Wipro Ltd (WIT) 2011 Q3 法說會逐字稿

Ladies and gentlemen, good day, and welcome to the Wipro Technologies Limited earnings conference call.

As a reminder, for the duration of this conference call, all participants' lines will(be in the listen-only mode and this conference is being recorded.

After the presentation there will be an opportunity for participants to ask questions.

(Operator Instructions).

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

Rajendra Shreemal.

Thank you and over to you, sir.

Rochelle, thank you and thanks, everyone, for joining us today.

Firstly, on behalf of Wipro, I would like to wish all of you a really happy New Year, a very good morning to people who are in America, Europe, and a good day to all the people in other parts of the world.

As the operator just mentioned, I'm Rajendra Shreemal, Head of Investor Relations, i.e.

along with (inaudible) and Arvind, we are the investor interface for Wipro.

We thank you for your interest in Wipro.

It is with great pleasure I take the opportunity to welcome you all for this quarter results and let me just outline the agenda today.

We will begin with short address from Mr.

Azim Premji as Chairman Wipro, which will be followed by the financial highlights from Suresh Senapaty, CFO.

And we have the top management here along with T.K.

Kurien to take Q&A that you might have.

Before Mr.

Premji starts his address, let me just draw your attention to the fact that during the call we might make certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

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

These uncertainties and risk factors have been explained in detail in our filings with the SEC of the USA.

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

This conference call will be archived and a transcript will be available on our website, www.wipro.com.

Let me now hand over the floor to Mr.

Azim Premji, Chairman Wipro.

Good day and a very happy New Year to all of you.

By now, you'd have seen our results as well as our outlook for the March '11 quarter.

I would briefly like to talk about the organization change.

And Suresh Senapaty will talk about the financial results for the quarter ending December 31, 2010.

After my address to you, I have requested T.K.

Kurien, our Chief Executive Officer of our IT Services business, to also make a short commentary in terms of the future.

The announcement which we wish to make is a significant change in the leadership of our IT business.

With the changing environment, there is a need for a simpler organization structure.

T.K.

Kurien will take over as Chief Executive Officer of the IT Services business and the IT business effective February 1, 2011.

It will also include our EcoEnergy business, which is reporting to him.

He has been instrumental in building and scaling many of our businesses successfully.

His track record with customers, passion for excellence, coupled with strategic thinking and rigor in execution makes him uniquely positioned to lead Wipro's IT business through the next phase of growth.

I'm also delighted to welcome T.K.

Kurien on the Board of Directors of Wipro Limited as an Executive Director, effective from February 1, 2011.

His rich experience and perspective will add value to the Board deliberations.

Suresh Vaswani and Girish Paranjpe, current Joint CEOs of the IT business, have decided to step down from their responsibilities.

Suresh and Girish have been with Wipro for the past 20-plus years and have been an integral part of the Wipro leadership team.

They have made significant contribution to the Company in the critical years of its expansion and played a stellar role in the success of the IT business.

I want to personally thank them for their contributions to Wipro and wish them the very best in their future endeavors.

Girish Paranjpe, Suresh Vaswani, and T.K.

Kurien will work together through the quarter ending March 31, 2011, to ensure a perfectly smooth transition.

I'd like Kurien to say a few words before Senapaty gives the financial overview of the results.

Thank you, Mr.

Premji.

At the outset, I'd like to thank the Board for giving me this wonderful opportunity.

I'm excited about the opportunities ahead and I believe that Wipro has all that it takes to become a global leader.

I know there will be questions on what my immediate and medium-term priorities are going to be and quite necessarily so.

However, you'll appreciate that, even though I've been associated with the Wipro IT business for over a decade, I've been the President of Wipro EcoEnergy for the last nine months.

It's only appropriate I do a deep dive into the business and discuss with my colleagues before I articulate the priorities.

However, what I promise is that the process will be quick.

And more importantly, its implementation will be efficient.

And before I end, I want to make an additional point.

Investors and capital markets have been a great source of support, feedback, and input for us over the past few years.

I look forward to the same from you in the future.

Thank you.

Good day, ladies and gentlemen.

I wish you a very happy New Year.

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 rates in New York City on December 30, 2010, for cable transfers in Indian rupee, as certified by the Federal Reserve Board of New York, which was $1 equals INR44.8.

Accordingly, the revenue for --

Excuse me.

This is the operator.

I'm sorry to interrupt.

Sir, your volume is a bit low.

Can you move closer to the speaker phone, please?

Thank you.

-- which was $1 equal to INR44.80.

Accordingly, revenues of our IT Services segment that was $1,344m or in rupee terms INR59.49b appears in our earning release as $1,328m based on the convenient translation.

Our IT Services revenue for the quarter ending December 31st was $1,344m on a reported basis, a sequential growth of 5.6% and year-on-year growth of 19.3%.

And on constant currency basis, our IT Services revenue was $1,325m.

We have had a good quarter of growth, driven by specific verticals and service lines.

Among the verticals, energy and utilities had led the growth with 16.5%, BFSI with 7.1%, communications, media, and service providers with 7.1%, and manufacturing with 6.4% on a sequential basis.

Application development maintenance has seen strong growth in the current quarter of 9.5%.

Technology infrastructure services is continuing to see strong traction with 6.6% sequential growth and 20% year-on-year growth.

We have improved the mix of our consulting revenue to 3% from 2% at the start of the last fiscal year with revenues having grown 14% sequentially and 60% year on year.

