Wipro Ltd (WIT) 2011 Q4 法說會逐字稿

Ladies and gentlemen, good day.

This is Rochelle and I will be the moderator for your conference call.

Welcome, everyone, to the Wipro fourth quarter earnings conference call for the period ending March 31, 2011.

As a reminder, for the duration of this conference, all participant 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 to Mr.

Sridhar Ramasubbu.

Thank you and over to you.

Thanks, Rochelle.

Good day and on behalf of the Wipro team a very warm welcome to all of you.

This is Sridhar and I am joined by Rajendra and Arvind from IR team in India.

Regarding the materials for this call, we issued the press release yesterday, late night EST and we'll have time for Q&A at the end.

We have with us today Mr.

Azim Premji, Chairman; Mr.

Suresh Senapaty, CFO, who will comment on the IFRS results and on key takeaways for the quarter and year ended March 31, 2011.

They are joined by our CEO for IT Business, T.K.

Kurien and other senior members of the Wipro management team who will be happy to answer your 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 of 1995 and are based on management's current expectation and are associated with uncertainties and risks, which could cause the actual results to differ materially from those expected.

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

We do not undertake any obligations 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 Q4 and 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'm also available on email and through mobile as well to take any questions and table it to the Wipro team in case you are unable to ask questions for any technical reasons.

Ladies and gentlemen, over to Mr.

Azim Premji, Chairman of Wipro.

Good day to all of you.

Let me quickly cover some of the highlights of Wipro's operational results before I get to some of the qualitatives.

Wipro recorded revenues in financial year '11 of INR311b, a year-on-year growth of 15%.

Net income crossed INR5000 crores in financial year '11 with a year-on-year growth of again 15%.

IT Services business crossed revenues of $5b in financial year '11.

Let me talk a little bit about the IT business.

We have made several organizational changes this quarter with the clear objective of being -- to satisfy the organization and make -- to simplify the organization and make us leaner, more agile and more customer-centric.

We have moved to a single P&L axis which is the industry verticals.

For our mature markets we have reorganized our sales teams around the business units.

To create impact with the customers the sales team needs to combine our domain skills and solution set with the clients' needs in an effective, ongoing manner.

The alignment of sales team with the business unit will enable better account penetration.

As we continue to play in an increasingly complex world and an increasingly more competitive world, where macroeconomic cycles are shorter and more volatile, we experienced this first hand with the speed with which recession hit us in 2008 and equally quickly how the environment improved in 2009.

We believe we are significantly better positioned today with the changes we have made to react faster to this dynamic environment and more importantly, to offer solutions to our clients to enable them to be more adaptive enterprises.

As we look out into financial year '12 the demand environment seems more stable and predictable and discretionary spend has picked up.

CIO budgets are realigning with the business influencing more and more of this spend.

This presents more opportunities of an integrated solution of IT/BPO and TIS as customers are investing not only in improving operational efficiencies, but also in revenue enhancements and new product introductions.

Our key areas of strategic focus are customer satisfaction through excellence in delivery.

Two, deeper client mining with full services capability -- we continue to invest on a prioritized basis in our growth accounts through our Mega Gamma account strategy.

Three, investment priority in our momentum verticals, namely BFSI, healthcare, energy and utilities and RCTG, as well as key emerging geographies particularly India, APAC, Australia and LatAm.

Four, six SBUs and six service lines are in place.

Sales engines are being revved up.

Next, superior employee satisfaction through monetary and non-monetary interventions.

To prepare ourselves for the next wave of customer spend we are investing heavily in three key areas which include Analytics, we have recently announced this as a separate and dedicated service line, Mobility, we have created a dedicated practice and cloud -- and three, Cloud particularly on the process and software layer with a focus on platform BPO.

We have announced the acquisition of SAIC's Oil and Gas business which is very strategic to us, and significantly enhances our domain capabilities in the upstream area making us a strong end-to-end player in the oil and gas space.

The acquisition is highly complementary to the Wipro skill sets and gives us access to some of the top customers in this space.

Six out of the top ten customers of the acquired entity are Fortune 500 or Global 500 customers.

While the organization changes have been completed, the journey has just begun.

But we are happy with the progress made so far.

As these changes take effect in the organization and as we stabilize, we believe we are much better positioned to take advantage of the growth and opportunities going forward.

Let me now hand it over to Suresh Senapaty to give the financial highlights.

Good day, ladies and gentlemen, and good evening to those who are in Asia.

Before I delve into our financials, please also note that for the convenience of readers our IFRS financial statement has been translated into dollars at the noon buying rate in New York City on March 31, 2011 for cable transfers in Indian rupees as certified by the Federal Reserve Board of New York, which was $1 equal to INR44.54.

