Wipro Ltd (WIT) 2009 Q2 法說會逐字稿

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  • Operator

  • Ladies and gentlemen, good afternoon, and welcome to the Wipro Technologies earnings conference call.

  • This is Rochelle, the Chorus Call conference operator.

  • (Operator Instructions).

  • At this time I would like to turn the conference over to Mr.

  • Rajendra Shreemal.

  • Thank you, and over to you, Mr.

  • Shreemal.

  • Rajendra Shreemal - Head IR & Treasury

  • Thank you Rochelle.

  • And thanks everyone for joining us today.

  • Good afternoon and good morning from the Team Wipro to all people joining in from different parts of the world.

  • As Rochelle just mentioned, I'm Rajendra Shreemal, Head of Investor Relations.

  • Along with Sridhar in US, Rishad, Arvind and Lalit in Bangalore, we handle the investor interface for Wipro.

  • We thank you for your interest in Wipro.

  • It is with great pleasure I welcome you to Wipro's teleconference to post our results for the fiscal quarter ended September 30, 2009.

  • We will begin with a short address by Mr.

  • Azim Premji, Chairman, followed by the financial highlights from Suresh Senapaty, CFO, and follow it up with a Q&A session with the management team.

  • We have Girish Paranjpe and Suresh Vaswani, Joint CEOs, and other senior leadership team of Wipro.

  • Before Mr.

  • Premji starts his address, let me draw your attention to the fact that 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 of the US.

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

  • Mr.

  • Azim Premji, Chairman, Wipro.

  • Azim Premji - Chairman & Managing Director

  • Good day to all of you.

  • Thank you for joining us.

  • The macro environment is stabilizing and the improving business landscape that we had talked about last quarter is playing out in reality.

  • The stimulus packages of governments are having their intended effect, arresting asset price decline and bringing back confidence into the system.

  • Corporations are more active in the capital markets and there is a surge in M&A activity.

  • As I talk to CEOs across the globe, the general sentiment is more upbeat than ever before.

  • At Wipro we are also starting to see this improving environment play out in better demand visibility and more stability in volumes and pricing.

  • While there is a good dose of positive news, the macro picture remains fragile and our clients continue to focus their spend on cost takeouts and capital conservation.

  • In this context, Wipro Limited posted a 19% year-on-year growth in profits and a 6% year-on-year growth in revenues for Q2.

  • Our IT Services business was at the top end of our guidance in constant currency, and exceeded guidance by 1.2% on reported currency basis.

  • Our pipeline is at the highest that we have seen and our order booking is strong.

  • We continue our momentum of winning larger, more complex end-to-end integrated deals.

  • Our deep domain expertise across verticals and our broad set of services continue to position us as a partner of choice with customers.

  • We have seen strong growth across our service provider, energy and utilities, healthcare and services, manufacturing and retail segments.

  • We are starting to see acceleration of volumes in BFSI.

  • Across service lines, BPO continues to benefit as customers drive down costs.

  • And our end-to-end capability in infrastructure space, supported by the Infocrossing capability, is seeing strong demand.

  • Our commitment to drive operational efficiency remains as strong as ever.

  • We continue to execute on this and have shown improvement in productivity, fixed price product mix and utilization which has resulted in operating margin expansion.

  • Our margin this quarter has further benefited from the gains in ForEx.

  • We continue our investment in non-linearity, and are driving this across the breadth of our organization.

  • Our investment solutions, end-to-end capabilities, new commercial models, managed services accelerators, among others, are all helping to drive non-linearity.

  • We are committed to globalizing and continue to ramp up and localize our global delivery centers.

  • We added 475 people overseas this quarter of which more than 80% were local nationals.

  • We continue to invest in our front-end, domain-led advisory capabilities through our build up of Wipro Consulting.

  • We have made some important investments here in the last two quarters, hiring the right mix of high-impact partner-level profiles, who are able to sell our end-to-end Consulting and IT Services capabilities.

  • We are already starting to see benefits here, not only in the Consulting order book, but also in the downstream IT revenue this is generating.

  • Our non-IT side of the business, Consumer Care had another strong quarter.

  • Our international business had a great quarter too, with leading growth in Vietnam, China and Indonesia.

  • Santoor, our flagship brand, remains the number one toilet soap brand in South India.

  • Our Infrastructure Engineering business is also seeing some stability, with a surge of demand in the Indian market, including from our new eco-energy business.

  • Wipro was in joint second position globally in the list of top five green electronics brands as per the latest edition of Greenpeace Guide to Greener Electronics.

  • Our commitment to sustainability driven growth remains as charged as ever.

  • We have stepped up our commitments in CSR.

  • 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.

  • Suresh Senapaty - CFO & Executive Director

  • Good afternoon, ladies and gentlemen.

  • Let me take you through some of our performance highlights for this quarter ending September 30, 2009.

  • Our IT Services revenue for the quarter ending September 30, 2009, was $1,065m, a sequential growth of 3.2%.

  • On a constant currency basis our IT Services revenues was $1,052m.

  • We are starting to see pick up in growth rates of the enterprise verticals.

  • Energy and utilities grew 11% sequentially.

  • Healthcare and services grew 5% sequentially.

  • Retail and transportation grew 3% sequentially.

  • Our manufacturing vertical continues to [top] the trend with strong sequential growth of 4%.

  • Communications and media service providers posted a stronger quarter of double-digit sequential growth.

  • We are seeing significant traction in our BPO business, reflected in our strong sequential growth of 7%.

  • Europe continues to be an exciting market for us, characterized by a 7% sequential growth in the quarter.

  • Our investments in emerging markets are paying rich dividends.

  • Our India and Middle East business grew 7% sequentially, while other emerging markets grew 9% sequentially.

  • We have significantly tightened our operation over the past 18 months.

  • Our fixed-price projects improved sequentially by 1.9% to [40.3%].

  • Our onsite realization improved sequentially by 4.7%.

  • And offshore realization improved by 3.5%, driven by productivity gain.

  • Our volume declined by 1.5%, but there has been significant volume pick up towards end of quarter two.

  • Our unwavering focus on extracting productivity from operations resulted in a margin expansion of 143 basis points in the quarter September 2009 to 23.8%.(Sic-see press release)

  • As of September 2009 our days of sales outstanding was 61 days, which is much better to the year before -- compared to the year before.

  • Our IT Products business showed year-on-year growth of [18%](Sic-see press release) in revenue and profit before interest and tax growth of [29%].

  • We improved margins sequentially by [80] basis points on the back of [56%] sequential revenue growth rate.

  • Wipro's Consumer Care and Lighting business continues to see good momentum with revenue growth of 11%(Sic-see press release) year-on-year and PBIT growth of 13%(Sic-see press release) on a year-on-year basis.

  • On the foreign exchange front, our realized rate for the quarter was INR46.19 versus a rate of INR46.73 realized for the quarter ended 30 June, 2009.

  • On a quarter-on-quarter basis, ForEx gave us positive impact to margin of 0.9%, including the benefit of cross currency.

  • At the period end, after assigning to the assets on the balance sheet, we had about $1b of ForEx contracts -- $1.4b total on a gross basis, at a rate between INR40 and INR51.6.

