Wipro Ltd (WIT) 2013 Q1 法說會逐字稿

Ladies and gentlemen, good day and welcome to the Wipro Limited earnings conference call for the period ended June 30, 2012.

As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions at the end of today's presentation.

(Operator Instructions).

Please note that this conference is being recorded.

I would now like to turn the conference over to Mr. Sridhar Ramasubbu.

Thank you and over to you, sir.

Thanks, Melissa.

Good day to all of you.

This is Sridhar and I am joined by Manoj and Arvind from IR team in Bangalore and on behalf of the entire Wipro team, a very warm welcome to all of you.

We are pleased to host Wipro's 1Q FY'13 earnings call.

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

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

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

T.K. Kurien, CEO of Wipro IT Business will share his perspectives on the IT business side.

Suresh Senapaty, CFO, will comment on the IFRS financial results for the quarter ended June 30, 2012.

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 as forward-looking under the Private Securities Litigation Reform Act 1995 and are based on the management's current expectations and are associated with uncertainty and risk, which could cause the actual results to differ materially from those expected.

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

The call is scheduled for an hour.

The presentation of the 1Q FY'13 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 Mr. Azim Premji, Chairman, Wipro.

Good day to all of you all.

I want to just focus on two areas on a broad basis.

One is on the trends in the IT environment and the general environment and the second one is on Wipro's strategy.

The overall macroeconomic environment continues to be volatile.

There is a lot of uncertainty due to high levels of sovereign debt and unemployment levels.

While clients are cautious, they are sitting on stronger balance sheets, heavy on cash and better prepared to face the uncertain environment.

Clients are driving towards a dual objective of growth and differentiation as they transform themselves.

Technology is going to be the key enabler of this transformation.

Wipro's investment in key technology themes coupled with our domain-specific solutions and global footprint positions us to be their trusted partners.

I continue to be optimistic about the structural growth story of IT Services.

Wipro's strategy.

Wipro's strategy has been fuelled by three key directives; a focused business strategy, higher customer satisfaction and greater employee engagement.

Our strategy of creating a higher degree of differentiation at the front end and standardization in the back end is critical for us to win.

We have seen higher levels of customer satisfaction in the fiscal year gone by with customers reacting positively to our efforts in building a simpler, nimbler and leaner Wipro.

We continue to be significantly focused on employee engagement.

We have seen employees settle down into the new structure as reflected by the sharp drop in attrition rates and positive employee perception scores.

We continue to drive our strategy, while maintaining the highest levels of corporate governance.

We were recognized by the Ethisphere Institute, a leading business ethics think tank as one of 2012's World's Most Ethical Companies.

We continue to be focused on sustainability initiatives and it has resulted in Wipro being one of the two only Indian companies in the Dow Jones Sustainability Index for 2011.

I'll now hand it over to Suresh Senapaty and he'll give you a brief summary of our financial results.

A very good morning to all of you in the United States and good evening to some of you in Asia.

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 June 29, 2012 for cable transfers in Indian rupees as certified by the Federal Reserve Board of New York which was $1 equal to INR55.57.

Accordingly, revenues of our IT Services segment that was $1,515m or in rupee terms INR83b appears in our earnings releases as $1,496m based on the convenience translation.

Moving in to the quarter performance, our IT Services revenue for the quarter ending June 30 was $1,540m on constant currency, a sequential growth of 0.3% within our guidance range of $1,520m to $1,550m.

From a vertical perspective, we continued to see strong growth in energy and utilities.

Financial services was impacted by weakness in investment banking in the current quarter.

From a service line perspective, we saw strong growth in analytics, at 3.3%.

We have seen some stabilization in our BPO business, which saw sequential growth of 1.5%.

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

In the current quarter, on a trailing 12 months, we have 8 accounts which are more than $100m in revenues, up from 4 last year.

We saw growth in our top 10 accounts of 3.2%.

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

From a revenue productivity perspective, offshore realization dropped by 1% and onsite realization improved by 0.2% sequentially on a constant currency basis.

We see pricing pressure in pockets, but we are driving realizations through productivity improvement.

Sequential volume growth in the current quarter was 0.8%.

Operating margin percentage improved by 30 basis points to 21%, with the impact of increased employee costs and investment in sales and marketing offset by the benefit of rupee depreciation.

As of June 30, 2012, our days of sale outstanding was at 69 days which was the same as the previous quarter.

As we anticipated our IT Products business was sluggish due to push out of decisions on capital spend and declined by 5 percentage points on a year-on-year basis.

Profitability drop was due to volatile currency in the quarter.

Consumer Care and Lighting business continued to see good momentum with revenue growth of 30% year on year and EBIT growth of 27%.

