Wipro Ltd (WIT) 2012 Q3 法說會逐字稿

Ladies and gentlemen, good day and welcome to the Wipro Ltd earnings conference call for the quarter ended December 31, 2011.

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

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

(Operator Instructions).

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

Sridhar Ramasubbu.

Thank you and over to you, sir.

Thanks, Melissa.

Good day and wishing all the very best in 2012.

This is Sridhar and I'm joined by Rajendra, Manoj who is taking over from Raj, and Aravind from our IR team in Bangalore and on behalf of the entire Wipro team a very warm welcome to all.

We are pleased to host Wipro's 3Q FY12 earnings call.

Regarding the materials for this call, we issued a press release yesterday, late night EST and we allow time for QandA at the end.

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

Azim Premji, Chairman, will give an overview of Wipro business.

T.K.

Kurien, CEO of Wipro IT business, and TK will share his perspectives on the IT business side.

Suresh Senapaty, CFO, will comment on the IFRS financial results for the quarter ended December 31, 2011.

They are joined by BU heads and other senior members of the Wipro management team who will be happy to answer your questions.

As always, elements of this call and the management's view may be characterized by forward-looking statements 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 detailed in our filings with the Securities Exchange Commission in the US.

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

The call is scheduled for an hour, the presentation of the 3Q FY12 results will be followed by QandA.

The operator will walk you through the QandA 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 First 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're unable to ask questions for any technical reasons.

Ladies and gentlemen, over to Mr.

Azim Premji, Chairman, Wipro.

Good morning and evening to you all.

Let me talk a little bit about Wipro Ltd or Wipro Corporation.

We recorded revenues at Wipro Corporation level for Q3 of INR100b, a year-on-year growth of 28%.

Net income for the quarter at INR14.6b was a year-on-year growth of 10%.

IT Services business delivered a robust constant-currency sequential growth, and we continued to build on the momentum by incremental investments in delivery as well as the sales engine.

We have seen positive movement both in employee satisfaction as well as customer satisfaction.

A little bit about the macro environment.

There is a lot of uncertainty in the overall macroeconomic environment, particularly in Europe, but signs of growth returning in US, with unemployment levels heading south.

In our view, customers are prepared for slow growth in the Western world and IT strategies are designed keeping this variable very much in mind.

There is increased focus on emerging markets which is leading to superior growth for us.

We continue to see a lot more stability and clarity in customer organizations compared to 2008.

Organizations are focused on adapting their business model to meet the changing growth outlook in their business, both on the revenue side as well as on the cost side.

A little bit about Wipro Consumer Care and Lighting.

In Consumer Care and Lighting business we have seen very strong growth of 26% year on year for quarter three.

Business has shown consistent growth upwards of 20% year on year throughout the year.

Santoor continues to grow well through a healthy mix of both volumes and value-led growth.

We continue to see all-around growth across product segments.

UNZA business, which represents our Far East business, continues to do well and growth was driven by China, by Indonesia, Vietnam and Malaysia.

Wipro Infrastructure Engineering, despite market softness, we continue to see growth in India.

We are beginning to see Europe customer sentiment reflected in lower order intake in some segments.

Continuing our vision to expand the hydraulics portfolio, we formally signed a JV agreement with Kawasaki Precision Machines Limited in December.

The JV will focus on manufacturing of hydraulic pumps which is considered the heart of the cylinder.

Kawasaki brings in technology and Wipro brings in the local relationship with OEMs and extremely strong market presence.

Wipro EcoEnergy, we continue to see demand for intelligent, sustainable alternatives for energy generation.

We won the mandate to implement and manage an energy management system for 1,100 store locations of a large retailer in the US.

We have successfully delivered a cumulative capacity of about 40 megawatts of utility-scale solar PV plant which has been connected to the national grid.

Overall we continue to be very positive about this business.

I am confident that we are on the right path.

I will now request T.K.

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

Thank you, Mr.

Premji.

Good morning, ladies and gentlemen, and thank you for taking the time to join us today.

Over the past couple of quarters we've talked about change and we've always believed that change is terrific but without it being backed up by execution it's a pretty hollow statement.

Having said that, in our business there are only two constituents that we need to manage, one is our customers and the other is our employees, and in the past quarter we have done some work which makes us believe that we are in the right direction.

