Wipro Ltd (WIT) 2011 Q2 法說會逐字稿

Good morning.

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

At this time, I would like to welcome everyone to the Wipro second quarter earnings conference call.

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

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

(Operator instructions)

Mr.

Sridhar Ramasubbu, you may begin your conference.

Thanks, Steve.

Good day to all of you.

This is Sridhar Ramasubbu, and I am joined by Rajendra, (inaudible), and other team members from IR team in Bangalore.

We are pleased to extend a very warm welcome to all the participants, and post the results Q2 FY '11 results and earnings call.

Regarding the material for this call, we issued the press release yesterday late night EST, and we allow time for Q&A at the end.

We have with us today Mr.

Azim Premji, Chairman, Mr.

Suresh Senapaty, CFO, who will comment on the IFRS results and key takeaways for the quarter and year ended September 30, 2010.

We are joined by joint CEOs of IT Business Suresh Vaswani, Girish Paranjpe, and other senior members of the Wipro management team, who will 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 are based on management's current expectations, and are associated with uncertainty and risks which could cause the actual results to differ materially from those expected.

These uncertainties and risk factors have been explained in our filings.

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

The call is scheduled for an hour.

The presentation of the Q2 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 take it 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 and good evening to all of you.

Let me just first cover the key points of our IT business.

We had a quarter in which we had a 6.6% sequential growth in volume, and a 5.7% sequential growth in revenue.

Despite the macro uncertainty in the major environments, the micro level customers are spending their budgets, and demand environment is very strong.

Discretionary spend is picking up.

Pricing environment is stable, with potential for price increases next year.

As was anticipated, our margins have dropped to 22.2%, driven by (inaudible) and progressions to over 20,000 [pieces], the impact of ForEx, as well as increased strength on sales and marketing.

We remain completely committed to driving operational excellence and margin improvements.

I want to highlight some more of the specifics of our results.

The Retail and Transportation, Healthcare and Services, Telecom and Energy and (inaudible) led the growth among the verticals.

Technology Infrastructure Services, Product Engineering Services, Consulting and Packaging Implementation contributed to our service line growth, with a strong growth in Europe and in the emerging markets.

The industry has seen much stronger volume and revenue growth this quarter, and we recognize this and acknowledge this.

We want to assure you that we will rise to the challenge, and ensure that we return to be among industrial leading profitable growth.

We will put the entire muscle of our organization behind this.

In the past six months, the (inaudible) energy has moved from concept to reality.

We have sharply narrowed our focus into areas where intellectual property can be leveraged to create a scalable business.

We are leveraging Wipro's customer base to offer these services.

I now hand over to Suresh Senapaty, our CFO, to give you the financial highlights.

Good day to all of you in the United States, and good evening to all of you here in India.

Before I delve into the financials, please also note that for the convenience of the reader, our IFRS financial statements have been translated into dollars at the noon buying rate in New York City on September 20, 2010 for cable transfers in Indian rupees, as certified by the Federal Reserve Board of New York, which was USD$1.00 equal to INR44.56.

(inaudible) our IT Services business segment, that was $1.273 billion, all (inaudible), appears in our earnings release as $1.290 billion, based on the currency extrapolation.

Our IT Services revenue for the quarter ending September was $1.273 billion on a reported basis.

The sequential growth at 5.7%, and the year on (inaudible) growth of 19.5%.

On a constant currency basis, our IT Services revenue was $1.261 billion.

We have had a good quarter of growth.

We would like to say the vertical (inaudible) Retail has led the growth with 9.7%, Healthcare with 8.8%, Telecom with 7.7%, and Energy and Utilities at 6.5% on a sequential basis.

We emphasize (inaudible) quarter with 5.7% sequential growth.

Package Implementation and (inaudible) solutions has driven growth in the quarter with 6.8%, and (inaudible) growth respectively.

Technology Infrastructure Services is continuing to see strong traction, with 6.6% sequential growth, and 23% year on year growth.

Along the (inaudible), Europe saw a surge with growth of 10.3% on a sequential basis.

(inaudible) emerging markets are continuing to pay off, with strong growth in India and (inaudible), and APAC and other emerging markets of 5.3% and 11.1%.

We have 20 customers with revenue greater than USD$50 million on a trailing 12 month basis, up from 17 in the previous quarter.

We saw another quarter of strong volume growth of 6.6%, our highest volume growth in the last 12 quarters.