  • Our net cash balance on the balance sheet at the date was [INR30b] of cash.

  • We generated free cash flow of [INR10b] during the quarter.

  • We'd be glad to take questions from you.

  • Operator

  • Thank you very much, sir.

  • Ladies and gentlemen, we will now begin the question and answer session.

  • (Operator Instructions).

  • Our first question is from the line of Ashwin Mehta of Motilal Oswal Securities Limited.

  • Please go ahead.

  • Ashwin Mehta - Analyst

  • Yes, sir.

  • I had one question regarding our utilization.

  • Are we happy with the current utilization levels which are at peak, or we see, given the stronger than ever pipeline, a reset to a lower utilization level going forward to take up the growth?

  • And secondly, what are our hiring expectations going forward?

  • Sambuddha Deb - Chief Global Delivery Officer, Wipro Technologies

  • Hi, this is Deb.

  • I handle Global Delivery Operations for Wipro.

  • If you look at it, part -- I think there is still some more headspace to grow in the utilization front.

  • The major reason why we have been able to push up utilization are multiple actions we have taken.

  • One action is that we have created a competency map for the whole organization and automated the process of allocation.

  • And hence we have cut down the amount of time it takes to turn a person around once he comes onto the bench.

  • Now that has allowed us to actually reduce the overall bench.

  • That is one.

  • The second thing that we have done is we have pushed our non-linearity pretty hard.

  • And some of that non-linearity, you can see that the rate realization moves up whereas the headcount hasn't moved up.

  • So these two levers have given us certain amount of headspace.

  • And I think, going forward, we will still have -- we can still run with the current utilization without resetting it down.

  • Pratik Kumar - EVP HR, Brand & Corporate Communication

  • As far as the hiring scenario goes -- this is Pratik here -- it will be in line with our demand scenario.

  • And so far we have made sure that all the commitments which we had made on campuses, we have been honoring those.

  • Starting off next quarter we will begin to see the batch of 2009 which -- who we had made offers to.

  • We'll begin to bring them on board as well.

  • Plus, I think as we have shared in the media previously, in eighth semester of campuses, which is the quarter of Jan, Feb, March, we'll be visiting campuses once again to be able to make offers for the batch passing out in 2010.

  • Vihang Naik - Analyst

  • Yes.

  • Hi.

  • This is Vihang here.

  • I just had a couple of questions.

  • About your IT Products business, actually it has shown some decent growth this quarter.

  • So I just wanted to know what has led this growth, and your expectations about this particular division.

  • And secondly, on the involuntary attrition front, I think we are running at 3.1% right now, which is at probably a historical high.

  • So are we done with most of our involuntary attrition, or would we see more going forward?

  • Suresh Vaswani - Joint CEO, IT Business & Member of the Board

  • Hi.

  • This is Suresh Vaswani here.

  • I'll address the first question and Pratik can address the second one.

  • IT Products is a part of our domestic business, our domestic India and Middle East business.

  • And that's a business where we have continuously had solid performance, solid growth and have made investments.

  • And you've seen the sort of deal wins that we've had in the last couple of quarters on the total outsourcing front.

  • So IT Products growth that you're seeing is basically reflecting the sort of performance that we're having in the India and Middle East market.

  • Pratik Kumar - EVP HR, Brand & Corporate Communication

  • Hi.

  • This is Pratik here.

  • To your question on involuntary attrition, it was in a way designed to peak in quarter two.

  • And much of those exits are related to the performance review cycles which we did somewhere mid way through quarter one.

  • With that being behind us, we don't expect that number being anywhere close to the number which we had in Q2 going forward.

  • Unidentified Company Representative

  • And just to supplement on the Wipro Infotech piece, the question was also going forward, I think more and more system integration project when you do there is a composition, combination of the products and the services.

  • Typically the September quarter tends to be a better quarter, apart from the quarter four being the most -- best quarter.

  • And that is where we got the uptake in September, plus the good wins that we had got, benefit has come in as [we have stated].

  • But as we go forward, I think the mix of services and products will continue to be there.

  • And particularly when it comes to a system integration project, the product component goes up.

  • But when it gets into the O&M space, the services revenue keeps picking up.

  • Vihang Naik - Analyst

  • Okay.

  • Thanks a lot, sir, and all the best.

  • Unidentified Company Representative

  • Thank you.

  • Operator

  • Thank you Mr.

  • Mehta.

  • Our next question is from the line of Priya Rohira of Enam.

  • Please go ahead.

  • Priya Rohira - Analyst

  • Good afternoon to the management team and congratulations on a good set of numbers.

  • My first question relates to your guidance in terms of what are we building in terms of volume growth, or are you see more pricing uptake from your productivity gains in fixed price contracts?

  • The second thing is if you could just give us more color on the large deal pipeline, quantitative terms.

  • And the third is how do you see the discretionary spend among your top 10 accounts?

  • And lastly, any color on salary hikes?

  • Girish Paranjpe - Joint CEO, IT Business & Member of the Board

  • Hi.

  • Girish Paranjpe here.

  • Four different questions, so let me start with the first one on volume growth.

  • So given the fact that in the next quarter we'll have fewer number of working days, there is not too much expectation that we'll continue to see price realization increase.

  • So bulk of the increase in revenue will be reflected in volume growth.

  • Suresh Vaswani - Joint CEO, IT Business & Member of the Board

  • I'll take the second question on large deal pipeline we made.

  • [Not that] I've registered your third question, but clearly the pipeline is building up.

  • The pipeline for quarter two was better than quarter one.

  • And the pipeline for quarter three looks better than quarter two.

  • Some of the deals that we won, and including some of the deals that we won in India, have been of reasonable size and global size.

  • And we see a few of those also in the pipeline look going forward.

  • So net-net healthy outlook insofar as pipeline is concerned.

  • Good number of RFPs coming in, good number of proactive opportunities that we've created.

  • And the pipeline looks good, which is manifested in the positive outlooks that we've given for quarter three.

  • Priya Rohira - Analyst

  • Just if you could give us some color how many $50m or $100m deals you're pursuing, that would be really helpful.

  • Suresh Vaswani - Joint CEO, IT Business & Member of the Board

  • So we do not give those sort of details.

  • What we do announce is the large deals that we win.

  • And we've announced quite a few of them this quarter.

  • Priya Rohira - Analyst

  • Sure.

  • My third question was with respect to the discretionary spend which you're seeing among the top 10 accounts, any color over there?

  • Suresh Vaswani - Joint CEO, IT Business & Member of the Board

  • In terms of spending, clearly customers want to get more out of their IT budgets.

  • So people are looking at not just cutting down on IT budgets, but are looking at making sure that they can drive the IT budgets for more innovation or into newer areas, anything that drives productivity of the business.

  • Priya Rohira - Analyst

  • Sure.

  • And my last question was --.

  • Suresh Vaswani - Joint CEO, IT Business & Member of the Board

  • A little bit different from what it was just a couple of quarters back where you would look at completely slashing down the budgets and maybe sometimes even postponing issues that you did not need to address immediately.

  • But I think that trend has changed.

  • So discretionary spending, as long as it has a reasonable timescale in terms of return, those sort of investments are certainly happening.

