Wipro Ltd (WIT) 2012 Q2 法說會逐字稿

Ladies and gentlemen, good day.

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

Welcome to the Wipro Limited earnings conference call for the second quarter ended September 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 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, sir.

Thanks, Melissa.

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

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

We are pleased to host Wipro's 2Q FY'12 earnings call.

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

The format for today's earnings call is as follows.

TK, CEO of Wipro IT Business, will share his perspective on IT Business.

Suresh Senapaty, CFO, will give an overview on Wipro's businesses, and also comment on the IFRS financial results for the quarter ended September 30, 2011.

They are joined by BU heads and other senior members of the Wipro management team, who'll 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 1995, and are based on management's current expectations and are associated with uncertainty and risks which could cause the actual results to differ materially from those expected.

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

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 2Q '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.

A 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 TK, Wipro, Bangalore.

Good morning, ladies and gentlemen.

This is TK Kurien.

I run the IT Business for Wipro.

In the last few quarters, we have put together in place Wipro's foundation for change.

Although we continue to fine-tune our approach, I am convinced that we are moving in the right direction.

As an example, we've met the top end of our guidance, and also had good volume growth of 6% and about 4.6% organic volume growth.

This is the best that we've had in the last four quarters.

In constant currency, we grew about 5.5% sequential.

We've added 5,000 -- over 5,200 net people, and we reduced quarter annualized attrition by 4.7% to 18.5%, again the lowest in the last six quarters.

Fundamentally, we are making progress every quarter.

The realignment of structure, focus on account mining and alignment of accountability at the account level is beginning to show results.

Our top 10 accounts contributed immensely to our revenue growth.

We now have five of these relationships crossing $100m in revenue, compared to one customer a year ago.

Also, for the first time, our relationship with our largest customer is greater than $200m in annualized revenue.

The reason of my conviction on our strategy is based upon the leading indicators that we track.

In our business, feedback is a leading indicator of future (technical difficulty).

Excuse me.

This is the operator.

This is the operator.

The Bangalore line connection is lost.

Yes, yes.

Now we're connected.

Sure, please go ahead.

The reason for my conviction on our strategy is based upon leading indicators that we track.

In our business, feedback is the leading indicator of future business.

I'm very encouraged by the 8% improvement in feedback in our strategic accounts.

Another leading indicator we track is the pipeline and the quality of the pipeline.

Our pipeline is showing a positive trend and we're currently contesting some large deals, including 25 deals of $50m or more.

Our focus is on high-quality, high client-impact business.

60% of our Analytics business is derived from strategic customers.

80% of our Cloud business comes from strategic customers.

This is a clear reflection of our ability to move up the value chain, and points to improving positioning and differentiation.

From our perspective, there are three broad trends that are driving this differentiation out there in the marketplace.

The first one is what we call consumerization of technology.

The second is what we call variabilization of technology.

And the third is what we call performance management driven by analytics.

So maybe I should just give you a sense of the kind of work that we're doing in all three of them.

For example, around mobility, today we have 1,500 consultants engaged in 75 plus projects that are enabling new channels, increasing customer stickiness and improving productivity for our customers.

An example of the work that we have done is we've developed an iPhone based e-commerce solution for a leading US retailer, rated as the number one retail app in the Apple App Store.

This solution enables consumers to search and buy products anytime, anywhere.

The other area that we talked about was performance analytics.

We have grown our Analytics business by 7.3%, quarter on quarter.

It's the second quarter of 7% plus sequential growth.

In this business, we have worked with two specific customers where we have done some groundbreaking work.

One is a Fortune 100 retailer, for whom we've worked across 50 product categories to improve pricing and to improve product differentiation.

This particular action has resulted in a 3% increase in sales across the product categories.

The third is something that we look at every day, which is cloud.

The key driver for cloud is simplification.

And if you look at our reengineering and simplification businesses, we have doubled our business in terms of number of engagements between the same quarter last year to this quarter.

We have created integrated cloud services operations, pulling together the Product Engineering group, the Application and the BPO to scale our business in the cloud.

For example, we are working with a leading bank in the US, where we are doing a private cloud implementation that will reduce the total gross cost of ownership by 25% and improve their provisioning cycle from 52 days to a few minutes.

All this is going to be possible with highly committed and motivated employees.

Wiproites are now highly energized and fully behind the strategy and the direction.

Employees like the culture of winning, the openness and engagement and the simplicity of the process that we're striving for.

This really reflects itself in the improved attrition numbers that we've been seeing over the past quarter.

I would like to conclude by saying that Wipro has laid the foundation to be a new generation IT services company.