Also (inaudible) strength up by 50 basis points on the back of the 7.4% volume growth in offshore.

Like the an increase in the coming quarter by 1.1% (inaudible), and (inaudible) offshore, is driven by the benefit of cross currencies.

(inaudible) revenues on (inaudible) dropped by 0.6%, to 44% in the current quarter.

(inaudible) on a quarter [annnualized] basis (inaudible) basis points to 23.5%, but we are starting to see our employees (inaudible).

September attrition was the lowest in the last six months.

Operating margin for IT Services dropped [250] basis points, (inaudible) impacted by (inaudible) realization.

(inaudible) employed (inaudible) and investment in sales and marketing.

This was partially offset by (inaudible).

As of September 30, 2010, our DSO was at 69 days, up from 65 days in the previous quarter.

84% of our (inaudible) are less than 30 days old.

Our IT (inaudible) sequential growth of 29% in revenue in the current quarter.

We grew [BPO IT] sequentially by 58% in the current quarter.

To take a moment analyzing this, we continued to see good momentum with revenue growth of [20%] year on year, and BPO IT growth of 13% on a year on year basis.

On the [product front], our realized rate for the quarter was (inaudible), which was a rate of [45.69], realized for the quarter (inaudible).

On a quarter on quarter basis, ForEx gives us a negative impact [to margins], including the benefit of cross currency of 1.2%.

As (inaudible), we had about USD$1.5 [million] of foreign [contracts].

Our (inaudible) reduced by (inaudible) in the coming quarter to [369 gross].

The effective tax rate for the quarter is 14.55%, and effective tax rate (inaudible) level is about 16.95%.

(inaudible) on the balance sheet was about INR44 billion.

We generated free cash flow of [4.3 billion] during the quarter.

We'll be glad to take questions now.

Steve?

We can go ahead with the Q&A.

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

Your line is now open.

Thank you.

A very good quarter.

Two quick questions.

First, regarding the macro conditions, I was wondering if you guys can provide some color on what kind of services you think are more in demand, say, in the US versus Europe, versus the Asia-Pac region.

And any color about where certain economies are with new project deployments.

That would be helpful.

And then I have a follow-up question.

This is Girish here.

So the (inaudible) that you really want to understand how the (inaudible) nature of the (inaudible) of the United States versus some of the other geographies.

That's correct.

So given -- there may be (inaudible) of business shaping up, (inaudible) significant jump in discretionary spend by this new development, new application development (inaudible) that has come up in the United States.

And to that extent, it is more (inaudible) in other geographies, but much more noticeable in the United States.

Relatively speaking, I would say the business (inaudible), and (inaudible) how that [finance] shapes up within the United States, but it is fairly robust in the other geographies.

I would say broadly, that's the difference that in the United States versus other geographies.

Regarding --

And the second question -- the second question was for Girish on the economy in the (inaudible) geographies.

Trip, is it right, you want the (multiple speakers)?

That is correct.

Trip?

Yes, that is correct.

(inaudible).

Yes.

Yes, okay.

So, (inaudible) this affects us.

We see (inaudible), because in the various geographies, we see -- independent of the level of economic activity, (inaudible) issue of the level of the (inaudible), we don't see that much difference, because the (inaudible) fairly lean, and haven't (inaudible) or (inaudible) higher, and to that extent, they have (inaudible).

Beautiful.

I have a follow-up question, regarding the large deals.

It seemed like they're coming back in vogue.

And I was wondering if you can compare and contrast the current large deals which are coming for renewal, how are they different than, say, what the large deals that you saw before the [session]?

Trip, this is Suresh Vaswani here.

I think that what has fundamentally changed pre-recession to, if I may call it, post-recession, is -- you know, much more emphasis in terms of (inaudible), much more emphasis in terms of more stability (inaudible) impact, as against just offshoring.

So, I think customers are not looking at only short-term benefits or short-term cost takeouts, but are really looking at engaging much more meaningfully in terms of service providers like us, partnering with them in terms of trading and impacting on their business.

So we see a lot of integrated deals.

We see a lot of BPO or [IP] integrated bids.

We see a lot of deals which are not only offshore into India, or outsourced, but it is offshore and [transform].

So I think that is something fundamentally that has changed.

Thank you.

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

Your line is now open.

Hello, guys.

I was curious, you talked about discretionary spending accelerating.