First, our customer satisfaction for strategic accounts continues to improve.

Year to date, our improvement in customer satisfaction is running at around 9%.

Customers appreciate the solutions that we provide.

More importantly, they also appreciate responsibility and accountability at the account level which really has been a big driver for our growth over the past couple of quarters.

On the employee front we have reduced our quarterly attrition by over 9% in the last two quarters.

In fact, if you look at our attrition numbers they're probably one of the lowest in the industry which is based out of India as we speak.

This is a reflection of the fact that employees have embraced the new direction and our engagement measures are making a difference.

The result of all this is that we grew 4.5% sequentially in constant currency and exceeded the top end of our guidance in the last quarter.

At the end of the day, our goal is to be a business value player, especially in a market which like ours is primarily driven by disruption.

We truly believe that the next technology disruption will be at the intersection of cloud, analytics and mobility, and that's where we would like to play with intellectual assets and platforms that can really provide differentiation for us to make an impact in front of the customer.

Now let me talk about the three teams that we have and let me give you a sense of what's happened in the past quarter.

In the cloud business we had 20 new wins across various industry segments.

We see strong growth in our cloud-based IT transformation and our process transformation using public SaaS SI services, which makes it a legitimate option for enterprise clients.

We have built key IP assets in areas of public cloud management, ERP as a utility, and offering cloud along with mobility, big data and analytics.

For example, for a telecom major we're enabling a process transformation in CRM and core enterprise processes to bring truly variability in operational costs.

Along with this we're also driving consolidation of disparate systems and driving standardization across the organization.

Overall, the cost of operations for this particular customer would reduce by over 40%.

The other big area that we've invested in is analytics, where we continue to show good traction with focus on differentiation, and more importantly linking that back into performance insights which helps us serve customers better.

We have launched two cloud offerings on two analytical solutions, market-mix modeling and customer attrition, and we have clients in both these solutions.

We have also set up a high-performance computing lab for developing in-memory analytic solutions and we are among the first of the leading global service providers to have such a facility.

On mobility, it's been an action-packed quarter for us.

We saw the headcount in that practice increase to 1,700.

We have done plenty of work in this area for many customers, including multimillion dollar turnkey deals to design tablet-computer-based applications with lots of work being done behind that in terms of process re-engineering.

More importantly, we have launched another initiative internally which we call Wipro App Life.

This initiative is helping our employees to collaborate, to build solution ideas for our clients, as well as improving our internal operations.

It provides employees an opportunity to utilize their creative energies outside his or her normal day of work.

We've already qualified 1,000 employees who have signed up to create applications for Wipro, from 3,000 who applied for this.

The Apps Store has apps for improving efficiency of operations including travel management, sales CRM, field engineering transformation, time and absence.

Some applications developed include a mobile solution genie which is transforming field engineering support to customers.

We believe that this is the way forward and we are making investments in enabling internal measures to drive in this direction.

Bottom line, we are executing to a well-laid plan to build a company that will lead the next wave of business opportunities.

Thank you.

Over to Senapaty.

Good evening to those in India and good day to all of those who are in the US.

Ladies and gentlemen, I wish you a very, very happy and prosperous New Year.

Before I delve into our financials, please also note that for the convenience of readers our IFRS financial statements have been translated into dollars at the noon buying rate in New York City on December 31, 2011 for cable transfers in Indian rupees as certified by the Federal Reserve Board of New York, which was $1 equal to INR53.01.

Accordingly, revenues for our IT Services segment that were $1,505m, or in rupee terms INR76b, appears in our earnings release as $1,435m based on the convenient translation.

Let me start by saying that the Board of Directors has declared an interim dividend of INR2 per share in the current quarter.

Moving on to the quarter performance, our IT Services revenue for the quarter ending December 31 was $1,505m on a reported basis, a sequential growth of 2.2% and a year-on-year growth of 12%.

On a constant currency basis, we delivered a sequential growth of 4.5% which was ahead of the upper end of the guidance.

We have seen all-around growth in the current quarter.

Healthcare led growth with 6.9% sequentially on a constant currency basis, followed by Retail 5.4%, Global Media and Telecom 4.8%, BSFI 4.6% and Manufacturing 4.2%.

We continue to be positive on our momentum verticals.

BAS, Analytics and ADM led the way from a service line perspective.