We hope to take advantage of the continuous demand for business-led technology coming in from the world, and really at the end of the day help our customers leverage technology to do business better.

That, in essence, is the theme that all of us are driving towards.

Thank you, ladies and gentlemen for your time.

And I apologize once again.

What happened was we got cut off for a couple of seconds.

I hope you haven't missed any part of my speech.

Good day, ladies and gentlemen.

Before I cover the financials, let me cover the other parts of the business, the other businesses of the Wipro Corporation.

In Consumer Care & Lighting business, we had all-round growth across product segments; India business growth driven by Santoor, Yardley, CFL lamps, commercial lighting and office furniture.

Our International Unza business growth was driven by Malaysia, Middle East and China.

Santoor, our flagship brand, ranked 44th amongst India's top 100 most trusted brands in 2011, significantly moved up from the ranking of 90 in 2010.

Our major acquisitions, Yardley and Unza, continued to perform well, in line with our expectations and planned targets.

Wipro Infrastructure Engineering, we're seeing a strong growth trajectory in India and moderate recovery in Europe in half-year one of the current fiscal.

We are focused on creating a strong presence in emerging markets.

Asia and Latin America are expected to lead growth, due to significant infrastructure spending.

We have entered the Brazilian market through the acquisition of RKM.

As customers look to global, low-cost sourcing, we have expanded our manufacturing base and set up new capacity in China.

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

Overall, we see an exciting future, and we are confident that we are on the right path.

So far as the financials are concerned, before I dwell in that, please 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 September 30, 2011, for cable transfers in Indian rupees as certified by the Federal Reserve Board of New York, which was $1 equal to INR49.05.

Accordingly, revenue of our IT Services segment that was $1,472m, or in rupee terms INR68.29b, appears in our earnings release as $1,392m, based on the convenience translation.

Our IT Services revenue for the quarter ending September 30, '11 was $1,472.5m on a reported basis, a sequential growth of 4.6% and year-on-year growth of 15.7%.

We delivered $21m more than the upper end of the guidance in constant currencies.

On an organic basis, revenue growth in IT Services was 2.9% sequentially, as against a guidance of zero to 2%.

We continue to be positive on our momentum verticals.

We saw BFSI show strong growth of 6.3%.

Analytics had another strong quarter, with 7.3% sequential growth, while APAC and other emerging markets showed double-digit sequential growth.

Client engagement continues to be our top priority.

In the current quarter, on a trailing 12-month, we have five accounts which are more than $100m in revenue, up from one last year.

Our largest account has crossed a revenue run rate of more than $200m.

We are happy with our progress and we continue to make investment in this area.

Sequential volume growth in the current quarter was strong at 6%.

On an organic basis, it was 4.6%.

We saw ramp-ups happen as planned, and this sets a strong base for future quarters.

We saw a drop in revenue productivity in the current quarter, driven by closures in fixed price projects.

We have not seen pressures on coupon rate pricing, and would characterize the pricing environment as stable.

Operating margin for IT Services was 20%, down 200 basis points due to impact of salary increase for two months.

As of September 30, '11, our DSO was at 76 days, down from 77 in the previous quarter.

We hope to bring this down to our historical levels over the next few quarters.

Our IT Products business showed a good growth (sic - see presentation) of 6% sequentially in the current quarter.

Consumer Care & Lighting business continued to see good momentum, with revenue growth of 20% year on year.

On the ForEx front, our realized rate for the quarter was INR46.38 versus a rate of INR45.5 realized for the last quarter.

On a quarter-on-quarter basis, ForEx gave us a neutral impact to margin.

As at period end, we had about $1.7b of ForEx contracts.

The effective tax rate for the quarter was 18.1%.

Our net cash balance on the balance sheet was [43.5b].

The net cash balance dropped, due to payment of dividend in quarter two.

We'll be glad to take questions from here.

Thank you.

(Operator Instructions).

We have the first question from the line of Joseph Foresi from Janney Montgomery Scott.

Please go ahead.

Hi, gentlemen.

My first question here is maybe you could just walk us through your current positives and negatives on the demand environment by area, and then any color you could provide on what you're hearing about 2012 and 2012 IT budgets.

Joseph, TK Kurien, and maybe I'll take the question.

So here is what we are seeing across the environment.

And what we have done is to arrive at this tentative conclusion, because you'd appreciate that budgets as they're getting firmed up closer to the year, we get a sense of what's going on, but we don't have any degree of certainty.

We can't say this is the way it's going to go.

So, broadly, what is happening?

