Wipro Ltd (WIT) 2009 Q1 法說會逐字稿

Good morning.

My name is Jean and I will be your conference operator today.

At this time I would like to welcome everyone to Wipro's quarter one results and earnings call for the period ending June 30, 2009.

All lines have been placed on mute to prevent any background noise.

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

(Operator Instructions).

Thank you.

Mr.

Sridhar Ramasubbu, you may begin your conference.

Thanks, Jean.

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

Rajendra, Rishad, Arvind and Lalit join me from Bangalore in extending a very warm welcome to all the participants to Wipro's first quarter results and earnings call for the period ended June 30, 2009.

We have with us today Mr.

Azim Premji, Chairman; Mr.

Suresh Senapaty, CFO who will comment on the IFRS results for the period ended June 30, 2009.

We are joined by Joint CEOs of IT business, Suresh Vaswani and Girish Paranjpe and other senior members of the Wipro management team who will be happy to answer questions.

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

These statements are based on the 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 US.

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

The call is scheduled for one 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 the transcript will be made available after the call at our website.

I am 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, Wipro.

Good afternoon and good morning to all of you depending on where you are located.

Thank you for joining us.

As we come to the close of the first quarter of a new financial year, we are more hopeful of the future than we were before.

In the last few quarters, governments and businesses across the globe reacted swiftly to the downturn, the results of which can be seen in the emerging signs of stability in the macro environment.

There is more liquidity in the system.

Stock markets are off their lows.

Consumer confidence is increasing and corporations have generally been more hopeful this quarter, both in their commentary and in their results.

While these are the initial baby steps on the path to recovery, there is a growing confidence that the environment is stabilizing.

As we look at the IT business, we are starting to see the first signs of this stability as ramp- downs start to taper off and volumes start to stabilize.

In this context, Wipro Limited posted a 5% year-on-year growth in revenues and a 13% year-on-year growth in net income for the quarter ended June 30, 2009.

Our IT Services business revenue was in line with our guidance on a constant currency basis.

The currency tailwind enabled us to exceed our guidance on a reported basis.

Our focus on operational excellence continues to set industry leading benchmarks.

While these results are satisfying it is important to appreciate that the world around us has changed.

What we're now experiencing is a fundamental reset of the economy and the financial system and the return will be to a new reality.

As an organization we continue to adapt ourselves to this new reality.

Specifically I would like to discuss two areas of focus, our go-to-market strategy and our operational excellence drive.

Let me talk about our go-to-market strategy first.

We continue to become more strategic to our customers and are increasingly participating in large and complex transformational deals to deliver end-to-end integrated solutions across our differentiated product lines.

We have stepped up investments in emerging geographies.

Our early investments in India and Middle East have provided a strong platform for growth and market share.

We have invested in further enhancing the quality of our salespeople and bringing more local talent to drive transition and change management capabilities.

We believe that our investments in go-to-market put us in good stead to gain wallet share and increase our proximity with our customers and capitalize on emerging opportunities.

Our focus on improving operational excellence and our ability to work with our customers to change and improve our engagement model has resulted in our showing improvements across all key levers of utilization, across bulge improvement, offshore mix improvement, resulting in operating margin expansion.

The gains on account of ForEx have mitigated the drop in realization during the quarter.

As we prepare ourselves for this new reality, we remain incredibly optimistic about the long term viability of the Indian IT industry.

We continue to invest for the future in opportunities like cloud computing and green IT.

Our Consumer Care business has also weathered the economic downturn commendably.

Santoor, our flagship brand emerged as the number one toilet soap in South India in market value share as measured by AC Nielsen for the period April-June '09.

Our toilet soap portfolio grew much ahead of industry growth rates in the quarter ending June 30, '09.

In our international business of Consumer Care, we have double digit industry leading growth rates in several markets.

I will now request Suresh Senapaty, our CFO, to share the financial highlights of the quarter with you, following which our management team will be happy to take questions.

Good morning to all of you in the United States and good evening to all of you in Asia.

While taking you through our performance highlights for the first quarter, let me draw attention to the fact that for the convenience of readers our IFRS financial statements have been translated into dollars at the noon buying rate in New York City on June 30, 2009 for cable transfers in Indian rupees, as certified by the Federal Reserve Bank of New York, which was $1 equal to INR47.74.

Accordingly, revenue of our IT Services segment that was $1,033m and in rupee terms INR48.27b appears in our earnings release as $1,011m based on the convenient translation.

Effective this quarter, we have started reporting our financials under IFRS.

We will continue to report non-GAAP adjusted net income under IFRS, which will exclude the impact of accelerated stock based compensation accounting.

