Wipro Ltd (WIT) 2012 Q1 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 Limited earnings conference call for the first quarter ended June 30, 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 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 IR team, a very warm welcome to all of you.

This is Sridhar, and I'm joined by Raj and Aravind from IR team in Bangalore.

We are pleased to host Wipro's 1Q FY12 earnings call.

Regarding the materials for this call, we issued a press release actually late night yesterday 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 ended June 30, 2011.

They are joined by T.K., CEO for IT business, and other senior members of the Wipro management team will be happy to answer your questions.

T.K.

will share his perspective after Mr.

Premji on IT business, organization change and way forward, market trends, momentum verticals, and key focus areas.

As always, elements of this call and the management's view may be characterized as forward-looking under the Private Securities Litigation Reform Act 1995 and are based on management's current expectations and their associated uncertainty 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 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 1Q '12 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 or call.

During this call I am also available on email and through mobile as well as 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, Wipro.

Good day to all of you.

Let me just quickly cover the highlights of our results for the last quarter vis-a-vis Wipro Corporation, the IT business, the macro environment, our Consumer Care and Lighting business and Wipro Infrastructure Engineering.

Wipro Limited recorded revenues in quarter one of INR86b, a year-on-year growth of 18%.

Net income for the quarter at INR13.3b.

The IT business, the management team has settled into the new structure.

And there is more optimism in the organization than three to six months back.

We are focusing our energies on deal conversion as well as world-class execution.

We are making appropriate investments to create differentiation in the marketplace and would like to get back to good growth rates.

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

I will have T.K.

give a broader overview about the IT business a little later.

The macro environment continues to be volatile.

It's impacting the various businesses differently and we're watching it closely.

Customers are prepared for a longer period of economic uncertainty, and are looking for avenues of growing their business in such an environment.

In IT business we have not seen any change in decision-making cycles or in customer buying behavior and overall environment continues to be very positive.

Wipro Consumer Care and Lighting.

Our Consumer Care and Lighting business continues to do well.

Santoor continues to be the number three brand in India in value terms in toilet soap category.

Unza is doing well across the geographies we operate in.

Yardley has been performing much above expectation.

We will seek leadership positions in personal care in India, in Malaysia and in Vietnam.

Wipro Infrastructure Engineering.

The Asia and Latin America are clearly emerging as the highest growth markets for hydraulic cylinders, driven by significant investments in infrastructure development.

We have entered the Brazilian market through acquisition of RKM.

They are a leading player in the Brazilian market.

We have set up new capacity in China.

We are excited about the growth potential in this business, particularly in the developing markets.

Let me talk a little bit about our EcoEnergy business, which is part of our IT business.

We have seen a great opportunity in EcoEnergy, our clean tech business, as customers become increasingly aware of the importance of the ecological sustainability.

We help our customers reduce their energy footprint, recover energy losses in their energy deployment and replace conventional wind -- convention energy with renewable energy resources.

Overall, I see an exciting future for the Company, and I am confident we are on the right path to the fundamental restructuring and redirection we have put into our business operations.

I would now require T.K.

to give a brief overview about the IT business, followed by Suresh Senapaty who will give the financial highlights.

Good morning, ladies and gentlemen.

Our journey towards building the Wipro for tomorrow is underway.

Our blueprint for change is in line with new business reality where speed and agility and information are not seen as threats but as opportunities.

As we make this transformation as an organization, there has been an impact in the near-term performance.

As guided, our quarter was relatively muted with revenues of $1.4075b at a sequential growth rate of 0.5%.

However we exit the quarter with a much more positive outlook.

The new structure is showing --- starting to show initial signs of delivering results.

Let me share the reason for my optimism.

We are starting to see an uptick in the order book of some verticals that we [technically] called out as momentum verticals.

We have seen traction in analytics and I'll talk to you a little bit about what we are doing there.

Our focus market investments are doing well.

Our client engagement management structure is in place in some momentum verticals, and we are seeing -- starting to see account sizes scale up.

The average size of our top 10 customers crossed $100m.

And we have four customers with revenue contribution of more than $100m this quarter, up from three last quarter.

These are early days, but encouraging signs.

More importantly, the way we see the market is that IT is transforming from a support function to a source of competitive differentiation in customer organizations.

Customers are increasingly leveraging technology to innovate and differentiate in the marketplace.

As this transformation happens, it bodes well for the future of Wipro, especially because we have the process capability, the deep technology capability, the engineering capability and more importantly the consulting capability to integrate all this into a solution, after proving the business case.

This is really where Wipro with its breadth of components within can make an impact.

The [path of harvest] these opportunity would have an impact not only on the current and future needs of our global customers, but more importantly offers superior career opportunities to both our employees and business to our eco-system of partners across the world.

Broadly, the future that we see is shaped by four megatrends.

One is what we call the consumerization of IT, where productivity is really the core of everything that's done.

The second is about the variabilization of IT which is theme there is all about business agility.

The third is innovation to win in a world of constraints which links back to what we call frugal engineering.

And the last and probably the here-and-now opportunity where you're seeing traction in is analytics-driven experimentation and performance improvement programs.

As an example, I will touch upon what we are doing in the analytics area.

As competition in the global marketplace is becoming intense, leading companies are using analytics and leveraging big data today to outperform their peers.

