Wipro Ltd (WIT) 2010 Q1 法說會逐字稿

Good morning.

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

At this time, I would like to welcome everyone to the Wipro first quarter earnings for period ending June 30, 2010.

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

(Operator Instructions) Thank you.

Mr.

Ramassubbu, you may begin.

Thanks, Sarah.

Good day to all of you.

This is Sridhar, and I'm joined by the IR team in Bangalore.

We are pleased to extend a very warm welcome to all the participants, and to host the Q1 FY'11 results and earnings call.

Regarding the materials for this call, we (inaudible) to be a late night, EST, and we'll have time for Q&A at the end.

We have with us today Mr.

Azim Premji, Chairman, Mr.

Suresh Senapaty, CFO, who will comment on IFRS results and on key takeaways for the quarter and for the period ending June 30, 2010.

They are joined by joint CEOs of IT business, Suresh Vaswani, Girish Paranjpe and other senior members of the Wipro management team who'll be happy to answer questions.

As always, elements of this call and the management's view may be characterized as forward-looking under the Private Securities Litigation Reform Act 1995, and our based on our best view of the world and our businesses as we see them today.

Those elements can change as the world changes.

Please interpret them in that light.

Those statements involve a number of factors that could cause actual results to differ materially.

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

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

We do not undertake any obligations to update forward-looking statements to reflect events or circumstances after the date of filing thereof.

This call is scheduled for an hour.

The presentation of the Q1 FY '11 results will be followed by Q&A.

The operator will walk you through the Q&A process.

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

Replay of today's earnings call proceedings will also be available via telephone, post the call.

During this call, I am also available on e-mail, and through mobile as well, to take any questions and table them to the full team in case you are unable to ask questions for any technical reasons.

Ladies and gentlemen, over to Mr.

Azim Premji, Chairman, Wipro.

Good day to all of you.

Wipro Limited had another strong quarter with 16% year-on-year growth in revenue, and industry-leading growth in profits after tax of 31% year-on-year.

Despite all the chaos which we have seen with the (inaudible) crisis and the overall macro environment, which keeps getting interpreted differently at different stages of time, we are seeing a much stronger demand environment across all our different business segments.

And this is significantly broad based.

Let me talk about the IT business.

Another good quarter where we beat the top end of our guidance in constant currency terms with a sequential growth of 4.4%.

We had the highest increase in our net billable headcount ever, this quarter.

BFSI, CMSP, Manufacturing and [RTTT] led growth for us among all the verticals.

Product Engineering Services, package implementation and ADM led growth among the horizontals.

India, Middle East and APAC continued to see strong growth with the US also seeing an uptick this quarter.

Europe grew at 3.4% on a constant currency basis and 21% year-on-year.

We have seen yet another quarter of market expansion.

Margins have increased by 30 basis points to 24.5%, despite headwinds of wage increase and decline in our price realizations.

Margins have expanded by 2.4% year-on-year.

Wipro took over the data center in Germany from Citi, which will enable us to offer a full portfolio of infrastructure management solutions to our European clients; a need which has been expressed in all large TIS contracts.

We continue to uncompromisingly invest in our business for the future.

Our focus is on our technology teams with particular focus on Green and Cloud, our Horizon 2 and Horizon 3 teams driving product-wide solutions across horizontals and verticals, (inaudible), which is today 10% of our revenues, and these are targeted to average 14% of our revenues in the current financial year.

Strong consulting and systems integrations, transformation of capability and significant investment in sales and consulting.

We remain committed to driving globalization and localizing our teams.

We continue to scale up our delivery centers across the globe.

We have crossed the 500% mark in China this quarter as well as the 500% mark in Atlanta.

We continue to localize our team overseas.

Our target is to increase the percentage of locals in our workforce overseas to 50% in the next two years.

As at quarter one it was 38%.

And a full year back it was about 29%.

Let me talk about our Consumer Care and Lighting business.

Santoor, which is the number three brand in India, remains the main driver across India [for soap] business.

But we continue to diversify this segment with strong growth across Glucovita, our energy drink, diapers and CFL.

In our international business we continue to grow, driven by markets like China, Malaysia and the Middle East.

Commercial business has seen significant pickup too, though not back to peak levels yet.

Yardley is fully integrated and tracking ahead of plan.

It is proving to be a more exciting plan than even we anticipated at the time of the acquisition.

Infrastructure Engineering, the business environment has significantly rebounded.

In Europe things are much better, but far from being great.

We are yet back to 60% of peak levels, but at 33% of our former (inaudible) In India we're back to 90% plus of peak levels.

In Eco-energy we continue to believe that this will be a big business in the future.

A new area of growth is Energy Managed Services.

We've already won two deals on this.

Our confidence in our business model has increased significantly, validated by the market and our wins.

I now hand over the mic to Suresh Senapaty, our CFO, to share financial highlights of the quarter.