We acquired the Yardley business in the United Kingdom and rest of Europe, excluding Germany and Austria, along with the Woods of Windsor business which is another heritage brand in the United Kingdom.

On the ForEx front, our realized rate for the quarter was INR54.89 versus a rate of INR49.43 realized for the last quarter.

On a quarter-on-quarter basis, ForEx net of cross currency impact gave us a positive impact of 310 basis points to operating margin.

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

The effective tax rate for the quarter was 20.2%.

We generated free cash flow of INR9b in first quarter which was 57% of the net income and operating cash flow was INR12b in quarter one, which was 74% of the net income.

Our net cash balance on the balance sheet was INR75b, an increase of INR6b sequentially.

I'll now hand over to Kurien for giving an overview of the environment.

Good morning, everyone.

Against the backdrop of mixed macroeconomic trends, our business in the first quarter played out largely as we expected.

While the external environment continues to be volatile, I believe we are well positioned as we constantly strive to drive innovation and redesign our organization to address the shift in customers' approach to technology.

Our investments are continuing to show results.

Our top 10 accounts contributed to our revenue growth.

We have now eight of these relationships crossing $100m in revenue compared to four in the same quarter last year.

Our top five accounts grew in excess of [5%] (background noise).

Our customer satisfaction based on [results] continues to improve quarter on quarter.

The overall score improved by 3 percentage points.

Building great talent in this Company is absolutely critical for long-term sustained value creation.

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

The net result of this is the stabilization of attrition rates.

We've also created a separate hunting team which consists of over 100 professionals.

We are working very closely with our clients enabling the transformational journey.

We signed a large multi-year contract with Philips Electronics in the Netherlands as their global prime partner on their transformational program towards enabling enhanced business growth and profitability.

Philips has chosen Wipro as its strategic and global prime partner to help transform and standardize six different platforms such as Idea to Market and Market to Order.

For a leading pharmaceutical company, Wipro is providing a solution leveraging analytics and advanced utilization of mobile technologies to produce a 360 degree view for its customers over a mobile device.

This solution will enable the client's 5,000 plus field reps to have accurate (inaudible) on the move and make fast decisions.

Technology is today an enabler for the differentiation for any business.

At Wipro we've seen this change early and invested in enhancing our capability in this space.

We continued to remain invested in our momentum verticals.

We continue to see strong traction in energy and utilities and (inaudible) continues to grow.

In quarter one, we saw a constant currency year-on-year growth of [30.15%].

Energy and utilities, BFSI and (inaudible) were growth segments for us.

As we discussed earlier, technology is the core of our business.

We believe that the next technology disruption will be the intersection of cloud, mobility and analytics and that's where we'd like to play.

Here is an update on each of them.

Our analytics business continued to gain momentum with a 3.3% sequential growth and added 21 customers last quarter.

Year on year, our analytics business has grown 20%.

Wipro has been selected as the partner of choice by a leading retailer in North America for its analytics and business intelligence capability for delivering multiple strategic programs.

We've also been engaged by a leading bank to improve efficiency in the finance function and to strengthen its compliance both to local as well as global regulations.

We acquired Promax Applications Group, a leading player in trade promotion planning, management and optimization solutions to strengthen our capability in trade promotion management and optimization.

On the cloud, Wipro's cloud business continued to see significant growth in the last quarter.

Wipro had 51 customer wins in quarter one across IT and transformational deals.

On mobility, we've bagged a B2C solution engagement in mobile payments for a leading global bank and a mobility transformation deal with a leading insurance company in North America.

This quarter we also launched m-eXecute, a mobile enabled, manufacturing solution on a mobile platform.

This solution will enable manufacturing companies to reduce response time to crisis, real time access to mission critical quality data and improved transfer to the shop floor.

I want to conclude by saying that Wipro has laid the foundation to be the new generation IT Services company.

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

Thank you.

Melissa, we can go ahead with Q&A.

Thank you.

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

(Operator Instructions).

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

Please go ahead.

Hi.

I wonder if first you could talk a little bit more in depth about demand.

Your guidance seems to imply that September which I think is usually a seasonally strong quarter is going to continue to decelerate on a year-over-year growth basis.

Maybe you could just talk about how much of that's demand related and how much of that's related to the strategic changes that you're making within the Company.

Joe, very quickly, this is T.K. Kurien.

Let me just give you a little bit of color on what's happening the way we see it in the demand space.

Overall if you look at our business, our business is basically dependent upon customers who play and who react to specific situations in their particular market.

So to some extent our growth has been driven by customers' visibility of what they would like to spend in their particular market and that's to some extent affected or impacted our growth rate in quarter two.

But more importantly if you look at segments, the investment banking segment has been weak for us.

Our energy and utilities segment continues to be strong.

Banking itself continues to be strong except for investment banking.

Financial services also would look fairly strong this quarter.