If I break up segments, let's take banking and financial services.

We see banking -- retail banking continuing to spend.

We see investment banking being a little weak.

The European investment bankers are a little weaker than the US investment bankers.

We are seeing insurance continuing to do work, as they discover outsourcing more and more.

And we see our pipeline in that business growing, but it's a very different kind of a pipeline.

It's not a typical IT pipeline; it's more an integrated IT and BPO pipeline.

So, overall, across banking in BFSI, if I can summarize the demand environment, I would say right now we don't see any cause for concern as far as the segments are concerned, other than investment banking.

But as we get to the end of the quarter, that situation might change.

Right now, we're not seeing any noise.

If I look at retail, a slightly different picture.

Retail decision-making, especially on decisions where they have to move out an existing vendor and move to a new vendor, those decisions are not closing as fast as they could, so there is a little bit of delay there.

That could be because of the Christmas season coming up.

Folks may be busy with what they're doing.

But we're seeing a little bit of delay in that segment.

[CPC] continues to be strong, and we don't see any issue there.

If you look at healthcare, on the pharma side we see demand continuing to be strong as companies look for cost benefits, and most of the pipeline there comes from traditional pharma companies.

There is a significant amount of integration that's happening between IT and BPO there too, especially around back office.

But overall demand doesn't seem like it's coming down.

On the life sciences piece we see a lot of interest, especially around data analytics.

Especially when it comes to disease management, that's one area of opportunity that we see.

But broadly across the board, we see fairly decent demand coming in from the healthcare segment.

If I break up energy and utilities, the energy segment continues to be strong.

There is a significant amount of spend which is going to come up over the next 10 years in this particular segment.

And to that extent, we just believe that the acquisition of SAIC and our accesses to the upstream business is really going to hold us in good stead as we go forward.

This is basically the story of our momentum verticals.

If you look at manufacturing, we see strong demand coming up from process manufacturing and discrete manufacturing.

High-tech is a little weak.

But besides that, again, we don't see too much of an impact as far as overall numbers and demand is concerned from that segment.

If you look at telecom, it's a little different picture.

Equipment vendors are under pressure.

And as equipment vendors are under pressure, especially the established ones, we are finding demand slowing down from there.

We see a clear change in demand, as far as equipment vendors are concerned.

Service providers, we still see demand remaining robust.

And as far as media is concerned, we are small to [make impact], so to that extent we're continuing to see growth.

But again, I'd just like to caution all of you about the fact that we're small, so we're not sure about the exact demand picture in that particular segment.

So, overall, this is what we see in the market.

If we have a look at the geographical spread, if you read the headline news, all of us should have probably shut down our businesses and gone home.

The reality is that business continues both in the US as well as in Europe.

Our exposure to Southern Europe is minimal.

To that extent, we are not seeing the impact of the so-called recession.

But as far as the rest of Continental Europe is concerned and UK is concerned, given the portfolio that we're in, we don't see any secular decline or any cause for concern.

Asia Pac and Latin America for us continue to remain growth markets, because they still seem to be going through the investment cycle.

So, a lot of opportunity out there, but in a different kind of business.

We're seeing more SI opportunity, more BPO opportunity, more opportunity coming up from natural resources, more opportunity coming up from oil and gas.

That in a sense is what we're seeing across the demand environment.

Okay.

That's very helpful.

Maybe we could switch gears and you could talk a little bit about pricing.

At least looking at what [we've put in], it looks like pricing was down offshore.

What caused the decrease on the offshore side?

And then, of course, anything you can provide on the demand environment.

So, as far as the offshore pricing was concerned, last quarter in many ways was an aberration, because we had some effort going in far more than what we had anticipated to close projects out.

And to that extent, that's been reflected in pricing.

In this particular quarter, given just the offshore nature of holidays, we've got significantly more holidays this quarter.

Pricing would be affected this quarter too, for all our TNM engagements.

So, overall, this quarter too we would see some issue, not probably in the same kind of band as you've seen last quarter.

But going forward, quarter four, if our projects are -- based upon what we're seeing today, we probably think that we'll be able to recover whatever was the loss in these two quarters.

As far as the ticket price is concerned, we see no pricing pressure as far as our clients are concerned.

We have had sporadic requests from some segments of the market for price reductions, but they are more sporadic and far (inaudible).

And given the fact that nobody has really pressed their cause too much, it generally makes us believe that it's probably a year-end event and not necessarily a serious question to be worried about.

And then my last question is you've talked about the turnaround.

Is that process complete?

Maybe you could put that in context.

It seems like the number of net new customers decreased this quarter, yet there was some growth from the top client.