Good evening, ladies and gentlemen and the [number of you] overseas.

Before I delve into our financials, please also note 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, 2010, for cable transfers in Indian rupees as certified by the Federal Reserve Board of New York, which was $1 equals INR46.41.

Accordingly, the revenues of our IT Services segment was $1,204 million or, in rupee terms, INR55 billion, appears in our earnings release as $1,185 million based on the convenience translation.

Our IT Services revenues for the quarter ending June 30 was $1,204 million on a reported basis, a sequential growth of 3.2% and year-on-year growth of 16.6%.

On a constant currency basis, our IT Services revenue was $1,218 million, a sequential growth of 4.4% and a year-on-year growth of about 16.6%.

We had a good quarter of growth, driven by verticals and (inaudible) lines.

Among the verticals, BFSI had led growth with 6.4%, CMSP, our service (inaudible) with 6.4%, Manufacturing with 5.5%, Retail and Transportation by 5.1%.

Telecom and Technology verticals boasted a 12th successive quarter of sequential growth.

Package Implementation and Product Engineering Solutions have driven growth in the quarter with 9.7% and 18.5% growth respectively.

Amongst (inaudible) US has been an (inaudible) sequential growth.

Our investments in emerging markets are continuing to pay off with strong growth in India and Middle East businesses.

And APAC and other emerging markets are 5.4% and 5.6% respectively.

Despite the [difficult] economic environment, Europe continues to be a growth market for us with (inaudible) sequential growth of 3.4%.

We have 100 customers with revenue greater than $10 million.

We saw another quarter of strong volume growth of [4.7%], the third consecutive quarter of (inaudible) sequential growth rate in volume.

Lighting dropped by 4.9% (inaudible) and 1.4% offshore.

This is due to the impact of [currencies], change in dilution mix and investment in projects for their start onsite.

Our proportion of revenue from (inaudible) increased by 0.3% to 44.6% in the quarter.

We were able to get well on operations and have been able to expand margins by 30 basis points, despite headwinds of salary increase.

As at June 30, 2010, our days of sales outstanding for specific margins was at 65 days, due increasing (inaudible) revenue.

78% of our debtors are less than 30 days, and less one 1% is more than 180 days.

Our IT Products business showed year-on-year growth of 13% in revenue.

We grew operating profit sequentially by 29%.

The Consumer Care and Lighting business continued to see good momentum with revenue growth of 23% year-on-year and operating profit was up 11% on a year-on-year basis.

On the foreign exchange front, our realized rate for the quarter was INR45.69 versus a rate of INR45.11 realized for the quarter ended March 31, 2010.

On a quarter-on-quarter basis ForEx gave us a positive impact to margins, including the impact of core currency up 0.6%.

As at period end we had about [$1.6 billion] of ForEx contracts.

Our net cash balance on the balance sheet was INR49 billion.

We generated a free cash flow of INR6 billion during the quarter.

We'll be glad to take questions from here.

Go ahead with the Q&A.

(Operator Instructions) And your first question comes from the line of Trip Chowdhry from Global Equities Research.

Your line is open.

Your very good execution.

A few questions here, first regarding Europe.

It seems you executed very well versus the competition.

I was wondering if you can provide some color on that.

This is Suresh Vaswani here.

I will start answering the question.

I will also have our Global Head of Sales, Martha Bejar, addressing the question.

I think, in answer to your question, we have done well in the Europe business.

If you factor out the cross currency impact, our sequential growth in Europe has been 3%.

If you look at the funnel, looking forward, I think Europe represents a fairly strong part of our funnel,, both in terms of scale in proportion to the market, as well as in terms of the complexity and the quality of opportunities that we're going to be presenting in Europe.

So all in all, Europe looks good for us in terms of funnel, in terms of business that we can expect from Europe.

I'm going to let Martha elaborate on that.

Okay.

Hi, this is Martha, Trip.

I would expand that by saying that we're excited about our opportunities in Europe and they are broad based across multiple verticals.

We see a lot of excitement around the manufacturing, the retail business as well as the finance sector.

Like Suresh mentioned, we have a very strong pipeline as well and so, a lot of work, a lot of effort and we're getting the fruits of our labor there and will continue at it.

So I think it's going to be good stuff for us, moving forward.

Martha, another quick question for you.

In terms of sales cycles, would you happen to have an idea about how they're different in Europe versus USA?

Then I have one more follow-up question.

Okay.

So, Trip, I would say that the sales cycle is pretty similar to the US and it also depends on the sector, but averages, I don't know, about 12 months.

So I don't think it's any different than what we've seen in the US from a sales cycle perspective.

Okay.

And also I was wondering, the margins really improved well again.

Looking at the competition, it seems you did better than them.

Any special things you did during the quarter to improve the margins?

And that's all from me.

And thanks, a very good execution.

I would say, Trip, that our efforts in continuing to sell value to our customers continued to pay off.