Once India reporting converges with IFRS effective April, 2011, it will enable reporting -- single GAAP reporting.

Moving on to our results.

Our IT Services revenue for the quarter ended June 30 was $1,033m, a sequential decline of 1.3% and a year-on-year decline of 3.3%.

On a constant currency basis, our IT Services revenue was $1,014m, in the range of our guidance.

Our constant currency growth on a year-on-year basis was 2.1%.

We are seeing growth rates starting to pick up in some of the verticals.

Communication and media service providers grew 6% sequentially.

Energy and utilities grew 5% sequentially and healthcare and services grew 7% sequentially.

Retail recorded an impressive year-on-year growth of 23% in constant currency while manufacturing grew 9% year-on-year in constant currency.

Of the new customer wins this quarter, [60%] of them were in retail and manufacturing.

BFSI is showing signs of stability while technology and telecom continue to face challenges.

Package Implementation and BPO delivered sequential growth of 3.5% and 4% respectively.

Our India and Middle East business grew 21% year-on-year on a constant currency basis.

Our focus on large accounts has resulted in accounts greater than $50m on a trailing twelve months basis to increase from 14 in quarter one of FY '09 to 17 in quarter one of FY '10.

In terms of operation, our fixed price moved up 30 basis points and offshore mix moved up 160 basis points sequentially.

Effective this quarter, the (inaudible) under the Global IT Services includes Citos as well.

Our onsite realization improved sequentially by 1.3% while offshore realization dropped by 1.1% sequentially.

Our volumes dropped 1.5% in the quarter as against 6.3% decline in the previous quarter.

Our continued focus on realigning our cost structure has resulted in our margin improving by 0.5% in the current quarter to 22.2% despite the challenging environment.

As of June 30, 2009 our DSO, that is days of sales outstanding was unchanged from the previous quarter at 60 days.

Our IT Products business revenue was flat on year-on-year basis in the current quarter due to reduction in capital expenditure by Indian corporates.

We improved margins and profit before interest and tax grew by 13% on a year- on-year basis.

Wipro's Consumer Care and Lighting business continued to see good momentum with revenue growth of 9% year-on-year and profit before interest and tax growth of 27% on a year-on-year basis.

On the foreign exchange front our realized rate for the quarter was INR46.74 versus a rate of INR47.14 realized for the quarter ended March 31.

On a quarter-on-quarter basis, ForEx gave a positive impact to margin of about 1% including the benefit of cross currency.

As at the period end, after assigning to the assets on the balance sheet we had about $1.2b of ForEx contracts, $1.65b total contracts at rates between INR40 and [INR51.5].

Our net cash balance on the balance sheet was [INR29b].

We generated free cash flow of [INR14b] during the quarter, a year-on-year increase of 150%.

We'll be glad to take questions from you.

Jean, we can start the Q&A.

(Operator Instructions).

Your first question comes from Joseph Foresi, from Janney Montgomery Scott.

Go ahead, please.

Hi, guys.

You've mentioned a sort of -- a movement to stability.

I was wondering if you could talk about what you are using as a measurement to gauge this stability and maybe just talk about why you feel now it's improving for the client base in general?

This is Suresh Vaswani here.

Clearly it's based on our own performance and [industry] performance in the last couple of quarters.

So for example in Q4, we had a sequential decline of about 6%.

In Q1 it was negative 1% but better than negative 6%.

And Q2 we've given a positive guidance.

So our outlook is clearly based on what we see as our [unique] potential, what we see as our customer base, what we see as a funnel, what we see as the deals that we've won and the projection of that going forward.

Okay.

And you talked about the pipeline last quarter being perhaps better than it was a year ago.

I was wondering is that coming in at the pace that you expected it?

And -- and/or when can you -- we expect to realize some of those types of increases?

So if I look at the last quarter's performance, I think it's been a quarter of good deal wins.

We've won one of -- our largest deal was an Indian telecom.

Actually not an Indian origin telecom service provider (inaudible) called Unitech in collaboration with Telenor.

That was a large deal.

Then we have won five mid-sized deals last quarter of significant scale, of significant potential in terms of customer acquisition.

So net-net I think what we spoke about in terms of a healthy (inaudible) has resulted in healthy order booking as we had last quarter.

And this should result in a good revenue performance going forward.

As I look at our funnel, looking into quarter two it looks even stronger than what it was looking in quarter one.

And (inaudible) the funnel side has increased by 10%.

So all in all from the funnel visibility perspective or from a deal closure perspective I think things are looking -- things are looking [sharp].

It's all a matter of when the deals close, when does this realize into revenue, how many we win, how many we lose.