Accordingly, revenue of our IT Services segment that was $1,400m or in rupee terms INR62.9b appears in our earnings release as $1,412m based on the convenience translation.

Let me start with some good news for our investors.

The Board has recommended the final dividend of INR4 per share which along with interim dividend of INR2 per share results in a total dividend payout of INR6 per share and a dividend payout of 32%.

Now moving to our results for the quarter, we are happy with our performance in the quarter.

Our IT Services revenue for the quarter ending March 31 was $1,400m on a reported basis, a sequential growth of 4.2% and year-on-year growth of 20.1%.

On a constant currency basis our IT Services revenue was $1,391m.

As we look into the future we believe that our revenue will be driven by the momentum verticals, financial services, energy and utilities, retail and transportation and healthcare and life sciences.

In the current quarter, growth was driven by telecom, energy and utilities and retail which grew at 10%, 8% and 6% respectively.

From a service line perspective, Technology Infrastructure Service is continuing to see good traction with 5% sequential growth.

BPO had a good quarter with sequential growth of 10%, but we still see some softness in this space.

Our investments into Consulting continue to pay off with a year-on-year growth of [39%] in the current quarter.

Among the geographies, we see strong growth in India and Middle East and APAC and other emerging markets.

Europe grew 28% on a year-on-year basis in the current quarter.

We are seeing our investments in client engagement starting to show indications that we are moving in the right direction.

We are still early in the journey and it continues to be our top priority.

In the current quarter on a trailing 12-month we have three accounts which are more than $100m in revenue.

On a quarter-annualized basis we have five.

Our top ten accounts grew sequentially by 7% in the current quarter.

The largest customer is now on a run rate of $170m and has seen good ramp-up over the last year.

In addition to farming our customers, we also opened 155 new logos in the year.

This positions us well for growth going forward.

Volume growth in the current quarter was 1.9%.

Our drive on fixed price projects, productivity and non-linearity tends to benefit revenue productivity but shows volume growth as softer.

Our revenues from fixed price projects increased by 1.5 percentage points to 47.8%.

We saw a strong improvement in revenue productivity with onsite realization increasing by 1.8% and offshore realization increasing by 1.2%.

Voluntary attrition on a quarter-annualized basis went down by 80 basis points to 20.9%.

We have announced our annual cycle of wage revision effective June 1, 2011.

Offshore salary increase would be around 12% to 15% and onsite increase would be around 3% to 4%.

We ended the year with 122,385 Wiproites, adding 14,314 during the year in our IT business -- IT Services business.

Operating margins for IT Services was marginally down at 22.1%, with improvement in revenue productivity and benefit from ForEx offsetting the impact of increasing benefits costs in onsite and dilution in profitability due to acquired entities.

As of March 31, our DSO was at 70 days, up from 69 in the previous quarter.

Our IT Products business showed a 2% year-on-year growth in revenues in the current quarter, and EBIT growth of 28% year on year in the current quarter.

Consumer Care and Lighting business continued to see good momentum with revenue growth of 19% year on year and EBIT growth of 5% on a year-on-year basis in the current quarter.

On the ForEx front, our realized rate for the quarter was INR44.91 versus a rate of INR44.27 realized for the quarter ended December 31.

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

As at the period end we had about $1.6b of ForEx contracts.

Our OCI losses further reduced by INR969m in the current quarter to INR1,226m or $28m.

The effective tax rate for the quarter is 16% and a normalized effective tax rate for FY'11 was 15.5%.

Our net cash balance on the balance sheet was $1.4b.

We generated a free cash flow of $284m during the quarter.

In the current year we crossed the landmark of $5b revenue in IT Services and our net income crossed INR50b in FY'11.

We are confident that we are well positioned to cross many more such landmarks in the future.

We'll be glad to take questions from you.

Thank you very much.

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

(Operator Instructions).

Our first question is from the line of Joseph Foresi of Janney Montgomery Scott.

Please go ahead.

Hello.

I was wondering if you could provide maybe a little bit more color.

It looks like the guidance for next quarter may be just a -- obviously a little lower than what people were expecting.

Could you just talk a little bit about the demand environment for the quarter and then for the full year and what you are seeing on the deal size and pricing front?

This is T.K.

Kurien, Joe.

So here's what we're seeing.

If you look at our momentum verticals, our four momentum verticals, clearly we're seeing demand from those kind of -- those verticals for the whole year.

Even though I must admit that when I say the whole year I am doing it based upon the economic scenario that I see right here in front of us.

And who knows which way it may go later into the year.

But right now this is what we are seeing.