We saw a pickup in growth in US, an amount of re-emergence of growth in Japan and continued growth momentum in India and the Middle East and APAC.

We moved a little further on our focus area of client engagement.

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

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

We saw improvement in revenue productivity in the quarter with a claw-back of productivity in fixed price projects.

Offshore realization improved 3.6% and onsite realization improved 4.3% sequentially on a constant currency basis.

We continue to characterize the pricing environment as stable.

Sequential volume growth in the current quarter was 1.8%, impacted by additional leave taken by employees during the quarter and effort optimization in fixed price projects.

Operating margin improved by 80 basis points, largely driven by currency and pricing, which also funded additional investment in SGandA and strategic ventures.

As of December 31, 2011 our DSO showed marked improvement and was at 71 days, down from 76 in the previous quarter.

Our return on capital employed for the IT business improved by 4% sequentially to 38%, while return on capital employed for the overall company improved by 2% to 21%.

Our IT Products business showed EBIT growth of 16% year on year in the current quarter.

Consumer Care and Lighting business continued to see good momentum with revenue growth of 26% year on year and EBIT growth of 22%.

On the foreign exchange front, our realized rate for the quarter was INR50.53 versus a rate of INR46.38 realized for the last quarter.

On a quarter-on-quarter basis, ForEx gave us a positive impact of 70 basis points to operating margin.

Our OCI was, as of period end stood at INR5.5b, and we had about $1.7b of ForEx contracts outstanding.

The effective tax rate for the quarter is 20.7%.

Our net cash balance on the balance sheet was INR53b.

We'd be glad to take questions from here.

We're ready, Melissa, for Q and A.

Thank you.

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

(Operator Instructions).

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

Please go ahead.

Hello.

My first question here is just I was wondering can you dig a little bit deeper on the overall demand environment.

We've heard some of your competitors talk about how the discretionary spending is not coming as quickly, or the decisions being made on the discretionary spending are not coming as quickly as we would expect and they had expected coming into 2012.

Could you just talk about what you're seeing on the discretionary spending side and maybe the size of the business it is and if or not what you're seeing is consistent with some of your competitors.

So Joe, this is T.K.

Kurien and I'll answer that question.

So here's what we have seen.

It's difficult for me to kind of give you a broad-brush answer to that because I think it's very related to the industry segments that we play in.

So, for example, what we have seen is that if you look at investment banking, clearly we have found that they're under stress as far as discretionary products are concerned.

As far as business is -- the lights on business is concerned, in the IB segment we clearly see pressure coming in from that particular segment in terms of costs and we see, if there are -- if you have a particular [run] business, you see that run business under competitive pressure, there's no doubt about it.

If you look at retail banks, what we see there is that in-flight projects which are already started which are critical for the company, or for the bank, continues.

There may be cases where in certain geographies that the bank may not decide to kind of go ahead, but overall it continues.

There is also, in retail banking we have seen another big trend which is around process re-engineering, we have seen a big change in terms of the way people are addressing the problem by starting a whole bunch of process re-engineering projects.

So to that extent while the discretionary budget may not be allocated towards application development, but you know, that money is being spent somewhere else in terms of process re-engineering.

If I look at retail there has been a slowdown at the end of last quarter.

We believed that the budgets would have already been allocated but the way the budgets have found its way into the organization and it's kind of a little spotty right now, we expect to see some discretionary projects starting end of January or beginning of February.

If you look at energy itself, our long-term projects for energy have not gone on hold, they have continued, especially on the upstream side where the typical cycles are slightly longer than you would find for typical application management or lights-on kind of business that you may have.

The same thing is true for natural resources.

If you look at healthcare, I think pharma presents a big opportunity.

There, again, budgets are almost flat.

I don't see any big change in budgets and there too critical projects continue to be executed.

But overall it's too early to call, at least from our perspective, this is what we are seeing today.

We would probably see an opening up of the budgets at the end of the January or beginning of February, much more than what we see today but long term if I had to give you some kind of steer it would be that long-term projects that have got long-term impact we haven't seen cancellations.

A lot of short-term projects clearly we've seen impact.

If you look at technology platforms, if you look at analytics, analytic projects continue because the payback is much, much shorter.

Similarly mobility programs continue.

And on the infrastructure side movement towards the cloud continues to happen, but again these are typically, within the enterprise, private clouds.