It sounds like in your commentary is perhaps a little bit more positive and confident than some of your competitors.

I wondered if -- when you're competing on the deal maybe you could just talk about what you think what those advantage may be in the win area.

Is it domain expertise or are people looking to domain or pricing when they're signing the deals?

I would say that it's a combination of various factors.

There are some deals that we've won on the back of or on the strength of our domain capability and the fact that we have both IT and business process outsourcing as strong propositions from our side.

A good example of that is Origin Energy which (inaudible) at the intersection of strong domain capability both in retail, energy and utilities, strong BPO capability and overall strong IT Services capability.

So I think what works for us is the fact that we have a fairly strong [spread] in terms of services.

We're strong on BPO, we're strong on traditional IT services, we're strong on infrastructure services.

That works well and that coupled with the domain capability that we've built across all our SBUSs becomes the competitive edge and the strong differential for us with respect to most of our competitors.

Of course we just to have ensure flawless execution as part of the bid management and bid (inaudible) to get all -- everything right.

More often than not we win.

Okay, thank you.

Our next question comes from Mark Marostica of Piper Jaffray.

Go ahead please.

Marostica.

Just -- I was wondering if you could quantify the margin benefit over the past couple of quarters.

You've seen a shift offshore.

And given that we see a pretty sharp drop sequentially over the past couple of quarters in billed onsite person wise, this is -- does this imply that some of these margin benefits may be muted over the near to intermediate term?

So let me -- hi, Girish here.

I'm just trying to understand your question a little better.

You're saying that because we've seen margin expansion on the back of offshore movement, have we come to a point where we cannot see any further improvements in offshore element given the level that we've reached.

Yes.

So, Mark, the story is as follows.

On the mature part of our business which is application management, infrastructure management, etc.

I think there is the opportunity to do much more work on global delivery on an offshore basis as compared to what was historically acceptable.

Historically it was felt that at least 30%, 35% of the work had to happen onshore and only the balance could be done offshore.

As the business has matured, as client confidence has grown, I think people are much more willing to accept a much smaller presence onshore as long as we have the right people in front of the client and we have a robust process offshore and transparency (inaudible) the client about how the work actually gets done here.

So we could even see something like 20%/80% or 15%/85% as far as the onshore/offshore mix is concerned.

So on the more mature, the more standard processes, the client confidence is pretty high.

Actually the offshoring potential is pretty significant and much higher than where we are today.

When it comes to newer businesses, whether it's system integration or consulting, [that tends] to be more onshore status, whether it be for Europe or Japan or wherever it is.

And the play of onshore/offshore that we have in our business mix, is (inaudible).

So how much more mature businesses we are able to sell versus how much of new business we are in, will impact on this impact.

So I think there's a bit more potential, to move more offshore.

Even if in a particular quarter it does not happen, it is not because the Company has hit the roof.

It's because maybe the percentage of consulting and more system integration business has dominated, which is why the offshore mix has gone down.

Okay, that's very helpful.

And then unrelated, I saw your marketing line.

I'm just wondering if this 6.5%, 6.6% revenues is a reasonable run rate for FY '10.

And when you talked in the last call about (inaudible) improvements, that resulted in some permanent reductions here.

And I'm just curious looking at the benefits from permanent reductions going forward relative to potential uptick in demand and sort of how you see the selling and marketing expense line trending this year.

Mark, I don't think what we've seen as a reduction in this quarter is something that is permanent.

It's more quarterly and some correction in the kind of (inaudible) mix that we did.

Actually we think the (inaudible) investment should be a little bit higher and maybe the nature of that investment will change.

Maybe there will be fewer people (inaudible), many more Indian people, many more people (inaudible), or on the consulting part of the business.

So our sense is that the sales and marketing investment in the current quarter is not representative of what we could see it for the (inaudible).

So for the remainder of this year, is there a rough range that you would feel comfortable with on that line item, in terms of --

Instead of looking at one quarter if you look at our track record in the past three or four quarters you'll have a better sense of what we think is the appropriate level of investment.

Okay, very good.

Thanks very much.

Your next question comes from Trip Chowdhry from Global Equities.

Go ahead, please.

Thank you.

Two questions.

First is regarding package implementation.

Are you seeing on the related [data] figure, that year-over- year the size of your implementation has got reduced but the number of implementations have increased?

Or is it same as last year around this time?

Then I have a follow up question.

It is -- year-on-year for quarter one, we get --

(Multiple Speakers).

Year-on-year there has been a growth of 18.3% in package implementation.

I think your question was more related to the scale of implementation.

Am I right in that?

Yes, yes.