  • Priya Rohira - Analyst

  • Any verticals where you've seen much higher traction compared to the rest of the verticals?

  • Suresh Vaswani - Joint CEO, IT Business & Member of the Board

  • You know, again in terms of vertical traction, so one is looking back.

  • I think looking back, most of our verticals and SBUs have had solid performance.

  • And the two challenged verticals were really the technology and telecom equipment space, not the telecom service provider but telecom equipment space.

  • But that was past.

  • Looking forward we see a healthy outlook and a healthy pipeline building up across all the verticals, including the telecom equipment and including the technology verticals.

  • So it's a broad-based, positive outlook that we see in terms of all the SBUs.

  • Priya Rohira - Analyst

  • Sure, that's really helpful.

  • My last question was on salary hikes.

  • If Pratik could just address on the same.

  • Pratik Kumar - EVP HR, Brand & Corporate Communication

  • Priya hi.

  • This is Pratik here.

  • Priya Rohira - Analyst

  • Yes, hi.

  • Pratik Kumar - EVP HR, Brand & Corporate Communication

  • So we are going through our own discussions internally.

  • And we haven't yet concluded when we would like to time it.

  • We are hoping that we should be able to do it some time during the course of next quarter, but that's a decision we have yet not arrived at.

  • Priya Rohira - Analyst

  • Sure, sure.

  • Thanks very much and wish you all the best.

  • Operator

  • Thank you, Ms.

  • Rohira.

  • Our next question is from the line of Sandeep Muthangi of IIFL Capital.

  • Please go ahead.

  • Sandeep Muthangi - Analyst

  • Hi.

  • Good quarter, good guidance.

  • I was just wondering if you could comment on more details in terms of the demand environment in your key verticals.

  • And when you're seeing the deal pipeline is improving even in your worrisome verticals, like telecom equipment and hi-tech, do you see revenue growth stabilizing in them from next quarter?

  • Girish Paranjpe - Joint CEO, IT Business & Member of the Board

  • Yes.

  • Hi.

  • Girish here.

  • So clearly as Suresh has mentioned in his previous answer, that the recovery that we are seeing is broad based and not driven by just one or two verticals.

  • So even in the quarter that went by we saw growth in media and telecom.

  • We saw growth in energy and utilities.

  • We saw growth in manufacturing, retail and healthcare.

  • One or two verticals which kind of lagged or showed negative growth, even there we are seeing sufficient pipeline and activity on the ground to feel confident that in this quarter we will see all-round recovery.

  • Sandeep Muthangi - Analyst

  • Okay.

  • Just one more question on your Consumer Care business.

  • There seems to have been a sharp margin decline during the quarter.

  • Can I have a comment on that please?

  • Unidentified Company Representative

  • Our margins have actually improved over last year from 12.2% to 12.4%.

  • Broadly we keep our operating margin between 12% and 13% to fuel in a lot more of advertising to drive the top line growth.

  • That has been our strategy that in the Consumer Care and Lighting business we keep our margin between 12% and 13%.

  • Unidentified Company Representative

  • One other (inaudible) there was, let's say, a little upside on the margin figures of the price hike that had taken place, the price hike reduction that was expected did not happen while the commodity prices fell.

  • But quarter two numbers are something which are more sustainable, and in a range that we should be expecting.

  • Unidentified Company Representative

  • And just to add, in quarter one our advertising spends were lower because of the fact that our -- some advertising films were not ready and new product launches were slated for quarter two.

  • And that's why the money really got shifted to quarter two rather than quarter one.

  • Sandeep Muthangi - Analyst

  • Okay, thanks.

  • That helps.

  • That's it.

  • Operator

  • Thank you, Mr.

  • Muthangi.

  • Our next question is from the line of Srivatsan Ramachandran of Spark Capital.

  • Please go ahead.

  • Srivatsan Ramachandran - Analyst

  • Yes, hi.

  • I just wanted to get some more details on the improvement in demand environment, especially in hi-tech and telecom OEM.

  • Is this including for our Product Engineering Services, or it's more in the IT Services you're seeing some projects and business coming back?

  • Unidentified Company Representative

  • So on the telecom equipment segment I think what we're seeing is we're seeing static to reducing demand on the technology spends.

  • But we're clearly seeing an uptake in other areas like IT and also BPO.

  • Those are the other areas that we're going after.

  • Because from our perspective, we look at it from a customer perspective, and we just see that there is bigger opportunity on that side in terms of cost reduction rather than on the engineering side.

  • Srivatsan Ramachandran - Analyst

  • Okay, sure.

  • And I just wanted to -- in terms of the guidance that you have given for next quarter, what kind of service offerings that you're seeing actually a lot of uptake for?

  • Is it more on the BPO, IMS side or you're going back to maintenance and ERP implementation deals, that's kind of giving us a visibility for this kind of growth?

  • Suresh Vaswani - Joint CEO, IT Business & Member of the Board

  • Okay.

  • This is Suresh Vaswani here.

  • BPO is certainly driving growth for us.

  • And it has been driving growth for us in the last couple of quarters.

  • Again within BPO transaction processing, or basically business process transformation, that is the sort of deals that are driving growth for us.

  • Some of the -- three opportunities or three wins that we've had last quarter on the BPO front have been all on the F&A side for example.

  • So clearly BPO is a growth driver.

  • But in addition to BPO, most of our differentiated service lines, for example Package Implementation, that is seeing a good uptake.

  • And Package Implementation and BPO are increasingly going together in the marketplace.

  • Infrastructure Services, particularly combined with the Infocrossing proposition that we have of Managed Data Center Services in the US, is seeing an uptick in terms of growth.

  • And two of the deals that we've announced in the press release are really infrastructure outsourcing deals which have had Infocrossing at the core.

  • So BPO, Package Implementation, Infrastructure Outsourcing, to an extent Testing, are the growth drivers for us as we look ahead.

  • PES, Product Engineering Services, embedded systems does have a lot of potential.

  • And we see that also forming increasingly a part of our growth proposition going forward.

  • But that growth will come not necessarily from the telecom sector or the technology sector, but also from opportunities we see of leveraging our embedded services in the healthcare segment and in the automotive segment.

  • ADM is the most, I would say, though it has had a good growth last quarter, ADM is more mature in terms of outsourcing.

  • And we do believe that most of the service lines that we spoke about, from a future perspective will outgrow the ADM service line.

  • Srivatsan Ramachandran - Analyst

  • Okay, sure.

  • I just want to get your sense on your ability to maintain margins in the IT Services business more or less in the current trend.

  • What are the other levers you are having, because you are -- utilization-wise you are peak.

  • And the improvement in pricing effectively [will just mean] realization improvement also has been sharp this quarter.

  • Is this sustainable at current levels?

  • Azim Premji - Chairman & Managing Director

  • I'm requesting our IT Business CFO Manish Dugar to answer that question.

  • Manish Dugar - CFO, Wipro Technologies

  • Hi Srivatsan.

  • Manish here.

  • As you know that volume has been a challenge for us in the past in terms of people, headcount add.

  • And given our guidance, we are expecting the revenue growth to be driven significantly by volume.

  • And that is one big lever for us, to be able to absorb more fresh talent at a lower average cost.

  • And that probably is going to be a significant opportunity for margin improvement.