Among the geos, Europe saw a second quarter of double-digit growth of 12.6% on a sequential basis.

We continue to see strong growth in the emerging markets.

We have 21 customers with a revenue greater than $50m on a trailing 12-month basis, up from 20 in the previous quarter with three accounts with revenues greater than $100m on a quarter annualized basis.

Volume growth in the quarter was at 1.5%, factoring the seasonality impact of higher [needs] and (inaudible) productivity.

Our revenues from fixed price projects increased by 2.3% to 46.3%.

We now have -- we saw a strong improvement in revenue productivity with onsite realizations increasing by 0.6% and offshore realization increasing by 3.7%.

(inaudible) attrition on a quarterly annualized basis went down by about 180 basis points to 21.7%.

And we clearly see it trending downward from the same.

Operating margin for IT Services was flat sequentially at 22.2% with improvement in revenue productivity, price, and benefit from ForEx offsetting the impact of dropping utilization and lower working days.

As of December 31, 2010, our DSO, days of sales outstanding, was at 69 days, same as the previous quarter.

Our IT Product business showed a decline in revenue in the current quarter as quarter ending December 2010 is a seasonally weak quarter for the product business.

Wipro Consumer Care and Lighting business continued to see good momentum with revenue growth of 21% year on year and EBIT growth of 14% on a year-on-year basis.

On the foreign exchange front, our realized rate for the quarter was INR44.27 versus the rate of INR45.15 realized for the quarter ended September 30.

On a quarter-on-quarter basis, ForEx gave us a positive impact on margin, including the benefit of cross currency of 0.5%.

As at period end, we had about $1.5b of ForEx contracts.

Our OCI loss further reduced by INR1.497b in the current quarter to INR2.195b.

The effective tax rate for the quarter was 16.5%.

Our net cash balance on the balance sheet was INR49b.

We generated free cash flow of INR3b during the quarter.

We'd be glad to take questions from here.

Thank you very much, sir.

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

(Operator Instructions).

Our first question is from the line of Sandeep Agarwal of Antique Stockbroking.

Please go ahead.

Yes, good evening.

Congratulations to Mr.

Kurien.

Just one question, which is the first question, is on the attrition.

How do you foresee attrition going forward?

It is looking very, very high as of now, although it has declined slightly in the quarter.

And secondly, on utilization, if you see utilizations level are dropping.

So what -- how -- what we are going to do in the next few quarters to curtail this?

Hi, this is Deb.

I look after the delivery for the IT business.

Yes, sir.

Including the utilization, actually, to some extent is also a function of (technical difficulty).

Yes.

So what we do is we tweak the number of people we need on the bench depending on two things, our growth and our attrition.

And we -- and that's one of the reasons that you can see that we have put more people to cover (inaudible) attrition.

We have got more people already into the system.

So that would not (inaudible).

So that's part of the story of utilization.

On the side of attrition, it had come down but the market's still hot and we think it is in line with what it is.

Please understand that what we do represent here is not annualized quarterly attrition as against trailing 12-month attrition.

If we look at trailing 12-month attrition, the number is much lower.

And we have seen a 1.8 percentage point reduction in the attrition.

And we're seeing a further down trend that we will (inaudible).

And utilization part of it also is because some of the corrections we're going to achieve in terms of use of (inaudible).

And when you go into that in the short term, it tends to dilute utilization.

And perhaps it will remain diluted for two quarters until we begin to adjust the balance of our mix of experience.

Okay.

Okay.

And so what is your outlook?

How many people you are planning to recruit and what utilization of lateral and fresher going forward?

We don't tell exact data with respect to that.

But as we have said, our guidance for fourth quarter is between 3% to 5% and with a stable pricing environment, we're looking at more of that coming through volume.

And hiring will clearly be a function of -- based on the volume that we're adding.

And of course, as we go forward, we will have a higher bias of the mix coming from campus but there will be corrections that we're [taking].

Okay.

And, sir, one last question on the cloud computing side, how is that area -- how attractive that area looks?

What are the opportunities, how you see the opportunity in that area?

This is Martha Bejar responsible for the Sales team.

So our pipeline, I will tell you that there is quite a bit of engagement on cloud services.

Our customers are looking at different ways of managing their IT infrastructure.

So it's presenting opportunities for us, whether it's outsourcing of their services or, for example, unified communications as a service.

So we see quite a bit of activity in that regard.

We have trials in market right now from a private cloud perspective with customers and our partners.

And we feel very strong about how we can continue contributing to the optimization of our customers' infrastructure by using some of these exciting services, like the cloud services moving forward.

Okay.

And how you are seeing that opportunity in the Indian market?

Sandeep, can you make this the last question so that we can give opportunity to other people?

Yes, sir.

Yes, sir.

This is my last question.

Can you repeat your question?

How you are seeing the cloud computing opportunity in the Indian context.

So, Sandeep, I am Manish.

Some of our large wins that we have had involved in some form setting up private clouds.

We did that for [Liminar].

We did that for [ASL].

And I'm not sure all of you are aware, we have done a pilot project wherein we are trying to address the (inaudible) market in the India segment which is clearly through the cloud offerings that we have.

And we have had certain operations, like dealer management support and infrastructure as a service, which we have seen decent success in, and especially in the segment which is not amenable to investing on their own in significant infrastructure.

Okay.

Thanks a lot.

Thank you, Mr.

Agarwal.

Our next question is from the line of Ankur Rudra of Ambit Capital.

Please go ahead.

Thanks for taking my question.

And congratulations, Mr.