Insurance would pick up.

On retail we're seeing some slowdown.

In consumer products we're seeing some action.

On healthcare, on the pharma side we're seeing some action.

But broadly, the biggest drag last quarter or the coming quarter is going to be our India business because in the past what's happened is when we give guidance, the India business typically contributes something like 0.8% to 1% of our guidance.

And this quarter we're seeing it flat which is what we've guided for.

And that I think is one impact that's coming out.

Okay.

And then my second question.

Just looking at pricing, you talked about pricing in pockets.

Maybe you could tell us what pockets those are and do you think that you could see further price declines from here?

So if you look at our price decline last quarter, fundamentally what's happened is that on a constant currency basis it's been 1% offshore and 0.2% onsite, positive -- positive onsite, I'm sorry, not negative.

So overall we've held pricing in a narrow range.

I think the concern going forward would be primarily coming from investment banking as a segment.

And I can ask Soumitro Ghosh who runs our BFSI vertical to talk to a little bit about that.

Hi.

Overall at a BFSI level as TK mentioned, on the retail banking side and on the insurance side the market has been strong, especially on the retail banking side.

On the investment banking side, the discretionary spend has been a challenge.

In many customer situations we have seen that anticipated ramp-ups are not happening.

In some cases, in fact the existing projects have ramped down.

So our estimate is -- and that was the scenario even last quarter, last to last quarter and it continued last quarter.

So my guess is that this will probably continue for the next one or two quarters.

However there are opportunities also which one is seeing and typically a lot of these IT companies are looking at cost take out in a desperate measure as well as on the regulatory and compliance side.

We are finding that in Europe there is a higher spend on that side.

US maybe it is relatively slower.

So that's what it is.

Okay.

And then the last question from my side.

Maybe you could just give us a little color on how June ended and anything you're hearing from your clients around that timeframe given some of the increased focus on Europe.

And if you could compare the two geographies, Europe and North America from a spending perspective.

Thanks.

Sorry, Joe, can you just repeat the question once again?

I didn't quite catch that.

Sure.

I was just looking for color on how the quarter ended, whether it was strong or maybe weakened because of what's going on in the macro side and if you could compare the demand environments in Europe and North America.

So if you look at our -- here is what happens.

Our belief is that ultimately the macro environment plays a role, but it's not something which is very significant in our kind of business.

Our kind of business what happens, the biggest impact comes from our customers and the way they react to their markets.

So if you have a retail customer who's sitting in, for example in France, the chances are that they would react very differently from a retail customer sitting in India, for example.

So I think that's the whole issue.

But overall, if I had to look for a trend and if I could look at Continental Europe, France looks stressed; Germany there is opportunity.

The US continues to have opportunity and to some extent, they're sectoral because the banking segment seems to be challenged, like Soumitro mentioned the investment banking side, but retail banking continues to be strong.

So it's a little bit of a mixed bag right across.

It's sectoral as well as geography.

Thank you.

Thank you.

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

Please go ahead.

Hi, good evening.

Thank you for taking my call.

I was curious what you're seeing on the acquisition front or maybe what the current -- within the IT Services world, what your interest level is, what size of deal, where areas of focus might be and what level of leverage are you willing to go to.

Thank you.

Ed, I'll start to talk and then I'll hand it over to Rishad who runs our Strategy and M&A business to talk through it.

But very, very quickly, fundamentally what we're looking at is we look for acquisitions to fill up products such as basically competency gaps around specific industries and also specific geographical gaps.

That's one part of the strategy.

The second part of the strategy is that we believe that to some extent what will happen is that work will move to platform-based services at some point of time.

So platform assets too are an important part of our overall strategy.

And the third would be in emerging areas of technology where fundamentally by not being there you'll lose something.

In those cases we may take a different approach to acquisitions and that would be -- if there cannot be an acquisition, maybe a minority investment.

But that's primarily the way it will go.

Lastly, potential kind of captives if there are, if they give us process knowledge and a technology footprint and access to a particular account, we'll look at that.

But I'll just hand it over to Rishad to continue.

I think TK has covered it all.

The only other thing I would say is that we're driving a much more systematic proactive agenda around M&A than we have before.

And I think if we find opportunities that allow us to fill these strategic gaps we will actively and diligently look at them.

My next question is around your people and your attrition and so forth.

We noted that your involuntary attrition went up this quarter.

Can you talk about the state of the market on the supply side?

Thank you.

Ed, I'll pass this on to Saurabh who runs our HR function and to Bhanu who runs our supply chain function -- who is Chief of Operations for us, who runs the supply chain function also to comment on that.

Saurabh, maybe you can start.

Hi, Ed.

On the attrition, Ed, first of all on a trailing 12 months basis our attrition has come down by 2 percentage points, the voluntary attrition.