Maybe you could put that in context with where we stand from the full turnaround.

So here is what it is.

If you look at what we have done last quarter, is that we have really executed to a plan.

Because we believe that what we are trying to do, the plans that we have in place, the results of that are going to be really felt in the medium to long term.

They are not short term.

These are not short-term decisions that are going to impact the short term too much.

If you go back into our mining, our mining has increased significantly in the accounts that we have, as represented by our top 10 accounts.

We've got five accounts that are more than $100m run rate, up from only one account last year same time.

We had -- about a year ago, our average in our top 10 accounts was running around $78m was the average size of each of our top 10 accounts.

That has now moved to $118m.

So a lot more focus in terms of making sure that we run our hunting -- our farming organization far more seriously, and with far more depth behind it.

We have also aligned our incentive processes to make sure that people get rewarded for customer satisfaction, people get rewarded for making sure they control employee attrition and people get rewarded for increasing top line and operating margin.

And those are early signs that those have started paying dividends.

But net, here is what it is.

I think what you've seen in this quarter is just phase one of our change.

I think we have plenty of more work to do going forward, and we are all committed to getting there.

Okay.

Thank you.

Thank you.

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

Please go ahead.

Hi.

Good evening.

I was wondering if you could update us on your business process outsourcing or your BPO strategy.

It seems to continue to trend sideways.

Could you update us there?

Thank you.

So, Ed, good morning.

This is TK.

I'll pass it on to Manish Dugar, who is the head of our BPO business, to give you a sense of what we are doing from a strategic perspective.

But before he starts, I think one of the big things that we've been trying to do as far as the BPO business is concerned is trying to integrate that with the core processes that we are -- that we'd really like to be best in class in.

So today, for example, if you look at the whole payment and settlement process, we are probably the biggest in the world in that particular process.

So we have picked up process areas that we want to specialize in, and that's what we're going after.

But Manish can give you a lot more color in terms of deal wins and everything else in that space.

Manish.

Hi, Ed.

Good morning.

Manish here.

Let me start by first responding to your point on BPO going sideways, and in some ways that's how people look at when they see the numbers.

Just to give you a little bit of color on that, there are a lot of projects which have significant transition revenues which come in lumps.

And if you look at the quarter four of last year, you would have seen BPO growing at 14% sequentially, and that probably is a one-time revenue which does not recur.

And subsequently, a lot of contracts that we have, there are commitments around offshoring, there are commitments around productivity gains, which continue to reduce the run rate revenue.

So, unlike a business which has steady growth or steady revenue, these are lumpy revenues which cause these quarter-on-quarter movements.

Having said that, I think in the recent past the pipeline has started looking much better.

And from a strategy perspective, as TK mentioned, our focus has been to align with the larger Wipro story.

And we see significant benefit in going to the market along with the other service lines as an integrated organization, rather than our earlier approach of more responding to RFPs.

So we see significant benefit in aligning with analytics projects, with the application, implementation projects, PeopleSoft projects getting converted into an HRO or end-to-end deal, and SAP implementation getting converted into an F&A and a procurement deal, and a significant amount of interest in terms of clients wanting to do more and more, starting with an opportunity assessment and eventually translating into a much larger outsourcing.

So I guess strategy of aligning with the larger Wipro world, with making the initial investment of going into the client account and doing an opportunity assessment, which eventually opens doors to much larger opportunities, is what we are seeing leading to the large pipeline growth that we have had in the last three, four months.

And we had decent wins in the last quarter.

Based on the pipeline that we see, we believe that it's much, much better, both in terms of -- it's not that we are called into the party as another vendor, but we are one amongst the two, one amongst the three, large size, different.

I would say the variety of businesses or the industries it comes from, the variety of geographies it comes from, it gives us a lot of confidence in terms of us doing the right things and moving in the right direction.

Given that this business has a longer gestation period and it will take a while before the deal wins convert into revenues, you may still continue to see muted if not flattish revenues in the next couple of quarters, but it should certainly start looking as revenue growth in quarters to come.

Great.

Thank you.

And my other question revolves around employee attrition.

Got a little bit better this quarter, Q-on-Q.

It seems high still, relative to your peers.

Is there a sort of a normalized level that you expect to get to at some point, and maybe just a little bit on how you plan to get there?

So, Ed, I will pass it on to Saurabh, who is the head of HR for Wipro.

But just to give you a quick sense, our attrition in the last quarter, the voluntary attrition has come down by 4.7%.

It is not -- it's probably the biggest reduction that we've ever had in Wipro.