I think what -- in quarter one specifically we've seen a shift in demand because primarily what we're doing is that we're really shaping demand in Q1 and through Consulting, through Technical Architecture to make sure that we create enough proactive demand in quarter two and the quarters after.

To that extent, we're seeing a little bit of softness primarily because the mix of revenues change more towards the front-end consulting kind of revenue.

And then what's the contribution that you're expecting from the acquisition next quarter?

Nothing from that.

We haven't factored anything from the acquisition next quarter.

And also, Joe, if I supplement what TK has just now stated, if you look at it, traditionally Wipro sees generally a first quarter, weaker quarter in relation to the other quarters.

And because we have our business coming from India and APAC and the Middle East which tends to be a little more higher in quarter four and quarter two as opposed to quarter one and three, therefore you see a drop that takes place because of the government budgeting etc., etc.

Also in quarter four we have done exceptionally well in terms of what we guided and also some of the transition revenues, some of the one-time transition revenues that we got in.

Some of that is not expected to repeat.

But like Kurien said, we are re-orchestrating the engine, looking at shaping and therefore as we go forward, you will see the growth bouncing back.

Okay.

And just sticking with that theme, what are you seeing on the pipeline front?

Are you seeing any increase?

How does the pipeline look this year versus last year?

Are there larger deal sizes?

Obviously I think you made some comments on it earlier.

And then maybe you could talk a little bit about pricing?

The pricing environment as of now is steady.

We have a fair number of customers with whom we have managed to negotiate a price increase last quarter.

On the pipeline side, basically again what we're seeing is we're seeing strength in some verticals, yet weakness in the others.

For example, telecom doesn't seem very strong.

Our energy and utility business seems extremely strong.

Retail and consumer products seems strong and BFSI continues to be pretty strong.

So those were the verticals that I would say are exhibiting strength year on year.

And then just lastly, maybe you could just give us some comments around Europe and what your expectations are from Europe this year.

Thanks.

Europe is a little difficult to call at this moment because in some countries like Germany and France, we are continuing to see strength and we are continuing to see more cost rationalization [exercises] happening.

And more importantly and I think that's mostly in France and Germany, I think what we're seeing is we're seeing significant capacity maxed out and we're also seeing people coming in and asking us for more developmental projects in Germany.

In other parts of Europe, frankly, outside of the UK, demand is not very strong.

We don't expect it to be strong going forward, so we've not factored great growth from other parts of Europe this year.

As far as the UK is concerned, I guess we're expecting -- from a pipeline perspective, we're expecting a decent growth from UK.

The pipeline today reflects almost an equal position that we had at the same point of time last year.

Thank you.

Thank you, Mr.

Foresi.

Our next question is from the line of Trip Choudhury of Global Equities Research.

Please go ahead.

Thank you and again good execution in a very challenging environment.

I was wondering if you could give us an update on a few regions in the world, from -- which are undergoing some crisis, Japan and definitely any updates you may have in the Middle East, with Syria, Egypt, Libya and some unrest now also in Saudi Arabia.

And I know that Saudi Arabia is a good revenue generating country for you guys.

So update on it, pipeline issues, discussions, anything you can discuss that will be helpful.

And I have some more questions.

Thanks, Trip.

This is TK.

Maybe I'll take that question.

So here's what it is.

From a pipeline perspective here's what we see.

If you look at Japan, I think Japan has gone through a fairly tough time.

Our exposure to Japan is 1.5% of our top line and to that extent we're not really too affected.

What we expect to see after this is that we expect that with spending coming into the economy, we'd expect to see significant outsourcing beginning.

But you know it's a little too early to call, because we've gone through this in the past with Japan.

I guess every three years we expect to see a huge hike especially offshoring and finally at the end of three years, we have said we're disappointed.

So right now in the current year's plan we haven't factored in anything very significant as far as Japan is concerned.

But if opportunities do come up, I'm pretty sure that given our presence in Japan we'll be well positioned to grab it.

As far as Saudi Arabia is concerned I think it's a completely different matter.

In Saudi Arabia, we have a fairly large presence and really as far as Saudi is concerned, we have not been affected in any form or shape.

We've not seen softness in demand.

We've seen demand at the same level as last year.

And to that extent, it's business as usual.

So I guess the bigger concern would be parts of Europe, Italy, Greece -- not that we have great business in those two countries.

But Portugal, Spain, Ireland and the impact of this on the euro, that would really be something that we'd be worried about.

But right now, we're not seeing that.

In fact, we're seeing in Germany and in France, especially Germany, production capacities are completely maxed out.

For example, if you want to buy a Porsche today maybe you'll have to wait for three months to buy it.

That's the kind of level of demand that they're seeing in some markets and especially in Germany.

Interesting.

A question on the vertical you mention in the prepared remarks regarding Analytics.