  • Notwithstanding the fact that our focus on non-linearity and our focus on looking at how we can utilize our bench to the best is going to be a continuous lever for improving margins even going forward.

  • And to your question on sustainability of margins, I guess ForEx being a big, big unknown, that kept aside, we are comfortable on ensuring that the margins remain in narrow range.

  • Srivatsan Ramachandran - Analyst

  • Okay, sure.

  • Thanks a lot.

  • Operator

  • Thank you Mr.

  • Ramachandran.

  • Our next question is from the line of Balaji Prasad of Goldman Sachs.

  • Please go ahead.

  • Balaji Prasad - Analyst

  • Hi.

  • Good afternoon, gentlemen.

  • I just have a follow-up on the same thoughts on the margins.

  • What are the other levers that you are thinking that you could use to drive any expansion going for margin expansion going forward?

  • Or is this the kind of peak margins that we could look forward to despite improvement in the outlook and revenue growth returning?

  • Manish Dugar - CFO, Wipro Technologies

  • So Balaji, hi.

  • Manish again.

  • I just shared that this is not necessarily is the max that we can do on operating margins.

  • And there are levers which still remain, especially when we are now looking at revenues growing at 2.5% to 4.5% in the next quarter.

  • And certainly exchange is unknown.

  • But other than that, we believe margins should remain in a narrow range.

  • Balaji Prasad - Analyst

  • Thanks, Manish.

  • Could you just give a bit more details on these levers that you still have which can --?

  • Manish Dugar - CFO, Wipro Technologies

  • One is with the growth in volume, trying to make sure that we will leverage on taking more and more fresh talent at a lower average cost and hence bring down our average cost per person.

  • Our acquisitions have started kicking in.

  • And from a [DTM] perspective we have already seen significant kinds of benefit because of them.

  • And now we're also seeing benefit coming from a bottom line perspective, and our continued focus on operational efficiency, which non-linearity is a big part of it.

  • But other than that, things like competency mapping has helped us reduce our bench significantly.

  • And all of these continue to be significant opportunities even going forward.

  • Balaji Prasad - Analyst

  • Okay.

  • Thanks.

  • You preempted my next question on the rupee, but internally what are your management thoughts on the rupee?

  • And is there any change in your strategy to adapt to any currency moves?

  • Suresh Senapaty - CFO & Executive Director

  • You know we can't claim to be experts vis-a-vis rupee/dollar, but all we can say is within the current environment the rupee has this tendency of firmness on a capital account basis.

  • But it has this vulnerability for the current account.

  • Whether you look at the way oil prices are moving, the way inflation rates and the interest rates are likely to be forming up, there are a lot of vulnerabilities there with respect to rupee.

  • So our own stance is to look at over the last few years rupee has remained range bound, except the INR40 and INR52 kind of aberrations.

  • Balaji Prasad - Analyst

  • Okay.

  • Suresh Senapaty - CFO & Executive Director

  • So in the short to medium term there will be volatility.

  • And I think the whole focus has to be managing this volatility with much greater focus.

  • Balaji Prasad - Analyst

  • Okay, thank you.

  • Just last question.

  • What is the constant currency impact in this quarter?

  • Suresh Senapaty - CFO & Executive Director

  • In terms of revenue?

  • Balaji Prasad - Analyst

  • Yes.

  • Suresh Senapaty - CFO & Executive Director

  • 3.2% is based on the reported basis and 1.9% is the constant currency growth.

  • Balaji Prasad - Analyst

  • Okay.

  • Thank you very much.

  • Operator

  • Thank you, Mr.

  • Prasad.

  • Our next question is from the line of Nitin Padmanabhan of Centrum Broking.

  • Please go ahead.

  • Nitin Padmanabhan - Analyst

  • Yes, hi.

  • Thank you for taking my questions.

  • With reference to the pricing uptick that we have seen this time in terms of productivity gains, you did mention a couple of things that really led to that.

  • But is that likely to sustain next quarter and the quarter after that, because what we have seen this quarter is pretty much of a spike?

  • So that was one.

  • Second thing is this quarter we have seen volumes down.

  • And in terms of next quarter we are actually looking at much higher volume growth.

  • So would that be that there is some amount of bunching up that has not happened this quarter, moves to next quarter?

  • Or is new ramp ups, or is it both?

  • And third would be some comment on the top clients.

  • I think we have seen some decline there, so if you could just see if that's bottomed out.

  • Girish Paranjpe - Joint CEO, IT Business & Member of the Board

  • So Nitin, bunch of different questions, I guess.

  • So let me start with on the volume side and the business side.

  • So I think there is opportunity for us to grow, both on the basis -- back of deals that we won in this quarter, where ramp ups will happen in the coming quarter.

  • As well as there is sufficient activity on the ground in our existing clients, either because they have special projects which have got approved, either because of mergers, acquisitions or for some other special reason.

  • Or it is just organic growth where people who have held back their IT spends throughout the year, now feel sufficiently confident to go out and spend that money.

  • So I think the biggest source of comfort really comes from the organic growth which is happening on a broad-based basis across the client base, where money which was held back throughout the year is being released now, to be released and projects getting approved.

  • Suresh Senapaty - CFO & Executive Director

  • And also Nitin, while this is the reported cost -- growth in the pricing, just to clarify also that on a constant currency basis onsite price realization improved by 3.4% and offshore has improved by 2.5%.

  • So I am not necessarily expecting those kind of a currency changes when we go forwards.

  • But of course in terms of overall performance of the project and price realization point of view there is a stability that we should be getting.

  • Suresh Vaswani - Joint CEO, IT Business & Member of the Board

  • No, I just wanted to give some perspective on the volume growth question.

  • In terms of visible headcount growth at the end of Q2, we've had a significant uptick compared to Q1.

  • The numbers are roughly 700 numbers.

  • So that is giving us the sense of a volume growth led strong guidance that we've given for quarter three.

  • And we see that trend continuing.

  • Nitin Padmanabhan - Analyst

  • And just one last thing.

  • I think you mentioned that the other service lines could overtake ADM in terms of probably the size is what I think.

  • So overall is it that -- so are we looking at a 20/20/20-ish kind of thing.

  • Is that what you'll look at over a period of time?

  • And has ADM sort of bottomed out?

  • I think we have seen three, four quarters of consistent declines.

  • Suresh Vaswani - Joint CEO, IT Business & Member of the Board

  • No, actually let me just sort of give a perspective on that.

  • ADM is still a very large part of our business and the largest sort of mainstay in terms of scale.

  • What I mentioned is that service lines like BPO, Package Implementation, Testing, etc., will grow -- Infrastructure Services will grow faster.

  • And if you look at the data points it continues to be growing over the last couple of quarters and are forming a larger and larger part of the whole pie.

  • But they're still a distance away from the scale of ADM.

  • And it's not that the ADM is not growing.

  • What I meant was that the other service lines will grow faster than the ADM because ADM is that much more mature.

  • It will take a while for, let's say, Infrastructure Outsourcing to be larger than ADM or BPO to be larger than ADM.

  • Nitin Padmanabhan - Analyst

  • Sure.

  • And with regard to Windows 7 as an upgrade opportunity, how large is it for us?