So on those areas continue to spend money and that's easy to justify, payback is easy to justify there.

Anything that's got a very long payback I think is really being questioned.

Okay and just a second question there, just, we look at the three key areas that I think everyone's focused on this year, analytics, mobile and cloud.

Can you give us maybe examples of what you're doing in each particular offering, in other words, how are you addressing the demand for cloud (inaudible) Wipro work.

Maybe if you could just give us specific examples of what you're doing into those offerings.

Joe, you know your voice is kind of cutting in and out.

So if the question is what are we doing in mobility I can answer that.

Yes, I was just looking for an example of what you do in each particular practice that you talked about there being strength, analytics, mobile and cloud.

Okay that's pretty, in fact Joe, I'm happy to share it with you, I read it as part of my opening remarks on what we're doing in each one of them.

But if you don't mind I'd rather do it at the end of if I can rather than holding the phone up because I've already gone through it once.

Okay, all right.

Then I guess my last question is maybe could you just give us an update on the products business and BPO.

Insofar as the products business is concerned, largely they are in the nature of system integration and largely this is for India.

And so far as India is concerned, a lot of it being government business and also corporate business this tends to be more quarter ending September and March centric.

December is generally a weaker quarter and however still the margins that were made in quarter two, about 5.3% operating margin has been commendable.

So we see quarter four, we expect quarter four to be better though we don't give any specific guidance, but traditionally quarter for has been better than quarter three.

So Joe, the bottom line is that it's primarily an India-based business for us and typically we see two peaks, September and March and December has been a weak quarter, traditionally been a weak quarter for us.

Primarily --

Okay, anything on the BPO segment?

On the BPO segment we have the Head of our BPO business right here with us, Manish Dugar, and he can kind of talk through it.

So hi, Joe, this is Manish.

From a BPO perspective, the so-called business, as you know, has a little longer decision period in terms of the time we win the deal and the time the revenues start flowing in.

We have seen, at least the last two quarters a decent pipeline and deal flows and that gives us confidence that we should start seeing those translating into revenues.

One other thing I thought I must share with you is that with our focus on outcome-based productivity-linked contracts and with our focus on automation with the retail to reduce the cost to sell and win more and more work to straight-through processing and reduce operational cost which is part of the integrated offering we are trying to look at a Wipro Ltd level.

What it does is it translates into a continuous reduction in the operational costs which is what we typically report from a revenue and BPO perspective.

So it's almost like running on a treadmill and hence the flattish or slight drop in revenue that you see is primarily contributed by our commitment to clients to bring in more automation, self-service, straight-through processing and hence reduce operational costs.

And as we start seeing the revenues kicking in from the new deals that we have been winning in the last couple of quarters, we should start seeing that not only negate the drops because of those commitments but actually reflect in revenue growth as we go along.

Thank you.

Thank you.

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

Please go ahead.

Thank you.

I have a couple of questions.

The first question I have is regarding the [complicated] environment and if the segment, the players in the IT services we can probably segment them into your four buckets.

Number one is integrated IT services providers from the likes from IBM, HP and maybe Dell.

The second segment could be companies who are totally IT focused, companies like Infosys, Wipro, Cognizant, and others.

And the third segment I would say is domestic outsourcing companies who are based in US but they don't have the global scale.

And the fourth company I would say, European-centric IT services companies.

So I was wondering with this re-segment, the space in these three, four buckets and then we think in terms of a customer puts an RFP and let's say assume all the players from these different segments come and bid for a project, what kind of discussion or engagements or negotiations happen?

And under what situations would an integrated IT services player win and under what situation, say companies like Wipro will win?

And then I have a follow-up.

Trip, can you also ask your follow-up and then we can probably combine both and give you one answer.

So the other question was, you did speak, or talk, a lot about business analytics which definitely we do think is a very strong area to have services delivered in.

I had a question is that, there is at least in some segments in the market, a new business analytics product, [I think], in terms of services, open source project which is getting traction called, as it were, System-R, R as in Robert, from Revolution Analytics, started by a Professor at Stanford, but in retail it is gaining some traction.

My question on that would be is, do you think it makes sense to be a commercial entity for an open source project like say System-R, similar to what Red Hat is for Linux, maybe Wipro could be for this open source project R.