As an example, our retail business can potentially increase operating margin by almost 60% by using analytics effectively.

Wipro has created a whole bunch of intellectual property around it along with solutions.

And we're already helping customers to do what we call business better.

And we continue to show traction in this space, and new deals are getting signed on a regular basis.

As an example, our analytical solution helped a global broad line retailer increase its sales with a higher price realization leading to a $20m increase in profitability and revenue.

We have also partnered with a high-tech manufacturing company to establish a predictive system which can provide early visibility into product quality issues.

These are just a few examples of what Wipro is working on.

Behind this are the technology platforms of mobility, cloud and analytics, which remain the foundation of the solution layer of the big piece [set above].

The foundation for the new Wipro is in place.

We hope to build upon it, take advantage of the environment in front of us and help our clients outperform their peers by leveraging technology.

As we continue to enable our clients to do business better, this will reflect in a better outlook for us.

Thank you.

Over to Senapaty.

Good day, ladies and gentlemen.

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 June 30, 2011 for cable transfers in Indian rupees as certified by the Federal Reserve Board of New York which was $1 equal to INR44.59.

Accordingly, revenues for IT Services segment that was $1,407.5m or in rupee terms INR64b appears in our earnings release as $1,436m based on the convenience translation.

Our IT Services revenue for the quarter ending June 30 was $1,407.5m on a reported basis, a sequential growth of 0.5% and a year-on-year growth of 16.9%.

Our acquisition of SAIC contributed $10m to our revenues in the current quarter.

Our guidance restated on the basis of actual cross currency realized was $1,389m to $1,417m and our organic revenue of $1,398m is in the range of our guidance.

However, as the organization settled into the new structure, there was muted growth across segments which do not necessarily reflect the underlying demand opportunity there.

We saw energy and utilities show strong growth of 14.4%, 7.5% organic.

Analytics had a strong quarter with 7.6% sequential growth while APAC and other emerging markets showed double-digit sequential growth.

I said last quarter that client engagement is our top priority.

In the current quarter, on a trailing 12 months, we have four accounts which are more than $100m in revenue, up from three.

On a quarter annualized basis we have six, up from five.

In addition to farming our customers, we have also opened 49 new logos.

This positions us well for growth going forward.

Volume growth in the current quarter was 1.8%, 1.4% on an organic basis.

However, we saw onsite volumes grow much faster at 5.8%, 4.9% organically as new projects started to increase.

We saw a drop in revenue productivity with onsite realization dropping by 0.8% and offshore realization drop by 0.4%.

We are seeing stable price environment -- pricing environment.

The voluntary attrition was flat.

We have given our annual cycle of wage revision effective June 1, 2011 and we expect attrition to trend down as we go forward, including the current quarter.

Operating margins for IT Services was marginally down at 22% with impact of salary increases for one month and drop in revenue productivity offset by gains in ForEx and other operating parameters.

As on June 30, our days of sales outstanding was at 77, up from 70 in the previous quarter.

This increase is more due to temporary mismatch of milestone billing and revenue recognition, which we expect to correct from the current levels going forward.

Our IT Products business showed a 21% year-on-year growth in revenue in the current quarter and EBIT growth of 26% year-on-year in the current quarter.

Consumer Care and Lighting business continued to see good momentum, with revenue growth of 18% year-on-year.

On the foreign exchange front, our realized rate for the quarter was INR45.50 versus a rate of INR44.91 realized for the quarter ended March 31, 2011.

On a quarter-on-quarter basis, ForEx gave us a positive impact to margins including the benefit of cross currency of 1.7% H1.

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

Our OCI losses reduced to [INR967m, about $22m, in the current quarter from about INR1,226m] in the previous quarter.

The effective tax rate for the quarter was 18.9%.

Our net cash balance on the balance sheet was $1.3b.

We generated a free cash flow of $30m during the quarter, impacted by higher days of sales outstanding.

Our guidance for the next quarter is 2% to 4% sequential revenue growth of IT Services, which includes around 2% contributed by SAIC, all in GAAP (inaudible).

We'll now be glad to take questions.

Thank you very much.

Operator, we can go ahead with Q&A.

Yes, sir, thank you.

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

(Operator Instructions).

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

Please go ahead.

Hello.

I guess my first question is obviously you expected results to be a little bit lighter this quarter, given the changes.

But I wonder if you could give us a little bit more color on how some of the changes that are taking place is affecting your ability to drive revenue?

Is this something that's happening at the CEO's level?

Is this something that's happening at structural level?

And why would revenues go back, given the changes in the structure?

So Joe, maybe -- this is T.K.

Kurien, let me answer that.

So here's what happened.

If you look at our structure in the past, we had a three-axis structure.

And that moved to a single axis with a vertical head basically holding responsibility for both sales solutioning and delivery.

So that's an integrated structure that we have created.

What is interesting about this is the fact that we have really gone after our momentum verticals and made sure that those momentum verticals are called out separately.

And we actually have made significant sales investments around that.

So if you look at our sales and marketing expenses, they've actually gone up by 0.6% this quarter.

And what we have done, this change has been a fairly large change in the field.

I think kind of disrupted the field for, in our view, for about 45 days.

We're seeing far more solution-led activity out there.