  • Is that something to be upbeat about?

  • Girish Paranjpe - Joint CEO, IT Business & Member of the Board

  • I don't think it is a huge opportunity because really speaking it comes preloaded on new products that get shipped.

  • And the upgrade is fairly straightforward which individuals do themselves.

  • On the enterprise basis also, it is not a huge amount of work that is required to be done.

  • And even if we are helping clients do that upgrade, it is something that gets covered in the work that we provide to them.

  • Suresh Vaswani - Joint CEO, IT Business & Member of the Board

  • So we will have a practice to do that, to take customers to the new environment, to the Windows 7 environment.

  • And we'll have a practice to support that.

  • But it will be a part of what we offer as our Infrastructure Services practice.

  • And we've ordered, for example, a Vista migration practice.

  • And continuously as Microsoft kept on upgrading its technology we have launched services in terms of enabling customers to migrate and subsequently support that.

  • Nitin Padmanabhan - Analyst

  • Sure, thank you.

  • Operator

  • Thank you, Mr.

  • Padmanabhan.

  • Our next question is from the line of [Pranav Bhardwaj] of [Mata Securities].

  • Please go ahead.

  • Pranav Bhardwaj - Analyst

  • Good afternoon, sir.

  • Just a couple of questions.

  • First of all, what are the opportunities in growth areas that we see in the Consumer Care and Lighting segments, going ahead in view of the improved scenario, especially in the housing segment and overall demand situation?

  • And secondly, what is the increased traction that we see from the domestic market?

  • Especially I wanted some comments on the opportunities from the Commonwealth Games.

  • Vineet Agarwal - President

  • This is Vineet Agarwal here.

  • From the domestic segment we definitely see a better quarter three going forwards compared to what we've done in quarter one and quarter two.

  • The enquiry bank is better.

  • The amount of deals which are there in the market are definitely better than what we saw in quarter one and quarter two.

  • However, what we're not seeing is that a lot of orders which have got placed have still not seen invoicing happening because a lot of projects have got delayed.

  • So while there is a lot of enquiry banks invoicing is taking its own time to really start happening.

  • On the infrastructure projects, from the Commonwealth Games perspective, we don't expect too much of orders coming to us because these are largely stadiums and we are not into stadium lighting.

  • We have a little bit of outdoor lighting which we have got due to Commonwealth Games but that's just too small to talk about.

  • Our great impact would come in once we start seeing real estate coming up and we start seeing a lot more of buildings coming up because our expertise is strongly in the indoor lighting segment and that would be our clear focus going ahead.

  • Pranav Bhardwaj - Analyst

  • Okay, sir.

  • Thank you.

  • Suresh Vaswani - Joint CEO, IT Business & Member of the Board

  • One manifestation of the Commonwealth Games clearly is the joint venture that we've done with GMR.

  • That addresses the T3 build up.

  • So that's one large win that we've had which is directly related to the build up of the airport which is directly related to the Commonwealth Games.

  • Pranav Bhardwaj - Analyst

  • Yes.

  • Okay, thank you, sir.

  • Operator

  • Thank you, Mr.

  • Bhardwaj.

  • Our next question is from the line of Anil Kumar of HSBC Securities.

  • Please go ahead.

  • Anil Kumar - Analyst

  • Yes, thanks for taking my questions.

  • The first question is on pricing.

  • In this quarter we have seen quite a spike in pricing.

  • Can you please tell us which -- is there any specific verticals or service line which have led to this spike or is it broad-based?

  • And the second is on volumes.

  • Quarter-on-quarter volumes have declined by 1.5% but there is an increase in utilization.

  • How do we reconcile these two?

  • Thank you.

  • Suresh Senapaty - CFO & Executive Director

  • The utilization increase is vis-a-vis the total headcount and how many people have been billed, so which is a little different than the volume growth.

  • So -- which means if you have a headcount reduction and billing remaining the same, utilization can go up and the vice versa.

  • So, so far as the other question was related to price increase.

  • The price increase has gone through a process of, as Deb had explained, better management of some of the outcome-based projects that we continuously engage with the customers.

  • As you have seen over last few quarters, we have increased our fixed price projects with the customers and most of them are coming as an outcome-based.

  • The initiatives like better productivity, initiatives like non-linearity is helping to contribute in that particular environment where you are able to deliver lower costs to the customer and yet retain some of those gains.

  • So price increases are also a factor of some of the cross-currency advantages that we got.

  • So the combination of such better project management and a cross currency has given us this up-tick in the onsite and offshore sequential price increase.

  • Suresh Vaswani - Joint CEO, IT Business & Member of the Board

  • Let me just elaborate a little bit on the volume equation.

  • Yes, our overall headcount has declined from 97 -- from 98,521 to 97,891.

  • But you must view that in context of our driving much more supply chain efficiencies, making it more dynamic and flexible and more just in time.

  • Our bench in the same period has reduced from 11,000 to 7,000.

  • That's a drastic reduction in terms of the bench and the utilization.

  • So that's one factor.

  • And the second factor is like I mentioned earlier, revenue increase is also related to -- is actually related to only billed headcount increase.

  • And at the end of quarter two, we are 711 ahead of what we were in quarter one.

  • Anil Kumar - Analyst

  • Okay.

  • Thank you for your answer.

  • Operator

  • Thank you, Mr.

  • Kumar.

  • Our next question is from the line of Dipesh Mehta of Khandwala Securities.

  • Please go ahead.

  • Dipesh Mehta - Analyst

  • Our fixed price projects now contribute around 40%.

  • So where do we expect that to stabilize?

  • Or are we -- and second is at what level we are comfortable with, because it increases risk also?

  • The second question is about our top six to 10 clients.

  • It shows some kind of decline this quarter.

  • Could you comment on that?

  • And third thing is about campus hiring.

  • How many employees we have hired in H1 and what will be the total for FY '09?

  • Thanks.

  • Girish Paranjpe - Joint CEO, IT Business & Member of the Board

  • Hi.

  • Girish here.

  • Let me answer the first question which is on fixed price.

  • You are right, the fixed price percentage has gone up and it really matters on how -- what is our perception of risk embedded in the fixed price projects.

  • As long as those projects, although they are fixed price, are multi-year annuity, have a lot of Application Management or Infrastructure Management embedded in that, it is not really high risk.

  • So the assumption that all fixed price is automatically high risk is not necessarily true.

  • However, if it is system integration work and we are taking on unrealistic targets on either outcomes or timelines, yes there is risk in that.

  • But we have done enough modeling to say that we are not taking undue risks on system integration type of work.

  • But bulk of our increase in fixed price projects is really linked to Infrastructure Management and Application Management, which does not necessarily increase risk, just to ensure that we have long-term commitments.

  • Suresh Vaswani - Joint CEO, IT Business & Member of the Board

  • Let me attempt the second question that you had related to top 10 accounts.

  • Our growth has been much more broad-based.

  • And therefore if you look at the number of $10m-plus accounts, you see an increase from 97 last quarter to 99.

  • Our strategy is also broad-based in terms of driving what we call as Mega accounts and Gamma accounts, which are basically accounts we want, which are existing customers of ours, where we want to drive a fairly aggressive growth trajectory.