So let me do one thing, since there are two questions and frankly for a retired accountant I don't have knowledge of System-R and I'll ask K.R.

Sanjiv who runs our analytics practice to come and talk about System-R.

Thank you, Trip, for that information, I think it's something that I should probably be going and looking at.

So let me answer the first question.

So typically what happens is that in most of these cases, in this game ultimately the customer buys value.

Value is demonstrated not necessarily by price but by impact, so typically what happens is that impact again has a geographical correlation to it, as well as a solutioning component to it.

So at the end of the day it doesn't matter where you're from but whether you're a pure US player, unless there are specific contracts where, given governmental regulations, you're not allowed into, otherwise pretty much we look at it there's a level playing field out there.

And ultimately I think the first two meetings determine whether you're going to stay in the game or not.

As far as System-R is concerned, Sanjiv?

Yes.

So, Trip, what we are doing with System-R is twofold.

One is we are implementing a lot of advanced analytics with our customers where they have decided to go with System-R.

What we are also doing is we are OEMing System R because it's an open source software to some of these solutions which we are internally building and taking to the clients.

What we are not doing as you suggested is to provide Red Hat kind of services around System R, because we strictly believe, we analyzed that, and we believe that strictly speaking does not have the kind of revenue volumes which we would expect from that service.

A question, do you think System R is causing some disruption in retail or some established companies may be feeling a pressure because of this, or it is too early.

Trip, you know, Trip, I hate to kind of disturb you but can I do one thing, Trip, maybe what I'll do is I'll set up a separate call for you with Sanjiv and maybe he can answer all those questions.

Perfect.

Thank you very much.

Thank you, Trip, appreciate it.

Thank you.

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

Please go ahead.

Hi, thank you very much.

This is actually Rick Eskildsen on for Ed.

Edward, can you be louder please we can't hear you.

Ed, your voice is kind of very faint.

Yes, hi, is this better.

Yes, much better.

Sorry about that.

It's Rick Eskildsen on for Ed.

First question just is you touched about it a little bit earlier, but I was wondering if you could talk about what you're seeing from client IT budgets.

What sort of they're looking at flat to up or -- and when do you expect them to close?

So I think most of the budgets that we see are flat to -- in some industries with a negative bias.

Again, in some specific industries, for example, in national resources and in upstream oil we've seen an increase.

But overall I would say if I had to kind of generally guide, I would say flat that what's we are seeing.

In terms of allocation, like I said specific project allocation is already finished.

I think people have already got their budgets.

They may not have released them out in terms of a book of work.

But after they do that whatever is left out would get allocated I guess to in smaller components to projects that are not on the critical path.

We haven't seen that happening yet.

We expect to have that happening sometime in early February or end January.

Thanks.

And then just the next question is I am wondering if you could comment on wage inflation expectations for the next year.

Two of your competitors have already come out.

We haven't yet kind of made up our mind; we need to see the market post-March.

Our wage announcement is going to happen only in June, so we have a little bit of time before we kind of take any kind of action.

But right now if you look at the indications it seems like the wage inflation is going to be in single digits.

But again it is going to be a function of demand.

If we find that demand is suddenly going to go up in this quarter and towards next quarter I am sure there will be pressure on all of us.

Otherwise right now it's pretty muted.

Okay, great.

And then just last question quickly on the pricing; what are you seeing in the pricing environment and what are your expectations going forward?

Again there is an industry slant to it.

IB challenged, but option of different business models to recover whatever price you give away through optimization, on the others no change in coupon price.

Okay, thank you very much.

Thank you.

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

Please go ahead.

Hi guys, thanks for taking my question.

I guess if I could start at the top, it does look like some of the transformational stuff that you guys have been doing internally is making progress.

But maybe if you could update us on what stage you are in that process, and what kind of -- what the next metrics we should look for or you guys are looking for to judge that -- judge progress there?

So, Nabil, here's what it is, when we started this whole process we basically said that we have three phases of this.

The first phase was really getting the on-mission alignment and making sure that across the organization all of us had our dots aligned and all of us were kind of focused around one objective which is the customer.

I think we have kind of achieved that to the -- I mean we've achieved that.

The second and the third phase I guess is the most difficult phase.

And that includes changing the -- basically going back into a processes, looking at our processes carefully, figuring out what impacts the customer and what doesn't.