So it's been a step change.

And compared to peers, I'd like to get Saurabh to comment on that, on both the peer data as well as the trend in quarter three.

Saurabh.

Thanks, TK.

Morning, Ed.

So, as TK said, a sharp decline in our attrition numbers, voluntary, in fact the best for the last six quarters what we have seen in attrition.

The trend which we have seen for Q3 continues to be on a declining.

We will further see a reduction as we move forward in Q3.

So that's the good story.

If you look at across the board, at different levels across the organization, there's a dip.

If you look at our peer group, we are at the same rate.

We were higher last quarter.

We have -- in fact, with some of our peer groups we have actually gone below them or very close to it, compared to their attrition in Q2.

So, overall, it's been a very, very good story.

And I would translate it into four streams.

One, attrition has come down.

First of all, from an HR process sense, we did our [merit] salary increases and you know our promotion cycle happened in Q2.

I think second is, as TK mentioned in the beginning of the call, our changes which we have put in place, the structures and all that are settled and people have bought into the new strategy.

And I think the third key part of this, a lot of business engagement has happened with the employees across levels, the business levels.

I think all three of them are showing us very clear dividends here.

Then, above that is the demand slow and with the supply hence, is it coming down?

I think we are not seeing that very clearly.

Our hiring continues to be robust as well as, as TK said, the micro environment for us is very, very robust.

And hence it's a clear internal action which has driven the attrition down.

Great.

Thank you.

Thank you.

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

Please go ahead.

Thank you.

A couple of questions here.

First, regarding the private cloud that TK mentioned, some implementations you guys are doing, wondering if you could tell us what kind of technology stack has been used to do some of those implementations.

And also, if you can let us know your thoughts on your relationship on WorkDay and any opportunities and challenges you see in that relationship.

Then I have a follow-up.

So just to, Trip, very quickly tell you about what's happening on the cloud and the private cloud.

Fundamentally, what happens is if you look at our partnerships, we have partnerships with all the leading players in the industry.

And fundamentally, what we have done is that we've pre-packaged two solution sets that cut across technology players, where our capability comes in in terms of design and [motivation].

So, fundamentally, what we do is sell reproducible stacks.

We don't sell stacks, reproducible stacks that are backed up by business processes at the back that make these implementations total.

Number two is the value to our customers is covered much faster.

So I don't want to comment specifically on the technologies that we've used in this specific customer, but that's broadly what we do in terms of processes.

If you look at WorkDay, I'd really like to get Srini, who runs our Business Applications Services business, to talk to you a little bit about that.

But nevertheless, we don't have any challenges with WorkDay in any form or shape.

We love WorkDay as a partner, like we love all our partners, but Srini can talk a little bit.

But I think the most important thing that we have done till now is that, as a structure, we have integrated our entire cloud structure under one leader.

And to that extent, the reproducible skill sets that we're able to create, the solutions that we're able to create and the standard pre-packaged components that we're able to deliver to our customers, backed up by business process, is really where the differentiation comes in.

Just as an example, in the past quarter we've closed two deals with pre-packaged cloud solutions where we've gone after the medium-sized customers, to really sell a solution that's end to end.

And that itself, I think, is probably one of the biggest wins that we have had this time.

Srini, up to you.

Thanks.

This is Srini Pallia here.

I head the Business Application Services.

What I will do is I will try to hitchhike onto what TK talked about on the three broad themes.

One is the variabilization, second one was the consumerization and third one is the performance management.

Having said that, if we were to look at it from a pure applications footprint, what we have seen, today customers are looking at a lot more standardization and simplification in the context of various process areas.

And predominantly, three process areas is what we are seeing.

One is of course HRM, which is -- HCM, which is Human Capital Management.

Second one is the CRM, and the third one what I would call as the Supply Chain Management.

Now, in that context, what we are seeing is a lot more -- what the customers are looking at as the benefits and advantages of cloud in the context of not only variabilizing, but also quickly bringing up applications on the cloud and relating the business, play around with that, and then kind of roll it out across the organization.

Two, they're also looking at international expansion, where clearly products like WorkDays' SFDC play a critical role which actually hooks on to the legacy applications as well.

Now, the second point was in terms of the private cloud.

What I would say is that I think there's a lot more drive towards application refactoring, either to a private cloud or to a public cloud.

Now, in the context of a private cloud, what TK talked about, specific to financial services where they want to leverage the cloud for variabilizing not only their hardware, but also simplifying their software and reducing the overall cost of maintenance.

And that seems to be a big play, and we're seeing a significant opportunity as we move forward.