And the involuntary attrition which you see has increased vis-a-vis last quarter.

We actually end our training process on --

Saurabh, you need to speak up a little bit, it's not clear.

Okay.

Is it better now, Sridhar?

Yes.

I'm saying that the voluntary attrition has come down.

The involuntary attrition which we have seen a slight increase is driven by the approval process getting ended, the performance cycle and the consequent actions being taken on people, which will happen in Q1 and Q2.

This is a standard process which we go through every year.

So as a function of that what you have seen is the increase in the involuntary attrition.

But the overall attrition has come down over the past year and the quarter.

Over to Bhanu.

So Ed, this is Bhanu here.

So if you look at the kind of things that we're doing, one of the things that we're definitely looking at is looking at the kind of demand that we have and helping people to get trained to meet those demands.

So there is a lot of retraining of people that we're doing, so that we'll meet the new technology demands of our people.

And if you look at the -- during the quarter, if you look at the overall net adds it is still a healthy number that we've added this quarter.

This quarter our net headcount has increased by 2,632 people.

So what we're trying to do is that while the attrition you talked about at the same time we're also looking at retraining people and getting them ready for the kind of demand that we're seeing in the marketplace right now.

My last two quick questions.

Have you slowed down the rate of fresher absorption?

And my final question is can you help us with the investment banking.

Can you just tell us how much investment banking is as a percent of your total IT Services revenue?

Thank you.

On the fresher absorption -- Ed, this is Bhanu again here -- we have not seen any slowdown.

We continue to -- we had a plan at the beginning of the year, we continue to stay with the plan.

In fact we have increased the number of training streams for the freshers.

We have added new capabilities for our fresher training programs.

So we continue to stay on course with the plan that we have.

And on the investment banking component that you talked about, while we haven't shared the mix, but overall Soumitro Ghosh talked about the softness on the investment banking and the strength in the retail banking, etc.

On a combined basis, we expect a better result in financial services as we go forward as compared to the last quarters that we've seen.

Great, thank you.

Thank you.

The next question is from the line of Moshe Katri from Cowen and Company.

Please go ahead.

Thanks.

It seems that your new client additions were weaker than usual and also you've seen a significant drop in the number of active clients, at least sequentially.

Can you address that?

Hi Moshe, this is Jatin Dalal.

So if you see our new client addition, the number has been around 40 and this quarter it's been 37.

And I don't see any difference in terms of trend there.

So we tend towards an average of 40 every quarter and that's where we are.

This quarter is slightly lower at 37.

Now the question on number of active customers, so there are two reasons there.

Over last few quarters, we have actively looked at our portfolio and very small accounts which we term as [safe] accounts, we have sort of stayed away from further investments in those and we have brought it down actively from the earlier number.

So one, that has contributed to this number reducing from 943 to 919.

Also some of our India geography accounts, we convert it by dividing it by the dollar exchange rate and we have a particular threshold of dollar number beyond which we consider our customer as an active customer.

And if the revenue during the quarter falls below this threshold, even if it's a continuing revenue stream we do not consider that number as active customer.

So when the rupee number this quarter has got divided by a higher exchange rate which is $1 equal to INR54.89, we have certain India-based customers, not making it to the threshold and hence that number has reduced.

So these are the two reasons why the 943 has become 919 in the current quarter.

That's fair.

And then it seems that your sequential growth from the top five and top 10 accounts was significant compared to the rest of the business.

In fact the rest of the business was down sequentially, if you exclude top five and top 10.

Can you talk about that as well?

So here's what -- I think, Moshe, to some extent what happens is that if you look at the top ten accounts, fundamentally what we have done is some mega gamma accounts that we've delivered a year ago, that's been concentrated around the top accounts.

Now in terms of growth you've seen that kicking in, in the top five accounts and you've also seen it kicking in, in the $100m accounts.

Our top account has de-grown but in spite of that overall the top five accounts have grown around 5%.

On the rest of the accounts, fundamentally it's a question of the portfolio firing at a different time and we expect that to happen as we go through the quarter.

Understood.

Thank you.

Thank you.

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

Please go ahead.

Thank you.

A couple of questions here, firstly I was wondering right now many Indian IT services companies have a lot of people on the bench, I think it's record people on the bench.

I was wondering how are you using those people to create some new opportunities for the future.

How are you keeping them engaged productively?

Then I have a follow up.

Trip, so if you look at our utilization, our utilization has actually gone up by roughly about 1%.

And in terms of bench management, just to give you a quick headline, we have not cut back on our recruitment.

We have not cut back on any of the fresher hiring that we are doing.

We had a number at the beginning of the year.

We continue to kind of make sure that we live to the schedule that we have put in front of the people who are going to join us.