Like suppose you were doing say, each implementation was say (inaudible) about six months and then probably this time around it's (inaudible) bigger implementations -- you have many implementations but in a shorter duration.

I think it's a mix of both.

We do have many more implementations and we can support our teams on the package side.

So there's a lot more system integration activity and implementation activity that we're doing now and also we are into much larger implementations than traditionally we have been in the past.

So let's say, an Origin Energy implementation is a fairly large scale implementation of [equity IS] utilities.

Likewise the Oracle deal that we won in UK is a very large scale implementation of Oracle (inaudible).

So our deal sizes have become large.

They are more system integration, they are more transformational.

But the number of implementations also that we're doing compared to the previous years has gone up.

Another question I have was are you seeing any implementations which involve upgrade implementation?

Or are they are more in terms of enhanced functionality kind of implementation?

Again a mix of both.

And some of the implementations that I spoke to you about specifically the two cases are actually fresh implementations.

So the customer is moving from the legacy systems to a full-fledged re-architecting of their front-end systems.

And so these are, I would say, [transformational] implementations and not just upgrades of implementation that has already been done.

Perfect.

Last question.

If we look at the oil prices say over the last five months or so, they have almost doubled and they are above $60 a barrel.

And probably that is signifying an inflationary environment.

And historically what we have seen in the past massive downturn, higher oil prices indirectly impact IT budgets which somehow negatively impact almost every tech sector.

Are you seeing any indications right now, say over the last two or three weeks where the customer has -- either has changed because directly or indirectly they feel they are in the inflationary environment where their resources are getting tied up, directly or indirectly related to oil prices.

And has your conversation changed a bit over the last two or three weeks with your customers?

And that's all I have.

Thanks again and good execution.

Trip, thanks for that question.

It will be fascinating to see the correlation between oil prices and IT budgets.

And yes, we would love to see that.

In our conversation nobody has been I think (inaudible) to dig that out.

So we have not had a chance to have that conversation with clients.

On the IT budgets I think most people have been waiting to see how the (inaudible) will get, etc.

And I think that exercise will probably start post summer in the US, between September and November time period.

So really we are kind of trying to guess too early.

Thank you.

All the best.

Your next question comes from Ed Caso from Wells Fargo Securities.

Go ahead, please.

Good evening.

My first question is along the lines of positioning for the long term.

I'm trying to -- the fact that you -- the Company has been fairly vocal on the visa issue in the United States.

I'm curious, maybe you could talk a little bit more about that and what your plans are as far as staffing in the US and Europe relative to India.

In other words, sort of moving more towards a global model as opposed to an India-centric model.

This is Suresh Vaswani here.

We clearly are driving I would say a much more [constructive] and aggressive strategy in terms of globalization of our work force.

Today I would say out of the onsite people that we have in US and Europe, roughly 20% would be from the local population.

We certainly want to drive that more going forward.

Again if you look at our sales force also, it is roughly 30% or one-third of our sales force is local.

So net-net these are the data points and we're clearly driving towards offshore globalization and much more diversity across the corporation.

And my second question revolves around price realization.

What's the impact of [actual] pricing?

What's the impact of utilization?

Before I go to price realization, I think your question also has to do with global delivery and delivering out of centers outside of India.

Now that again is a clear strategy vector that we are implementing.

We have more than 30 centers today which are global centers, so in US, in Europe, in Asia-Pac, in South America.

And we clearly are moving to a much more globalized service delivery model in terms of our execution of contracts across the board.

That doesn't mean that India is not the -- that doesn't mean that we're compromising in India in terms of the (inaudible).

It just means that we're having a stronger global delivery model which leverages on the resources and the capabilities across the world, to deliver services to the customer.

Moving on to your question on pricing, if you can repeat that I would appreciate it.

I'm just trying to understand the components of operating margin that come from price and from utilization and from foreign exchange.

So if you look at the last quarter performance we have enhanced our operating margin by 60 basis points.

And sort of peeling the onion, we had a ForEx upside of 1% in terms of operating margin which sort of gave way to the pricing pressure that we had in terms of discounts given in the earlier quarter.

So that impacted our -- I would say (inaudible) realization this quarter.

So one (inaudible) to the other.

The gain on ForEx was (inaudible) insofar as pricing was concerned.

But we still had a gain of 60 basis points in terms of operating margin and that was driven by stronger operating parameters.

So we had a fixed price [FTP] ratio.

We had a better offshore mix this quarter and we had industry leading gross utilization which helped us move our operating margin up by 60 basis points this quarter.

Are you able to split each of these pieces in basis points?

Or can you split out the 60 basis point improvement in those pieces?