And the pipeline is slowly building up.

And we see the impact of this pipeline liquidating itself we believe in the next two quarters.

That's where we are.

It looks like those spending decreases, those revenue decreases in some different verticals and then also among your top clients.

Maybe you could talk about any areas that were separate from associated with the changes that you saw, some weakness.

So from an industry perspective, I guess to some extent it was portfolio-based.

So if you look at industries like, for example, if you look at service lines like BPO, we are changing our business mix there.

We have also gone through a change of leadership there recently.

If you look at manufacturing and high tech, we have had a 0.5% growth.

If you look at telecom, there again, what's happened is that we've had some slowdown coming in.

But again, in all these businesses, what we're seeing is that I won't call quarter one an aberration completely.

But what I would say is that I think what we're trying to do is recover from a weaker pipeline and trying to improve it as we go along.

Okay.

And then I wonder if you could just talk about general industry trends.

I notice that pricing's been flat to down for a lot of the vendors.

If you could talk about deal sizes, pricing and then issue general feel for what's going on in Europe in the macro economy?

So what I do is that I give you a sense of what's happening by way of geographies.

And Rishad, who's our Chief Strategy Officer, can give you some color on our accounts strategy.

So on the geo-structure itself, or the geo itself, here's what we're seeing.

Overall, if you look at different industry segments, if you look at banking and financial services, we are seeing a fairly decent pipeline on the insurance side.

And on retail banking too we're seeing a fair amount of traction.

In fact, if you look at some of the wins that we have had recently, these primarily come from retail banking and another one from securities.

We see investment banking, especially investment banking in Europe, being an area of weakness, primarily driven by structural issues coming out of Europe in certain geographies.

As far as manufacturing is concerned, strong in Germany, strong in Japan.

In Europe, overall I think we're seeing strength, in the US I guess it's a function of two things, our coverage and this customer base.

So there our effort is more in terms of hunting.

If you look at telecom, again the benefit seems to be coming in, the growth seems to be coming in really from the emerging markets as far as the service providers are concerned.

And as far as equipment vendors are concerned, we see engineering business on the uptick.

Media business continues to be strong.

So it's a mixed bag right across.

So geography -- US overall I think we have ways to go in terms of performance.

And that's what we focused on in the quarters to come.

Europe has traditionally been strong for us, including what we call the focus geography, where typically our growth rate has been pretty significant this quarter.

Rishad, do you want to add anything to the accounts strategy?

Yes, the (technical difficulty) that we're driving is a clear privatization of our investments across accounts that have the potential to be big for us, right?

So what we have done this quarter is divvy up all our accounts into three broad buckets which are key accounts, slow accounts, and [deal] accounts.

The idea is deprioritizing, i.e.

move out eventually of flow accounts and really to focus our investment on the key accounts.

So we've identified about 600-odd accounts that we really believe are the future of -- future areas of opportunity in terms of targets for us which are really broad-based across geographies as well as across the different industry verticals that we have, and all our investments and prioritization is really focused around these accounts to try and get to break into these accounts and then drive traction within these accounts also.

Okay, thank you.

Thank you, Mr.

Foresi.

Our next question is from the line of Edward Caso of Wells Fargo.

Please go ahead.

Hi, good evening, thank you for taking my call.

I'm curious on how things are going --

Could you speak a bit louder?

I'm curious how things are going on the staffing side.

Your ability to attract, your attrition numbers, where you see the trend going in the coming quarters and the relative mix between lateral and fresher hires, and how that'll phase in the next few quarters?

Thank you.

Ed, this is T.K.

Let me give you a quick, two-minute perspective of the way we see attrition going.

And then I'll hand it over to Deb, who's our Chief Delivery Officer, to give you a sense of what's happening in terms of lateral versus the rest.

And then Saurabh can pitch in at the end to give you a sense of how we're able to attract talent.

So we're going to make this a group affair, if you don't mind.

So I'll start with attrition itself.

So there are a couple of things we have done with attrition.

Last quarter, if you look at the month of April and if you look at the month of July, we've seen a 5% decline in attrition, month -- from April to July.

So we're pretty confident that as we go out of this quarter, that's quarter two, we will do certainly better in terms of attrition.

Attrition to some extent was caused by the organization change.

We had several managers who did not have positions left in the Company.

They were great people; they've left us, and we wish them all the best.

But that's fundamentally what drove a significant number of other people to leave the organization at various levels.

And it's interesting to see that if you look at our attrition numbers, 8% of the attrition was caused by people on the bench -- and out of the 23% that you see there today.

On the second piece, in terms of our laterals versus the rest, maybe Deb, you can add?

Yes.

Hi, Ed.

We have been roughly this year running two-thirds, one-third between, say, fresh graduates and laterals, approximately.

And going forward, we want to push that number up a little more.

So, we see going forward somewhere around 70/30 as our lateral.

In the lateral being 30 and 70 being the fresher mix.

We have made enough offers in the campus depending on what we needed.

And we also are expanding some of our other programs which take in people and actually sponsor them for courses.

So overall, I guess we are pretty much well fixed for the campus hire lot.

Hi, it's Saurabh here.

A quick one on attracting talent.