In terms of keeping the bench engaged, Bhanu, who runs our entire operation which includes the supply chain can talk to it and give you a little bit of color if you want (inaudible).

Hi, Trip, this is Bhanu.

With respect to the people who are between projects and on the bench and in training there are a lot of activities that we are going to ensure that we utilize them proactively.

For example, there is a large number of groups that we're building for our organization.

That's one exercise that we continue to do.

Two, the vast new technology that we are aware that people need to get upgraded on, and those are the technologies that we are getting them trained on.

In addition, we are doing simulated methods to provide some context by which people can actually think of new use [caters] for these technologies and build those technologies as well.

So that's the second activity that we are building.

Third one that a lot of initiatives that we are doing internally within our organization to look at optimizing the supply chain, optimizing the various functions that we have so people participate in those initiatives in terms of how they can optimize some of these functions that we have.

So, overall there is a large amount of activity that happens both for ourselves as well as for industry for our customers with this thing that we have here.

Perfect.

The final question is if you look at the political environment across the whole globe, and then we also look at how we report our financials the world -- the word offshoring and outsourcing has a lot of political negative connotations.

And this on our research it seems the very last decade kind of way of thinking about the business and reporting your financials.

I was wondering can we at Wipro think completely differently.

Instead of breaking up offshoring, outsourcing which is going to give a lot of political headwinds and it's not going to end, it's just only going to get worse, instead of just focus on something that you are giving.

Just deliver services irrespective where it is coming on.

Why highlight it?

And many companies even Ciscos of the world run their business out of multi-geographical locations.

And I was wondering instead of saying offshoring and outsourcing a better metric would be if how many services you are providing out of your own products and how much services are you providing to your partners products irrespective of where it is delivered.

And the reason I am saying is in the new decade we have to think about products most and innovation at the product and technology level more than at the service level, because many things that we have done in the past as a services company are getting automated, any quick thoughts on it alright, if no comments that's also fine.

I think it's a terrific idea, Trip, and we need to kind of look -- examine it in a little bit of detail.

So I think it's a fair point.

If there's perception out there that we need to kind of remove or avoid I think we should.

No point in kind of staring at a bull and expecting that the guy won't charge.

Very good.

Next question please.

Thank you.

The next question is from the line of Jesse Hulsing from Pacific Crest Securities.

Please go ahead.

Yes, thanks for taking my question.

I'd like to dig a little bit deeper on pricing.

Is this being driven on any level by competitors getting more aggressive on rates or is it purely customer-driven renegotiations?

I think it's -- here is what is it, it's a combination of both.

So when you are going after new territory and new logos, fundamentally for the customer to buy you, you need to show value.

If it's an undifferentiated service that fundamentally comes down to price.

If you are able to differentiate in terms of services then you know you have a better value proposition, a better means to hold onto price.

In terms of the [rates] we have seen -- it basically comes from customers, but I think from a leverage perspective if you look at it there are two components that I want to kind of highly here.

Number one if you look at our last quarter the pricing decline is 1% offshore and a positive 0.2% on site.

So to that extent while there is pressure pockets, and Soumitro will talk about investment banking, I fundamentally believe that there are enough levers that we have in terms of productivity that we can kind of unlock for us to make an impact.

Right, and are you find that customers are more willing in this environment to either turn to in-sourcing or to turn to an outside vendor versus going with their incumbent vendors if there is no flexibility on rates?

I think if you look at -- again let me kind of break it up.

The service sector doesn't cause the disruption to the customer, he would happily call everybody and his grandmother all to the table to bid for it, and that's the reality.

It won't happen in every customer, but we see it happening in at least 20% to 30% of the customer base.

So fundamentally in a commoditized service, price decline is real.

If you don't use productivity as a level to actually go out there and hold onto margins you will get [differentiated investment] that's a reality.

And I think that's what we've seen.

Clear we have seen signs of it.

My own sense is it will activate as we go along.

And I noticed that SAP had a very strong quarter, you guys have been a very big partner with them in the past.

Are you seeing a pipeline of services work related to enterprise application implementation building up?

And how is that business overall trending from a pipeline perspective.

So here is what we see, and I can ask Bhanu who runs that business to talk to you a little bit about that.

But broadly if you look at the newer areas we are seeing a decent pipeline, for example, HANA those kind of areas we are seeing good pipeline, mobility.

On the rest I'll hand it over to Bhanu, Bhanu will talk to it.

Hi, this is Bhanu here.

I think you've [brought] -- there are a couple of areas where we are definitely seeing growth.

We -- if you talked about HANA and HANA is an analytics platform, we are seeing good activity around that.

But there is a lot of new areas that we are working along with SAP right now.