Ed, we can -- I can walk you through offline.

Is that okay?

Great, thank you.

Thank you, gentlemen.

The next question comes from Moshe Katri from Cowen & Company.

Go ahead, please.

Can you walk us through maybe some of the things that you're seeing in some of those verticals that were highlighted, retail, manufacturing, financial services and maybe also talk about some of the trends that you're seeing in North America and in Europe?

Thanks.

So let me [address] that.

This is Suresh here again.

I will give you a broad paintbrush in terms of how we performed across the verticals and maybe give you a similar perspective of the geographies.

So let me start with the healthcare and services SBU.

I think we've had -- we've delivered a strong sequential growth performance there.

We've had 7% sequential growth.

RCTGR, retail, (inaudible), transportation and government vertical, (inaudible) SBU has shown a strong year-on-year growth of 13%.

Manufacturing also has come in with a positive growth performance of 4.5%.

Energy and utilities has done well from a sequential perspective and we see good potential in this business going forward, given the sort of consolidation that has taken place and given the transformation.

Our BFSI segment has shown an improved performance the last quarter.

So it was nearly flattish in terms of growth from a negative sequential growth in the previous quarter.

So that is very, very encouraging.

And then we have the [T&T SKU] which is a combination of technology, telecom and the [CMSP] unit, the telecom service provider type of businesses.

So here we've faced challenges in terms of some of the structural changes taking place on the technology side of our business and on the telecom equipment side of our business.

But we are seeing quite a strong upside on the telecom services provider businesses particularly in some of the emerging markets where we've won substantial size deals.

So that's one perspective in terms of the verticals.

In terms of geographies, US and Europe have shown a slight decline last quarter in terms of sequential growth.

Japan market is quite challenged because most of our business is on the technology side.

There were challenges on that side in the Japanese market.

So we're driving a lot more enterprise business in the Japanese market.

AsiaPac market we've got extremely strong traction.

And we've had a good performance last quarter with [27%].

And India and Middle East growth was also very, very strongly differentiated.

In fact it stands out as a part of our total business portfolio.

We've had a robust growth in terms of 21% y- on-y growth in the local currency terms.

That's the broad perspective in terms of geography and verticals.

Okay.

And then can you repeat the list of the different variables that benefited margins this quarter and how much did they benefit in terms of basis points?

So we gave an overall number of 60 basis points which was because of the stronger gross utilization number, stronger fixed price project number and a stronger (multiple speakers).

And a stronger price mix.

A combination of factors which resulted in the 60 basis point improvement.

We haven't split it up.

But we can do --

(multiple speakers)

We can do it offline with you.

Okay.

And then finally --

(multiple speakers)

Can you also talk just finally on pricing trends?

Again, the general feedback is that most of the pricing renegotiations have already taken place last quarter, etc., etc.

But do you think that there's a risk that we're going to go through another phase of pricing renegotiations down the road?

Thanks.

Moshe, Girish here.

Let me put that answer in two parts.

So with most of our longstanding clients, we have a Master Services Agreement.

And in Master Services Agreement most of the negotiations are kind of done.

So a few clients we have things that are currently in progress but even those will probably get done this quarter.

So [all the results] of these renegotiations are what you see the impact of that flowing through in the current quarter which has led to a small decline in the net realized offshore revenue of (inaudible).

And in fact there is still another set of negotiations that takes place on a [declining] basis.

So especially where the deals were of a significant size, independent of what has happened in the MSAs, or in case where we are not long-term [employed] but new deals that we are signing, we end up having a negotiation which then has an impact on the margins.

The good news is that in many of these cases where we are pricing deals, we try to make them into outcome-based deals which is why the percentage of fixed price volume that we had before that has almost doubled over the situation [two] years ago.

And in those fixed price projects, while the realization may be under pressure, our margins actually turn out to be superior, because we have many more levers to use in the execution of these projects.

Great, thanks.

The next question comes from Ashish Thadani from Gilford Securities.

Go ahead please.

I have a question on headcount.

In relation to your closest peer, Wipro has been noticeably conservative on headcount addition.

Does this divergence betray any lack of visibility or confidence in the near term?

And how would you reconcile these contrasting trends?

And further should we expect headcount to pick up in the coming periods?

So Ashish, Girish Paranjpe here.

From our peers, I think for multiple quarters we were challenged.

And when we reported our campus offers and they were (inaudible) compared with the peer group.

And the question that we're asked is whether we've been too conservative about the outlook, whether we didn't have confidence in the outlook and so on.

I think (inaudible) that we would probably try to be conservative compared to what our peers have done.

So I mean we made the right call.