And we're partnering with our customers, we're helping customers with their strategy; shaping their strategy, becoming trusted advisors with them.

You know that we've been investing in the [Tels] organization for a bit and we continue to invest; Mr.

Premji mentioned that in the earlier comments.

And I think a combination of our traditional work with the work that we continue to do in adding value to them, and creating solutions, that go across our multiple service lines that address specific customer needs are becoming -- we're seeing the results on that.

And the last piece that I will add is that a very strong country focus, from a strategy perspective, becomes key to us, when we look at businesses in Europe.

As you know, there's many different countries there and the country strategy is also paying off.

Thank you.

Thanks, Trip.

Your next question comes from the line of [Joseph Foresi] from Janney Montgomery Scott.

Your line is open.

Hi.

I guess my first question here is, just it seems like maybe pricing was a little bit light this quarter, and I know you talked about it being stable, going forward.

But I wonder if you could talk about that a little bit further.

What caused the price decrease?

Is it a client specific thing, or is it something that happened last quarter?

And maybe you could talk about what you think is going to happen with it, going forward?

Joe, hi, Girish here.

Let me first talk about the underlying price environment and then explain what happened to (inaudible).

So if you look at the underlying price environment, it remains positive, as far as we are concerned.

And there have been several opportunities when we've had chance to negotiate with clients and reset upwards the price that is [there in the market].

So there is flexibility mostly, of course, from clients to reset the price, given the price that we have been good partners to them within the downturn.

And also, they see the cost cuts that we are suffering because of wage increases (inaudible).

So broadly speaking, the price environment for us remains positive, and we are confident that we should be able to renegotiate the price upwards at the appropriate opportunities that come up in interaction with them.

When it comes to the price realization that we report, we [see various peaks] in the revenue generated by the effort that is expended in the quarter.

And that number, for us, has shown a decline this quarter, both in terms of our onshore realization as well as offshore realization.

And that has largely been driven by two factors.

One, there was a certain impact that has been suffered because of [short guarantees], which has hurt us negatively, which has affected the realization at this quarter.

And that is just the foreign currency cover and the hedging (inaudible) hopefully should (inaudible).

And the other is that a large part of our growth has come about by us starting new projects.

And all those new projects in those start involve a certain amount of effort, either in translation or new project starts, which doesn't get paid for regularly.

And, therefore, when you do the math of revenue to [product] expended, it looks like we have dropped in realization.

But the reality is that, if you look at the (inaudible) price, actually, there's a positive price environment and we are able to take the price up (inaudible).

It is considered that the way we that report the realization, it shows that it has gone up.

And so do you expect pricing to turn positive next quarter, assuming currency stays stable?

Or is it a couple of quarters out?

We appear to have not detailed our [project starts] and the cross currencies, but I would be more confident saying that the underlying price environment remains positive.

And as long as that remains so, I believe we could negotiate the prices upwards [or the coupon] price, I'm sure [we'll] get the original (inaudible).

Okay, very helpful.

My next question here is about the demand environment in general.

Have you seen any slowdown in discretionary projects at all?

And maybe you could talk about -- it sounded like, obviously, new projects had an impact on the pricing.

How are new projects versus re-competes?

Has there been any change in the environment in either discretionary, re-competes or the new project work?

We're currently seeing an uptick in the discretionary spending by customers.

Customers are investing in their future, they're looking at reengineering their existing cost structure, and that's also opened opportunities for us.

And they're looking at reengineering their business in line with the new market reality.

(inaudible) so far as the business model is concerned.

And that also throws up new opportunities for us, particularly given the fact that we're pretty comprehensive in terms of our service offerings, and we have business process outsourcing as a key part of [management] solution along with the traditional IT segments.

So yes, discretionary spending is going up, and yes, our funnel does represent a lot of high value add projects, which take into account our full service capability.

Some of the demand that we've generated is actually demand generated on a [flat position] by working and investing with customers and the orders also to our peers.

The fruition of that is a very healthy pipeline that we see today.

Okay.

And just re-competes versus new, are you seeing a pickup in new business starts?

Is that the takeaway from what you're seeing on the pricing side?

Yes.

Okay, I'm just talking about new business versus existing business.

I think we see a very healthy mix of existing business getting renewal or getting enhanced, as well as a fairly strong funnel of new business and new opportunities.

And this is particularly true as it relates to some of our service lines like Package Implementation, Infrastructure Services and business (inaudible).

And then, just one last question from me.

As regards to the back half year, clearly, the market has been a little bit tough here in front of the stock market.

What could be swing factors that would either provide upside to the numbers or downside to the numbers in the back half of the year, as you see it, excluding currency, of course?

Sorry, I didn't get the full import of your question.

Could you please repeat it for us?

Yes.

So I'm wondering, as you look at the back half of the year what you would see as swing factors that would cause you to maybe outperform or underperform just versus what your expectations are, as you see in the market today?

We have given a fairly strong guidance.