And as SAP strengthens, introduce various new elements into the marketplace, for example, looking at the core (inaudible) piece in front of HANA, looking at mobility solutions on SAP, their ability to change one of their languages and move -- bringing on the new [IT] capabilities, and also the rapid deployment systems.

We are participating with them in all of those areas, and that's where we think we see a lot of growth.

See the existing customers so there there is already an installed base of SAP.

We are seeing focus around areas in terms of realizing value, making the effective footprints much sharper, and those are the areas that we are working on in the installed footprint that we have right now.

Okay, thanks, good.

Thank you.

The next question is from the line of Swami Shanmugasundaram from Morning star.

Please go ahead.

Hi guys, thanks for taking my questions.

I've got a couple to begin with.

I think my first one is I think over the last few quarters if I look at it on the revenues some ADM [plus] BPO has come down.

Now during this quarter I believe those are the two processes that had reported slower growth.

So would you mind giving some details on the moving parts that have led to this, I would say relatively poor performance during.

Hi, Swami, this is Jatin.

So you're right, BPO has remained a little muted over last few quarters, but if you really see this quarter their contribution to revenue has moved up from 8.2% in last quarter to 8.4% in the current quarter.

So BPO in the current quarter has ended growth, ahead of the company growth rate.

And we see some signs of growth coming back in that service line.

So long as ADM is concerned we have seen a negative growth in the current quarter, which is primarily led by some of the large development projects in the banking side, merchant banking side getting over which are not yet replenished.

We see that as a one quarter view of the events, and as we go forward we do not see a trend that vis-a-vis gives us concern

Okay.

I think my next question is on the margins, I think -- the (inaudible) has mentioned that depreciation of the rupee has given you close to 300 basis points, but if I look at the margins, margins have gone up farther than that.

So would you mind talking about the investments that you guys have made, and how do you plan to fund it in case of the rupee goes back up?

Yes, sure, Swami.

So we have always maintained that we will remain invested in the short term on the future investments.

And this quarter has been no different.

So if you see our -- we got benefit of 300 basis points, because of the superior ForEx that [grew] this quarter.

And our overall margins have expanded by 30 basis points, so effectively 270 basis points of benefit that we have reinvested.

The largest of that is in form of the salary increase that we gave from June 1, and that has impacted margins approximately 120 basis points.

We also have invested in the sales and marketing spend, if you see that is up 70 basis points.

We did talk about an adverse impact on the rates offshore about 100 basis points, which has impacted margins by 20 basis points.

And lastly we have had some -- our India business in first quarter has been slow and the slower revenue has also reflected in the lower profitability which has impacted margins by roughly 50 basis points.

And there is, other operating parameters.

So if you see that is a -- that is a walk for the 270 basis points.

Sure.

I think my last question is related to pricing, I am sorry if I missed your comments earlier.

I think in the comments you mentioned that you are facing pricing pressure.

Are these customers asking for one-time kind of discount given the sluggish economy, or it's just that they are revisiting your master service agreement and asking for a permanent reduction in your billing rates.

Yes, so you know the typical RFPs regarding how did they get their costs down, and that's what we really work on with the customer, and there are the regular (inaudible) that we look at.

And absolutely, give prices decreases is really the last of the options, so we work with them on giving them managed services instead of time and material projects, or we work on a greater offshore component, or we look at deployment of newer methodologies which we can work together to get greater productivity out.

So it's never really one element that we are talking about, or we are looking at the total cost of ownership for the customer, call it defined outcome and how do we reduce it working with the customer.

Sure.

I think that's it from me, and thanks again for taking my questions.

Thank you.

The next question is from the line of Manish Hemrajani from Oppenheimer.

Please go ahead.

Yes, thanks for taking my call.

Your India business continues to be challenged.

Could you talk about the progress to date on addressing the issues in telecom and government there?

I'll hand it over to Suresh Senapaty to answer that question.

He runs our govern -- he runs the government relations business in India, reporting to that.

Yes, India has come through a tough weather over the last two quarters, because of a variety of developments on the political side and a lot of new acts that have come in.

So there has been a little bit of decision which has been lacking from a government and bureaucrat's point of view.

And you've seen the cost of capital has gone up, the stock market has not been doing well and therefore not a lot of money has been raised mobilizing IPO.

And in terms of the foreign (inaudible) has also sort of slowed down, so consequently -- and the cost of interest has been very high.

Currency has depreciated a lot at a very fast pace.

So you see investments not taking place, particularly in the capital investments.

I believe in subsections of government spending, telecom, as you know a lot of issues around it and therefore not tremendous spending happening.

And also financial services, because with the little bit of a slowdown of the GDP, there are stress on the books or the balance sheet of the bank in terms of some NPLs, etc.

So we hope (inaudible) that simple correction will proceed.

We generally have quarter two a far better quarter than quarter one like last year.