So apart from the volume, hiring, attracting talent at senior levels primarily on solution architects, technical architects, domain specialists, is what we are focusing on, very clearly, driving this across both on site and offshore.

And we are targeting the best people across the best companies.

That's going to be the focused strategy which we are going ahead with.

Thank you.

Yes, hi, also just following up on that, can you comment at all about what you're seeing on US and UK visas and whether you're seeing an impact with getting that that's having an impact on being able to adequately staff projects?

So here's what's happened, Ed, just to give you a perspective on that.

Visas themselves, we are fairly well staffed for this year.

We don't seem to have a real concern up to the end of the year.

But I think it's more than that.

If you take our numbers, our contract hiring has actually gone up.

And it's primarily because a large part of projects that we're required to start, we need specific skills on time in a particular geography.

So I think that's where the impact is coming.

And for quick startup projects that (inaudible) so we have to hire locally.

Now going forward, how would this change in next year would be that I think we need to really create a group of architects, both business and technical, on site, both out of our (inaudible) location and the US out of London, out of Reading.

So that's really the plan.

So short term no constraints.

Long term, of course there would be constraints.

Thank you.

Thank you.

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

Please go ahead.

Thank you.

There's a tough macro environment there.

I had a question.

We were doing our research and we are thinking, probably we could be wrong, but the dynamics that were being played out within the Taiwanese companies like Acer, ASUS, Hon Hai, Foxconn, those kind of companies, and say the Indian IT services companies like Infosys, Wipro, or Cognizant included, there is a lot of parallelism between the two.

Both set of companies add a lot of value to US companies.

They were very popular during their own times, but since big change in the environment, and even though both the Taiwanese companies and Indian IT services companies do provide a lot of value to US-based companies, the problem is they are still, like if you think about the Taiwanese companies, the multiple compression has occurred and they are trading on single digit P/E ratios.

My concern is, what can Indian IT services company do, including Wipro, to prevent themselves from being in the same situation where we see ASUS, Acer, Foxconn, any course you may have.

Because what I'm seeing, same thing from the industry and our research is that outsourcing, offshoring, was very popular in the last decade, early indications are they'll be important but probably the multiple compressions will occur in this decade.

So any course you may have?

Trip, Suresh Senapaty here.

I think the comparison that you're doing with respect to Wipro and the Taiwanese companies are not necessarily quite apple to apple here, because they are largely semiconductor space, largely manufacturing base whereas here Wipro is largely in the IT services business, with a business model which is much more robust and value-adding in relative terms.

So without trying to comment upon the valuation being fair or not so far as the other companies are concerned, I think here you see this space in terms of the IT services, and the kind of business model and the kind of investment that is happening to be able to be relevant to the customers on an ongoing basis with the change in technology adapting them and responding to the new technologies that get introduced.

So as long as companies are successful in attracting and retaining talent, skilling and reskilling people in terms of the right kind of technology, as they get adopted and become much more prevalent, I suppose the value of these companies should stay far ahead.

Very good.

I have a follow-up question.

During the formal comments we did hear I think from what you may be saying that they -- Wipro is building capacity and competency in big data and big data analytics.

I was thinking, this space as most of us know is huge.

It's a multi-billion dollar market.

And there is no clear winner as of now.

I was wondering, do you think Wipro, by just being focused totally on IT services, may just want to create a product portfolio offering?

Because they are many open source and successful initiatives like Cassandra, (inaudible)DB, MonoDb ,just to name a few, where you can build your own competences, your own products, your own key.

And pretty much commercialize the open source big data momentum, and probably you have the enterprise credibility and it would help delinearize your revenue stream.

Any thoughts you may have on that?

And that's all from me.

All the best.

Thank you, Trip.

This is T.K., and let me give you a two-minute perspective of what we believe in the way that market is going.

So here is what it is.

You're right.

Analytics, the way we see that, there are a couple of things which come together with analytics, cloud, mobility, all these put together.

But these are not the core, these are really the core themes.

They drive big changes on the top.

So when we talked about variablization of IT, all three would impact that.

When you talk about consumerization of IT, everything will affect that.

When you look at cloud, and if you look at analytics, until, unless you build intellectual property of some sort, maybe products, maybe reproducible frameworks, maybe patents where you can keep people out or where you can grab advantage, those areas will become very, very critical because in a cloud environment if you don't own the IP layer you pretty much don't own anything.

Similarly on the analytics side if you don't have the framework and [product] technologies or even algorithms that you can patent which provide a differentiated upstream, fundamentally it doesn't mean anything.

So that's clearly the direction which we are taking.

But it's a hard one to do for an IT services company.

But it's something that's absolutely important for us to do because we're not creating the death of outsourcing but we think outsourcing the way we've seen it in the past may not exist and the outsourcing that we would see in the future will be driven around analytics and the big themes that we talked about.

If I can squeeze in one last question if possible.

Can I?

Go ahead.

Since you talked about the IP portfolio I was wondering, because if you look at what's happening in the marketplace, HTC got pretty much run up by Apple.

I was thinking, do you think moving forward you could on a quarterly basis let us know what is your IP in the patent portfolio, like how many patents you have filed, how many have been granted, how many are pending, how many we may have an official comment on?

The reason is, as you rightly say, this decade wouldn't be the same matrices we are focused on as an IT services company.