Should we think it like a knowledge process outsourcing or is it the product implementation that is the way that we should be thinking about it.

Neither, Trip.

In fact, maybe what I should do is I should ask Bhanu who runs our retail vertical to come and give you a flavor of what we'll do in the retail space.

Hi Trip, this is Bhanu.

I manage the Consumer and the [Retail] side of the business for Wipro.

We are seeing a significant amount of traction on the Analytics.

I think, as TK mentioned, most of this Analytics activity is around applying the business domain knowledge that we have to the various phenomena that we see and coming out with insights that help the business.

For example, if you look at the Consumer side, understanding consumers, categorizing them and ensuring that you serve the various segments of the consumers, to the extent where you possibly want to be able to provide promotions that are very relevant for an individual consumer rather than to a group of consumers.

So that's the level of insight that we're looking at, understanding their buying behavior, shopping behavior and the kind of products and the kind of services which they would like to consume.

So while the mechanics of all the analytics is there, in terms of infrastructure required, data collation, data analysis and so on, what is different is in terms of applying the business knowledge to the insight that you get, to give a capability for our customers to win in their marketplaces.

Thank you, Bhanu.

And I have a last question.

It's regarding data centers.

In the US there is some industry consolidation that is happening and probably there are a few data centers that you picked up and I think Infocrossing and SAIC recently.

I was wondering, how do you see data center space evolving and the role that Wipro may be doing in light of two things.

Number one, what different expertise do you think Wipro will need to be an effective -- to be effective in data center outsourcing or data center operations?

Second, there are issues or I would say there's some emerging trends where the companies are buying bulk computing capacity from Amazon.com's EC2 platform and then providing services through EC2.

For example, the whole Zynga and (technical difficulty) are now -- even Netflix is totally running out of Amazon EC2.

So my question is do you think buying data centers is a good strategy or buying bulk computing capacity from EC2 would be an interesting strategy.

And that's all from me.

Trip, so two parts to the question.

I'll get Martha to answer the data center question.

And what I'll do is just to clarify with the SAIC acquisition -- and by the way we haven't acquired SAIC, we've just acquired the oil and gas assets.

On that acquisition, there's a very -- we've not acquired any data center.

That's an upstream E&P play and fundamentally what's happening today is that 5% of our revenue comes from upstream.

By having -- and in every oil company, almost 80% of the IT budget is getting refocused towards E&P.

And we believe that by having SAIC's oil and gas assets along with us, we can create a significant differentiator in the marketplace.

I think that's the rationale and the strategy behind that acquisition.

On the data center space, Martha is the best person to answer.

Martha, would you --

Thank you.

Hi, Trip.

So just briefly on the data center, so we feel that with our data center play we have a competitive advantage when we provide a total solution to our customers, when we're looking at ITO.

And that's an integrated solution, where we do a combination of managed services or part of that.

And so it fits nicely into our overall IT strategy, ITO strategy.

We will expand as our business continues to grow.

We provide a high quality of service through our data centers.

And we find that our discussions with our customers are very strong and they become a lot more intimate when they outsource their services to us.

So we're very bullish about it and we will continue to grow the centers as business grows.

It's basically a business decision.

Thank you.

Thank you, Mr.

Choudhury.

Our next question is from the line of Nabil Elsheshai of Pacific Crest Securities.

Please go ahead.

Hey guys, thank you for taking my questions.

First of all, on one of the comments earlier, you had mentioned retail and --

Nabil, could you be louder please?

Yes.

Is that better?

Certainly.

Okay.

You guys had mentioned retail CPG being strong.

There has been some concern with some of the gas prices going so high that you'd start to see those verticals pull back on spending this year, from the higher gas price on retail spending.

I was wondering if you look forward and you look at your pipelines, what are you hearing from those verticals in particular on spending plans for the rest of the year.

Nabil, what I'll do is Bhanu who runs our retail vertical will answer this question.

Hi Nabil, this is Bhanu.

I manage the retail consumer goods part of the business.

What you said is true, Nabil.

Definitely there is a bit of uncertainty in the consumer spending.

At the same time I think it's a perfect storm in the sense that as the commodity prices go up and the prices of the goods are likely to go up and the oil prices are going on and the proliferation of various devices, smart devices, I think it's the perfect time for the online channel to become much stronger.

And you're seeing that sense already in the marketplace.

If you could look at some of the online data of various retailers, their online numbers are going up very strong.

It's also giving them an opportunity to experiment with different kinds of things with online, as you can easily imagine.

You don't have to necessarily do a lot of store changes to do changes at online.

So while there's a bit of uncertainty in terms of what the future could look like in the consumer confidence side of it, I do believe that it's a great time for the omni-channel competencies of the retailers to be tested.

