.

So if you're -- this is Suresh Vaswani here.

So if the question is in terms of service lines, where are we seeing the funnel build up --

Yes.

I would say, broadly, we have four service lines and we've just added one more service line.

And I'll speak about that as well.

The first service line is Infrastructure Services.

With the combined proposition of Infocrossing Infrastructure Services and the strong presence that we have in India, we see a fairly positive outlook for that service line across global geographies.

We've had a good quarter last quarter in terms of our year-on-year growth, which is roughly 75%.

So that is on Infrastructure Services.

On Package Implementation, here again, we're seeing good traction building up for both the application support type of projects as well as some key strategic implementation projects, so we have a healthy pipeline for that.

Testing Services has always been a strong differentiator for Wipro.

And that, again, has come up with a strong performance in quarter one in terms of a year-on-year growth of 40%.

And we see a fairly strong outlook for that business.

BPO is the other major service line.

Here, again, we see strong traction building up for our transaction processing.

And our ratio of transaction processing business has continuously increased over the last couple of quarters and now it accounts for 39% of our BPO business.

We see a lot of opportunities at the intersection of application and BPO, which is what we're trying to do to make sure that our sales fields and practice fields are more aligned together to create the opportunities at the intersection.

We have repositioned our Product Engineering Services business, which was largely focused on the technology sector to address all our verticals.

And here we see strong opportunities in the manufacturing sector, in the aerospace sector particularly, in addition to, of course, the traditional sectors that we were focusing on in terms of Technology and Telecom.

So that was the perspective on service lines.

We do believe that service lines will continue to be very strong growth drivers for Wipro and differentiators for Wipro.

I would want to also add one -- you all would have heard about the repositioning that we've had of our Consulting business.

We've got -- put together all our Consulting business.

We've got -- put together all our Consulting business, which was a part of our various verticals and service lines in the past, into one integrated Consulting business.

So there are two objectives of doing that.

One is obviously to build stronger traction with customers, deliver better value to customers in terms of integrating all our various service lines together.

And, secondly, we're also beginning to now look at Consulting as a service line, pretty much like Package Implementation is or Infrastructure Services is.

So you've got now actually six service lines within the Wipro fold, which work through the various verticals in terms of driving customer proposition.

So that was the answer to your question two.

If you could, please, repeat your question one.

Thank you very much.

It's about the India and Middle East business where there's a growth in headcount.

When do you -- what kind of timescale, having invested in the area, before you're seeing a major outsourcing business coming out?

Well, we have made strategic investments in India and Middle East over the last many years.

India, we have a very, very large presence and you're familiar with that.

Middle East is, again, a fairly strong opportunity for us.

We've been early in that marketplace.

We've invested over the last five years.

We have a Joint Venture there in Saudi Arabia called Wipro Arabia Limited.

But clearly, a long story short, I think we have a very powerful proposition addressing both these markets.

It spans across Consulting Services, Application as well as technology.

We have strong partnerships in terms of system integration partnerships to address these markets.

And these partnerships are Cisco, EMC, Microsoft, [SAP], and Oracle to just mention a few of them.

And we are very strongly positioned in large outsourcing opportunities both in the Middle East and India, both in terms of what we call as transactional outsourcing opportunities as well as transformational outsourcing opportunities.

One of the biggest wins, or really the biggest win that Wipro has had was in India, I think last quarter, from an organization called Aircel which is in the telecom service provider space, where we are completely responsible for both their IT operations currently, as well as transforming their IT as they go ahead expanding the number of circles that they operate in and as they launch new services.

And also, just as a supplement, over the last two quarters we have had very good wins, particularly from Saudi Arabia.

One is more than $50m deal and another one was more than $100m deal in the -- [Saudi Arabia].

And the funnel continues to be looking good in terms of putting forth more projects in Saudi, because of the kind of investment that is coming up.

Did we answer your question?

Yes, you did.

Thank you very much.

Thank you.

Okay.

Your next question comes again from Arvind Ramnani, Bank of America Securities.

Your line is re-opened.

Hi.

I just wanted to get an update on your operations in Atlanta and Mexico?