For the current quarter, we have given a guidance of between 4.1% to 6.1% in terms of sequential growth.

And that is a higher than guidance that we've given the last quarter.

And if you really look at our performance last quarter, again, it was based on strong volume growth.

And this has been the situation over the last [few] quarters.

So net-net, we don't guide for the year; we guide for the quarter.

But clearly, the demand environment is positive.

Our confidence in terms of being able to hold and deliver, the demand environment is fairly high and we've got a very strong funnel, going forward.

Okay, thank you.

Your next question comes from the line of [Ed Caso] from Wells Fargo Securities.

Your line is open.

Hi, good evening.

Ed Castle from Wells Fargo.

Could you speak up?

Sure.

My first question is around employee attrition.

Could you give us a status where you stand, what the trend is, what steps you're taking?

And maybe as part of that, remind me of when you give raises?

And I believe you gave some special equity day stuff recently.

So if you could just update us on the human resources side of the equation.

Hi, Ed, this is Saurabh here.

So we have seen a change in the attrition from the figures in the last quarter.

And that's been a significant degree concern for us; a real concern for us.

We have been taking a number of actions; we have taken and done work looking at this.

And I must can also say that [we feel it] across the industry, given the uptick in the demand for the past few quarters.

From a [stats] perspective, we have done a broad based wage increase for all our employees back in February.

And after that, in this quarter, 33 have taken [certain] employee actions, be it in terms of demotions of people, restructuring of some banding, restructuring of junior employees, so that they can move faster into their careers, as well as giving RSUs to our senior and middle management teams.

So we will continuously look at what's happening externally, we'll look at what's happening internally, and then assess the situation and move forward.

We believe [that] a number of [levers] from an attrition perspective, be it in terms of career, in terms of growth, in terms of opportunities, in terms of learning and thus, compensation.

And we need to work on all these levers (inaudible) attrition.

And we are working towards that.

I think also, it's not any time for panic; we know what we are getting into and we are making sure that our supply chain (inaudible) manage this spike which we are seeing.

Can you offer us a hiring target for this year?

Or maybe if not that, then how much you can increase your hiring charges, and how much of that increase reflects a brighter outlook for demand, and how much reflects the higher attrition?

Hi, Ed, this is [Deb], I'm the Head of Delivery for the Group.

And to answer to the question, we have just in time hiring (inaudible) and [freshman] (inaudible) when we take off the [college], depending on what our annual plans are.

Now, so the interest in higher attrition, then recruit building will automatically get the signal to recruit on a higher base.

Now, if you look at how we have been handling the recruitment, we have actually geared up.

We have added more than 15,000 people in the last three quarters.

And that's net add.

So the Company has grown by about 15,000 people in the last three quarters.

And in terms of recruitment it's (inaudible).

So we don't set an annual target; we react to what is exactly happening.

And since most of the employees have a two month notice period, it is possible for us to replace that as quickly as possible.

My last question is, I believe the Government has mandated 25% float for the stock, and I believe you're roughly around 20%.

Can you offer some insights in how you're going to address that mandate?

Thank you.

Yes.

If you look at the current mandate, it is just in the form of [negotiations] with the country's Government (inaudible).

I think that has to be done by the Securities Exchange Board of India.

It hasn't happened as yet.

So we will respond to the mandate when the law comes to place.

There are a lot of [limitations] on the industry for making sure that they should take into account the (inaudible) holding outside of India.

There are certain (inaudible) regards the timeline that has to be given has to be much higher than what it is today, etc., etc.

And also, in terms of (inaudible) in that the companies are undertaking that it should not (inaudible) [with regard to the letters and that].

So we don't know I think there are some players (inaudible) of industrial associations and maybe if you look at that another solution they've come up with and even the (inaudible) that I think are good.

So we are looking forward to some better clarity on the (inaudible).

Thank you.

Congratulations on the quarter.

Thank you.

Your next question comes from the line of Nabil Elsheshai from Pacific Crest Securities.

Your line is open.

Hi, guys.

Thank you for taking my questions.

First, I guess, if you could give an update on what your plans are for channel investment, your sales investment both in Europe and US over the next, say, two or three quarters?

Hi Nabil.

This is Martha Bejar again.

So in terms of our investment, and I'm going to break it out in about three pieces here for us in our discussion.

First, we continue to invest in our sales process and the tools that we have to manage the business.

Whether we talk about account planning, or we talk about opportunity management, we continue to invest in that and making sure that we have tools and processes that are very easy for the sales force to manage and deal with.

Secondly, we continue to look at best-in-class ways to recognize the sales organization and their performance vis-a-vis how we're doing with our customers.

Here we are tied to the hip with the work that we do with our delivery organizations to make sure that we deliver on our commitment and our promise to the customer.

And then the third one is on training.

We have initiatives throughout the different geos where we focus on very targeted training when it comes to sales management all the way to domain training and management associated with solutions that can bring value to the customer.