Maybe you could talk about what clients' thought process is in spending, and what's really driving the growth, if you could give maybe some examples around that.

Hi, Joseph, this is Girish here.

You know, (inaudible) spending is not in big chunks, but in relatively smaller bites.

And it is, again, I think, a function of all the pent up demand (inaudible), I think since 2008 and 2009, (inaudible), for compliance reasons, or for integration of M&A, (inaudible) portfolio streamlining operations, launch of products, and that's the (inaudible) development what we have seen.

We also (inaudible) front of the (inaudible), and not in the back of the (inaudible).

So I mean -- I think you said, just in your comments right there, that there's some pent up demand.

Does that flush through the system, or does that continue, and are you seeing newer projects that are more proactive, or is this just something that's been held over from the last 18 months?

(multiple speakers) --

(multiple speakers) --

Oh, I'm sorry.

Go ahead.

(inaudible), Martha.

(inaudible).

(inaudible), trend that we are seeing with part of the pent up (inaudible), which is also to do with (inaudible) impact that -- the trend that is there today is driven mostly by the (inaudible) next level (inaudible).

And if I can just -- this is Martha.

One of the [things that we're seeing] from our customers is a lot of the discretionary [spend] is being driven by the business in itself.

So the IT organization is becoming a huge enabler of that growth that they're seeing in their business.

So we see a much tighter connection between the IT organization and the business units within the companies that are driving a lot of these transformational initiatives.

Okay.

And then just in -- also, in looking into the next year, 2011, any early indications of what IT budgets look like, and any expectations for that going forward?

Clearly, your hiring guidance would imply that you're expecting things to continue to be healthy.

So, I'll tell you what --

(multiple speakers) --

Oh, go ahead.

No, Martha, (inaudible).

Okay, thanks, Girish.

I think in general, we're going to see a lot more of what we're seeing this year.

What our customers are doing is, even if their budgets are flat or maybe a little bit higher to the 3% increase, but not by much, they are, in the savings that they're able to do, they are reinvesting in transformational opportunities for them within their company.

So I think that we will still continue to see a bit of that trend.

I think that's (inaudible).

(inaudible) trust each -- to save, to spend, to save, to invest.

That's exactly right.

Yes.

Okay.

And then just lastly, I wonder if you could remind us on where you're hedged.

Obviously, the rupee has moved a little bit here at the end of the quarter.

I assume that's probably the major concern right now.

Maybe you can remind us how you're hedged, and how that would affect numbers if the currency stays where it is.

(inaudible), end of third quarter, and total hedge (inaudible) USD$1.5 [billion].

And we have maintained a hedge [book] (inaudible) coverage of the (inaudible) for the next four quarters.

And in fact, for the last one year, the hedge that we get [in], which is approximately this amount, helped get us in a good [set], because we have been able to deliver a consistent performance.

In (inaudible) the quarter, we did have a long range, long-term hedge (inaudible), which has meant enhanced (inaudible) [low] realization this quarter.

And the currency stays where it is, though, I mean, what was the original guidance, given off of what currency rate?

(inaudible), if you look at the guidance that we provide, with respect to this (inaudible) guidance of (inaudible) 5.5%, the currency that we assume this part of the press release, where it is based on the average rate of quarter two, which was (inaudible) too, and then you've got other currencies, which are obviously (inaudible) there.

Okay.

Okay, thank you.

Your next question comes from the line of [Mosh] Petrie from Cohen & Company.

Your line is now open.

Okay, thanks.

Good evening.

Suresh, can you go over some of the different moving parts that impacted or benefited EBIT margins during the quarter?

Yes.

The (inaudible) beginning of the quarter, (inaudible), win that we had in the products, and we will be -- the compensation increase and (inaudible) that we granted in the (inaudible) on the first of July.

So a combination (inaudible) 2.5%, for example, in terms of compensation, was about 1.3%, and on the foreign exchange, it was about 1.2%.

But the other development of, say, there was an increased investment in sales and marketing, with some improvement in the [acquisition] area, some improvement in the (inaudible) area, so all that netted out, (inaudible) two big tickets from which the [patterns] (inaudible) the quarter two over quarter one is concerned.

But the good news of all of that, on the other comprehensive loss that we are carrying, that has come down by about USD$16 million.

So while we (inaudible) the products, we got an operating margin [EBIT] of about USD[$15 million].