Okay, great.

And then could I ask a little about the service lines.

We've seen some other vendors in particular see a particular strength in package implementation.

What are you guys seeing there in terms of ERP and application refresh, application modernization?

Paddy, you want to speak about E&U vertical?

This is Anand here.

I manage the energy and utility vertical for Wipro.

So from an E&U perspective when you're looking at package implementation, if you're looking at most of the utility customers, there is a whole lot of transformation which we believed would happen in terms of setting up new processes, new packages implementation and the transformation in that complete retail outlook.

So we're seeing a lot of momentum there and we have been picking up a lot of deals around package implementation on the utility segment.

If you look at oil majors, I think most of the package implementation part on the retail front and the core part has already been done.

Now we're primarily focusing on the domain specific applications and petro-technical applications wherein they are trying to figure out how to optimize and better the yield on the upstream.

So there we don't really see too much package implementation.

We are seeing niche, specific packages for oil and gas being implemented but not so much on the core ERP.

I suppose that answers your question.

Yes.

And then I guess on the reorg, I have a few questions here.

So I'll try and filter through them.

One, you guys have been investing for a little while on building out on the front end and building out your sales and marketing presence, particularly locally.

So where are you in the process and does that -- do you attribute that process to the very strong new customer additions this quarter that you saw?

I think there are a couple of, Nabil, which I'd like to clarify.

Fundamentally what we're doing is as far as the new customer acquisition is concerned, a significant portion of that, I think 31 of them have come from the India, Middle East market.

So while that is something that is -- the numbers look great, I guess the key for us is to make sure that going forward, we're able to do mining of our accounts, add minor accounts as (inaudible) as we would like to.

And that's really where the investment is going.

On the front end, really what we're doing is that we've created what we call as a client engagement manager model.

And the client engagement manager is supported by a solutions architect as well as a delivery guy.

And it's his job to go out there and see what they can do in selling new solutions back into customers and also to widen and broaden the base of access.

Those are the two areas that we're really working on.

And that's what we're trying to do to make the client engagement model, manager model effective.

And -- so can you help me understand the timeline there?

So when do you think that will have an impact or have you seen evidence of that being successful so far?

I did notice you -- in some of the larger customer numbers in the US as well?

So some of it has been effective.

So our performance there, I wouldn't say -- on a scale of 1 is to 10, I would say is probably about 3 or 4 is where I'd put it.

I think we have a way to go there.

But what we've done is wherever we've done it well, we've seen extensive client growth.

A good example would be that today we have three $100m accounts and one account which has got a run rate as of now of $170m.

So that's a reflection of how well we've done.

But there's space to do better.

Okay.

And then looking at the verticals, just so I understand, you talked about more mature.

Where do you still see the growth opportunities for you guys from a vertical perspective?

So is BFSI mature and the oil and gas and some of the newer ones?

Or is it the larger, more mature ones where the larger growth opportunities are?

Here's what happens.

If I were to look at verticals that may go through hyper growth, verticals that would go through normal growth and verticals that would go through lower growth, I would say very clearly, anything around natural resources is going to be really a strength.

It's going to be a hyper growth vertical.

And the reason behind that is pretty simple.

It's the commodity crisis.

And the amount of investment that's going into both O&G and in natural resources which is metals is massive.

And we see that being an area of growth.

We clearly also see the utilities business being an area of growth and especially with new solutions like smart grid coming in.

But these are more driven by regulatory changes, not necessarily by basic demand.

Other verticals, for example, retail and CPG again, we see growth there.

We see growth in the pharma side of healthcare and we see growth clearly coming out, coming at us from banking and financial services.

So those are four segments.

Okay.

And then the last question from me, switching gears a little bit on the wage side.

I think you'd mentioned 12% to 15% for this year on offshore wage increases.

Is there -- do you see any risk that ends up being higher with everybody hiring pretty aggressively with a lot of offshore vendors seeing significant growth opportunities?

Can you see wage inflation getting a little bit out of control and ending up above that high end of that range?

Our wage inflation if you really look at it, it's -- the impact of that is spread.

The way it's being distributed is not completely equal.

So if you had to break out the skill sets that we need for the future, and the skill sets that we're going to be hiring for the future, really what would happen is that the architecting layer, business architecture and the technical architecture layers that really would take the bulk of the compensation increase.

Because that's where I guess the future of the industry would lie.

As demand moves more towards change the business rather than just run the business the kind of people that you require at the front end is also going to change.

And the vast majority, the majority of the comp increase will be taken up by that particular category.

As far as the balance is concerned, we don't expect to see significant growth in terms of compensation because the idea is really to reward people with a higher compensation who can bring you higher revenues both in terms of billabilty as well as in terms of charge out rates.