Kurien.

As a first question, I noticed in the quarter the growth was strong, but it was -- seemed to be led more by increasing realization on the offshore front rather than volume.

Can you comment on what led to the slowdown in volumes?

And also, in the guidance, is that volume led or a further expectation of price realization increases?

Ankur, Manish here.

First of all, we believe we could have done more on volume I think to take away from that.

But having said that, one of the stated principles or one of the things that we have been trying as an organization to drive is non-linearity.

And hence, what we measure as volume, which is typically [people add], is not something that is a measure, which clearly demonstrates our revenue growth.

And as you would have heard us last quarter, we have said that our endeavor is to double the non-linear revenues.

We are on track for that.

Last year, we delivered 8% growth, 8% revenues from non-linear initiatives.

It's already at 11%.

And the more we do non-linear, it should reflect on realizations.

It should reflect on revenue growth disproportionate to headcount growth.

And if you look at the realizations, even on a constant currency basis, there was an expansion in our realizations.

So clearly, volume is something that we will try to drive.

And given that we have given a guidance on a constant currency basis, if there is a change in currency, that can broadly have an impact on the growth in quarter four.

Difficult to at this point in time comment on whether or other -- we will refrain from commenting on whether it is volume led or price led.

All right.

Thank you.

The second question on verticals, if you could comment on the strength you've seen in telecom and utilities and also relative slowdown in technology and healthcare, thanks.

So as I said -- this is Martha, again.

On the telecom side, so as you can see, we see interesting growth there.

A lot of it has been driven by our customers wanting to do things differently for their own customers.

And that presents an opportunity for us.

So some of it is from an IT perspective, their own infrastructure.

But a lot of the work that we're doing also really is how do we simplify the way that they reach into their own customer base?

So that's one.

On the technology side, it continues to lag, mainly driven by the US.

And I think we've talked about that in the past.

We think it's stabilizing.

We see some opportunities there.

We have a strong pipeline from that regard.

But that -- it's pretty much what we've discussed last time, not many changes on the technology side this past quarter from Q2.

But at least over the last 18 months the configuration of the technology business has undergone change in terms of from a heavy engineering to a [total] mix of IT, BPO (inaudible) engineering there.

And that already provides much more higher stability while --

Probably.

-- start picking up, will not be the growth leaders as you go forward in this (inaudible).

All right.

Thanks.

Also, on the utilities and the healthcare verticals.

So on the utilities side, we saw very good growth.

It is an area of focus for us.

We continue to invest not only in the front end but also in the back end with our solutions.

We see this as an area where we can add a lot of value to our customers.

So we're very bullish.

On the healthcare, I would say that Q3 was a bit lumpy for lack of a better word.

However, there has been some very strong changes, as you know, in some of the healthcare bills that present opportunities for us.

Moving into the future here, we have a very strong pipeline, again, mainly driven by ITO, BPO.

So we're very hopeful on the work that we'll be doing in the healthcare sector.

I think that also meshes well with our Infocrossing footprint, which presents an opportunity for us to manage some of those services.

So we continue to draw forward that -- those investments in healthcare as well.

And on the energy and utilities, if I can supplement, have opened up Ireland as a market and Europe is looking strong.

And because of the investments we have made in the (inaudible) area, pipeline is improved on areas like energy trading, smart grids, health and safety, and upstream exploitation of oil and gas.

So focus of energy players is on an upstream and productive improvement while we are helping them cutting down their costs downstream.

Thank you.

-- (multiple speakers) promising for us.

Thanks.

I'll come back later.

Thank you, Mr.

Rudra.

Our next question is from the line of Pankaj Kapoor of Standard Chartered.

Please go ahead.

Yes, hi, sir.

Just probing a little bit more on this quarter, if I recall right, at the last conference call, you were looking at more volume, that kind of a growth.

So I just wanted to understand if the growth which stands out in the quarter was in line with expectations.

If yes, what were the reasons in which you were looking for kind of a slowdown in particular sector or in product lines?

And looking at going forward the next quarter, are we continuing to see this kind of a volume holding on?

Pankaj, Manish.

I did touch upon the importance of looking at growth with the lens of non-linearity.

But having said that, to your specific question on was the volume growth in line with our expectations, I guess we saw some contract signings getting delayed because of which the volume that we would have expected probably did not happen and by delay does not mean cancellation or not coming at all.

So maybe there's a quarter-on-quarter blip.

But on overall basis, we don't see that to be a permanent loss.

And it will eventually come back.

And just a second one on the involuntary attrition, we saw that jumping up in this quarter.

I mean, it could be a quarterly phenomenon.

But just trying to understand the reason behind it, given that we are in a overheated kind of a supply side environment.

So what drove this involuntary attrition?

(technical difficulty) is not something which goes in terms of any kind of circular trend, Pankaj.

So it just happens because of some [security] reasons.

But otherwise, there's no specific factor.

It tends to be a little lumpy only at the time of (inaudible).

But otherwise, it's --- you see (inaudible).

And, sir, just last question in terms of our wage revision cycle, we probably would be scheduled for that in the next month from my understanding.

Is there any visibility on that in terms of are you looking at it holding on in February or there's any change of plan there.

And if we are doing it February, then kind of a sense you can give in terms of the hike you're planning.

Thanks.

The plan is to do a review of that in quarter one of next fiscal.

There is no plan in the current quarter with respect to any wage revision that is being contemplated.

Okay.

Thank you.

Thank you, Mr.

Kapoor.