Quarter one to quarter two the jump was about 10%, 11% so particularly it contributes to about a 1% sequential growth for the IP services business so far.

So therefore [critically] if you look at our guidance of 0.3% to 2.3%, had we got that India was intact we would have been looking at 1.3% to 3.3%.

So that went up [a bit].

So quarter one was negative 9% dollar terms and 1.6% rupee in terms.

And we expect no bumping up in quarter two.

But our expectation is the second half should look good with some amount of decision making happening and some amount of positive momentum sentiment and so on.

Does that answer your question?

Yes.

And if I look at your top customers you have strong growth in your top 10 customers, but if I look at the number of customers over $25m it shows a drop of 1. Can you give some details on the drop in that number there?

Drop of one.

Yes, (technical difficulty) so this is predominantly because we have had a movement in cross currency which is typically in euro adversely in the current quarter, and therefore our customers which was slightly over $75m have fallen below $75m.

So that's a simple answer to that.

There was (inaudible) rate correction otherwise we would have hedged, it's because of the cross-currency impact.

Okay, got it, got it.

Just one last one from me.

You've had the card management in place now for about a year and a half.

There has been some progress on the restructuring front.

But of late you are again lagging your peers especially in the last couple of quarters.

Can you give us some insight in to your strategy going forward on how you plan to catch up with your peers?

Manish, fundamentally it's back to execution, so you know we can lay out and tell you, so we can give you a sense of what strategies are there, but fundamentally I think the strategy part is done, it's execution plan right now.

So we just have to execute.

I am sorry that's the shortest answer I can give you I can't give you anything else.

That's fine.

Thanks that's all I had.

Thank you.

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

Please go ahead.

Hi, I have two questions, thank you.

On Finance Solutions within that vertical if you could speak to the differences specifically that you saw within investment banking or the capital markets side and the rest of financial.

I think you addressed it before, but I couldn't quite hear you.

And if you had any specific numbers to throw out or provide rather that would be helpful.

And my second question is could you speak to what you think pricing will do because of mix or renegotiations or the various factors.

But if you could speak to what pricing -- what you think pricing will do over the next couple of quarters through year end.

Thank you.

Well, Manish, Soumitro here, on the FSA you know that last quarter we had a fairly robust quarter as far as retail banking is concerned, we saw some good growth.

In capital markets, we are seeing in the entire investment banking community there is a challenge on the discretionary spend.

So there are projects which we had anticipated would be in ramp up but is not happening.

In some cases there are existing projects which are ramping down.

And this is a direct result of how these investment banking companies are doing, as you will have seen over the last two quarters.

Most of the investment banks across the globe have posted not so good results.

So the place where we are really taking initiatives is on the regulatory side, regulatory and compliance.

So there we are working along with our customers and helping them with their initiatives.

Very recently we have been chosen as a partner with a leading European investment bank on their Basel III initiative.

On the cost side there are quite a few initiatives they are taking which can cover (inaudible), which can cover BPO, which can cover infrastructure.

So there is a huge drive in terms of taking costs out from around the [banks].

It's the change-the-bank piece which is highly stressed.

On the good side, we saw this quarter making good progress, I talked about retail banking, we had good progress in terms of large deals where the deals have not got decided, but we made good progress in terms of down selection to a particular (inaudible).

We saw some three or four important wins in BPO, one in -- two in US and one in Europe.

We saw a healthy build up in terms of our funnel.

We almost increased our overall funnel by 20% in the last few months.

So I think overall, barring investment bank, I think one has seen a pretty strong quarter from retail banking and to some extent even insurance, which has got impacted a little bit due to some discretionary projects which we were doing and have got over.

But broadly that's what it is.

Sorry, excuse me for interrupting, but do you think on your -- if you look at calendar year '12 do you think your capital markets business will grow, be flat, or decrease in terms of year-over-year revenue growth?

So you know it depends how these companies perform on their own, right.

So at least the European investment banks for obvious reasons they are more exposed compared to US, so it really depends on how these guys perform.

The initial quarters I think they were more stressed.

Going forward, I think it will be a good balance between cost control versus a little bit of discretionary spending where these are critical projects.

Okay, okay.

And then the follow up my pricing question was what you anticipate pricing to do over the -- through year end.

So you know we do not guide or use the parameters for the full year, but as we look at the environment we see that there will be challenges in pockets.

But there are sufficient leverage which is available in form of productivity improvement to mitigate some of them.

So I think that development [is that we see] as we go on.

Okay, thank you.

Thank you.

The next question is from the line of Shashi Bhusan from Prabhudas Lilladher.

Please go ahead.

Yes, thanks for taking my questions.

Over the last four or five year's investment in sales and marketing has accelerated ahead of the revenue growth.