On the balance sheet, we -- operating, other comprehensive loss came down by USD[$60 million].

Then Mr.

Premji, in his opening remarks, was indicating that the Company aspires, obviously, to continue to lead, in terms of being able to expand margins, or at least the same margins.

Maybe you can talk, Suresh, about some of the levers in the model, and how could we, down the road, see a margin that's either sustainable or even expanding.

What are the levers in the model that you can talk in details on that?

Thanks.

Well, I think, (inaudible), the biggest area is with respect to our people costs, where competitive [bet], we are behind on that.

And that is a (inaudible) that we want to work on in the next four to six quarters, to be able to get a substantial part of that headwind that we are currently having, on the headwind that we have.

Apart from that, I think the (inaudible) here, we initiated (inaudible) 8% level, and already increased to 11%, and we continue to work on that in a much more aggressive manner.

The thought is that today, we have about 44% of our revenue coming from fixed price projects, so we will stay focused on (inaudible) productivity [figure] and (inaudible).

I think that clearly, the last quarter has not been so good, but going forward, there is a lot of headroom for us to be able to work on that.

So, similarly with the outlook on the volume growth, looking good.

I think that we'll be [lower] on the (inaudible) parameters of (inaudible) concerned, so net/net, we will have multiple levers to work on, in terms of the cost, people costs, (inaudible), price (inaudible) improvement, to be able to get back the lost ground on margin.

And then, final question, pretty big sequential growth in Europe.

Maybe you can dissect Europe by the UK and the continental Europe, and talk about some of the drivers for that very, very significant growth.

(Inaudible).

This is Suresh Vaswani here.

Yes, I do not (inaudible), driven by (inaudible), at 10% plus sequential growth, and a lot of the growth is driven by specialty sectors.

Energy and Utilities, for example, is a strong sector for us in Europe, and we've had significant (inaudible) in that sector in the past, and even in this current quarter, we've had very significant dealings in the Energy and Utilities sectors.

That is one vertical which is -- which one could single out, that is driving growth for us in Energy and Utilities.

On the -- in India.

On a broader basis, I think the difference between US and Europe is, a lot of Europe is going in for outsourcing needs.

What (inaudible) for the first time, particularly continental Europe.

So we are seeing a lot of the (inaudible) coming from continental Europe, which is not some (inaudible).

The problem here, a bit more (inaudible), a bit more mature, as it relates to outsourcing.

So new potential, first time potential in certain sectors, investing heavily in terms of transforming their operations, and therefore creating the opportunity, creating a set of opportunity which is helping in our growth in Europe.

And what (inaudible) -- hi, Girish here.

We have significant data points.

The 10.5% growth in Europe is what you were saying, that (inaudible) here.

Right.

Thanks for the color.

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

Your line is now open.

Yes, thank you for taking my questions.

I think you mentioned in your commentary that you see the potential for price increases next year.

I think we heard from one of the competitors last -- earlier -- or last week, that they weren't sure that companies were going to be willing to accept that.

So what gives you confidence that you could see that next year?

Are you having these conversations with your clients at this point?

And what kind of feedback have you gotten?

So, Nabil, Girish here.

The confidences that it makes (inaudible), one of the (inaudible) conversations that we have with our (inaudible), relatively less (inaudible) in reaction to those (inaudible).

And in terms of (inaudible), almost (inaudible).

So I think that is (inaudible), the first indication that we need to consider competition (inaudible).

The evidence, if you tend to go back, you tend to get good feedback (inaudible).

We were flexible with price, and they wanted us to hand (inaudible), even at the cost of (inaudible).

When we think that (inaudible) that point in time, so it's fair for us to go back [a notch] and be (inaudible) inflation, and (inaudible).

Okay, thank you.

And then, a little more detail on next year, particularly for budgets and within financial services.

In the US, there's obviously a lot of regulatory changes coming down the pipe.

Have you guys gotten a sense what that means in that vertical with your clients, whether it's going to be something that requires a lot of help, and it's something that could take away from IT investments?

What kind of feedback are you getting there?

Well, again, Nabil, the questions (inaudible) not (inaudible) on budget, and we still don't know what the price impact will be.

But at least (inaudible) indication, where we want to, I think, we see (inaudible) thinking flattish (inaudible), expecting for 2011.

Okay.

And then, I was wondering if you could drill down a little bit more on the non-linear.