I think we are getting the benefit of that with not having any overhang.

Going forward, we'll also take another look at how the demand is shaping up and what the opportunity of fulfilling the demand is.

And when we go to campus sometime next year, we will decide what is the best way to handle the -- make offers again.

But it has also come to light the fact that in a lot of our application management, technology infrastructure type of deals we've been able to leverage standard platforms much more in the (inaudible) and automation to bring down the actual number of people who are required to execute certain projects.

So as a result, -- actually to (inaudible) I'm not saying that we've solved the problem entirely.

We're just hoping that we've been able to de-link the revenue to the headcount.

So if I don't go out and hire 10,000 people it doesn't automatically mean that I'm giving up that much revenue.

Right, right.

No that's certainly helpful.

And I was wondering if you could look beyond September and share any broad expectations that you might have for the second half on the type of recovery that you might anticipate for [March] as we sit here today?

It's $1m question.

All of us are trying to figure out how the demand will shape up.

And at this point we have only an educated guess.

If you want us to share educated guesses, happy to do that.

But I must say that this is (inaudible), because this is merely a guess based on one's position at this point of time.

And what we've seen is that people are virtually taking stock and (inaudible) every quarter and deciding how they want to take decisions for that quarter.

But having put all the caveats, I think our [feeling] is that we see slow improvement.

And I'm not -- slow improvement in the next couple of quarters.

And that improvement will probably get consolidated depending on how the budget projects for 2010 for many of our clients.

So I would say the real turning point will come on the basis of 2010 budget.

And after that how actually people feel confident enough to spend that.

Having said that, there are some sectors which are currently challenged structurally.

And that may continue to affect overall growth especially in the telecom equipment vendor side as well as technology side there is a lot of structural change yet to be realized.

And when that is behind us, we will feel much more confident on an overall [basis].

But you're confident that the tough quarter is behind you?

Yes.

Okay.

And then one point of clarification.

The guidance of $1.035b to $1.053b for an apples-to-apples comparison, the relevant figure for comparison would be the constant currency $1.014b in the current quarter, right?

$1.033b.

$1.032b?

[We did] guide to that.

I'm sorry.

I didn't quite get that.

Ashish, the guidance given based on the reported numbers was [$1.033b].

Okay.

So you're saying that you're looking for flat, from $1.033b, the guidance is going towards to $1.035b to $1.053b?

Yes.

So it is [0.2 percentage points].

And it's $1.035b to $1.053b.

Okay.

That's helpful.

(multiple speakers).

Thank you.

Your next question comes from Viju George from Edelweiss.

Go ahead please.

Yes, hi.

I'd like to understand how the management would like us to think about guidance, because this is -- you started reporting in a band only very recently.

How should we sort of reconcile to your earlier practice of giving a point guidance?

Is the point guidance likely to be at the lower end of the band or the midpoint?

Thank you.

Viju, the very fact that we're giving the range, if we could pin it down to one number, then there's no value in the range.

So we would like you to accept as well as possible in the range.

Okay.

More pertinent, if we have to attach a probability to within the range, would you say that we've got to attach a greater probability to the midpoint of the range, because -- and --

(Multiple Speakers).

Our guidance would be to just go with the range.

So you're saying there's equal likelihood of hitting the lower end as well as the midpoint as well as of the higher end, or would you say that you aim to get towards the midpoint?

Because in this quarter you actually went a little below the midpoint, the median?

Viju, we won't guide you to go on the upper end or the middle line.

It could be at the lower end, it could be at the high end.

So it could be like at the --

It's impossible to give you all the points to (multiple speakers).

Okay.

Okay.

The other question I had --

(multiple speakers)

-- of the external environment and therefore we are in the range what we said.

Yes, I understand that, but I just want to get a sense that you are attaching equal probability to each -- right through the range without saying the midpoint.

That is true.

Okay.

The other question I had was just relating to the new business in this quarter.

It seems to have come much below what it used to be in previous quarters.

So is it something -- is it some challenges out there that you've noticed with regard to your clients in this quarter in terms of at least getting the (inaudible) as per expectations?

Viju, hi.

This is Manish here.

The new business the way we report is it gets restated when we begin the year.

So the percentage which seems to be very low in this quarter is because we have -- any customer which has started only in this quarter will qualify for that revenue.

And it continues to get built up throughout to the end of the year and then that's how it gets restated again.

So --

(multiple speakers)

-- that adjustment for that math.

And I still find that it's much lower than what it used to be at the same quarter last year.

If I remember the numbers correctly, last quarter, quarter one versus this quarter the difference is not significant.

Viju also (inaudible) understood.