  • And we've been fairly successful at that and we see that as a continual area of investments and growth going forward.

  • Having said that, we are also driving a strong account acquisition or a must-have account strategy.

  • And some of the large deal wins that you see that we've announced are from customers that we've not done business before.

  • But it is very targeted customer acquisition.

  • We are not going for low-end business.

  • We are going for much more end-to-end integrated business and much more project business rather than trying to acquire customers based on what we call as L1-based type of deals, which is basically staff augmentation deals.

  • Dipesh Mehta - Analyst

  • And the last is about fresh hiring, freshers hiring.

  • Pratik Kumar - EVP HR, Brand & Corporate Communication

  • Campus -- see we right now have 2009 batch still about to join.

  • And we guess that somewhere in quarter two of next year all those folks will have joined.

  • So we will visit campus, but primarily to have a look at the folks that we need from somewhere around of September of next year.

  • Dipesh Mehta - Analyst

  • So how many offers we have made for FY '09 campus?

  • Rajendra Shreemal - Head IR & Treasury

  • 7,500 offers.

  • Pratik Kumar - EVP HR, Brand & Corporate Communication

  • 7,600.

  • Dipesh Mehta - Analyst

  • 7,600.

  • And they have yet not joined any of them?

  • Pratik Kumar - EVP HR, Brand & Corporate Communication

  • No.

  • Dipesh Mehta - Analyst

  • And last question is about what would be the blended pricing in constant currency, change in blended pricing?

  • Rajendra Shreemal - Head IR & Treasury

  • In constant currency, onsite it has gone up by 3.4% and for offshore it has gone up by 2.5% sequentially.

  • Dipesh Mehta - Analyst

  • Okay, thanks.

  • Operator

  • Thank you, Mr.

  • Mehta.

  • Our next question is from the line of Kunal Sangoi of Edelweiss.

  • Please go ahead.

  • Mr.

  • Sangoi, please go ahead.

  • Viju George - Analyst

  • Hi, this is Viju George.

  • Operator

  • Sir, are you on a speaker phone?

  • Viju George - Analyst

  • [I'd like to stress] this point on pricing increase because you seem to be attributing it to fixed price and productivity.

  • But I think (technical difficulty).

  • Operator

  • Excuse me, sir, I'm sorry to interrupt.

  • Mr.

  • Sangoi, if you are on a speaker phone, please switch to your handset.

  • Viju George - Analyst

  • Yes, can you hear me?

  • Azim Premji - Chairman & Managing Director

  • Barely.

  • If you can speak up it will be good.

  • Viju George - Analyst

  • Yes.

  • Is this better?

  • Azim Premji - Chairman & Managing Director

  • Yes.

  • Viju George - Analyst

  • Sorry about that.

  • I'm just intrigued by the price -- sequential price improvements you're showing in this quarter.

  • And you're attributing it to fixed price and productivity.

  • But I notice that peers also are taking their contribution from fixed price to a comparable level as you are.

  • Yet they don't seem to be showing the kind of pricing increase or realization increase as you're showing.

  • There must be some other factor, I suspect, beyond productivity and fixed price.

  • Manish Dugar - CFO, Wipro Technologies

  • Viju, hi.

  • This is Manish here.

  • Difficult to get into details and analyze what our peer group is doing.

  • All we can say is that for us productivity gains and fixed price certainly seems to be [picking up] and we are making numbers.

  • Suresh Senapaty - CFO & Executive Director

  • And also the number of days and the cross currency impact that has happened so far as quarter two is concerned.

  • Those two combinations also have given an uptick.

  • Viju George - Analyst

  • Okay.

  • This -- my second question relates to the service provider segment.

  • We'd seen a healthy rebound in this.

  • Is there some sort of pent up or do you think this is the start of something that can sustain because I think peers have not started showing this yet.

  • Manish Dugar - CFO, Wipro Technologies

  • I think it's pretty simple.

  • It's a market share gain here.

  • So as consolidation happens we're gaining share.

  • Viju George - Analyst

  • Okay, okay.

  • Fine, thank you.

  • Operator

  • Thank you.

  • Our next question is from the line of Sandeep Shah of ICICI Securities.

  • Please go ahead.

  • Sandeep Shah - Analyst

  • Yes.

  • Just any increase in the fixed price --?

  • Rajendra Shreemal - Head IR & Treasury

  • Could you speak up please?

  • Sandeep Shah - Analyst

  • Yes, any increase in the fixed price contribution, whether it's contingent in terms of proportion of lateral employees?

  • Girish Paranjpe - Joint CEO, IT Business & Member of the Board

  • No, I am not able to understand.

  • You are saying is there correlation between fixed price and number of lateral employees?

  • Sandeep Shah - Analyst

  • Yes.

  • What I am trying to say is with an improving fixed price you need to have stringent SLAs in terms of project execution, and we are saying that in the coming quarters the freshers may be added.

  • So do you still believe this 40% can be further improved?

  • Girish Paranjpe - Joint CEO, IT Business & Member of the Board

  • As I said -- as I was answering earlier, that fixed price is both for development work as well as Application Maintenance and Infrastructure Maintenance work.

  • So depending on the type of work that we are doing, we have a certain mix of people, experienced as well as freshers.

  • So we don't think there is a cap on how much more we can do on the fixed price, as long as we improve the risk management well, which is a function of how much system integration projects of fixed price with fixed outcome, which we take, which some of them may be high risk.

  • But as long as we manage that I think we are comfortable in doing more fixed price.

  • And I don't think there is direct correlation between percentage of fixed price and the bulge that we can have.

  • Sandeep Shah - Analyst

  • And what is the current less than three years experience profile composition?

  • Suresh Vaswani - Joint CEO, IT Business & Member of the Board

  • We are not -- we don't normally share that data please.

  • Sandeep Shah - Analyst

  • Okay.

  • Okay.

  • And just the last thing, we have said that on a Q-on-Q basis there has been an increase of roughly 700 in terms of employees.

  • But if we look at the person man months available, on a Q-on-Q basis it has come down by roughly 3%.

  • So this is what we are seeing on the end of the quarter basis?

  • Manish Dugar - CFO, Wipro Technologies

  • Sandeep, hi.

  • This is Manish here.

  • As Suresh was mentioning, the number of 700 that he is talking about is the increase in the number of people who are billable -- who are billed as of end of quarter two compared to what it was as of end of quarter one.

  • Sandeep Shah - Analyst

  • Okay.

  • Manish Dugar - CFO, Wipro Technologies

  • Given that billable man month is an average of what was the billable head -- billed people on a day-to-day basis throughout the quarter, and given that we started with a lower number and ended with a higher number, the volume looks low but the billed headcount at the end of the quarter is higher.

  • Sandeep Shah - Analyst

  • Okay, got it.

  • Thanks.

  • Suresh Senapaty - CFO & Executive Director

  • Because of the tailwind.

  • Sandeep Shah - Analyst

  • Okay, thanks.

  • Operator

  • Thank you Mr.

  • Shah.

  • Our next question is from the line of Jugal Joshi of [Destimoney].

  • Please go ahead.

  • Jugal Joshi - Analyst

  • Hi, thanks for taking the questions.