I think you said it went to 11% in this quarter.

Is that correct?

Yes, (inaudible).

Okay.

Could you be maybe a little more specific on what's driving that?

Are there certain packages, templates, verticals where you're having the most success with that, and where would the traction come from in the future?

Nabil, this is (inaudible).

You know, there are clear (inaudible).

One of them is our flexible delivery model, which is (inaudible) from an angle of improving productivity.

And you know, it's great from (inaudible), but that's (inaudible).

And that's (inaudible) maximum, and that is today (inaudible), very low (inaudible) comes from there.

(inaudible) [11] that we have, and of the balance, we have IT (inaudible).

We also have the [consolidated] services, and we have (inaudible) platform based sales.

Some of them are in various (inaudible), you know, like IT (inaudible), IT (inaudible).

So I guess (inaudible).

One area which realize (inaudible), IT (inaudible), as compared to platform (inaudible) sales, as compared to (inaudible).

(inaudible) specific [set-asides], where we have been able to drive the large success in this model, (inaudible) model.

It is in our Packaging Implementation support business.

So (inaudible) application support or SAP support or (inaudible) support, we believe to drive a lot of (inaudible) there.

Okay, great.

And then lastly, you guys have been making significant investments in both building out near shore or onshore resources, but from a go-to-market and a delivery center perspective.

How -- in terms of investment going forward in the out years, are you comfortable with where you are, do you see significant investments that need to take place?

And I guess, separating the two, one in local go-to-market capabilities, and that type of thing, and then B, on the local delivery centers.

I'll answer the delivery part first.

You know, most of the centers are starting to reach critical mass, and most of the centers have become sort of self sustained and self-funding.

And I think that we are delivering (inaudible) growth.

(inaudible) market (inaudible).

You know, Nabil, our delivery model is transforming, is moving towards (inaudible) onsite, moving ashore, and then the offshore model, the global (inaudible) transform (inaudible).

And we see that as an integral part of our go-to-market approach, and our (inaudible), and [gives] (inaudible) to what we offer our customers.

I think at the end of the day, using all those three components seamlessly [tied] and strongly executed, to be able to give the best value proposition to customers.

And Nabil, (inaudible), just [one].

I think the go-to-market [type] for local market, (inaudible) market in North America and China, I think we are at the beginning of the (inaudible), in (inaudible), quite significant here in the (inaudible), market (inaudible).

Okay, great.

That's helpful.

Thank you, guys, for taking my questions.

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

Your line is now open.

Yes, thank you.

The constant currency sequential growth at Wipro as approximated, 4% to 5% for the last couple of quarters, compared with 7% to 8% or perhaps even higher for some of your competitors.

So to what would you attribute this recent loss of market share?

Ashish, Girish here.

So I would say that (inaudible) or (inaudible) is at -- we haven't (inaudible).

I would say (inaudible) industrial (inaudible).

And that is the [great] thing when it comes to (inaudible) and being able to (inaudible).

But I think, (inaudible) expect it like (inaudible) few verticals.

The second thing is, I think, in terms of (inaudible), we [underinvested] on (inaudible), performing to the (inaudible).

So (inaudible), significant (inaudible), but we (inaudible) more, as well as [spending points].

But I will say that we do not capture all of this business that we could have [covered].

(inaudible) to do what you (inaudible).

Okay, that's very helpful.

And a couple of clarifications from some of the recent questions.

The -- your response to the pricing question.

This excludes the impact of non-linear initiatives.

In other words, you're anticipating next year an increase in like for like pricing.

Is that correct?

Yes.

(inaudible) pricing.

Okay.

And any magnitude that you can share?

No, because (inaudible).

And it's a sequential (inaudible) on one [execution] and the different (inaudible).

Also depends on the (inaudible) and the (inaudible) we want in the (inaudible), to what extent that we think (inaudible).

Okay.

And then a further clarification with respect to the reference to pent up demand.

For how many quarters do you expect this pent up demand to be a significant driver of growth, as opposed to a more normal and sustainable rate?

So this again, (inaudible), 2011, (inaudible).

But I would say the 2011 spend would more or less be a kind of model (inaudible).

Okay.

And a question for Mr.

Senapaty.

You know, the very near term margin outlook, would you expect a quick bounce back, or are we expecting the next few quarters to be closer to this level?

(inaudible).

So, Ashish, I need to go and respond on the (inaudible).