Our next question is from the line of Anthony Miller of TechMarketView.

Please go ahead.

Yes, hello, gentlemen.

Just a clarification on the management changes, the release says that Girish and Suresh are stepping down.

But can I take that to mean they will be leaving the business?

Yes, that means that they will be leaving the business effective April 1, 2011.

And Kurien is taking charge of the business effective of February 1, 2011.

Thank you.

And can I just confirm, has there been any change in the role of Mr.

Rishad Premji?

Does he remain Chief Strategy Officer?

Let Kurien answer this question.

He reports to Kurien now.

And the answer is yes.

He remains Chief Strategy Officer.

There is no change as far as Rishad is concerned.

Yes, he handles strategy and M&A and he continues to do that.

Strategy and M&A, great.

Thank you very much.

Thank you, Mr.

Miller.

Our next question is from Pinku Pappan of Nomura.

Please go ahead.

Yes, hello.

Yes, Pinku, go ahead.

Yes, I just would like to understand the change in your compensation policy.

You usually used to have the hikes in February of the year.

And now you're saying quarter one of the next fiscal.

What really led to this change of decision?

No, it's at time to time where (inaudible) happens.

And based on the latest review that has happened, it has been decided to take (inaudible) in first week of next quarter.

So sorry, first quarter of next fiscal.

Plus, we have given good stock options, stock awards, RSUs last July.

And our stock has performed extraordinary well since then.

So all critical employees have been covered by those stock awards.

Okay.

The other question I have is your SG&A is -- no, your sales and marketing expenses have come down by around 40 bps sequentially, [70] bps actually sequentially.

Can you let us in to know what is causing this fall?

And are you under-investing in sales?

So, Pinku, Manish Dugar here.

I head the finance with IT business.

In terms of the investment in people, in terms of the investment in other than people, so far as the sentiment's concerned, there has been a consistent increase over the last few quarters that you see.

And it continues.

What you see as a reduction in percentage to revenue is primarily because of how the dollar and rupee has moved.

So if you were to do it on a base currency, which is like to like, you will see that the numbers have if not increased remained almost the same.

Okay.

My last question is can you just give some outlook on how you're finding deals in the market, what kind of bookings remain in the quarter, and how the pipeline is in general?

So this is Martha.

Just to augment what Manish talked about - and I will answer your question in a second - is we continue to invest heavily in the sales engine.

That's really important for us.

So there's no slowdown in that regard.

In terms of the pipeline, the pipeline continues to grow very healthy.

We're excited about the deals that we're seeing in the pipeline.

Some are very large deals.

We have a discipline in our Company around it on how we manage that and execute on that.

And so we feel very good about the work that we're doing and how, as we go into fourth quarter, the health of the pipeline as well.

Okay.

Thank you.

Thank you, Mr.

Pappan.

Our next question is from the line of Anurag Purohit of Alchemy.

Please go ahead.

Thanks for taking my question.

And congratulations to Mr.

Kurien on his new role.

My question is regarding the [utilization] per quarter.

Can you dig a bit into what was the component of like-to-like prices and the benefit coming from productivity in the quarter?

If you utilize the cross currency and number of days, you come to about offshore increase of about 2.6% quarter on quarter.

(technical difficulty) on a constant currency basis.

Pardon, sir?

On a constant currency basis, taking out the impact of [crosses] you will have an increase of 2.5% in offshore and about [0.8%] in on-site.

And this was predominantly driven by the fact that in Q3 you had a number of days which are much lesser because of leaves, that's the number of working days plus leaves, which has impacted the utilization.

And regarding the change in the control of the Company as in changing the CEO of the Company, has it already been communicated to the clients and any initial reactions that you have received from them?

The answer is, yes, we have started the communication.

I think it's a little too early for us to kind of give you a sense to what the reaction is.

Okay.

Sure, thank you and all the best.

But Wipro are in Korea and in Davos next week.

And we will be meeting on a one-to-one basis already (inaudible) on a predetermined basis about 27, 28 CEOs of Fortune 500 companies who are our clients or our prospective clients.

Another 20, 25 customers on one-on-one basis will be at the CXO level.

Our next question is from the line of Kiranjeet Kaur of the Everest Group.

Please go ahead.

Hi, thanks.

And congratulations to Mr.

Kurien.

I have a quick question on the BFSI segment.

Can you please provide some color around the growth drivers, what kind of deals are you seeing in this segment, which geographies are getting traction?

On BFSI?

She wants the color on the BFSI segment in terms of geography and individual --

So we're seeing -- so BFSI, obviously, we're happy with the results that we're getting.

We're seeing large deals I would say equally across the geographies, a lot of it on the ITO, BPO side as well.

So we -- so the pipeline on BFSI is very strong.

It represents almost a good 40% of what we have in our pipeline.

So I would say it's consistent across the US and across Europe as well.

To add to that (technical difficulty) on the banking side, we are seeing clearly interest coming in from core banking, especially on the retail side, securities, again, platform changes coming up on the securities side and insurance back again, new platform introductions coming in.

That's primarily (inaudible) some driven by compliance, some driven by new business.

And geographic color is a little difficult to provide because most of the customers that we work with are global.

So I guess it's primarily driven by individual company names.

And if that is the case, mostly US and to some extent Asia-Pacific.

The last comment is on insurance.

It continues to lag a little bit for us, going slower in some of the areas of investment as well as on the BPO side.

But the thing that I will tell you is that we see -- we have large deals in the pipeline, which gives us very strong confidence on the growth here moving forward.