  • I just wanted to know whether in our Infrastructure Management services are we doing any work on virtualization, specifically virtualizing servers for the client using the VMware servers and all?

  • Thank you.

  • Suresh Vaswani - Joint CEO, IT Business & Member of the Board

  • Yes, this is Suresh Vaswani here.

  • We are doing a lot of that now.

  • Part of our Infrastructure Service (technical difficulty).

  • Operator

  • Mr.

  • Joshi, please could you mute your line after you've finished asking your question.

  • There's a lot of disturbance.

  • Jugal Joshi - Analyst

  • Okay, sure.

  • Operator

  • Thank you.

  • Suresh Vaswani - Joint CEO, IT Business & Member of the Board

  • I'm assuming that noise is gone.

  • Jugal Joshi - Analyst

  • Yes, yes.

  • I'm sorry for that.

  • There's some problem here.

  • Suresh Vaswani - Joint CEO, IT Business & Member of the Board

  • Okay.

  • So I was saying that virtualization is a big part of our thrust on Infrastructure Services.

  • Customers are looking for serious productivity increases and really sweating their assets to the limit and that is what virtualization gives us.

  • We do use VMware technology.

  • We are a strong partner of VMC.

  • But we are also a strong partner of Microsoft and we also leverage on their technology in terms of delivering virtualization services.

  • We are also a big advocate of doing internally what we preach outside, and we have done a lot of virtualization and creation of private clouds within our own infrastructure -- within the -- within our own Wipro Limited infrastructure and driven productivity there.

  • Jugal Joshi - Analyst

  • Is it possible for you to share some numbers as in what kind of server sizes have you done, say 1,000 server farm or 2,000 server farm for the client?

  • Girish Paranjpe - Joint CEO, IT Business & Member of the Board

  • I must say, Girish here, that we have done large scale.

  • But what has happened is that people still want to experiment before they go full scale.

  • So the traditional thing is to put development work on the cloud first in the virtualized environment.

  • Then they'll go to more -- less business critical applications on the production scale second.

  • And only at the third stage will they put highly critical production applications.

  • So at this stage people are more willing to do development work on this kind of cloud environment.

  • And maybe in the next quarter or so they'll start looking at doing office productivity type of work on the virtualized environment.

  • Suresh Vaswani - Joint CEO, IT Business & Member of the Board

  • But let me give you a sense of what the potential is.

  • Within Wipro, for example, we use a lot of servers for our center of excellences.

  • And the productivity of the servers we've been able to drive from something like 28% to as much as 70%, 80%.

  • So that is the sort of asset utilization you can get by driving virtualization.

  • We don't have data available off the cuff in terms of how many thousand servers that we've done for customers.

  • But that's an interesting statistic that you asked for so we'll make sure that next time we have that sort of data available.

  • Jugal Joshi - Analyst

  • Okay, great.

  • And just one last question from my side, that do we have any VMware-certified experts in our payroll?

  • Suresh Vaswani - Joint CEO, IT Business & Member of the Board

  • Yes, yes.

  • We have many certified engineers that work for us across VMware technology, across Microsoft technology.

  • Like I said, virtualization is a key part of our Infrastructure Service and Integration practice and it also forms the basis of our driving what you may have heard about Wipro's green strategy.

  • So we are driving green strongly.

  • And one of the big drivers of green is virtualization.

  • Jugal Joshi - Analyst

  • Okay.

  • Yes.

  • Thanks a lot.

  • Operator

  • Thank you, Mr.

  • Joshi.

  • Our next question is from the line of Shekhar Singh of Goldman Sachs.

  • Please go ahead.

  • Shekhar Singh - Analyst

  • Hello, sir.

  • Just like I was just trying to understand the billing rate increase which has happened this quarter.

  • And if I go back last two years, '08 and '09, in both years Q2 you tend to have a big bump up in your pricing.

  • So I'm just trying to understand is there some milestone-related payment or some one-off payment you receive in Q2 which leads to pricing increase and which tends to basically come down in the subsequent quarter?

  • Girish Paranjpe - Joint CEO, IT Business & Member of the Board

  • Shekhar, to a large extent your observation is correct.

  • The number of working days that we get in the second quarter relative to other quarters is higher, which is why, on a quarter-on-quarter basis, this quarter seems to give us higher rate realizations.

  • However, as mentioned by Senapaty and Deb in our previous comments, a significant portion of rate movement has happened because of what we have driven in terms of productivity or in terms of non-linearity.

  • And the seasonality probably is an indication of number of days and which is why in the next quarter we have a headwind in terms of the number of days which may have a slight impact.

  • But we believe it's a sustainable realization that we are seeing at this point in time.

  • Shekhar Singh - Analyst

  • Sure.

  • Secondly, sir, I just wanted to understand how is the profitability in the India-based projects which you have won?

  • Suresh Vaswani - Joint CEO, IT Business & Member of the Board

  • This is Suresh Vaswani here.

  • So when you look at the India business, you should -- there is a product component of the business and there is a services component of the business.

  • And the broad margins that we make on the services and solutions side are in similar range to what we make globally.

  • So they are not operating margin dilutive so to speak, the services business in India to any large extent.

  • Shekhar Singh - Analyst

  • But, say, of a typical contract, the hardware portion will be, what 60%, 70% of it or will it be less than that?

  • Suresh Vaswani - Joint CEO, IT Business & Member of the Board

  • Well it depends on the contract.

  • Some of the deals, large total outsourcing wins that we've had in India have got a significant hardware component.

  • But I would say that typically there's at least a 40% services component in most of the large integrated contracts that we've won.

  • So it is significant, it's not small, the services component.

  • Shekhar Singh - Analyst

  • Sure.

  • Rajendra Shreemal - Head IR & Treasury

  • Shekhar, just to add --.

  • Suresh Vaswani - Joint CEO, IT Business & Member of the Board

  • And the -- sorry.

  • And the product component is not necessarily -- it's a lot of high-end enterprise product type of servers, [VIF] servers, networking gear, switches, routers and so on and so forth, and not necessarily what you would think of as lower-margin product business, which is the PC business.

  • Shekhar Singh - Analyst

  • Sure.

  • Rajendra Shreemal - Head IR & Treasury

  • Shekhar, this is Rajendra here.

  • We have just talked about the quarter two rate movement.

  • If you really look at this quarter, out of the 4.7% onsite increase that we got, as Senapaty mentioned, cross currency gave us a benefit of 1.3%.

  • And the number of extra billing days gave us a benefit of 1.6%.

  • That's for onsite.

  • If you look at offshore, cross currency gave us a benefit of 1% and the number of billing days gave us a benefit of 0.9%.

  • Shekhar Singh - Analyst

  • Sure.

  • Thanks a lot for that.

  • And lastly, I just wanted to understand there was a statement which mentioned that BPO and Infrastructure Services, along with Testing will be a much larger -- a much faster growing vertical for you.

  • Now I'm just trying to understand does that mean that on an incremental revenue basis, your offshore mix of revenues will keep on increasing and that basically increases your sensitivity to rupee/dollar movements.

  • Suresh Vaswani - Joint CEO, IT Business & Member of the Board

  • Let me just clarify first.

  • BPO certainly, Package Implementation, Infrastructure Services and Testing Services, I think these are the four service lines that I spoke that will drive growth.