Probably in the decade we are the matrices that we as investors should be focused could be quite different two or three years down the road.

And I definitely feel having an intellectual property patent portfolio and an expanding portfolio is the most critical asset that any company can have.

Just a comment?

Thank you, Trip.

And from our perspective the way we see it is that we don't want to open our kimono too early.

So we want to make sure that whatever we have we create enough so that we can get a significant differentiator in the market and then we can talk about it.

Right now we'd like to see what we can do with it without talking about it too much.

Thank you.

Thank you Mr.

Chowdhry.

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

Please go ahead.

Thanks for taking my question.

I have several follow-ups from earlier questions.

So first on the organizational changes, you've mentioned you have your teams in place in a few verticals.

If you compare to where you had expected to be a quarter ago are you ahead or behind?

And I think you had said two to three quarters to get back to normal growth on the Q4 call.

Is that still your thinking?

So kind of second half this year?

Nabil, absolutely.

In fact at the end of the day a reorganization is a painful process to go through and if you can't get growth back fundamentally what happens is the whole reorganization is completely useless.

To the first question that you raised in terms of what are we going to do in terms of verticals, I just want to clarify that because what I did mention was the four momentum verticals that we picked up.

Two of them have shown growth and we expect one of them has been energy and utilities where on an organic basis we've had a close to 7.5%, 8% growth for the quarter -- 7.5% growth for the quarter, I'm sorry.

And in the full year we expect that year on year if you look at our growth it's in excess of 14%.

If you -- and that's completely -- that's fully staffed, the SAIC acquisition kind of taps into it, we get a new base of customers to sell it to.

That's the story of -- on energy and utilities.

If you look at the banks and financial services, the revenue line hasn't moved up last quarter but the win rate has.

So we've got two deals that we've announced which are over $0.5b in that segment.

So that's good news.

So that's moving.

The third one that we have is retail and consumer products.

There last quarter we have had a bad quarter.

We expect to recover and come back in the quarters to come.

And as far as healthcare is concerned, that's still a reference business for us.

It's going to take some time before that's going to kick in and show a hyper growth.

But besides that this is where we fit on the momentum vertical.

So it's not that the [other] verticals are not staffed, we have an extremely competent team running manufacturing and telecom.

And I guess what we need to do is we expect to see action on that in the quarters to come.

Okay.

And then if I could follow up on the comments on financial services macro spending, you'd mentioned investment banking particularly in Europe being a little bit weak.

Is that incremental in the last quarter or is that similar to what you had been seeing early in this year and maybe late last year?

In fact that's incremental in the last quarter.

And what we have also seen to some extent is that we're seeing -- we're a little cautious and we haven't seen any impact yet in terms of business.

We're a little cautious about banking too.

We're just wondering whether the -- what we're seeing in parts of Europe would spread to other banks in Europe.

But that's a little bit of a worry.

But nothing yet to show us that demand is actually coming down.

To that extent we're just watching our pipeline, not necessarily calling out the fact that it's going through a slowdown.

Okay.

And so even within the banking group -- I'm sorry, go ahead.

Sorry, go ahead.

Okay.

Even within the banking group are you seeing things -- you're not seeing things de-scoped or projects canceled, you're just seeing a little bit in your pipeline?

I just want to be clear on what you're saying.

We are seeing people optimizing budgets.

If they had a big bill they'd see what they can do to kind of de-scope a little bit in terms of features, those kind of things.

That we're seeing a little bit.

But again it's partly a question of where are you sitting in the bank and where the bank itself is sitting.

So, for example, banks with large retail bank books are doing some of that.

But on the other hand we're also seeing a huge push towards productivity which means that things like Lean are becoming big.

Our Lean business is actually doing extremely well, done very well last quarter and we're seeing more of that happening as we go along.

So there is a reallocation of budget but you know the IT budget by itself when you reallocate you never make it completely by way of consulting or (inaudible).

Okay.

Switching gears a little bit, it seems like you guys and some of your competitors, offshore competitors are building out consulting practices.

I guess -- is that a major focus for you guys given that everybody's doing that?

How can you differentiate and do you need to do it through acquisitions?

Nabil, Kirk Strawser who runs our global consulting business is right here with us and he can answer that question.

Yes, hi.

This is Kirk.

So just a couple of a highlights for the quarter.

The consulting business is going very well.

We had nearly 40% growth year over year in the quarter.

If you look at any of our India-based competitors or Western competitors nobody's showing that kind of growth in their consulting organization.

I think if you asked the question, you didn't ask the question or indirectly asked the question but I think that part of the reason for that is that there is pent-up demand from our major customers for organizations in an integrated services firm such as ours who have consulting, IT services and outsourcing that when they can bring those three legs into alignment at the industry vertical level, at the account level we're finding tremendous pull from the customers.

And really a big part of our strategy is how do we do that more frequently and more often across all of our verticals and all of our major accounts.

But yes, we've had -- we've been very pleased with the growth of consulting over the last 12 months and again in the first quarter.

Okay, great.

Switching gears a little bit, the on-site growth was strong.

I think you mentioned on the prepared remarks but is that entirely a reflection of new projects getting ramped or is there any sort of a political issue in terms of maybe you guys trying to move more work onshore and if so what does that mean from a margin profile going forward should we see that continue?