Looking at seeing what we can do in terms of technology to make sure that we are able to deliver better using more and more technology and delivery.

And fundamentally kind of living up to what we had messaged some time ago, which was high differentiation in the front end and a high degree of standardization at the back.

That's the second phase.

In between we have a third phase which is going to -- which is running parallel across the first, second and what I call the third phase which is really getting folks aligned in terms of culture to a common objective.

And that's slightly longer term thing.

So those are the three phases that we have played -- this game is being played out on.

Today, we have gone through the first phase, lots of work to do before we get to the second and third.

Okay.

And then switching gears a little bit could you talk, update us a little bit on the SAIC acquisition.

Has that generated new customers and opportunities?

And do you see additional kind of tuck-in acquisitions as you go forward as growth drivers?

So, Arnold, are you on the call?

Okay, so let me -- since Arnold is not here on the call, maybe I'll take it up and Jatin Dalal, our CFO can add on.

We've seen decent traction as far as the SAIC acquisition is concerned.

If you go back to the rationale of the SAIC acquisition, the idea really was that we had the software competency but we didn't have the upstream domain knowledge.

Putting these together we believe that we could really create a powerhouse in this space, and that's what we've been going after.

So, first indications are extremely positive.

We've gone out there and done joint calls and customers.

We have won a couple of new customers in the space, especially on the upstream side.

And we expect to see more upstream work coming to us from our existing customer base.

So overall if you ask me I would say positive.

Given the fact that our business is a consulting business and last quarter and primarily T&M, last quarter because of the holidays we did not have the kind of revenue that we would normally expect from our business.

But we expect that in quarter -- our quarter 4 which is quarter 1 it would come back, so overall very positive.

Okay, great.

And then I guess last question from me when I listen to your commentary about budgets and macro it seems okay not great not bad, last two quarters you've had fairly healthy net adds, I think around 5,000 this quarter.

Do you feel like you're taking share given that that you're adding a little bit more than some of your competitors, or what's the reasoning behind that?

So here is what's happening, a couple of reasons.

One is that you know we are going after more and more individual deals.

We are probably going back to our customer base and mining a little better.

We haven't seen, and I would say a secular trend of share change.

We'd love to get there, but today I don't think we are seeing that.

Okay.

So primarily it's just you think you are taking better advantage of the install base and that's driving -- has the potential to drive better volume growth.

Is that a fair (multiple speakers).

That's primarily what we are doing.

Even though I must admit that the new logo wins that we've had have been interesting over the past quarter, but again that's not reflecting on our top line.

So to that extent, while there is opportunity, and while we have made some progress I don't think it's making an impact.

Even though one number that I would like you to kind of watch is our accounts over $100m, last year, same time we had one account which was over $100m.

This quarter we have had six.

And that kind of reflects to some extent the mining that we are doing.

Okay.

Great.

Well, thank you, guys, for taking my questions.

Thank you, Nabil.

Thank you.

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

Please go ahead.

Mr.

Shanmugasundaram your line has been un-muted, please go ahead.

Am I clear now?

Yes, sir, please go ahead.

Speak up a little bit more, Swami.

Sure, congrats on a good set of numbers and thanks again for taking my questions.

I think my first question is related to the budget, and sorry to (inaudible) on it.

See, I think T.K.

mentioned that budgets were finalized but not allocated.

See, compared to see October and November right we continue to see signs of growth in the US economy.

So did that lead to any positive impact on the customer budget activity?

In other words, do you see any upside to budget -- I mean customers' spending intentions down the road?

Swami, very good question, and let me answer it this way.

If you look at the economic indicators, and if you relate that back into IT spending frankly I think that's an indicator that's got very little correlation.

My own sense is that customers today spend or decide to spend large -- the discretionary component of their budget depending upon their quarter compulsions or more importantly what they see in terms of long-term impact.

And I think that's where the differentiation is coming in.

I have not seen long-term projects stopped, but I've seen a bunch of short-term projects actually go onto the back burner.

So again it depends, it really means you have to go customer by customer, industry by industry and look at that.

So as long as you're aligned to projects that are long-term projects that really are going to create impact for the customer then you are okay.

If you don't have that you are in trouble.

Sure.

I think that my next one is about the customer satisfaction.