And to this, we'll continue to expand our sales organization to address the demands of the market across the geos.

And again, this depends on the growth that we have, and by geo which differs.

And in some cases, we are doing investments where we feel that there's a future there.

In areas, for example, Latin America or the work that we're doing in China, certain areas in APAC, we continue to invest in those areas because we know that we have a strong value proposition there to our customers.

Okay, great.

I wanted to also follow up a little bit on the different dynamics between Europe and US, both in terms of pricing and if you're seeing different types of projects, maintenance versus discretionary, that type of thing between the two regions.

I think that their behavior's very similar.

Our customers are certainly doing a lot more, and discretionary transformation projects are a big thing within both geos.

So customers are really looking at fundamentally changing the way that the businesses are, from an IT perspective.

So I think that's a very common trend.

So I would say that big, big differences, no.

Pretty much everybody's talking the same language, from an IT services perspective; what value can you add to our P&L, not only on taking costs out but also helping us grow; how do we transform our business.

A lot of our customers are expanding from a regional focus to a pan-regional focus, and so we're working with them on the best way of doing that.

They're merging, so we're working with them on authorization of the networks that are coming together.

So I think that there's a lot of commonality there in terms of the customer ask.

Okay.

And any difference in the pricing environment in Europe versus US?

I would say that not really, not something that would stick out in my mind.

I think that customers do want, as always, more for their money, so we always talk a lot about that, but they're looking at companies like ours to add value to their business, and I think that's become a very common trend in our discussions with them.

And they're willing to pay for that, and they want the quality to be best-in-class.

So I think that there continues to be opportunities there.

I wouldn't say there's a fundamental difference between Europe and the US in terms of pricing.

Okay, great.

Thanks.

And then, just in general for whoever, if you've looked at size of projects and tactical versus transformational, how do you see those projects trending?

And I think we see from a very large US multinational that their booking is disappointing because they were seeing more short-term type of projects.

Are you seeing a similar trend, or what are you seeing in terms of maybe larger deals, larger transformational deals going on in the marketplace?

I will tell you that our pipeline has increased, and a lot of incidences of these transformational deals.

I think customers are reviewing their entire businesses and are making some bold decisions in that regard.

But at the same time, there are a lot of projects that are in our pipeline that are very tactical.

So I would say it's mixed, but our pipeline again has increased significantly because of the transformational deals that we have in there.

And a lot of that is also self-motivated by us and knowing the customer and taking a look at their business and looking at ways in which, hopefully, we can strengthen their P&L and, in turn, it creates bigger or larger businesses for us.

Okay, great.

Last question from me.

But I was interested in the strength in the Package Implementation, both how sustainable that is, if any type of particular projects or applications are standing out as areas of strength in that service line?

I think Package Implementation clearly has led growth in the service line perspective last quarter.

There is clearly a pent-up demand as it relates to upgrades of certain applications, and that is we think the management's success in terms of the growth that we are seeing.

There's substantial investments happening by customers in Cloud solutions and in CRM, in the area of sourcing computing solutions, in the area of sustainability.

And that is building up momentum for the Package Implementation business.

And then we are fairly strong in this area.

We are a fairly strong in terms of our partnership with SAP; [we are now looking at] Microsoft.

And just to give you an example, we won the SAP Pinnacle Awards in two categories; for IP outsourcing and for an SAP, which is the application support solution which Wipro and SAP worked together.

So it's a combination of all of this, clearly the pent-up market demand, more discretionary spending, lots of upgrade potential coming up, new areas coming up, as well as the fact that we are fairly strong in terms of alliances and partnerships and capabilities and innovation in the Package Implementation area.

And do you have a sense if these customers are buying new software or is it stuff that they -- if they were software or if it's upgrades or how that mix plays out in terms of what kind of projects you're seeing?

I think there is a lot of, like I said, pent-up demand for upgrades, so a lot of the demand keeps coming through from upgrades.

But again, customers are investing for the future.

So if there are certain [Greenfield] projects and there are certain new implementations, particularly I think relates to demand generating areas like CRM, which is beginning to clearly pick up.

So it's a combination of both.

Okay, great.

Thank you guys for taking my questions.

Your next question comes from the line of Karl Keirstead from Kaufman Brothers.

Your line is open.

Thank you.

I've got two industry questions.

The first is IBM, on its recent call, indicated that there is a bit of a new deal signing lull that began in mid-June.

And even TPI and some of the outsourcing advisory firms cited some sluggishness in June.

I'm wondering, did Wipro see any kind of extended sale cycles or signings pause during the month of June when the macroeconomic environment became a little more uncertain?

Thank you.

Hi, Karl.

This is Girish here.

I did read the report that (inaudible) but we have really not seen anything like that in the [book] (inaudible) [top line].

And perhaps it has to do with the kind of external sector TPI has been more (inaudible).