And we continue, like T.K.

mentioned, to focus on emerging geographies, strong focus on driving the large deals, capturing the customer spend.

Some of the changes in the regulatory laws are working towards our benefit because of the compliance requirements.

And so this is very -- we're very bullish about BFSI and moving forward.

Thanks.

This is helpful.

I also wanted to inquire about the composition of clients that you've added in this quarter.

Could you please some sense of what verticals or (inaudible) across segments?

We have added about [36] customers last quarter.

And about nine is from energy and utilities and retail.

Healthcare is about seven, manufacturing six.

That's the kind of the large distribution.

And if you look about geography, about 15 of them is from United States.

Nine of them India and Middle East.

And six of them is Europe.

Great.

Thanks.

Thank you.

(Operator Instructions).

The next question is from the line of Ankur Kalra of Evalueserve.

Please go ahead.

Well, hi, sir.

Thanks for taking my question.

My question is regarding the tax rate.

I can see that the tax rate you pay is roughly around [16%].

There is also technology peers paying the double of your tax rate, so just wanted to understand the missing link here.

We have not seen anybody else at 32%.

No, I mean, 27%, 28% is the --

That's not double of Wipro's.

So yes, Wipro has been very focused in terms of getting its [or] started in special economic zones right from the early years.

And from that point of view, our tax rates are relatively low.

But as we go forward, it will go up.

Okay.

Any numbers you want to give here?

We have stated that about 2 percentage points movement would happen.

Okay.

All right.

Fair enough.

Thank you, sir.

Thank you, Mr.

Kara.

Our next question is from the line of Rahul Jain of Dalek Capital.

Please go ahead.

Yes, good afternoon.

And congrats to Mr.

Kurien.

My question pertains to growth in our gamma [console] our $20m-plus accounts.

As I could see a strong increase in number of clients per $20m, $50m run rate, I would like you to share your perspective on how -- when we would see these getting into $75m or $100m considering the lower customer revenue concentration we have over peers.

Yes, before Kurien responds, just to tell you on a quarterly annualized run rate point of view, we have already three customers more than $100m and about four of them approaching $100m, $95m to $100m.

So that's kind of a run rate that we have based on the quarterly annualized basis.

And now, Mr.

Kurien as to how he sees the profile of customer base going forward.

So clearly, our focus is going to be more around (inaudible) gammas accounts and the way we're going to better mind them.

I think you'll just have to wait to see execution in that specific area as we go forward.

Martha wants to add.

Yes, so just to expand a little bit on that, as we've discussed in the past, we have a concerted focus on the mega gamma accounts.

We have very strong account management structure with a [CAM], which is like a mini-CEO of the account, where we have reporting into that individual the delivery organization, strategy, solutions, all in house managing the relationship and the solutions going into that customer.

And our expectation is that that account manager will drive and help our customers with their own agenda in executing that, so a lot of focus and investment on our part as we continue to move forward with the mega gamma accounts.

Okay.

And just what Suresh pointed out on three accounts with quarterly run rate of scaling up annualized level of $100m, what are the likelihood of this actually reaching to $100m in next year?

I think, if I can just take that, we won't give guidance like that.

But I will tell you that, obviously, it's a great area of focus for us.

And we'll continue to drive this very hard.

Our customers are expecting that of us to start with.

So it is an area of focus of mining these customers, of working with their own strategy and helping them execute their strategy and shaping their strategy.

So that was about execution, like T.K.

mentioned.

Okay.

That was helpful.

Apart from that, if you can share some perspective on the product revenue of relatively low end, any perspective on the other non-IT services?

Yes, so product revenue is largely in the India and Middle East market.

And if you're seeing (inaudible) trend quarter one and quarter three tends to be weaker compared to quarter two and quarter four and therefore, is (inaudible).

That is from a q-o-q perspective.

But how the year-on-year perspective, last year in quarter three, we had some good big deals in Middle East, which didn't repeat this year.

And therefore, you see a yoy decline.

Otherwise, yoy is a more representative number to compare from a product perspective as opposed to sequential quarter on quarter.

So -- but that traction is good.

I think the business in India is going well, a lot of business either in the financial services or utilities or government.

And from that perspective, indicate good drivers to us for us in the next four quarters.

And on the Consumer Care and Lighting, I would request Vineet Agrawal to throw some light in terms of the non-IT business (inaudible).

So our non-IT business has grown very well in this quarter.

We grew -- in the Consumer Care and Lighting, we grew at 21% year on year and YTD growth of 21%, largely led by Yardley, the brand that we acquired last year.

And that's grown very well for us, both in India as well as Middle East.

In India, we focused a lot on bringing the brand to the younger generation because it was really a grandfather or grandmother brand in this point of time.

And the fact that deals have grown very well proves that we've been able to do the transition reasonably well.

In the institution businesses, which consists of Commercial Lighting and furniture business, our designer ranges of furniture which are the premium ranges, have done well, contributing to about 35% of our furniture business.

And that has helped us to overcome the cost increases, which have taken place overall on the commodity segment.

In our Commercial Lighting, we are focused a lot more on LEDs and energy saving.

And due to that, we've been able to light up cumulatively 70 green buildings out of 120, 35 green buildings in the country today.

And out of the platinum 35 green buildings, we have lighted up 17 buildings out of 27, so clear growth and clear focus driver for us in the green building space.

In the international business, which is Unza business, we've got leading growths compared to other FMCG companies on the market in Malaysia, Middle East, Vietnam, and China.