I think in your opening commentary you mentioned that there has been a 9% improvement.

Would you mind going a little granular on the process behind this?

So we do an independent customer survey across our customer base, and we do it every month just to make sure that -- I don't know whether you know about this, Swami, but what we have done is that we have linked the compensation of all our account managers and all the folks who work on the account to customer satisfaction.

That's the gate that they have to make before they quality for their variable pay.

And this is done across I think 16 parameters, I'm not exactly sure of the number of parameters.

And it's based upon that that the customers rate the project that they've done with Wipro and the experience that they have had, and the value addition that we have finally given them.

Sure.

I think my last question is on the margin side.

You were reporting 18 basis points I think sequentially, but it's still below your historical 22 plus range.

So given the incremental investment that you guys are making, I want to get a little more clarity on the margin momentum down the road, what are we looking at over the long term looking -- going back to 22 plus or is this kind of a new normal or --?

So, Swami, here is what it is, there are a couple of things that we will do and there are a couple of things we will not do.

So let me tell you what we will not do.

We will not cut back any investment that we have to make on our -- on building capability to complete, which fundamentally means that we will not do anything to cut back sales and marketing.

We will not do anything to cut back the domain expertise that we need to create in specific areas.

And certain key competencies that we believe are absolutely critical for us to kind of really have dominant market position, which is architecture and program management.

These skill pools we will not -- we will continue to invest in and probably grow.

So those we will not cut back.

The other big areas where we believe that we will not cut back any expenditure would be in intellectual property components, and also platforms.

So those are pretty much sacrosanct.

What we will do though is that we will look at the way we operate, because we believe that there is still enough head space in that particular area, and that's what we'd go after.

Because if you look at us as a company our stated motive is that we really are going to hand over the power at the front end to the client manager, the person who faces onto the customer, and at the execution side back to the project manager.

These are the only two places where decisions can be taken where impact can be had.

Everybody else in the middle is really just helping the process.

So, if we do have -- so we believe there is enough opportunity for us to work there to make our delivery model more effective.

So net/net at the end of it, long term we expect that our margins will improve, short term difficult to call because we will not cut back, we will not cut back on investment in areas where we believe that we should be investing in.

Sure, thanks again then, thanks for taking my questions.

Thank you.

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

Please go ahead.

Hi.

I had a couple please, I wasn't sure on your previous answer if you look at your guidance for the upcoming quarter, or comments on the upcoming quarter, could you talk about how you see the difference between pricing and volumes?

Sorry, Keith, I didn't quite get the question, what is the question specifically?

If you could talk about how you see the difference between pricing and volumes playing out for the upcoming March quarter please.

We sort of don't give specific guidance with respect to a split like that, but we'll definitely report to you once the quarter is over, and we (multiple speakers)

How about -- can you suggest whether you think -- sorry, can you suggest whether you'll get a benefit from pricing or can you give any at least directional comments?

No that's something, so therefore we -- while we do not give any specific guidance in terms of the split of the growth coming from there, our expectation is largely the guidance that we have given for quarter four will be volume driven.

Okay.

Thank you.

Can you talk about what your headcount objectives are as you look out over the next couple of quarters?

I am sorry you talked about HR objectives.

Headcount.

Headcount additions.

Yes, Keith, once again we stop at guidance for the IT Services revenue for the quarter with the currency stated.

And we do not specifically give any specific guidance with respect to headcount additions.

But as you have seen the track record of ours, last quarter we added about 5,000 plus people on a net basis, even year quarter before.

And we have guided, and we are talking about this guidance of more and more coming from a volume driven kind of a growth.

So we are quite sticking to the plan because we have a significant component of our hiring coming from campus, which are almost on track.

And so far as the lateral hiring are concerned, they are more sort of just in time depending of the requirement.

So -- but we do not give any specific guidance for what exactly the adds would be, but we do the (multiple speakers).

Okay, thank you.

The last one from me then your utilization rates were down from Q2 to Q3, and I want to try to get your sense, not the absolute numbers but directional numbers, how you see utilization rates unfolding in the next quarter.

So will that stay stable?

Will it improve?

Will it go down?

If you could just talk a little bit directionally on where you think utilization rates will be over the next couple of quarters.

And that's it from me, thank you.

Yes, so have invested in capacity in last two quarters; we have hired close to 5,000 net hires.