So it's not based upon any political move.

I think it's based upon more a pragmatic move to make sure that we start projects on time.

[Justin], do you want to add to that?

Yes.

So this -- sometimes this is also a reflection of how many project starts that we had in the quarter and typically the project starts start with the transition phase which is more on-site centric.

So I wouldn't worry too much on the quarterly movement.

From a margin perspective, having stated as T.K.

mentioned we continue to remain -- become more and more local from some of the delivery perspective too.

And that could reflect over a period of time some secular trend.

Okay, great.

And then I guess last question.

You guys hit on attrition.

It sounds like the high level it should start to dissipate in the second half.

Is that the case and then what's your expectation for wage increases and wage inflation over the next 12 months?

Hi Nabil, this is Saurabh here.

On attrition -- figures go some time back.

Very clearly we are seeing a downward trend and over the last three months we have seen a 3% or 5% drop.

So in the second half of the year clearly we're seeing attrition coming down.

On the wage increases, we just concluded our annual wage cycle effective June 1 and there are no plans of giving any other wage increase during the year.

Okay, great.

Thank you, guys, for taking my questions.

Thank you.

Our next question is from the line of Swami Shanmugasundaram of MorningStar.

Please go ahead.

Hi Azim, thanks for taking my questions.

My first question is on (technical difficulty).

What kind of impact did it have on your margins and what do you guys plan in the future?

Because on-site volume has definitely gone up and if that trend continues what are your plans to ensure that you have adequate resources to (technical difficulty).

Swami, you're not audible.

Can you speak up slowly and a little bit louder?

Sure.

Am I audible now?

Yes.

I think my first question is related to the use of contractors.

The use of contractor hiring has gone up.

So my first one is what is the impact on the margins due to the use of contractors because mostly it could be pass-through revenue?

Second thing is that on-site volumes going up.

What are your plans to ensure that you have Wipro resources to place on those projects rather than using contractors in the future?

So maybe we can do two things.

Sambuddha Deb who's our Chief Delivery Officer can answer that question.

And, I don't know, here's what happened Swami, just to give you a sense.

As far as the customer is concerned he doesn't see the program management and the architecture layer, we typically don't subcontract -- we don't give it to the subcontractor.

What we do is that if there are specific skills that are required for a transitory period those are the only skills that we take from a contractor.

From a margin perspective it probably affects us in the short run but more important from a customer satisfaction perspective it helps significantly in making sure that we get customer satisfaction as the project gets completed faster.

So I wouldn't die a thousand deaths on how much margin we are giving away in terms of contractor hire.

I'd worry more about customer satisfaction.

Deb, do you want to add?

Yes, I just wanted to add to what T.K.

said.

The main reason for contracting is either to fill some missed skills on-site or to give some rapid response to our customer where by normal process the visa may take longer.

We rarely outsource critical positions like architect, the domain experts at the front end, domain experts -- the leaders are rarely outsourced, it normally doesn't happen at all.

What we outsource is I would say the foot soldiers that you need in the initial period of the project.

Secondly we have pretty much -- well, you see this number going up.

But the fact is our contractor size with Wipro is limited in the sense that we don't -- we let them go once their part is over.

And there's a perpetual contractor replacement system which goes on.

If that person is very, very good and is going to have a long-term future with us we actually recruit them.

So some of them become contract-to-hire as we call it when they become our employees.

So overall we have sort of an idea of where we want the contracting to be.

It goes up, it varies a little bit more or less it's not a large quantum that we intend to have strategically.

Sure.

My next question is on the geographies.

Europe has done well compared to US.

So my question is is it because you find more traction or what kind of impact do you see given the recent uncertainties related to the sovereign debt crisis and what can we expect in the future?

Well, Swami, that's a tough one for me.

Because I guess the whole world's trying to guess what's going to happen to Europe.

So I can throw my two cents also into the tinderbox that you call knowledge.

But see, here's what we're doing as far as markets are concerned.

All we're seeing is that the key quality that we should have as a company is to react to markets quick enough.

I don't think we have the ability to act with markets and be a little ahead of it.

I think as far as Europe is concerned that's very true.

But the whole world is guessing on how Europe would behave.

I think it's going to be extremely important.

It's difficult for us to guess how we're going to differentiate ourselves and take a point of view there.

As far as India is concerned and Middle East is concerned, which is another one of our large markets, I'll ask Anand Sankaran who's our head of that business to talk to us of what he sees as opportunities in that space.

So hi, this is Anand Sankaran here.

I handle India, Middle East and Africa.

So India and Middle East have been quite bullish for us for the last few years.

We see growth across market segments.

The verticals that are propelling growth in India are government, BFSI, several infrastructure projects and also manufacturing and small and medium businesses.

So I think there is growth across the vertical segment as far as India is concerned.

In the Middle East the growth is propelled by oil and gas, utilities and education.

So there are big investments that are happening in the education side in the Middle East.

So broadly I think from an India and Middle East perspective there is growth across market segments and fortunately we are positioned well in both these markets.

We have a significant market share in India.

We have made big investments in India.

We have created infrastructure for supporting our customers across the length and breadth of the country.

And I think we'll be well positioned to address all these coming opportunities.

In the Middle East we've been there for the last 10 years.