So that acquisition for us, which we have done about three years back was also doing well.

Okay.

That's all.

Thank you, Mr.

Jain.

Our next question is from the line of Kuldip Kaul of Motilal Oswal Securities Limited.

Please go ahead.

Hello?

Yes, please, go ahead.

Yes.

Hi.

This is Ashish.

A similar first question is pertaining to the pricing, wherein you said that a lesser number of working days helped the realization, pushed that number up.

I just wanted to know if there is any (inaudible) during the quarter?

Well, Ashish, I need to -- I think what we said is that cross currency has helped us get a higher realization.

However, number of days has actually dampened the rate of realization.

So it's not actually a positive, but a negative in quarter three.

Having said that, so far as the current pricing environment is concerned, variable, we have contractual price increases built in, customers are willing to discuss and give those to us.

And in a few cases, we have also seen pricing increase without it to be on the table for discussion.

In fact, being out of turn increases.

So far as new deals are concerned, given that we are playing more on the (inaudible) side, and value-added service and outcome-based pricing, I think the challenge is not so much seen so far as the price is concerned.

It is more in terms of our ability to demonstrate value delivery.

But I would believe that if one were to sell commodity at this point in time, pricing being the only differentiator, they would probably have a pricing pressure.

Okay.

Okay.

Fine.

And secondly, in Europe, it's (inaudible) of around close to 10% quarter-on-quarter.

I just wanted to know which are the countries which are doing better, whether is it the UK, or is there a greater amount of traction from countries like France and Germany, etc.?

Okay.

So I would say -- this is Martha, again, by the way.

So in the European market, our focus on investment in countries like France and Germany are paying off.

And, obviously, we continue to increase our growth in the UK.

So I would say it's between those three countries, Ashish.

And mainly with global customers, by the way, or pan-regional customers across the region.

Okay.

So the one thing that I will tell you is that within -- if I can just add a little bit more color to this.

Within the sectors, so we talked about the countries within the sectors that we do business with, we see continued strength in E&U, manufacturing as well, and, obviously, we talked about BFSI.

So those three sectors within the European market are the ones that are growing the fastest for us.

Okay.

That was helpful.

Thanks.

And just one last question to the Management, I just heard you make a comment on the television briefing that the focus on growth will not be exactly broad-based but driven by focus on some particular segments or verticals.

So could you just share as to which would be those segments of focus going forward?

I think it's pretty clear that if we look at the marketplace today, the segments that have got (inaudible) at least looking forward next couple of years is going to be BFSI.

Okay.

Healthcare is an opportunity.

Energy and utilities is an opportunity.

Retail is an opportunity.

So, from a portfolio perspective, clearly, most of our investments are going to be focused towards areas where -- which are going to do better in terms of market and our -- and really, our objective would be to get scale in those particular segments.

Running subscale businesses in areas where you never be a market leader is probably not worth the effort.

we just have to focus on the areas where we can really grow significantly and put our effort behind.

That's really where we need focus.

All right.

That's it from my side.

Thank you so much.

Thank you, Mr.

Kaul.

Our next question is from the line of Viju George of JP Morgan.

Please go ahead.

Yes.

Hi.

Thank you for taking my questions.

I just want to know if, in the lead up to this appointment change, whether you envisaged any role change for anybody else in the Management Team, or within the Management structure?

Is there any kind of changes elsewhere, or just a change at the very top?

Thank you.

Viju, it's a difficult question to answer.

It's one of those, I would see a (inaudible) questions, because you can't announce a (inaudible) change on an analysts call.

But, nevertheless, I think fundamentally, the focus is going to be in terms of specifically simplifying the organization to make us more agile.

Right now, the way we envisage we have roles for all our team members that are there today and probably a few more.

So you'll see things unfolding as we go along in the next couple of weeks.

Thank you.

Thank you, Mr.

George.

Our next question is from the line of Mr.

Mitali Ghosh of Bank of America Merrill Lynch.

Please go ahead.

Yes.

Hi.

Good afternoon.

I take this opportunity to congratulate Mr.

Kurien on his new role and wish Suresh and Girish all the best in the future.

While we await the priorities and things to unfold that Mr.

Kurien said, just a couple of things on the business side.

One is the deal slippages that were mentioned a little short while ago, any trend in terms of size, verticals or services?

Mitali, Manish here, the deal slippages are not necessarily deferments on the client side.

It's just the time it takes to sign the contract.

So if your question was to understand if there is a specific trend in any industry or any customers, in terms of going slow in decisions making that is not the case.

Okay.

And, in terms of the signings that you did have during the quarter, if you could give us some sense, in terms of what were the trends, particularly in terms of large deals?

So, Mitali, hi.

This is Martha.

So I would say that, this past quarter, a lot of activity on BFSI, on E&U.

So the business units that we've talked about that have had the highest growth is where we've seen most of the activity come into the third quarter here.

Is there any color, in terms of number, or any kind of size of [TCV] of large deals, or anything like that?

I know, Mitali, you were going to ask that because you always do.

I will just say that, in terms of -- without getting into specifics, in terms of the TCVs, we see large orders.

A strong pipeline, like I talked about before.

Large deals in some of these segments.

A lot of them are driven by TIS, like we've discussed.

So, yes, we feel good about what we're doing here and what we see in our pipeline.

Sure.

And just a quick question on the trends you're seeing, in terms of discretionary IT spending, because I notice the performance this quarter it's been mainly on the infrastructure and the ADM side has been very strong, but some of the others, like package implementation, etc., maybe engineering services have been a little soft.