On the public cloud, we're also seeing customers looking at apps that can be taken to the cloud; for example, one of the retailers where we're building applications for their customer loyalty program.

And this is an application that we're trying to host on Amazon, where the customer -- for a customer in terms of leveraging the excellent hardware and excellent infrastructure and also variabilizing their costs.

And finally, coming back to the WorkDay and SFDC and NetSuite, these are the three product companies that we have a very strategic partnership.

We recently participated in all the three events that happened in the US.

And I'm not very specific around -- in terms of any issue with WorkDay, but I think that's where we're ramping up.

We are seeing significant opportunities and pipeline.

Thank you.

And one question (multiple speakers).

Excuse me, this is the operator.

Mr.

Chowdhry, can you come back in the queue?

We have several participants waiting.

No problem.

Thank you.

The next question is from the line of Nabil E.

from Pacific Crest Securities.

Please go ahead.

I like that.

I'm dropping my last name.

Thank you for taking my questions.

A couple of real quick ones.

First, the percentage of revenue from onsite seems to be upticking a little bit.

Could you talk about, is that a function of investments in the new verticals or a sign of new project starts?

Or how should we look at that?

So let me ask Jatin Dalal, our CFO, to answer that.

Hi, Nabil.

I think there are primarily two reasons.

One is we have this quarter consolidated the revenues from our acquisition SAIC, which has a large component of onsite revenue.

And the second is we are seeing, as the new wins come through, they are in the transition phase, which have higher onsite component compared to the steady state revenue stream that they see.

So these are the two reasons why we are seeing revenue more onsite this quarter than earlier on.

Okay.

And then I wanted to follow up on the growth in the US.

It seemed to lag a little bit in the quarter, but your comments earlier indicated that US financial services seemed healthy.

So maybe if you could drill down a little bit on why the US, at least this quarter, was lagging versus Europe.

Soumitro.

This is Soumitro, who heads up the Financial Services business.

So, the overall financial services space, in terms of the trends which TK has talked about earlier.

So we are seeing insurance and retail banking not really being challenged in terms of budget cuts.

It's mainly the capital markets space, which from an investment banking perspective, and especially in Europe, to be challenged.

But even in US, one or two of our customers, we have seen the IT budget which may get challenged.

Now, the new projects which we are getting, initially there will be work which we do on the development side because of the discretionary spend where we are playing.

And the initial phase of that will have a fair amount of onsite work, due to the requirement capture and other stuff.

And similarly, on the cost reduction part, wherever we are having knowledge transfer work, right, so there will be an initial component which will be higher in terms of onsite.

But once the [AV] work moves into the midstream, where really you're doing the cut work, or in maintenance which is post knowledge transfer work, right, that work will move from onsite to offshore.

Okay.

And then, last question, you have seen a lot of growth from Asia Pac and India.

Could you help me -- if that continues to be the case, what does that do to margins?

Presumably you don't have the same kind of wage advantage that you do from growth over there.

So how does that impact your overall margin profile, if that becomes a bigger percentage of the business?

So, as far as the India business is concerned, I'll ask Anand Sankaran, who runs our India business, to comment, talk a little bit about that.

As far as the Asia Pacific market is concerned, we don't see a pricing differential or a profitability differential between our Asia Pacific business and our global business.

Now, the real -- the India business comments can be given by Anand.

Anand.

Yes.

So, Nabil, the India business in terms of growth has been performing pretty well in the last couple of years.

And the good news is that the operating margin has also been improving, quarter-on-quarter.

So we do large integrated deals in India.

We do large outsourcing transformational deals in India.

And these are all long-term deals.

So the flexibility that it gives us over a period of time is to optimize our delivery and cost structure, to be able to improve our margin.

So, all in all, the India, Middle East business in terms of growth has been performing pretty well.

And since we've been doing these large transformational deals, we've also been able to optimize our cost structure and improve our operating margins in the India, Middle East business over the last couple of years.

So I would, as the person running the business, expect the India, Middle East margin to inch closer and closer to our global operating margin over a period of time.

Okay.

Great.

Thank you, guys, for taking my questions.

Thank you.

The next question is from the line of Swami Shanmugasundaram from Morningstar.

Please go ahead.

Hi.

Congrats on a good set of numbers, guys.

I think my first question is related to cloud and mobility.

And if I look at it over the last few quarters, it has been getting good traction, but the overall spending is still small compared to the overall IT services spending.

So I just wanted to get your thoughts on how big the market would be, say, five years down the line, and how are you guys preparing yourselves to play a leadership role over there?

We just missed the first part of your question, because I think the line wasn't very clear.