So to that extent it would help us deliver the guidance that we have given for Q4 and the growth after that.

There is also a component of utilization dilution which has been invested in solutions which will continue.

So our expectation is that it will certainly improve, but not necessarily that we will go back to a number which was there in Q1 or so.

Okay, that concludes by questions, thank you.

Thank you.

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

Please go ahead.

Yes.

Hi, thank you for taking my question.

I am calling on behalf of Moshe Katri.

Can you talk a little bit about your supply chain initiatives and how exactly it is going to help to grow top line growth and improve margins?

Sorry, you can -- can you repeat your question?

Sure.

If you can talk a little bit about your supply initiatives and how it's going to help to grow business and improve margins.

Yes, I will request Mr.

Bhanumurthy who is our Chief Business Operations head.

Hi, this is Bhanu here.

With respect to the people supply chain I think that there are a couple of initiatives that we are running after.

Obviously Senapaty talked about our ability to go to the campuses to increase the talent pool that we have.

We are also looking at some of the lateral recruitment at the (inaudible) to fill the skill gap that is required for the growth.

And the people supply chain is also focused on building the domain competencies required for building the solutions required for our customers in the corresponding verticals.

In addition, we are investing in building the teams required for the customer-facing activities.

So overall what we are looking at is that the people supply chain is made up of both the fresher intake that we have, the internal talent that we are grooming and the external talent that we are taking for additional skill sets that are required.

So that's the focus that we are putting on the people supply chain right now.

And can you expand a little bit about the impact on margins.

So what we have talked about is that we will certainly get some upside on better people utilization, as well as smarter [cost] deployment of people.

But we will also continue to invest a lot on the front end.

And to that extent it is bit difficult to say how this will flow through in operating margin line, especially given the context that we do not guide on margins for future.

Thank you very much.

So we have one follow-up question from Janney Montgomery.

After that if there are no questions, operator can ask for some more questions, otherwise we will stop after this call -- after this last question.

Thank you.

Melissa, go ahead.

Sure.

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

Please go ahead.

Hi, just wanted to follow up with one question.

You've had pretty two, I guess, decent quarters where the momentum has been, I guess, behind you.

Can you characterized for us, do you feel like you've kind of addressed some of the short-term changes and are through that?

And then maybe you could just talk a little bit about some of your longer term objectives, and maybe the timeframe around when we could expect you to return to, what is considered, industry growth rates.

So, Joe, can you -- is the question about the stage that we are in, in terms of our journey, because I just talked about it earlier.

Yes.

I guess what I am wondering is that what is -- are we through the short-term changes, which I'm sure you -- I think you said that you were.

And then, of course, what are your longer term objectives, and when do you expect the business to return to industry growth rates?

So, Joe, here is what it is, I explained this earlier and maybe I didn't do it well enough, but here is what it is.

The short term changes are all done.

I think -- when we started this whole process we actually messaged saying that we really had three phases that we were supposed to go through.

We have just completed phase one.

Phase one was making sure that we were all aligned and we were being effective in the way we operated in front of the customer.

That's done.

The second phase really for us is to make sure that in the industry segments that we play in, number one we build enough intellectual differentiation for us to really make an impact, and that's the second phase.

And there are four components underneath that which I explained previously, but that's really the gist of what we are doing.

The third across both these phases is a cultural change we are trying to drive, where fundamentally we need to have one culture when we actually go and impact customers.

That's slightly longer term change.

When we will kind of go back to industry-leading growth rates, frankly I don't want to hazard a guess, because industry leading means that I should really know what my competitors are going to do.

And today I have no clue what they are going to do.

But from a market perspective all I can tell you is that there is enough opportunity out there, and frankly what we are doing is making sure that the organization is getting geared to address that.

Okay, thank you.

Yes, at this time there are no questions on the queue, and there is one email on some margin issues which is from Bangalore, and we'll ask the IR team from Bangalore to take it off line.

So we will close this Q and A session with this.

Thank you very much for your participation.

The audio recording of the earnings call is available and the numbers are also -- were -- have been translated.

And the transcript will be posted on the website.

We are -- the IR team is available both in India and the US for any offline questions.

Thank you so much.

Thank you, gentlemen of the management.

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

Thank you for joining us and you may now disconnect your lines.

Thank you, thank you.