So what are the trends you're seeing in discretionary IT spending and what should we expect going forward?

I would say that, right now, with our customers' budgets for this year are up marginally, I would say, just in general.

We're seeing --- also seeing gaining market share, growing ahead of the IT spend growth.

I would say that a lot of focus on discretionary spend.

So we see a shift to discretionary spend.

Customers want to add more value to their business.

So our plan is to go in there with solutions that do that, that address those needs.

So we expect discretionary spend to grow ahead of the overall spend for our clients, as they continue to look at different ways of adding value to their business.

And the IT organization is becoming a huge enabler of that.

So it fits well with our overall strategy and what we're looking at executing here.

And then just finally on the application development and maintenance, which saw good growth this quarter, if you could provide any color on whether this was more of the maintenance kind of deals, or was it more development?

I would say that, from an application perspective, pretty even, from development and application, maintenance perspective across the board.

And, again, it's a market that continues to pick up for us, as we get -- continue to land deals and get into the sectors.

Sure.

Thanks.

Thank you Miss Ghosh.

Thanks.

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

Please go ahead.

I have two questions.

One is about your employee costs.

If I see, in absolute terms, what is reported in cost of revenue and sales and marketing, it is showing a solid decline.

So any specific reason, because you added close to 3,600 employees during the quarter?

The second question is about our fixed component as a percentage of revenue.

It is showing steady increase in last couple of quarters.

So maybe one reason could be there is some linkage between non-linear initiated work we have that might be -- might have some impact on this.

But we have not seen any kind of improvement in margin.

So what kind of (inaudible) with our fixed price?

Thanks.

So, Dipesh, Manish to your specific question on people costs dropping in absolute terms despite an increase in the number of headcount, it's primarily led by two things.

One is higher component of the freshers that we take, which reduces our average cost.

And that is one of the reasons why we have had an improvement in margin through a lower cost of delivery.

And second big factor is the drop or the movement in currency.

And with dollar becoming INR44 from INR45, it has -- and especially when we look at the cross rate, the cross rate has moved from INR46.5 to INR44.95.

And that's a significant movement, which causes the absolute rupee cost of salaries to drop.

So that's so far as the salary cost is concerned.

Coming to specifically your question on the fixed price project.

I will ask Deb to comment on the delivery [tangibles].

But from a profitability perspective, our experience has been that the fixed-rate projects tend to be a little lumpy at times.

A significant positive, last time not so positive.

But, in general, we have a profitability from fixed price which is better than (inaudible) projects.

Deb, do you want to comment on the delivery side?

Yes.

Actually, it's not -- overall, we have a little bit of an under-run with (inaudible) projects.

If I add up all the projects that we have, some have some over run, some have some under-run, but on the whole, we have a little bit of an under run at an aggregate level.

When we accumulate all the fixed-price projects on their lives, we have (inaudible).

And under run basically means that we are delivering at a cost which is less than what we estimated to begin with.

And we typically have an expectation of a higher margin when we start the project as well.

So there is a differential in profitability that we are delivering in FPPs compared to T&M.

When are -- to continue with this, when you say there a higher number of projects that under run?

So, typically, what margin do you expect giving a higher margin than what we expected?

(Inaudible).

So if I see last couple of quarters, we have seen a 5% to 6% increase of fixed price as percentage of revenue.

And if I see overall margin for the business segment, it remained more or less flat at those levels.

So I just want to understand why -- what are the reasons for margin movement?

So, Dipesh, you are right in your observation.

However, we don't have a separate line item in our operating margin excluding what is contributed by fixed price.

However, the matrices in which it gets reported are matrices like realization improvement, if you look at our realization has improved, despite a drop because of number of working days.

It gets reflected in our effort to take in and deploy more freshers, because if we are doing only time and material engagements, we will have to have more laterals.

And that gets reflected as an advantage so far as the lower cost of delivery and volume improvement is concerned.

So you will not see a direct correlation between FPP increase and the margins.

But it will come in the form of ability to deploy more freshers and ability to get higher realization.

Only -- just to continue, because fixed also increase the risk to the business, so just when we are taking relatively higher risk, it is not getting compensated equally by margin?

That's what I want to understand.

No, Dipesh.

First of all, we have a contract deal review board and we have got a deal review index for every deal that we sign off for.

And deals which do not meet the threshold criteria of our appetite for risk do not pass through the test and we don't even bid for those.

Having taken a deal on a fixed-rate basis and understanding that there is a risk involved, which is why I said that we have an expectation of a higher margin, even at the initiation stage of the deal itself.

And having a higher margin expectation, we are actually delivering even beyond that.

So to specifically answer your question, we do understand the risk involved in FPP, however, we are getting a margin uplift because of that, and not only to the planned level, but beyond there.

Thank you, sir.

Thank you Mr.

Mehta.

Our next question is from the line of Nitin Padmanabhan of Indiabulls Securities.

Please go ahead.

Yes.

Hi.

Thanks for taking my question.

And congratulations, Mr.

Kurien.

Just a couple of questions.

One is -- what -- did the attrition on an absolute basis, actual number of people leaving really come down this quarter?

And what kind of fresher intake did we do during the quarter, and how do we see it going forward next year?

So, Nitin, the absolute number, Manish here, the absolute number of attrition has come down, you're right.

And if you were to normalize the impact of involuntary attrition, that number will look even lower.

So far as the fresher hiring is concerned, as Senapaty mentioned earlier, our focus is to make sure that we win deals and we execute deals in a manner that we are able to take more freshers and make them more sustainable (inaudible).