We have seen one infrastructure deal done by a (inaudible) factory and perhaps that's the reason why there's a book with more (inaudible) there and they get to feel a (inaudible).

Frankly, we see much more business as usual, other than people taking [out days] in summer.

So I don't think there really is.

Okay, that's encouraging.

And then if I might ask a second one.

Clearly, Wipro saw, once again, strong growth in the BFSI vertical.

That's obviously been the vertical that's powered the recovery, not just for you but for all of your peers.

When you look forward into the second half of calendar 2010, are you as enthusiastic about a continuation of this BFSI vertical increase, or do you anticipate its sequential growth perhaps slowing, and other verticals catching up?

Karl, Girish here again.

You're right, that financial services has been strong this quarter, 6.4% sequential growth.

And generally speaking, the momentum seems to be pretty strong.

So I'm optimistic that the growth will continue.

Traditionally in financial services what happens in the first two quarters, this quarter and the next quarter traditionally are the stronger ones.

And then the last quarter of the calendar year tends to slow down and then pick up in the first half.

So unless something changes this year, I would say that all our financial services should have a good year.

Okay, great.

And just building on what Girish said, in addition to BFSI, which maybe we're seeing a strong growth momentum, we see a similar strong momentum as it relates to our Retail and CPG business, as it relates to our Manufacturing business.

And there are two sectors where we're investing in fairly heavily; the healthcare sector as well as the energy and utility sector in terms of domain, in terms of solution, in terms of business advisory capability.

And we are seeing a strong momentum on a [half] year basis insofar as those businesses are also concerned.

So in general, we see a fairly broad based growth momentum going forward.

Girish spoke about BFSI and the sustained momentum, but beyond BFSI, there are other sectors which I just spoke about which will also see that growth.

And just speaking to the service lines, the Package Implementation, the Infrastructure Services business and the BPO business, which is a big different [channel] for us, will feel growth, particularly as it relates to integrated IP and BPO deals.

Okay, great.

Thank you.

Congratulations.

Your next question comes from the line of [Rochelle Strominov] from Nelson.

Your line is open.

Hi.

Good evening, gentlemen, and thank you for taking my call.

A couple of questions really on growth rates, following on from what you've just said.

Talking about the investment in healthcare and services [that are new], if you look at the sequential growth last year both to the negative.

Was this a blip?

Can you explain that as to what caused the negative growth in those two areas please?

So are you speaking on the Healthcare negative sequential growth?

Yes, and also in Energy and Utilities.

: And Energy and Utilities, very good.

So both these sectors have had -- from one time the news in quarter four and certain project closes in terms of completion of implementation.

So the different sequential growth you're seeing in the one quarter sort of phenomena.

If you look at the year-on-year growth for both these sectors, it was fairly strong.

Healthcare has grown at 25% year-on-year and Energy and Utilities also has had fairly substantial year-on-year growth.

So the answer is, it is a one quarter phenomena, and we clearly see these two sectors being growth drivers for us, going forward.

Okay.

Thank you very much.

And in a similar vein, BPO is a major focus area for you.

Again, there was a quarter of sequential negative growth there.

Do you see any particular seasonality there, or can you explain what was the factor there?

It's a similar logic, because all these businesses had very strong revenues in quarter four, and particularly in terms of one-time projects that we closed, and completions of transitions took place in quarter four.

So clearly, here again, if you look at the year-on-year figures, the BPO figures look fairly healthy.

The sequential declines that you've seen, again, is a quarter phenomenon.

And we, frankly in revised market environment where customers are looking for reengineering of their cost structures, reengineering of their processes, or reengineering of their business models, increasingly the conversations that we're having with customers is very much BPO, particularly with (inaudible) customers.

And clearly, a lot of opportunities, which either are the [interaction] of BPO and IP, are coming up.

So I would again classify that as a one quarter [sequential] change because of the peaks in the previous quarter.

Okay, great.

Thank you very much.

And on a more positive note, the data center acquisition from Citibank in Dusseldorf, that's really important, that data center getting [you into] Europe.

Can you share a little bit more about what exactly you have acquired and what the agreement is?

I'll just you a bit of commentary, and then I'll have to ask my colleague [Manish] to speak about it.

But clearly we have acquired the data center of Citibank, along with the business, and it's continuously (inaudible) business related to the data center.

The real big plus that we've had, apart from building business volume with Citibank, is that we now have data center capacity in Europe which we already did not have.

And we have acquired (inaudible) which had strong data center capacity and a strong managerial center services capability in the US, which enabled us to [go into] integrated IT outsourcing business in the US.

We have that in India; we were missing that in Europe, and with this acquisition that completes our story in terms of being able to bid for end-to-end IT infrastructure outsourcing teams in Europe.

Specifics on the deal I'm going to have Manish Dugar, our CFO to call.

Just to add to what Suresh said, I think the deal comes with two other big positives.