Okay.

All right, thank you, guys, for taking my questions.

Thank you.

Our next question is from the line of Mark Zgutowicz of Piper Jaffray.

Please go ahead.

Hi, this is John Crowther on for Mark.

A real quick question here.

You guys have obviously put an emphasis on increasing fixed price contracts as a share of the overall business.

I'm wondering if you could talk about -- now that you're at a level, at or above most of your peers -- the impact that had on margins over the last couple of quarters and where you see fixed price going as a percent of revenue and how that can help margins over the next year or so.

I think my colleague Manish Dugar who's CFO of the IT business will respond to it.

John, hi.

Manish here.

Fixed price projects is merely a reflection or an outcome of the bigger initiative we are trying to drive which is around non-linearity, value-based pricing and outcome-based pricing.

And our intent is to move away from doing T&M projects and deliver an outcome to the customer for which we can charge a value-based price.

And obviously once we are able to do that, it leads to a disconnect or rather a disassociation of input cost with the value that we deliver to the client.

And it gives us the ability to charge a price which is no more -- we don't compete only on price but on the value delivered.

So it poses two challenges.

One is obviously it means we need to have a better understanding of the domain, a better understanding of what outcome we are committing to and how confident are we.

And hence our investment in the whole consulting, solutioning and the understanding of the domain.

And having done that, our experience has been that while fixed price projects do bring in a little bit of lumpiness in terms of revenue, like we experienced in quarter four and is now going to recur in quarter one, but in general the profitability in our experience has been that fixed price projects do deliver better profitability.

What it also does is it gives us a lot of operational flexibility.

For the same deal that we would have delivered on a T&M project, in a FPP we have a flexibility of doing more offshore; we have the flexibility of deciding what resources what we will put.

And it's a win-win because the customer gets a better price and the value and we get to to deliver it at a lower cost and better margin.

Okay.

Thank you very much.

Thank you.

Our next question is from the line of Rick Eskildsen of Wells Fargo.

Please go ahead.

Hi, thanks a lot.

Just a few questions, first on the pricing.

I just wanted to make sure that the pricing was up on a like-for-like basis or did it reflect a mix shift into the higher priced services like Consulting and Package Implementation.

Rick, Manish here.

What we report is the realization number and realization does have an implication on the mix of business, geography from where it is served, currency in which it is served.

And on a constant currency basis as well, we had an expansion in our rate realization in Q4 over quarter three.

So far as mix of business is concerned if you see the growth momentums from a service line perspective have partly been Consulting and partly been TIS which is infrastructure outsourcing.

And they have a kind of compensatory effect.

So while we have not done a detailed mathematics to analyze whether it's an impact of mix, the fact is that the realizations have moved up.

And in many cases, it can be to do with the geography from where it is served and it can be to do with the -- customer mix also may actually have an impact.

So to answer your question in a little short form, on a constant currency basis, there has been an expansion in rate realization.

We have not done our math to check whether it is a mix impact, but I would assume it will not be significant.

Okay, thanks.

And then also, on the wage increases there, as of June 1 this year, is there a change from how it's been in the past?

And what kind of impact are you expecting, as a result?

So let me ask my colleague, Saurabh, to respond to that.

Saurabh is the head of HR.

Hi, it's Saurabh here.

So from a wage increase -- we have announced, it will be effective June 1.

And the plan for increase for offshore employees will be in a range 12% to 15%.

And for our overseas employees, it would be from 2% to 4%.

This would also include a promotion cycle, which will also be effective June 1.

So the entire cost will including of these two.

And the question is it different than what the process we were following before?

(multiple speakers).

From a process point of view, the change is that we have announced the date.

We have made the decision this is going to be the date that we will move forward.

Mostly the process has not changed.

It's more in terms of the clarity and (inaudible) the dates, as we move forward.

That's what's happened.

June 1 will be what the decision is to move to the new process.

Yes.

Okay, so that's going to be the new timing for wage --

That's correct.

That's correct, yes.

And that will be for both on-site and offshore and including so-called across-the-board promotions [at the same time].

Okay.

The question was last time it was done in February, so he's asking whether we're changing the cycle.

Yes, we did.

So therefore, now onwards it will become June 1.

Okay.

And what was the reason for changing the cycle?

(technical difficulty).

It really was flexibility.

We just didn't want to have -- to be in a position where we kind of keep changing it every year.

We'd just like a (technical difficulty) that are employed.

I think what happens is without that, over a period of time you end up moving the number on a fairly frequent basis.

And it just creates (technical difficulty).

Also first (technical difficulty) the time when we finish our appraisals.