So you have to look at in perspective of the overall growth.

So this quarter-on-quarter we have grown 5%.

You could see that there's a growth that we have got because of the new customers between [0.5% to 2%].

The 5% quarter on quarter was (inaudible).

So (inaudible) is quite reasonable.

Okay.

Thank you.

The next question comes from [Neville Elshisha] from Pacific Crest.

Go ahead please.

Yes.

On the volume side, just to follow up on that, I was wondering if you could talk a little bit about how much the slight improvement in volumes was due to any less ramp downs from existing projects versus your ability to close or start new projects.

And maybe a little bit more color on close rates.

I think you said they've gotten a little bit better.

Is that the case, and do you expect that to continue or get better going forward?

Neville, Girish here.

Last quarter actually we had a 1.5% decline although global headcount went up by 407 people.

And that 1.5% volume decline was a combination of new project starts -- (inaudible) increase (inaudible) to that -- and offset by closure of projects which had come to a logical end.

The color I would want to share with you is that as compared to maybe the last quarter last year and the first quarter this year, the situation where standing projects were cancelled under pressure of budget (inaudible), I think that trend has largely abated.

So what we see now is more about logical end to projects and start of new projects.

And unfortunately at the end of last quarter it was that the number of logical end of projects exceeded the new start of projects.

But our expectation is that, as we move forward, the number of new project starts and headcount added because of that will be more than the (inaudible).

(Inaudible).

Senapaty here.

If you look at our guidance was down to quarter three of last year.

In terms of (inaudible) we have grown volume.

We have held on pricing.

Quarter four also we held on pricing.

There was a marginal set down, there was a volume decline.

And we have guided that so far as the quarter one is concerned, it would have an impact both on the pricing as well as the volume.

And as we go forward, we go to look for much more stability on the pricing, but the volume is something that we're [anticipating] more uptake.

And therefore, if you look at the guidance that we have given, it will be more based out of volume growth that we would be looking for.

Okay.

And then just real quick to follow up on an earlier question, just so I understand.

The stabilization you're saying in financial services, is that both in Europe and UK, and US or is that primarily USA?

I would say both because in some sectors like investment banking there is (inaudible).

In US (inaudible).

It will be retail banking and in insurance that we have much more global companies.

So I would say that it's kind of broadly on both sides.

Thank you.

Your next question comes from Ashwin Shirvaikar from Citigroup.

Go ahead please.

Hi.

I just wanted to know, can you comment on the European pipeline.

Specifically it seems as though over the last couple of quarters Europe has been moving more aggressively towards the use of offshore outsourcing.

I would say both the Europe and US pipeline, both of them are equally good insofar as we're concerned, except the type of pipeline is slightly different.

So Europe is, I would say, not as mature, particularly countries like Germany and France are not as mature in terms of the outsourcing process as US has been.

So we are now beginning to see a lot more system integration, a lot more first-time type of outsourcing contracts in Europe vis-a-vis the US.

So the funnel looks good both in US and Europe.

On a relative basis, one can't single out if the Europe funnel is bigger or smaller than the US model.

The type of opportunities are slightly different.

So there is much more application support and managed services type of opportunities in US, and much more system integration and much more first time outsourcing opportunities in Europe.

Is there any noticeable difference in either pricing trends or closure rates, decision making, how fast how slow?

No.

Relative US and Europe, one can't really single out whether the deal closures are faster in US or Europe.

I don't think there is any substantial difference in terms of pricing.

Pricing relates to the type of contracts we are bidding for.

And I have already shown color that the retail opportunity is (inaudible).

Okay.

And when you look across verticals, obviously there is quite a bit of difference in relative growth rates.

What kind of services are sort working better, selling better?

What isn't really selling?

In fact if you look across all the verticals, and trying to single out the services which are relatively doing better and go down the service line path, I would believe that BPO presents a strong opportunity.

I would believe that package implementation, and package implementation particularly in Europe, can be singled out.

And I would say infrastructure services are growing much stronger.

Now these three service lines and maybe even testing services come out relatively stronger in terms of (inaudible) and in terms of potential versus, I would say, the ADM service line or the product engineering service line.

Okay.

And one clarification.

Your comments on BFSI, do they include the impact of the Citi captive acquisition or not?

Yes, they do.

The Citi acquisition was a part of our overall BFSI business.

And so therefore the overall BFSI picture includes the Citibank acquisition.

I meant in your comment earlier on the trend of stabilization.

So if you excluded acquired revenues, would you still comment that the BFSI is getting more stable?

Yes, qualitatively.

We were talking on the quarter-on- quarter basis.

Since last two quarters we have already included that in.