It's a large market for us; it's a growth market for us.

We've done fairly large multi-projects in the Middle East and we'll continue to address large opportunities that come up over there.

So all in all, I think that India, Middle East and even Africa will throw up big opportunities and I think we'll be well positioned to address all of them.

Sure.

Another question is related to the deal pipeline.

I think you mentioned that you had two large deals in the banking and financial services.

Would you mind talking about the deals in the other industry verticals as well as in the geographies?

I'm sorry, Swami, I missed that question.

Could you repeat that?

During one of your comments you mentioned that you won two large deals in the banking and financial services.

I was just wondering if you could talk about deals in the other industry verticals as well as along geographic lines?

So the way we look at services like this, Swami, we break our business related to what we call run the business and change the business.

And I have with me N.S.

Bala from manufacturing who can give you -- can throw some color on the deals that he's had using cloud especially in his business.

This quarter 30% of his order book has come from cloud-related services so maybe he can talk to that.

Bala?

Hi, Swami.

This is Bala, I head the Manufacturing and High-Tech business unit.

So there are a few trends that are actually giving us a lot of opportunity in this segment.

So one is clearly in the area of manufacturing companies wanting to get into an asset-light mode as they come out of the recession.

Clearly they want to build a capacity that is -- that will help them manage through the cycles of their business.

And that's actually given us a lot of discussions with the business heads in manufacturing companies to provide both an application and an infrastructure play that can be offered on the cloud.

That's one of the trends that's happening and that's really resulted in some wins for us this quarter.

Many of the offerings that we have put out there along with the customers are new, they have not been tried before, but they are (inaudible) made by the client in that area.

Second big area that's an opportunity is in the area of smart devices and smart -- device management if you will.

So there's a lot of data coming from smart devices and manufacturing companies are actually looking at doing analytics on the devices.

So some of the discussions we've been having with customers in being able to do the analytics either for monitoring of the devices or for sustainability, sustainable manufacturing if you will.

So that's the other kind of trend that we are seeing and a lot of the discussions are on that.

And if I might add a third area, is an area of product design for emerging markets.

We see that many of the manufacturing companies are actually very keen on introducing new products for emerging markets and that's opened up a lot of discussions on how Wipro can value add in the area of product design.

As a matter of fact some of the wins we've had this quarter are also in the area of actually selling our intellectual property or getting integrated with the customer spec and being offered to end customers or OEMs.

So that is a trend that's also happening in the industry.

Those are different kinds of solutions that are currently happening in the markets in the high-tech space.

My last question is on the non-linear thing.

Can you guys talk about the progress that you've made over the last three quarters and what kind of traction that you've seen.

And are you playing to media expectations in terms of revenue contribution from non-linear initiatives?

Well, here's one, Swami, I'll ask Deb who runs our global delivery to talk through in terms of what we are doing in non-linear.

But just to give you a little bit of color on this one, non-linear by itself in a way is a delivery model.

For us ultimately variabilization is the way we're headed.

So Deb can give you some -- throw some color in terms of percentages and in terms of whether we're happy with what we've seen or not.

Overall, I would say about 14% of our revenues are what we would call non-linear and different people have different definitions.

We take this as a marked uptick either in our rate realization or in our markdown -- downtick in the costs which are substantial.

Primarily we have broken it up into three or four pieces.

One is what you can do on delivery which is typically you can see things like shared services coming up.

You can also see variabalization of the workforce where you don't own all of the workforce and you have an on-demand mechanism which allows you to bring workforce in.

The third, of course, is the IP-led sales which allows you to have huge -- reuse of intellectual property and you build services around that.

And the fourth one that you can get is what we call differentiated services where you combine a lot of stuff together and at the end of the day you get a non-linear relationship using alternate commercial models but the model itself is not linked to effort but is linked to outcome or output.

Like per incident billing, per user billing or a flat rate where you say I will maintain your software at x value and you have a mechanism by which you understand what the numbers are.

Swami, we'll get somebody else to ask a question now.

We have another few more participants who'd like to take questions.

Thanks, Swami.

Thank you.

Our next question is from the line of Avishai Kantor of Cowen & Company.

Please go ahead.

Yes, hi.

I have a couple of questions.

The first one, if you can talk a little bit specifically on your China strategy.

Are you still somewhat skeptical regarding operations in China?

If you can talk a little bit about the difficulties, successes, etc.?

So on China itself the way we look at it is two ways, China as a global delivery model and China as a market.

I think they are two very distinct activities out there.

China as a global delivery center, I think we have made significant progress there.

But the way we treat China is that China is like any other factory that we may have for software delivery.

So we could have a factory in China, we could have a factory in India, we could have a factory in some other part of the world like Philippines.

And that activity anyway continues.

China, even though wage pressure and cost of labor has been a concern over the past couple of months or couple of quarters and we've seen nothing that makes us feel that that's going to go away.

As far as China as a market is concerned, our focus is very clear.

We have picked up industry segments and customers who are global customers who want to do business in China.

Our sales effort has really started there in the latter part of last year and to that extent our ability to declare success in that particular area is limited as of now.

Thank you.

And the next question is actually regarding the US strategy.

I think you guys hired about 600 employees in the last 18 months or so.