The appraisal cycle is out just around that time.

Okay, thanks.

And then last question is just could you give us what your tax rate assumptions are for this fiscal year?

Yes.

So while we do not give any [particular] guidance with respect to that.

But there are two, three factors that happened with respect to the budget, A, the software technology part tax holiday, which has been getting a renewal every year for years, has not got that this year.

And B is the MAT tax on the special economic zones has disappeared from this year.

So a combination of those two or three things will impact about 300 basis points plus to the normalized rate that we had for the financial year FY '11.

Okay.

You said 200 basis points above the rate --

It's 300 basis points.

300 basis points.

That is correct.

Okay.

Thank you very much.

Thank you.

(Operator Instructions).

Our next question is from the line of Swami Sundaram of Morningstar.

Please go ahead.

Thanks for taking my question.

I'm sorry to interrupt.

Yes, Mr.

Sundaram, please could you increase the volume on your phone?

We cannot hear you.

Sure.

My first question is related to BFS.

We are not able to hear, Swami.

You need to either take off the speakerphone or talk in another phone.

Okay, sure.

Am I audible now?

Hello?

Yes, (multiple speakers).

Sure.

My first question is related to BFSI.

Historically, you guys have been lagging behind your competitors.

And I think one of the initiatives (technical difficulty) focused on BFSI.

Could you talk about the different measures that you have taken to increase the revenue contribution?

So let me do one thing.

Let me ask my colleague, Soumitra who runs the BFSI business to respond to that.

But you are hardly audible, so can I request you to repeat your question, please?

Sure.

My question was --

(multiple speakers) the question.

How much in fact we are lagging behind in BFSI and what are the initiatives we have taken for the potential growth in this sector?

Okay.

So I just wanted to give some data points in terms of the perception of lagging behind.

So first of all, over the last eight quarters -- so we have grown 6% to 8% sequential basis for the IT services space which has been either equal to, barring two quarters, or higher than competition.

It was only in two quarters where we were lagging behind others.

And the principle reason for that was some large integration projects which our peers had picked up in the M&A transactions in their customer base.

But as of, say, quarter three, we were at par or higher, compared to our peers.

Going forward, we intend to have a growth which is fairly robust.

And the four or five things which we are really doing, in terms of getting that growth, you know in the market today there is a whole lot of discretionary spend which has opened up.

So we are in catching all the opportunities which has come out because of that.

So just to give you some specific examples that, say, in the insurance space, a lot of the insurance companies are looking at revenue growth initiatives.

So for many of the insurance companies, the policy administration engine, which is not a very flexible system that they're having.

So there is an opportunity in terms of replacing those by more flexible systems, either in the form of package or in terms of legacy modernization.

So that is one clear area, in terms of discretionary spend.

The second is the area of the regulatory changes and compliance reporting.

So we are coming out with a whole new offering to address that particular opportunity.

So, for example, one of the news items in today's press release is a project which we won in a new account around Solvency II, which is typically because of the new offering which we have in the regulatory space.

The third is emerging markets.

That's a big space where people are playing it.

And with many of our customers who are either global or domestic BFSI customers in the emerging market space, say, whether it's Halcyon or AMZ, we have been catching the opportunities by offering specific solutions, which will enable our global customers to expand opportunities in the emerging markets.

The cost play element.

So we are having specific solutions around that.

And take, for example, the buy-side market, which is still fairly challenged in terms of the bottom line.

So we are helping them in infrastructure, outsourcing and BP outsourcing, something that they would have otherwise not done.

So revenue initiatives, regulatory compliance initiatives, emerging market initiatives, and the initiatives around cost, these are the four or five things which we are doing.

Thanks for the color.

My next question is related to attrition (technical difficulty).

Attrition has been trending down, but it's still above the (technical difficulty) percent mark.

My question is when do you expect that -- do you have any kind of timeframe?

I know it depends on the macro thing.

But when do you expect that to trend down?

My second question is in addition to wage increase, what are the other initiatives or the structural changes that you guys have been doing to keep it under control, because at some point in time if the wage inflation continues at this level, the growth would come at the cost of margins.

I believe Saurabh will respond to that.

So Swami, two or three parts to your question.

Let me answer each one of them.

So first I will speak on the wage increase.

And yes, we have planned a wage increase, effective June.

And we've given a rate of 12% to 15% increase.

But I must also -- and you are concerned about impact on margins.

But I must also share at you that we are doing this increase after 16 months.

The last increase we had done -- wage increase -- general wage increase was in February of last year.

A second point, from an attrition perspective, over the last three quarters sequentially, we have seen a decline in attrition.

However, given the re-org, given the changes and the volatility in the market, we feel that we need to be -- we need to look at this area over the next few quarters before wages can settle down.