This is Deb here.

We have a number of centers in Mexico and, as of today, it has got a number of people billing out of that.

And we are seeing certain expansions that are happening there, based on the type of business that is coming in there.

We also hope to expand BPO services there if we get them.

And can you provide us some color with your revenue outlook for IFOX?

Color --

Revenue outlook for --

Well, I think our IFOX business is ticking along pretty well.

They have finalized close to $42m in TCV last quarter of very specific IFOX business.

So I'm not talking about the total business that we've got on account of that, but I'm specifically talking about the IFOX business.

We see good traction building up for the IFOX business.

We see good traction building up for the integrated offerings of the IFOX business into the traditional Wipro base.

And we see good traction building up for integrated outsourcing deals, thanks to the IFOX proposition that we have.

So we have a very positive outlook on IFOX and we have a very positive outlook on our overall Infrastructure Services business.

More specifically, when you did the IFOX integration last year you talked about making it a $1b business a few years out.

And now you've had a chance to take a closer look at that business, are you more comfortable or less comfortable with that few year outlook?

Well, first of all, our Infrastructure Services business today accounts for 18% of our total revenues.

That's a fairly large business for us.

IFOX, particularly in the US, is a very key part of our Infrastructure Services business.

And I have no doubt -- so this $1b reference I am not so familiar with in terms of what context you speak but, certainly, we see our Infrastructure Services business, combined with the IFOX business, driving stronger growth for us in the US market.

So I don't think it's going to be too far down into the future when that business will reach that scale.

Great, thank you.

Your next question comes again from Mark Zgutowicz from Piper Jaffray.

Your line is re-opened.

Can we have the last question, operator?

Yes, this will be the last question, Stephanie.

Yes, Mark.

Okay, great.

Thanks.

Actually just two quick ones on the Consulting business, I'm just curious, you had a nice uptick sequentially in year over year there.

Is that all organic?

I know that we're talking small numbers here on a relative scale, but is that all organic?

And, secondly, is that a precursor to maybe better business trends in the US over some period of time?

Maybe if you could provide some color on that.

And then just another, related question.

Are you continuing to look at acquisitions more aggressively in this area, specifically within the US?

Hi, this is Girish here.

There has been no acquisition in the Consulting business.

This is all organic.

And we continue to be optimistic about being able to make an impact to clients and build -- [expand our] leveraging Consulting not only for revenue growth, but deeper client relationships, more value-added perception about what we can do as well as, hopefully, downstream revenue.

And in terms of acquisitions in this area in the US, is that something you're looking at just given, as an earlier person pointed out, just prices of companies in this area?

At this moment we are not very bullish on making acquisitions in Consulting, because it's not only a matter of valuation, as Senapaty said earlier.

It's about cultural fit and about making the two organizations work together.

And I think, there, we continue to have concerns on how well that works.

Okay.

And I guess --

We'll never say no.

Go ahead?

If I could squeeze just one last one in, unrelated.

Just in terms of how you're looking at balancing utilization trends with having the appropriate headcount for -- to nail your pipeline, how are you looking at bringing on new heads?

If you could provide some rough outlook in terms of how you're looking at bringing on new bodies and what wages look like as well.

Hi, Girish here.

We have -- as I mentioned earlier, we have people coming in from three talent pools.

One is campus hires when we offer a year in advance.

We have experienced people who are required for us to fill out the pyramid.

And then we also run a science grad program where we're bring in people as apprentices and get them to complete an engineering degree over a four-year period.

So those are three streams by which we fill our talent pool.

And it is based on creation of our global delivery organization now.

We are seeing the advantage of greater fungibility and mobility of people.

And we really hope to see an uptick in the utilization rate that we have in the organization.

We have seen steady improvement over all of last year and we think that we'll be able to pull it up further.

Okay, great.

Thanks very much.

Thank you.

Thank you very much for your participation.

We are available offline for any questions, Rajendra, Lalit, Arvind and myself, and there is an archived facility available.

Thank you very much once again.

So, over to Stephanie.

Thank you.

This concludes today's conference call.

You may now disconnect.