One is, the deal is actually a [win-win] relationship between Wipro and Citibank, where Wipro is working with Citi to provide them better management and better quality of output at a lower cost.

And so far as Wipro is concerned, is gets (inaudible) customers to start a data center (inaudible), the initial cost that typically a new data center has when it is very low in utilization.

From a financial perspective, this is more an acquisition of assets at book value, so it's not really an entity purchase, so to speak, and the price that we have paid is EUR5 million.

Can you tell us again please, the price you paid?

It's not an entity purchase, it's more the purchase of assets and facility at book value.

And the price that we have paid is EUR5 million.

Okay, thank you very much.

Your next question comes from the line of Ashish Thadani from Gilford Securities.

Your line is open.

Yes, good evening.

I have a few questions.

First off, how does progress under the localization initiative that you mentioned, how would that reduce overall reliance on the H1B program in the US going forward?

I'm requesting Sambuddah Deb, our Chief Delivery Officer, to take that question.

I should go back to the question.

One is, if you look at -- roughly about 40% of our folks abroad, now are local nationals.

And if you look at the hiring that we have done [outside], it's a very large number.

About 85% of the recent hirings in the US and other places have also been local hires.

So net-net, if you look at it (inaudible).

Added to that is something like Atlanta development center where, in one year, we crossed 500 numbers.

Now that adds to the mix and (inaudible).

Okay.

And I just wanted to move on to the Eco-Energy business if I may, which Mr.

Premji discussed in the recent internal interview.

It would appear that the addressable global market here is comparable to the IT segment, and Wipro has some very big ambition for this business.

So the question is, how soon could this become a meaningful contributor to overall revenue, and what type of margin would be a reasonable expectation?

And in the interim, does this involve a very substantial investment phase or not?

I'm just going to rephrase your question; you wanted to understand a bit more about the Eco-Energy business, and you wanted to understand, in terms of how soon does it get to scale, and how soon does it get to profitability?

I just tee off this by saying that, yes it is an independent business unit, but it collaborates extremely strongly with the IT business.

We are building up joint [planning] solution which leverages on the inherent strong IT capabilities that we have to be able to support the energy and the sustainability business of this sector.

Okay, but we have also Mr.

Kurien, who heads our Eco-Energy business, who's just coming, so he will elaborate further on the question that you asked.

So on the profitability question the only thing I can say that we're right now fledglings.

So before we start flying, I think it's a little early to make a call on the profitability piece.

But in terms of demand, put it this way, when we look at the IT budgets of the companies that we've work for, and we look at the energy budgets of companies that we've work for, they're pretty much in the ballpark in terms of percentage of sales.

And I think that's really presenting an opportunity for us.

There's lots of work to do, because there are more established peers in this game the way we are trying to play it.

So to that extent, it's going to take some time, but the opportunity is clearly there and we think it's a fairly favorable market that we can go after.

But in terms of being a 10% or 15% or 20% contributor to revenue, that is still many years away?

I think it's quite a few years away.

Okay.

And then a quick question on the tax rate, which was quite a bit lower than we had forecast.

Why was that, and what can we expect going forward?

Well, Ashish, for the quarter one we have been 15% after a [guide back] of about -- and we gave (inaudible) do a reduction on effective tax rate by [3] percentage points.

We think normalized it will be about [2] percentage points more and, if we go forward, we think for the year it will be about another 2% here and there bottom line, how it will operate for the year.

We are still looking eagerly forward to how the final bill is going to come up.

I think the [discussion paper] has come up on the tax codes has been entirely (inaudible) with the previous one where (inaudible), especially (inaudible).

The current discussion we had meant that there was a (inaudible) provision that we introduced and (inaudible).

But there are a lot of representations from the industry for extension of that, or for facilities what isn't started.

Some of that has prevented us from continuing with it etc.

So we will wait for some of those strategies for any forecasting beyond 2011, March.

And also on your other question, the date of (inaudible), a correction there.

You talk about the percentage of people who are local in terms of the fresh hiring is about 75%.

And so far as the percentage of local people and the overseas is concerned it's about roughly 28%.

Last point, that's a correction to the (inaudible).

Okay, you were quite right.

Did that answer all your questions Ashish?

It certainly does.

And one final question on the IT operating margin, which has expanded very sharply from approximately 21% to more than 24% during the prior year or so.

From the current level, is the bias still positive over the next few quarters, or do you think it's going to be a little more difficult to sustain that kind of momentum?

We would (inaudible) quarter-to-quarter margins, but as you see, medium to long-term we are (inaudible) obtainable within our range.

Okay, all right.

Thank you.

(Operator Instructions).

And your next question comes from the line of Nabil Elsheshai from Pacific Crest Securities.

Your line is open.

Hey guys, thanks, I just had a quick follow-up on hiring and wages.

First of all, if you could give an update if you expect any more wage increases this year?

And then b) if you look at the competition and the hiring environment in India, what kind of pressures you're seeing either from Indian firms or from multinationals.