Can you talk a little bit about recruiting in the US and how that strategy is going?

Thank you.

So maybe I'll ask -- I'll ask Saurabh Govil who runs our HR function to give you a sense of what's happening there as far as US hiring is concerned.

Hi, Avishai, it's Saurabh here.

So as far as US hiring is concerned I think it's at every level.

We are starting on the bottom of the pyramid, we are at hiring on campuses, we are tied up with campuses or we're getting young MBAs in our business schools.

We are also hiring high-end technical people, both technical operatives and business operatives, analysts, domain specialists and customer-facing people.

So it's across the spectrum in what we are hiring in US and you will see a continued vigor in our hiring there.

And more importantly, Avishai, what we're doing -- Avishai, what we're doing there is very simple.

We have actually decided that across geographies we're picking up talent from engineering schools and management schools and really setting them on a rotational program, bringing them back to India, getting them trained here, having them work here for six months and then rotating them back into the home country.

Because I think the basic thing for us is to build -- it's very important when you hire a person that the person understands the culture of the company that he's working in.

And for better or for worse culture for us is created right here in Mangalore.

So if the person doesn't come here it's very difficult for him to get roots and connect back into the system here and for him to be successful long term in our system.

So that's the other big thing that we're driving.

So we've got a whole bunch of initiatives and on that any time you'd like to know more I'm happy to -- if you can just have a conversation with Saurabh we can give you a sense of what's happening there in that space.

Thank you.

And do you still target at about 50% of the US on-site personnel will be from local employees?

Is that about still the same?

I think it's pretty much the same.

We're not there yet but we're heading in that direction.

At this moment, 36% and we're going in that direction.

Great.

Thank you very much.

Thank you.

Our last question --

We'll take the last question from Joe.

Yes, our last question is from the line of Joseph Foresi of Janney Montgomery Scott.

Please go ahead.

Hi, I just wanted to sneak in two follow-ups.

Just very quickly I wonder if you could talk a little bit about some of your progress in moving in some of the newer markets like Latin America and then in Germany in France?

And then I have just one last question after that.

So since we don't have our focus markets for Sridhar, let me throw some color on this one.

And maybe, Sridhar, it would be useful if you could also add on.

So I think the key is the way we're looking at this is we have created a focus market group which is really a transitory structure.

And the transitory structure -- we've created a transitory structure primarily because we'd like to make sure that people have -- are able to work effectively with the geography.

Until the geography creates some kind of a local presence and a local mass it's extremely difficult for them to be effective.

And these are geographies which are small and if you don't nurture them and don't grow them in the initial stages we don't think we'll actually succeed in getting scale there.

And that's the reason why we've called them out.

As far as -- and this relates also to Asia Pacific -- if you look at Asia Pacific as an example this quarter we have grown roughly about 7% compared to the previous quarter and it's a sequential growth which is above Company average.

We see growth happening in similar ways right across Latin America where we're seeing significant growth also to some extent in Germany and in France.

France, the sales growth is decent, Germany we are building our pipeline but in terms of sales it was more muted.

Okay.

And then just my last question -- I'm sorry.

Joe, let me add a little bit on what T.K.

said.

We created the focus market group primarily to address the country-specific issues.

For example in Lat Am we have a language issue, the same thing with the Germany and France.

And what we are trying to do there is to -- in the country structure, cutting across verticals and service lines.

We're able to -- we are focusing on developing markets for primarily local [add ons] and which we are progressing very well.

The second issue is that given the language complication and in certain areas where we need local execution we are focusing on creating development centers in the local area, particularly in Brazil and Mexico, to address both global execution as well as local execution.

On that front we have made considerable progress in Brazil and we also set up centers in Mexico.

Our efforts are progressing very well.

In all these three geographies, in Latin America we are seeing tremendous growth opportunities, in Germany and France we are progressing as well our plan.

South Africa and Canada and other areas where we are seeing good progress based on our expectation.

On the whole the country structure which we created is helping us to gain focus in this market, both on the market leverage as well as local execution.

Thank you, Sridhar.

Okay.

And then just one last question I think.

Obviously you guys have gone through I guess a restructuring or shifting of the way you address the market.

Do you feel like you've lost market share and that these issues are addressing that loss?

Or do you feel like it was just a repositioning?

I wonder how we should think about the competitive landscape and how you view your win percentage versus your competitors?

For (inaudible) let me give you the most candid answer and probably not the most diplomatic answer that you'll probably hear.

We wouldn't have gone through a restructuring of this size and magnitude if we felt we were being effective.

At the end of the day the idea of going through a restructuring of this scale was to actually improve our effectiveness and that's fundamentally what we are driving towards.

The second big thing that we're looking at is how do we drive significant growth in new areas that remain relevant to our customers.

That's extremely important.

Because you can play the market share game and drive yourself from a price basis down to the bottom but long term you don't create a sustainable business.

I think the second one also is very important.

The basis for the restructuring was these two.

Okay.

I appreciate your honesty.

Thank you.

Thank you.

Thank you.

At this time Rochelle will close the call.

We are not having -- I don't see any questions on the e-mail so I presume that there are no more questions.

Thank you so much for your participation.

The IR team is available offline for any discussions.

Thanks again.

Thank you very much members of the management team.

Ladies and gentlemen, with that