  • But it's not that ADM is not going to grow and it's not that our Engineering Systems or Product Engineering will not grow.

  • So that is the perspective.

  • The second part of the question, I'd request Mr.

  • Senapaty to answer.

  • Suresh Senapaty - CFO & Executive Director

  • So you are right that as far as BPO is concerned definitely it is more offshore-centric.

  • But as far as Infrastructure Management or Package Implementation is concerned, we cannot really say that it is very offshore-centric and it will not have its proportion of onsite work because exactly the same reason which drives onsite work in Application also applies to Package Implementation and to Infrastructure Management.

  • So other than BPO I would not say that it is necessarily more offshore-centric and therefore I don't think we have undue exposure or disproportionate exposure to the rupee/dollar.

  • Girish Paranjpe - Joint CEO, IT Business & Member of the Board

  • And also if I can supplement or clarify, when we talk about an offshore/onsite mix, it is only related to the IT Services, and not the BPO.

  • For that we give numbers separately, because there the component of offshore is very high.

  • So typically what you hear about 50/50 in terms revenue or [effort terms] or billed headcount terms, two third/one third is primarily IT Services.

  • Shekhar Singh - Analyst

  • And sir, from my understanding, this Infrastructure Services will be primarily offshore, I suppose?

  • Suresh Vaswani - Joint CEO, IT Business & Member of the Board

  • No, no, it is a mix of -- there are two, three different practices in Infrastructure Services.

  • There's Managed Services, so wherein we manage customers' data centers, desktop, etc., globally out of India.

  • But it is again, like Application, it is onsite/offshore and tends to have similar ratios.

  • I'm talking about the Managed Services IT part of typically 30% of the people onsite and 70% of the people offshore.

  • And then we do a lot of System Integration business also which has a higher component of people onsite versus offshore.

  • So long story short is that Infrastructure Services onsite/offshore mix is very similar to our Application Development and Maintenance business.

  • Shekhar Singh - Analyst

  • Sure.

  • Thanks a lot, sir.

  • Operator

  • Thank you, Mr.

  • Singh.

  • Our next question is from the line of Pinku Pappan of Nomura.

  • Please go ahead.

  • Pinku Pappan - Analyst

  • Hello and good afternoon.

  • I have just two questions.

  • Could you just give a little more detail about your spike in S&M expenses this quarter, sales and marketing?

  • Suresh Senapaty - CFO & Executive Director

  • Yes, sales and marketing I think there is some investment that has happened over a period of time.

  • There is an addition into the headcount in terms of (inaudible) specialists and the quality of professionals.

  • Over the years I think we've added about 50 people in headcount.

  • And also the currency does impact.

  • The combination of all that and some of the progression impact that has come through in the quarter two, so all that combination there has been a marginal increase in the S&M.

  • And so far as G&A is concerned, there are certain, let's say, one-timers that are there in terms of SG&A expense, which we expect to get normalized in subsequent quarters.

  • Pinku Pappan - Analyst

  • The 50 people that you mentioned was over Q2 or Q1?

  • When did you add them?

  • Suresh Senapaty - CFO & Executive Director

  • Over four quarters.

  • Pinku Pappan - Analyst

  • I'm sorry?

  • Suresh Senapaty - CFO & Executive Director

  • Over four quarters.

  • Pinku Pappan - Analyst

  • Fourth quarter, okay.

  • And the second question is your BFSI growth is kind of less -- it's kind of muted compared to your peers.

  • Could you just give a little more detail on that?

  • Girish Paranjpe - Joint CEO, IT Business & Member of the Board

  • Yes, you are right that on -- in revenue terms our sequential growth in BFSI was not very strong.

  • But we have seen good volume uptick in the previous quarter.

  • And the current quarter looks even stronger.

  • So overall we are confident that while we may have lagged one or two quarters, we'll catch up in the next couple of quarters.

  • Pinku Pappan - Analyst

  • All right.

  • Yes.

  • Thanks.

  • And congrats on a great quarter.

  • Operator

  • Thank you, Mr.

  • Pappan.

  • Our next question is from the line of Ritesh Rathod of UTI Mutual Fund.

  • Please go ahead.

  • Ritesh Rathod - Analyst

  • Yes, sir.

  • Can you give us more color on your lateral hiring?

  • How is this market?

  • Is it very easy to hire nowadays or has it become more difficult?

  • Sambuddha Deb - Chief Global Delivery Officer, Wipro Technologies

  • Hi, Deb here.

  • We have not yet seen the market hardening up.

  • Talent is reasonably available.

  • Ritesh Rathod - Analyst

  • Okay.

  • Okay.

  • One more question on interest.

  • Your interest expenses have come down very sharply quarter-on-quarter.

  • Any specific thing over there?

  • Suresh Senapaty - CFO & Executive Director

  • Primarily because borrowing has also come down.

  • Ritesh Rathod - Analyst

  • But still if I take the quarter end borrowing, the average cost comes down.

  • Suresh Senapaty - CFO & Executive Director

  • So it has come down and the interest rates also have come down.

  • Ritesh Rathod - Analyst

  • Okay.

  • We have refinanced our any borrowings?

  • Suresh Senapaty - CFO & Executive Director

  • No.

  • We had some short-term borrowings which has come down.

  • If you are talking about a year-on-year then so far as previous year was concerned, we had obtained the external commercial borrowing.

  • And in quarter two, as you know, rupee depreciated a lot.

  • Some of that had got impacted before we hedged out and followed the hedge accounting for external commercial borrowings.

  • So there was a little unusualness in quarter two of last year.

  • Ritesh Rathod - Analyst

  • So from here onwards, on absolute sense or absolute number, the interest expense would remain flattish sort of thing, if we are --?

  • Suresh Senapaty - CFO & Executive Director

  • It would clearly be in function with the debts that we would have on the balance sheet.

  • Ritesh Rathod - Analyst

  • Okay.

  • But it doesn't have any link to foreign currencies volatility, or it does?

  • Suresh Senapaty - CFO & Executive Director

  • No, it won't.

  • Ritesh Rathod - Analyst

  • It won't.

  • Suresh Senapaty - CFO & Executive Director

  • Because typically if there are any foreign exchange short-term loans we take, we take it on a fully hedged basis.

  • Ritesh Rathod - Analyst

  • Okay.

  • Thanks, that's it from my side.

  • Operator

  • Thank you, Mr.

  • Rathod.

  • Ladies and gentlemen, due to time constraints that was the last question.

  • I now hand the conference over to the management for their closing comments.

  • Please go ahead.

  • Rajendra Shreemal - Head IR & Treasury

  • Thank you, ladies and gentlemen, for participating in this call.

  • Should you have missed anything during the call, the audio archive of this call will be available on our website and we would also be putting up the transcript of this call very soon.

  • And of course if you need any clarification, the Investor Relations team would be delighted to talk to you.

  • We look forward to talking to you again in the next quarter and have a nice day.

  • Operator

  • Thank you very much, sir.

  • Thank you, gentlemen of the management.

  • Ladies and gentlemen, thank you for choosing the Chorus Call conferencing facility.

  • Thank you for your participation and you may now disconnect your lines.

  • Thank you.