And what your expectations, going forward, in the [out] years, in terms of a normalized wage inflation is.

Hi, Girish here.

The (inaudible) and we are responding to it and (inaudible).

For example, we have created new bands for young professionals, typically those between three to seven years of experience.

Because we recognize the experience and the capability that they will be with us.

And we can focus on them and that has allowed us to promote almost 20,000 people within the organization and (inaudible).

Similarly, we issued our staff grants for (inaudible) created in certain other (inaudible).

And many of these things are in response to manning levels.

So we are endeavoring to be as responsible (inaudible) as the situation evolves, so that we can begin to [participate] in the fairly [harsh] market in India just now, in terms of the currencies.

And I would say that we will continue to work on that to make sure that we don't fall short of meeting our goals, even if the recruiting or seeing competitors with (inaudible).

Okay.

What about -- pre-recession wage increases were -- or wage inflation was running in the mid-teens, is that a rate that you expect to go back to for the next several years, or higher or lower.

Any guidance or expectations there?

So you're right, this is (inaudible) into the economic cycle for pre-recession (inaudible) type of wage increases per annum.

During the turnaround it was (inaudible), and now we are seeing a big [pent-up] increase which is going to take place.

My sense is that -- at the entry level, wage inflation is fairly [new] because I think the talent who at that level is fairly large, and most companies that figure a way to tap the talent in a different way will expand the talent pool.

I think the challenge really is at management level where, given the rate of growth, there is always a temptation to hire from outside, which puts competitive pressure on the wage.

But having said that, I think (inaudible) I would say, two economic factors; we can manage the wage inflation in a way that (inaudible).

Okay.

Thank you, Girish, for taking my question.

Your next question comes from the line of Joseph Foresi from Janney Montgomery Scott.

Your line is open.

Hi, just a quick follow-up here, I was wondering if you're seeing any differences in the size of deals, if deals are getting any bigger, or if they --?

And just any differences in the decision process here?

Hi, Joe, it's Martha again.

Hi, Martha.

So I talked about this a little bit earlier on.

I think it's mixed.

We are seeing some large deals that are truly big and transformational, and then we see the usual deals that are also very tactical in nature.

So I think it's mixed.

I'm not seeing anything that caught my attention right now, that is moving the needle one way or the other.

And just -- it's a different segment, do [you maybe] have BP as a client, is that true?

And have you seen a change in any of the business from this?

We do.

We do have BP as a client.

Sure.

Has there been any change in the business from them?

There has not been any change in the business.

And, of course, we're working very hard with them.

I think if anything, the current situation has also presented opportunities as well.

But in terms of the business, we have not seen anything.

Okay.

Thank you.

Thanks, Joe.

And your last question comes from the line of Rochelle Strominov from Nelson.

Your line is open.

Thank you for [putting me on with] a second question.

You've made tremendous progress in the last year.

Your strategy for India and the Middle East and Asia-Pac has clearly been (inaudible) from 13% of global revenues up to something like 16%.

Given the softness in the European market, I was wondering to what extent you expect to see India/Middle East, other emerging markets increasingly become a major player as part of the global IT Services revenue.

[Are you looking to maybe] 20% share or what, as a (inaudible)?

can you speak in the mic please, your [voice] is not clear.

The question you are talking about, the potential in the emerging markets, will they reach some of the (inaudible) markets.

Let me address that, it's Suresh Vaswani here.

Clearly, we see strong growth in the emerging markets; you've seen our Indian business growing better than 5% sequential, and likewise the Asia-Pac business.

The India business has actually grown 22% year-on-year.

So these are high growth markets, these are markets where growth and strategy has been (inaudible) over the last many, many years.

And what you're seeing, is the manifestation of how that we've built up in these markets.

So we do see higher growth in these markets.

But having said that, we do see strong growth, similar growth, even in the US market and in some of the other -- so Europe is seeing a muted grow, thanks to marketing with cross currency.

But even Europe has shown fairly strong growth in terms of sequential growth.

So this meant while emerging markets for us will grow faster because of the fact that they are (inaudible) type, and they are on a smaller base, we don't see any [tectonic] shift, so to speak, in terms of the compilation of our business from our traditional markets of US, Europe and Asia-Pac.

But even the US market will grow strongly for us.

The software exports started out of India is expected to grow between [13% and 22%], which is fairly strong in terms of growth.

And I (inaudible) to make sure that we keep driving industry leading growth across all the markets.

Thank you.

So within three years, you don't expect fast growth regions to grow much beyond the significant growth (inaudible).

In the short term, in the medium term, we do not see significant movements in the composition of our business mix as it relates to geography.

Right.

Thank you very much.

Sarah, there are no more questions?

There are no further questions.

Thank you very much for your participation.

The replay will be there in the next two hours and the transcript should be posted on our website thereafter.

Sarah, you can close the call.

As this concludes today's conference call you may now disconnect.