So with or without doesn't make a difference.

Okay.

Right.

Thank you.

The next question comes from George Price from Stifel Nicolaus.

Go ahead please.

Thanks very much.

A number of my questions have been answered.

But I did want to follow up on the comments you had on investments, specifically on the sales side.

I was wondering if you could give a little bit more color around what those investments are.

What are you looking to do to improve the quality of your sales and marketing effort?

Let me take that.

This is Suresh here.

So we are doing a few things actually.

First and foremost we have appointed a new global GM, Head of Sales.

He's American citizen, will be based in New Jersey in the US.

So that's a recent appointment.

He's a local American.

The person's a local American.

Second is we are currently looking at enhancing our client engagement management structure which we spoke about earlier in this conversation.

So we are looking at much more senior people to handle some of our large accounts, and we classify them as mega accounts and gamma accounts.

Then we are looking at aligning our entire structure in terms of (inaudible) and pre-sales force and delivery force really behind the client engagement managers.

We are investing a lot more on the consulting side of our business.

And a lot of our consultants will work on our strategic accounts hand in hand with the client engagement managers.

While we look at more strong performing of accounts to serve the initiatives that we just spoke about, we are also looking at hunting in the US and Europe markets in terms of looking at collective opportunity, looking at customers where we believe we can scale substantially.

So it is not a mindless sort of hunt.

It is a fairly targeted sort of hunt in terms of qualifying customer opportunities carefully and only going for customers where we believe that we can scale.

So these are sort of the initiatives at the geography level.

If you switch back to the SBU level which is an integral part of our sales systems so to speak, a lot more [grooming] capability, lot more system integration capability and a lot more transformation capability which we're consciously building up as we move into our future.

Okay.

And I believe you talked about -- looking at the trajectory as a percent of revenues, sales and marketing, say over last four quarters, would be representative of what you think -- on a percentage of revenue basis, that would be representative of what you think it should look like going forward making these types of investments.

Is that correct?

Yes.

Partly, yes.

Okay.

And last --

The only qualification I would like to give is, at the end of the day, sales and marketing is a capitalization.

It's a strong back office and a SBU structure also that we have.

So a lot of people here are involved in pre-sales activity -- a lot of people in India are involved in pre-sales activity and good management activity and good process which also we are building on substantially.

Okay.

And that would not fall in the sales and marketing bucket.

Correct?

Hi, Girish here.

No, the people who are visibly involved in sales and marketing work (inaudible), assigned to (inaudible), are included in sales and marketing.

But then, you know, as they say, it takes a village to win a deal.

So there are lots of other people who are supporting the sales and marketing effort who are not normally classified as sales and marketing.

Okay.

That's what Suresh was referring to.

Got you.

Understood.

Last question around this topic.

Does how you're looking at the investments you want, that you're making and that you want to make, does that change at all based on your assumption of the trajectory of recovery in demand?

That is, if you -- do you think you would, all else equal, need to invest more along these lines if you have a slower, more drawn out recovery, as opposed to maybe something sharper?

We have taken a few decisions in context of our investments.

One key decision we have taken is we will invest, not necessarily keeping the short term challenges that we face, but we will be looking at the midterm and the long term.

So we try to classify the planning process into Horizon Two, Horizon Three.

And we are looking at Horizon Two, Horizon Three initiatives in terms of what is the transformation that is likely to happen, and making those investments today.

So clearly no compromises in terms of making short term compromises and giving away our long term initiatives or investments in the long term initiatives.

Immediately the way we look at it short and midterm, our Horizon Two initiatives are much more targeted at building domain capability, consulting capability and system integration capability.

On the whole longer term perspective we have identified, I would say, seven mega fields which run across all customers, all issues, which we are consciously now beginning to invest in.

Some of these things are cloud computing, green IT, collaboration, social computing, information management, and so on.

So clearly the driver is not only short term in terms of achieving short term results, but also earmarking investments for the midterm and the long term.

Great.

Thank you very much.

We will take the last question from Rachael.

Alright.

We have Rachael Stormonth from NelsonHall.

Go ahead please.

Thank you.

I was also asking for breakdown of the various (inaudible) sales and marketing improvements, so thank you for that.

(Inaudible) the question I think it has been answered.

The question has been answered?

We seem to be done.

Yes.

There is no more questions, right, Jean?

That is correct, sir.

Yes.

So we will wind up.

Thank you very much for joining the call.

The IR team is available for offline queries.

At this time there are no (inaudible) queries as such.

So we will close the call today.

Thank you.

Thank you.

This does conclude today's conference call.

You may now disconnect.

Thank you.