Attrition will be an area which we'll need to be -- require continued focus over the next few quarters, before we see some stability in this area.

That's on the attrition front.

On the wage front, I mentioned to you.

I think my question is more on the long term.

So in addition to wages, what are the initiatives that you guys have been taking so far to keep it in check, your attrition in check.

(technical difficulty) talent because if I look at the national forecast for the next four or five years, demand is definitely there but you also have supply constraints, so --

Let me -- from a long-term perspective, first of all the change that happened is currently being extremely welcomed in the organization.

People are feeling that the organization's become faster, simpler, more agile and more customer-centric.

That's what people (multiple speakers).

And from that perspective, losing talent is something which we'll have to keep our eye on.

But I see that there is a very positive momentum in the organization towards the restructuring right now.

However, as you said -- I think you had mentioned in earlier discussion, what we are trying to do is that attrition has a lot of levers.

It's not only the financial levers.

Other levers which are there, in terms of the non-financial ones, is something which we're again trying to work towards deal with too, in terms of one of the key things which we have tried to do, from an entire process, in terms of how we're becoming more open and predictable in all our processes, which I think has been, again, a very welcomed -- received by all the employees.

So I think the changes in our basic structure, aligned with our goals and objectives of the organization towards the customer, long-term growth opportunities, as well as the stated -- the monetary benefits which we are looking at, the combination of all these will help us long-term with any attrition.

And also, Swami, to supplement this -- and I thought your question is also in terms of the long-term supply, reliability, etc., etc., if you look at today why we have so many engineers coming out of the colleges.

The deployability of all of them is not as good.

And therefore, we have programs called (inaudible) which is to be able to, in some form, enhance the (technical difficulty) education in those colleges, to have students coming out of those colleges who are more adept, to be able to take them aboard and they become more deployable than so far they have been.

In fact, after having taken this initiative by us for about two years, I think today now even NASSCOM, which is an association of the IT services in India, has also taken it up to be able to take it to various other campuses which like we have been restricted to a few of them.

And the second thing that we're doing is also in terms of augment of resources.

A lot of activity, a lot of IT services that we offer can have non-engineering talent which can be deployed.

For example, one we have in the Academy of [Excellence] where we hired [BSC] students who go through a program while working in Wipro, and at the end of four years, get a BS degree.

Similarly, there are a lot of services in the IT infrastructure (inaudible) where you are able to deploy people who are non-IT, and therefore augment the supply from a variety of sources, as opposed to only engineering talent.

I have one last question.

Could you talk about the trends in the healthcare?

It has been coming down but if I look at the general market, I would say from some of your competitors, it's kind of (technical difficulty).

So could you put some additional color on that and what you plan to reverse the momentum of this?

Maybe I can answer your question.

This is T.K.

Kurien.

So there are a couple of things that we see, as far as healthcare is concerned.

I think if you look at it last quarter, there was a growth of 2.7% sequential.

And the way we look at the space is that there are a couple of -- they are really broken up into three categories.

One would be the pharmaceutical companies and the life sciences companies.

That's one category by itself.

The second is the payers and the third is the providers.

On the provider side, we really don't have too much penetration, as far as the market in the US goes.

I think most of our penetration is on the pharma side and the life sciences side, along with a small presence or a medium-sized presence in the payers space.

On the payers space, we find a significant traction as people build up infrastructure.

But on the pharmaceutical side, we see a lot of work coming in from a data analytics perspective, especially around life sciences.

So that's what we are broadly seeing, in terms of trends.

As far as, I think, the entire space is concerned, a large part of the spend in this space, especially in the first two, is driven by regulatory changes.

And to that extent, it's a start-stop kind of an area.

Pharma, I think is a secular trend in terms of outsourcing.

They are pretty large in it, both in terms of data analytics and as well as in terms of applications outsourcing.

And we're seeing fairly robust demand from that.

That's what it looks like.

Sure, that's it from me, thanks.

Thank you, Mr.

Sundaram.

Our next question is from the line of William Maynard of Citi.

Please go ahead.

Hi.

All my questions were answered.

Thank you.

May we have the last question, please.

Let me check if there are some questions.

I think there are no more on the line.

So ask for a last question.

Otherwise we'll wind up the call.

Sure.

(Operator Instructions).

You can wind up the call if there are no questions.

Sure.

Sir, would you like to add any closing comments?

Yes.

Thank you for your active participation.

In case you have any further questions, the IR team in India and the US will be happy to talk to you.

Thanks once again.

Thank you very much, members of the management team.

Ladies and gentlemen, with that, we conclude this conference call.

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

And you may now disconnect your lines.

Thank you.