Can you repeat that, if you don't mind?

Sure.

I think my first part is cloud and mobility has been getting good traction in the market over the last, I would say, few quarters or few years.

But the overall spending by companies on cloud and mobility is still relatively small, compared to IT services spending.

So I just wanted to understand your perspective on how big the market would be, say, four years down the line, because all the companies have been making large-scale investments on cloud and mobility.

So here is what our belief is, as far as -- and I'll talk a little bit about mobility by itself, and then we'll get on to cloud.

But if you look at standalone cloud revenue or mobility revenue, that's the wrong way of measuring what either cloud or mobility can do for your business.

If you look at mobility, mobility gives you both context and location.

With context and location, you have the ability to disintermediate your business processes significantly.

And maybe disintermediate is too shallow a word.

I would say disrupt is a better word, disrupt the business processes significantly, because of these two reasons.

So what you can do with mobility really is to significantly improve the cycle time, and if by capturing data closer to where the transaction has originated you're also able to improve on what we call right first time.

And if you improve right first time and you reduce cycle time, process efficiency is at a different level.

So you've really got to look at mobility as a tool to take you into something which will fundamentally redefine the business process itself.

The buzzwords are great.

At the end of the day, if it doesn't impact the process, it doesn't really have value for business.

If you look at us, that is the way we're going.

So we're using both cloud and mobility as means to disintermediate the business process from one end as far as mobility is concerned; as far as cloud is concerned, variabilize the business processes.

The common example that Manish talked about is the BPO case, where what we're doing is we're putting together an offering which is an application and hardware offering on the cloud, backing it up with a BPO offering and offering a variabilized price for product.

That, in a sense, is the way we are headed.

We believe that there is going to be a segment of the market that's going to clearly look at those kind of opportunities.

That may not be your typical large customer, but that could be a medium-size customer.

Sure.

I think my next question is with respect to Europe.

Despite all the uncertainties, you guys have been putting up decent numbers.

So my question is how much of that growth was due to, say, higher penetration by offshore service providers in Europe, and how much of it was due to the shift that the companies -- the regional players losing market to companies like Wipro and Infosys?

We really can't get the number, but here's what we can say.

Ultimately, what happens is that the company with the value propositions that can really be in front of the customer on a regular basis will win.

And that means more presence in the geographies that we're talking about, on the ground, more solutioning and differentiation at the front end and a high degree of stabilization in the back that can help you scale your business.

So, ultimately, we believe that value has got to be created in the front and efficiency has to be delivered in the back.

And that's the way this model is going to evolve.

And as the model evolves, we believe that we're going to be in the forefront of this model to help the evolution and, more importantly, be in the front so that we can garner market share after the change happens.

I think my last question is related to visa.

Are you guys seeing any headwinds due to visa issues?

How has it been so far?

Jatin or Saurabh (inaudible).

Yes.

So, on visa, we really don't see, at any point in time on our horizon, visa becoming a constraining factor for our growth.

We continue to apply for visa on a proactive basis, as we see our demand unfolding in front of us.

And we have sufficient visa inventory to be able to take care of our growth.

But, [Keith], just to take on from there, there's a very clear strategy that we're driving towards, which is that if you talk about differentiation in the front and standardization in the back, fundamentally what it means is that we are going to create more jobs in the US and in Europe.

That is clearly the way we are going.

Depending upon visas long term to run a business which is now a stable business may not be the right thing to do over the long term.

So more investment in the front, more development centers, more differentiation, more product management skills, more contracting skills, more technical architecture skills, more business application skills, that's the way we are headed towards in terms of our onsite/offshore business.

And all this would be local hiring, because we believe that long term you cannot be in a position where you take away jobs and not give anything back to the country where you're operating in.

I think that's fundamentally essential to the way you do business.

And thanks again.

And again, congrats on a good quarter.

Thank you.

(Operator Instructions).

The next question is from the line of Keith Bachman from Bank of Montreal.

Please go ahead.

Hi.

I was hoping you could talk about your hiring trends, and specifically addressing how you're thinking about lateral hires between now and year-end and the timing of either flexing up or down to respond to the economic backdrop, particularly since you mentioned there's still a lot of uncertainty around areas such as investment banking.

So our strategy as far as hiring is concerned, both lateral -- on lateral hiring it's actually very simple.

So anything that requires us to build solutions which are aimed at a particular segment or a particular market, it's catered to by a global workforce.

That workforce could sit in the US; it could sit in any part of the world where the competence exists.

And these guys work together as virtual teams to address the customers.

That's on the solutioning side.