And hence, the trend one should expect is to have a higher component of fresher hiring than we have experienced in the past.

Any sense on what kind of [budget] mix you would look at, what you're likely to take it to, on a trend perspective, from what it is today?

Nitin, this is Deb.

The budget mix is a function of the mix of our engagements.

So it's a function of how much of things we put in our linearity, how much of things we put in shared services, how much of things we put in (inaudible), how many systems integrations projects we take.

We always have what we believe are optimal budget mixes for each type of engagement.

So as, because we know the engagement mix, the optimal budget works.

If I add more certification projects into the system, I will -- they go at a higher rate, but my budget will not move up.

But if I take more shared services, even if I take them at a lower rate, my budget will move up.

So it's not really easy to say where will I take my budget because it depends on what my business revenue mix is, or what sort of deals I should pick up.

Sure.

Just from the point of margins, if you could just give a sense, as --- since you say that considering the attrition is high, and utilization may not be a significant lever in terms of moving it up, because attrition is high, how do you think -- what are the other levers for margins?

And how do you see margins overall going forward?

If we have communicated that utilization rates will continue to remain like that forever, I think we have miscommunicated.

We are saying that a) in the short term, we had a higher attrition level.

It will take some time for it to settle down.

We were also making a structural correction to our budget.

And when Deb said when we had to do a budget correction, it has to link a time, also, with -- to the revenue So from that point of view, it has to be done on an integrated basis on both sides of the coin as to move.

And, therefore, we have internal targets then.

And, therefore, you will see utilization [dropping] significantly in the short term (inaudible).

But in terms of the various areas of work that we have, yes, it is -- one is the pricing because we're not the best.

B, is in terms of the [bulk] cost, because we are not the best.

And, from that point of view, where we are not the best in both these areas we will make movement.

A, in terms of execution and B, in terms of the quality of the revenues that we seek.

Sure.

Sure.

So, basically, utilization would be a lever, maybe --

Quarter on quarter.

Yes.

On -- yes, on a [tail-ended] basis, or maybe over a four-quarter basis?

Fine.

And there's just one thing I want to clarify from a pricing perspective.

During the quarter, the increase to, I think, 2.5 percentage points offshore.

If we look at the revenue mix, I think close to 67% or so of incremental revenue is from ADM.

I'm just wondering, is bulk of that driven by a higher realization through ADM itself?

Part of it is because of the growth in the high-end business, for example, consulting (inaudible).

Right.

And Nitin, Manish, just to add to what Mr.

Senapaty just mentioned, high-end sales is also reflected in the consulting revenue growth that you see.

And what has also helped us is the non-linearity drive and our better delivery on fixed-rate projects, which I said had a bit of lumpiness.

So far, in -- overall, I would say that it is a reflection of the quality of sales and it is a reflection of better execution, which has targeted to better realization.

ADM in itself may or may not have been a contributor to this.

Yes.

That's fine.

Thank you.

And all the best.

Thank you.

Thank you, Mr.

Padmanabhan.

Ladies and gentlemen, due to time restraints, the last question is from the line of Diviya Nagarajan of UBS.

Please go ahead.

I apologize, that participant is no longer in the question queue.

Rochelle, we'll end the call then.

Yes, sir.

Please go ahead.

Would you like to add any closing comments?

Yes.

(inaudible).

One second to allow -- Mr.

Premji would like to make a comment.

Thank you.

So I would just like to make -- this is Azim Premji.

I would just like to make a concluding comment, in terms of the organizational change which we have made.

I want to just emphasize that I have 100% confidence that it will be a strong success.

I have worked with Kurien over the past 10 years.

And even before that in the Wipro GE when he was there.

And I have a tremendous amount of respect for his passion, his commitment, his ability to focus, his understanding of the right strategic direction and the right strategic opportunities, simultaneous with his ability to execute meticulously.

And that is a very rare combination.

So he was absolutely instrumental in turning around our BPO business and making it highly growth orientated and highly profit orientated.

And in his three-year tenure there, the business went up to 22,000 people.

And it has continued to prosper subsequent to that.

He was absolutely instrumental in giving leadership to Kirk Strawser, in terms of selecting, installing and giving leadership to Kirk Strawser, who is our Global Head of Consultancy, and really building our Consultancy business.

And I think the Consultancy business which we have built, is going to be a very, very strong foundation for us to build traction with our larger accounts, as well as to position us much more in terms of being proactive with our customers, and much more in terms of being a thought leader with our customers.

And he has also contributed significantly towards repositioning our telecom and media business.

In the past nine months, he has focused on 100% on building our EcoEnergy business and repositioning it so that it has a much higher content of services and a much higher integration with our IT business.

Because the unique strength we bring there is our understanding of energy, and our understanding of analytics, and our understanding of IT, to be able to offer a very unique, integrated solutions to our customers, which can lead to a much higher profitability and success to them vis-a-vis management of their entire IT-energy infrastructure.

So we count upon your support going forward on this.

But I just want to personally endorse that I've a huge amount of confidence, in terms of having made this decision, and a huge amount of support from the Board, in terms of having come to this conclusion and to this decision.

Thank you very much.

Thank you very much, Mr.

Premji.

Thank you, members of the management.

Ladies and gentlemen, on behalf of Wipro Technologies Limited, that concludes this conference call.

Thank you for joining us on the Chorus Call conferencing service.

And you may now disconnect your lines.

Thank you.