No, as we [articulated] on here, the timely reasons for (inaudible) margin in this quarter is investment on the people side, investment on the sales and marketing side, and the (inaudible) which had an impact on the currency perspective.

Currency is something which is still unknown, so if we were to leave that aside, I think that some other things are investments planned with a certain return and certain time for us to recover.

So we (inaudible) see our [bias] towards positivity, and then in the short term, but we don't give a guidance.

That will depend from mentioning the (inaudible), you know, in how many quarters from now.

Okay.

But it would be safe to say that the bias is clearly on the upside from here?

That is [right].

Okay.

Thank you very much.

Your next question comes from the line of Rick [Eskildsen] with Wells Fargo.

Your line is now open.

Thanks.

Just a couple quick questions around protectionism, and then also, on attrition.

First, with protectionism, what are your thoughts on sort of the increases in protectionism, especially the visa increases, and some of the more native anti outsourcing comments coming out of Washington?

So, I think (inaudible) fact of life.

We are to deal with what happens in [the environment].

It is (inaudible) negative, with (inaudible) business, that we [have anxiety].

But I think a good view on that (inaudible) is that most of it is more on the environment than the minds of the (inaudible), so the numbers are quite open minded, and seek the benefit of globalization and (inaudible).

I think we'll have significant (inaudible).

And (inaudible), I would (inaudible) -- Suresh Vaswani here.

And I would say, from a customer's perspective, we don't see the comments on protectionism really coming (inaudible).

Clearly, customers are looking at their business, what is good for their business, are looking at saving costs (inaudible), and one thing, the manifestation of all that, clearly, is in the demand, because what we are seeing, for IT services which are (inaudible).

So we could say that the overall IT services market globally, the market is flat, or the market is difficult, (inaudible) growth, but that is next to global delivery package services.

You know, the (inaudible) that we had in that.

So that gives you a sense of the acceptability, and the desire for customers to do what is right for their business, in terms of their future.

Okay, and just sort of to follow up on that, do you anticipate continuing to add local employees, or doing anything like that to combat any more negative sentiment for offshoring?

Is that part of your strategy already?

And what would that mean for a margin profile going forward?

I think because we are (inaudible).

So we have a global operation, (inaudible), and that is independent of what is happening on the (inaudible) side.

It is simply that we feel that (inaudible) organization with a global plan (inaudible), and we need to have a little bit (inaudible) here, (inaudible), local level (inaudible).

So I think that's simply what we want to be, (inaudible) on that.

As far as the impact on commercial (inaudible), we any way (inaudible) hire locally and we (inaudible) people from here, are endeavoring to have the same (inaudible) skills and (inaudible) depending on the location people are working.

So commercially, there is no (inaudible), and (inaudible) hiring (inaudible).

Within some other issues on flexibility and (inaudible) and [integration], so apart from that, (inaudible) local hires (inaudible).

(inaudible) business, I think the (inaudible) strategy of near shore, the entire strategy of driving the globalization of our workforce.

And (inaudible) elsewhere and (inaudible) strategy whereby we eventually will make our people much less -- we'll make our business much less people dependent than what it is today.

Some of this (inaudible).

Some of the (inaudible).

That could be [there.]

So in part, just to give you an example, (inaudible) model, easier to give higher margin and reduce the dependence of people.

I would be implementing -- I would be delivering services from anywhere in the world, and people (inaudible) much less impact than what it is today, by driving only (inaudible).

Okay.

And then, I guess just the last thing is on attrition.

I think you mentioned in the opening comments that September was the lowest attrition quarter -- or, month, for you guys.

And we've heard others in the industry saying that they think attrition has peaked.

Do you agree, and sort of what's your outlook for attrition going forward?

(inaudible), here.

On attrition, you could see, compared to Q1 and Q2, the (inaudible) attrition has [modeled] been similar, but clearly, during the quarter, we have seen a downward trend.

And outlook having forward very clear to be seen in the attrition stabilizing going forward and coming down.

(inaudible), thanks a lot.

Your next question comes from the line of Swami Shanmugasundaram from Morningstar.

Your line is now open.

Yes, good morning.

I have a question on manufacturing, (inaudible), since the beginning of the recession, manufacturing has been one of the [success] stories.

But -- okay, it's losing its steam, but if I look at the (inaudible) and others, you have actually related with (inaudible).