On the program management side, similarly, we have an approach whereby we believe that program management should be geographically based; otherwise, it's very difficult to manage and control projects.

As far as delivery is concerned, that is where it becomes a little important for us, because as projects ratchet up or ratchet down, the number of people that we would have, the maximum hires that we need at the beginning of the project may change significantly as we go through the life cycle.

And for that, while we have a minimal bench on site to address those needs, we typically meet incremental demand through contractors and through third party hiring.

We have a certain percentage that we keep within as a number, beyond which we try to see that the contractor hiring business moves beyond that.

But that's what we use to make sure that we're able to manage or even go over an uncertain demand environment.

Anything you want to add, Saurabh?

Just to supplement TK, from a hiring -- we continue to be robust in our hiring.

Our requirements, both for campus as well as laterals, continue as planned.

In India, especially the engineering schools, right now hiring from them is going on.

So we've gone to about more than 150 colleges and we're doing the hiring there.

So no change in the hiring plans, as we have planned earlier, and move, as we said.

Visibility of demand is there and we continue to be on robust strategy.

Could you specifically address what your targets are for lateral hires in particular over the course of the December quarter?

So we do not give numbers for hiring, so we're not able to comment on that.

Okay.

Thank you.

We don't give numbers for the quarter in terms of hiring, or even for the year.

Okay.

Thank you.

Thank you.

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

Please go ahead.

Yes, thank you.

I'd like to get a little more color on movement on Europe, if I may, in just a couple of areas.

Firstly, obviously Europe is growing at quite a clip for you at the moment.

Which is your fastest growing market in Europe?

So Jatin Dalal I think can answer that question.

Jatin?

Yes.

Hi, Anthony.

Anthony, we are seeing good growth in two SBUs, although I would say it's broad based, but two SBUs in specific.

One is Financial Services and other is Energy and Utilities, which is showing very good traction in Europe.

And in terms of the country markets, though, which of the countries is growing fastest?

We are seeing good traction, and this is more a reflection of the demand, the pipeline and order conversion as against specific revenue.

France and Germany are increasingly becoming more and more important for us, purely based on the traction that we see on the ground.

I see, because UK is obviously your largest country market in Europe.

Can you just remind me roughly how much of your European revenues derive from the UK?

Yes.

Roughly, anywhere between 55%, 60% of quarterly revenue of Europe is derived from UK.

Okay.

And the second question around Europe is you had 44 new logo wins in the quarter.

How many of those would have come from Europe?

The number of the new customer from Europe this quarter was five.

And is that -- how many of those would have been UK?

Well, actually, I wish we could go that granular.

All right.

Well, let me finally just (multiple speakers).

How did you guess?

All right.

And just to finish off, of those five new logos, in how many of those would you have displaced an incumbent rather than supplemented one?

Well, I think most of the cases where we would have increased our market share and market share gain typically would be in form of a displacement of an incumbent, and not necessarily taking the in-house work.

So I would think maybe at least three or four of the pie you will see (technical difficulty).

That's great.

Thank you very much indeed.

Thank you.

(Operator Instructions).

The next question is from the line of Avishai Kantor from Cowen and Company.

Please go ahead.

Hi.

Good morning.

Two quick questions.

One, if you can elaborate a little bit about pricing trends.

And the second, if you can talk a little bit about M&A strategy.

Thank you.

So, as far as pricing is concerned, we talked about that a little bit in the beginning, so we don't want to repeat it.

As far as the M&A strategy is concerned, I'll ask Rishad, who is our Chief Strategy Officer, to talk through on what we are doing on the acquisition front.

Hi.

This is Rishad.

So we continue to remain active on the M&A front, like we have for the last several quarters.

We're focused primarily on three different areas.

One is building domain competency in momentum verticals, which is BFSI, the oil and gas business, healthcare and retail and consumer products.

The second area is focused around emerging technologies that we're focused on, which is cloud, and particularly within cloud on the platform BPO side, on analytics as well as on mobility.

And then the third area we're focused on is on geographic expansion, with particular focus on growth markets for us, markets like France, markets like Germany, etc.

So that's really our M&A strategy.

Thank you very much.

Thank you.

As there are no further questions, I would like to hand the floor back to Mr.

Sridhar Ramasubbu for closing comments.

Please go ahead, sir.

Thanks for joining the call.

Again, apologies for the brief audio interruption during our CEO's opening remarks.

As mentioned during the early part of the call, we will make the call transcript available on our website.

Our audio replay will be made available post 2 pm EST today.

IR team in India and in the US are available for offline assistance.

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.