Now with this quarter being the highest in the recent times some of the results we are already seeing in terms of the top 10 growth and new (inaudible), but some benefits may come with the lag.

My question to you, sir, that -- and now here on are we further going to see a step up in the S&M investment, or is it going to be in line with the revenue or are going to be slower than the revenue growth?

So here's (inaudible) Shashi, we are not going to cut back on S&M on a short term basis, because fundamentally our view is that at the end of the day if you can't go out there and kind of sell yourself as an effectively fundamentally you are kind of long term (inaudible), and I think that's the philosophy.

We have to use whatever levers we can from a productivity front to make sure we can fund that, but we are not going to take short term[ business] and cutting it S&M..

But is it going to be in line with the revenue growth from here on or is it going to be again further step up.

Difficult to say.

Fundamentally we have an investment plan in place, and we'd like to hold it as far as we can in line, (inaudible) quarter to quarter.

Sure.

And the second part of my question is if you had to assess some of the investment we have made over the last four, five quarters, are we seeing some early signs of success.

Obviously I've mentioned some of them have already been there, or there is some delay because of the macro in terms of success of those investments.

In terms of what we have done, If you look at the investments that we have made in the (inaudible) account they are starting to pay off, but all the rest I think there is still quite a lot that is still now work in progress.

And is the macro one of the biggest factors?

I mean obviously the market had been good we would have done much better, but I guess from my own perspective it's something that we've laid out in terms of a timeframe, and fundamentally we are executing a plan to [attack that].

Okay.

Thanks.

That's all from my side and all the best for the full year, sir.

Thanks.

We are going to take the last question from George Price.

Thank you.

The last question is from the line of George Price from BB&T Capital Markets.

Please go ahead.

Hi, thanks very much for taking my questions.

A lot of them have been addressed.

I still have a few things I wanted to clarify around investment banking.

First to make sure I understand exactly what you are saying when you are talking about the discretionary projects ramping down and investment banking, this is not natural project completion but is this -- or the question is is this natural project completion that's just not being replaced or is it actual cancellation or early termination?

No, it is more future projects which where we had anticipated ramp ups to happen that is getting pushed out.

Okay, when you mentioned existing projects ramping down I just (multiple speakers)

Yes, but that is not -- majority of cases majority of cases are actually demand being pushed out.

In a couple of customers, yes, there are existing projects which got ramped down.

Okay.

And then second in terms of what you expected a quarter ago, and what clients in i-banking were telling you a quarter ago has the outlook for the investment banking spend and spend relative to budgets has that gotten -- for the second half of this calendar year has that gotten materially worse?

I think right at the beginning of the calendar year itself although CIOs had their annual budget, but the entire budget was broken in two quarters and people were being cautious about spending per se.

So it was only on a quarter-on-quarter basis that the budgets are getting released.

Specifically your question that, are you seeing the next two quarters the budgets being -- holding back.

I personally feel that it will not get worse.

This is what my guess is because the initial two quarters was where there was a bigger impact.

Going forward I do feel that it is going to be a good mix of cost [record], regulatory and a little bit of discretionary spending coming back.

So you do think that there -- I guess just to follow up on that what basis do you have for thinking that discretionary spending on the i-banking side is going to come back in the second half?

So that is because we were -- there are some critical projects which were put on hold, and they've been put on hold now for almost two quarters.

Some of my customers clearly there is a lot of pressure from the business side to at least get the critical projects off the ground.

So on the basis of that this is my view.

Okay.

Last question, just I know there have been a lot of questions about pricing but again just to be clearly about this.

Have you actually started to see pricing -- I mean have -- you mentioned there is a lot of different ways you can help your clients reduce their cost.

But have you actually been putting in pricing reductions?

And again this is mainly on the i-banking side, but on -- have you actually been putting in any pricing reductions for existing work or new work ramping up.

Has this occurred over the last quarter?

Thank you.

So first of all, you know we try and move the entire conversation away from a rate cut to a spend cut, so all the customers today as you know in the i-banking segment specifically they are under huge cost pressure.

So the important thing is to be proactive, and our discussion not with the procurement people but with the CIO in terms of how do we work out a strategy which reduces their spend.

So it's all about moving to managed services, moving to vendor rationalization, moving move offshore, etc., etc.

So the majority of the cases we have been able to move the conversation to a spend reduction rather than a rack rate reduction.

Okay, but not on all of them?

Yes, may not be all but wherever we have had to yield we have definitely linked it to [fair] increased volume or increased offshore.

Okay, all right thank you.

Okay.

Thank you very much to all of you for your active participation.

The transcript will be posted on our website and recordings are available on telephone.

Our IR team is available offline both in India and US if there are any questions.

Thank you once again.

Thank you, gentlemen.

You can close the call, Melissa.

Thank you.

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

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