So I just wanted to take your -- I mean, your opinion on manufacturing, what kind of demand are you seeing, what's your outlook in this industry sector.

You know, (inaudible).

We do believe that manufacturing will be about to (inaudible) average of (inaudible).

Energy and Utilities, for example, looks much more robust in terms of demand.

(inaudible) Services sector looks much more robust in terms of demand.

Manufacturing is challenged, and we (inaudible) this quarter point of (inaudible) sequential growth.

So it is not a (inaudible).

I think the growth of the manufacturing sector is more stronger to the European markets, where there is higher growth, (inaudible), than we are getting from the US market.

So, in a (inaudible), it is a challenged segment, but it will be a growth sector for us, and fortunately, we'll be in line with (inaudible).

And the other one is Technology, Media and Telecom, and obviously, its performance has been as great as it used to be, and I think the industry average has been impacted.

So I just wanted to get your [uptick] on that as well.

What can (inaudible) by saying, and any idea how it's going to pan out in the future.

Well, (inaudible), I think we have seen good traction after [several] quarters in the Telecom [equipment] (inaudible).

And this quarter, we grew (inaudible) sequentially in that [area].

But on the other two sides (inaudible), good quarter (inaudible), I [believe] that it's going to be a quarter to quarter average, but the longer term view on that is much more positive.

Okay, thanks, guys.

Your next question comes from the line of Mosh Petrie with Cohen & Company.

Your line is now open.

Okay, thanks.

You had a pretty significant growth on the discretionary stuff during the quarter, the (inaudible) Package Implementation piece, etc.

Maybe you can talk about what's driving spending there in that area, and then, are you planning to expand investments even more there down the road?

Package -- this is the situation.

Package Implementation business has been very good for us, and has been higher in terms of growth (inaudible) consistently over the last few quarters.

You know, there is a lot more business transformation Packaging Implementation that's ever happening there, as against [operational] transformations, so that is one thing.

There are a lot more, I would say, smaller projects, but any impact in terms of results, and a lot of that is happening to many, many small projects, and against big, heavy implementations.

(inaudible) is manager of a lot more, I would say, action happening on the (inaudible) services front, or software as a services front, in terms of customers adopting that model.

And that creates opportunity for us, in terms of implementation of the software as a service model for customers.

One example of that is the uptick we are seeing in the [sound and] communications that we are doing on Salesforce.com, and also, the applicability in terms of the emerging markets, and basically by design implementations.

And then, could you talk a bit about some of your initiatives that you have in France and Germany as well?

Yes.

I start -- I have (inaudible), what to cover (inaudible).

You know, clearly, France and Germany, this is roughly 12 to 15 months back, where we took a conscious decision that we will invest in those markets.

And one of the first (inaudible) we did was to really get strong country (inaudible) improvements into the geographies, and then build up -- build a structure which is unique from the (inaudible).

Those markets (inaudible).

So whatever it is in terms of programmers, (inaudible) in terms of business networking, you know, whether in terms of the legal framework, or for Germany and (inaudible), super-structure, to be able to effectively assist the (inaudible) market share to keep the (inaudible), tactically.

We've had good success in both those markets.

The gross sales in those markets have been one of the reasons for our higher growth in Europe, in terms of sequential growth.

And our (inaudible) have been consistently higher, as been the newer investments that we've made in these markets.

The demand here is more on applications, more on Packaging Implementation.

And I would also tend to BPO Services business is beginning to see opportunity there in that market.

The only thing that I would add is, we also see those markets opening more from a global sourcing perspective.

So the opportunity now is becoming very interesting.

A lot of the customer drivers has to do around process efficiencies and taking costs out to reinvest in new IT [leg] services for their customers.

A lot of drive around customer experience, so we see the market really opening up in that sense.

And so, you know, we've invested, and we're in place, and you know, I think we're beginning now to see the reap of the fruits, and based on the work that we've been doing in those (inaudible) markets.

Martha, you can talk about our (inaudible) as well.

Which -- we just -- so with, along with our (inaudible) plans, as you know, we just opened our first data center in Germany as well, to be able to service our customers in a way that is integrated, from a BPO IT perspective.

So that's all playing well to our strategy in Europe.

Okay, thanks.

Thanks, (inaudible).

Your next question comes from Mark Zgutowicz with Piper Jaffray.

Your line is now open.

Hello.

I was just hoping you could provide a little more color on your comment about underinvestment on the discretionary side.

I think you said you'll be working on that over the next four to six quarters.

And I'm just curious why it might take that period of time to sort of get back in balance here.

And then, on the consulting side, I'm curious where your headcount levels are today, and where you expect them or need them to be to meet strategic value that your clients are demanding, which you mentioned.

Thanks.

Mark, Girish here.

Let me start with the (inaudible), come back to the first question.

On the (inaudible), we also have (inaudible) people for the global (inaudible), and we have said, I would say, fortunately in the (inaudible), North America, Europe, (inaudible).

And we have consciously worked over the last [two] years in (inaudible), with (inaudible) into our team.

So this quarter, we have (inaudible) been (inaudible) partners, (inaudible) partners before, and that really (inaudible) consulting (inaudible).

And what we expect to achieve from this is not (inaudible) [funding] revenue, which are done by (inaudible), but to create a good environment (inaudible), as well as potential to do one thing IT or BPO.

And we do expect that in the form of (inaudible) with (inaudible), which kind of creates the leverage, which is what we have achieved from our (inaudible).

On the -- this is Suresh.

On the discretionary spending, I'd just like to throw some sort of color on that.

There are two types of discretionary spending.

One is customers investing in projects or more value added investments, which in tougher times, they probably won't have.

But we want to do that in context of organic business transformation in future.

So those type of opportunities, I think we were very, very well geared to (inaudible) that, and a lot of the transactions, a lot of the work that we've got across the board, across all vertical service lines, has been in that space.

The other type of discretionary spending is when, you know, customers have some projects to execute, and give them to service providers or (inaudible) sources or (inaudible) sources, (inaudible).

Now, our approach to this (inaudible) background, that's a requirement from customers, is to (inaudible) only on the [relative negative] basis, [avert] it on a very strategic basis, but not necessarily go after that market.

Because, yes, you can get quick growth, and you can get (inaudible) examples.

But you know, (inaudible) customer perspective, it is not really significant value add (inaudible) the customer.

Now, we have not been able to address that demand, which has come up in the market over the last couple of quarters.

And we think that going forward, we certainly want to look at some of the (inaudible) advanced, whether we can meet (inaudible) this opportunity, and then eventually, we can take on such -- call it [stopping], (inaudible) context, (inaudible) more fixed pricing business, on a (inaudible) business.

So in time, I will give that perspective, in terms of discussions (inaudible).

Great.

That's helpful.

Thanks very much.

(Operator instructions) And your next question comes from the line of Joseph Foresi with Janney Montgomery Scott.

Your line is now open.

Hello.

Just one quick follow-up.

I wanted to ask about the -- your client base.

Maybe you could just talk about how spending is trending in your top client base, and any additions that you've seen in recent quarters, and maybe what vertical or geography those are coming from.

OK, this is Suresh Vaswani here.

I think we tried (inaudible) that we had, really much span across sectors, and across geographies.

So it is not that particular set of (inaudible) solution as in US and Europe.

It is normally -- it is not even a (inaudible) across all the geographies.

One comment I would like to make on our client base is -- you know, very, very clearly, our top 25 account growth, our top 35 account growth, is coming on strong, and it's coming on (inaudible) average (inaudible).

So if you look at last quarter's [figure], the growth is just (inaudible), [5.7%] in terms of top 25 accounts.

And the other (inaudible) I would like to bring your attention to is, how we deliver the growth and number of USD$15 million customers, and (inaudible) that, number of USD$20 million customers, and the number of USD$10 million customers.

And this is (inaudible) annual revenue, which also gives you a sense of how our customer base is definitely our customer base and growing.

Fortunately, we don't (inaudible).

Now, in terms of (inaudible) customers that we acquired this quarter, [14] are from the US, [7] more from India and (inaudible), [four are] from Europe, and [four more] (inaudible) in Japan and the emerging markets.

So it is roughly spread across geographies in terms of (inaudible) from these markets.

Okay, thank you.

Steve, if there are no questions, we can close the call.

Just check your (inaudible), and I will give my concluding comments.

There are no further questions at this time.

Okay, thank you very much for your participation.

We'll post the transcripts post this call on our website, and replay is also available via (inaudible) for any calls, where I will speak to (inaudible) you.

Thank you very much.

Ladies and gentlemen, this concludes today's conference call.

You may now disconnect.