Wipro Ltd (WIT) 2013 Q2 法說會逐字稿

Ladies and gentlemen good day and welcome to the Wipro Limited earnings conference call.

As a reminder, all participant lines will be in the listen-only mode.

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 hand the conference over to Mr. Sridhar Ramasubbu.

Thank you and over to you, sir.

Please go ahead, sir.

Thanks, Marina.

Good day to all of you.

This is Sridhar and sorry for that small disturbance on the line.

We're still trying to find out what happened.

This is Sridhar and I'm 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 2Q FY'13 earnings call.

Hope you have received and seen the press release we issued yesterday late night EST and we'll have time for Q&A at the end.

Before we start the call, a short statement on impact of Hurricane Sandy.

I understand the damage has been unprecedented and many people in the Tri-State area are still reeling under property loss, power outage, non-availability of Internet, phone connectivity, etc.

We at Wipro are with you at this critical juncture and wish we get back to normalcy at the earliest.

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

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

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

Suresh Senapaty, CFO, will comment on the IFRS financial results for the quarter ended September 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 of 1995 and are based on management's current expectations and are associated with uncertainty and risk, which could cause the actual results to differ materially from those expected.

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

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

The call is scheduled for an hour.

The presentation of the 2Q 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 at our Company's website.

Replay of today's earnings call proceedings will also be available via telephone post the call.

During this call I am 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 morning to all.

Let me start by saying that we have been monitoring the events around Hurricane Sandy.

Our hearts go out to all the people affected by this terrible tragedy.

Let me give you a macro view.

I had one-on-one interaction with around 40 CEOs as part of the Business Council meeting in the US end of last month.

Overall mood in terms of economic growth, employment growth is more muted than the one what we'd have seen in June.

However, IT demand is still holding on and is reasonably strong, if we're able to show value to the customer.

Over the last 60 years, Wipro has built distinct businesses such as the IT business, Consumer Care and Lighting business, Infrastructure Engineering, Medical Diagnostic Equipment in joint venture with General Electric, each a leader in its industry segment.

This remarkable success was enabled by our entrepreneurial culture and the strong leadership of our team which allowed these businesses to pursue their growth strategies in a flexible manner.

The demerger approved by the Board is a strategic move aimed at addressing growth aspirations of all our businesses.

I'm confident that the demerger or the change will enhance value for our stakeholders and provide momentum for growth by giving each of the businesses greater flexibility to meet their growth ambitions.

Let me talk about quarter two financial year '13 of Wipro Corporation.

Wipro recorded revenues of quarter two financial '13 of INR107b, a year-on-year growth of 17%.

Net income for the quarter at INR16b showed a growth of 24%.

IT Services delivered sequential growth in line with our guidance.

For the IT Business, TK will cover this in some depth.

Wipro Consumer Care and Lighting.

Wipro Consumer Care and Lighting had another quarter of robust growth.

Santoor continues to be the number one brand in the combined south and west regions of India with a market share of 14%.

Aramusk male toiletry brand has introduced a wide range of deodorants.

Yardley UK business got into our fold from August 1, 2012 and overall, Yardley as a brand grew well across the markets of India, the Middle East and UK.

In institutional business, LED lighting continues to be our growth driver supported by two LED brands of Wipro and Cleanray brand which we acquired last year in the LED space.

Office furniture grew with increase in market share and we are heading to be number two in market share and leadership within the next 18 months.

In the international business, growth was driven by Indonesia, Vietnam, China and the Middle East.

Our brands, Enchanteur and Romano, continue to lead the growth.

Wipro Infrastructure Engineering and the Others segment which we report on a quarterly basis.

Globally Wipro Infrastructure Engineering's pace of revenue grew on a year-on-year basis, despite softness across geos and segments.

In quarter two India, we had a decent growth rate.

In India, implementation of recently announced reforms will help facilitate a gradual recovery, but much depends on the ground actions of the Indian government.

In our key markets of Brazil, we are poised for high growth trajectory helped by the stimulus increasing local content from current levels.

We are continuing to gain significant traction with all our customers and are seen as the supplier of choice due to our competitiveness and global presence.

I would now request TK to give a brief overview about the IT Business followed by Suresh Senapaty to give financial highlights.

Good morning, everyone.

Appreciate your time this morning.

The financial and business results of our second quarter 2012 have been with you for some time and we have delivered revenue in line with our guidance.

I am pleased with our execution and the progress that we've made in our stated strategy.

As shared earlier, our strategy is built around strengthening our account management capability, enhancing customer and employee engagement and building new intellectual-property-based technology solutions.

I'll give you a quick update on each of the focus areas.

On enhancing account management capabilities, this is already yielding results.

We now have nine customer relationships crossing $100m revenue mark, one more than last quarter.

We have 16 customer relationships over $75m, two more than last quarter.

Our top 10 accounts contributed immensely to our revenue growth registering a growth of 8.2% quarter on quarter.

Our investment in momentum verticals is showing results.

We see growth in energy, natural resources, utilities and financial services.

Retail banking has posted strong growth, while investment banking continues to be a drag.

We've also seen growth in our infrastructure and BPO business.

Customers and employees are the center of whatever we do.

In our business, customer satisfaction is the key indicator of future business.

We are very encouraged by the 16% year-on-year improvement in customer satisfaction scores in our strategic accounts.

On the employee front, we've been working to build a culture of winning, openness in engagement and process simplification.

The impact of this initiative is evident.

Our annualized quarterly voluntary attrition rate has fallen to 14.4%.

On building technology solutions, we believe that the role of technology is shifting from being a support function to becoming a platform for business innovation.

At Wipro we recently created an Advanced Technology service line specifically to leverage this opportunity.

The Integrated Cloud Mobility and Analytics as a Service would form part a part of this service line.

On Analytics, our Analytics business continues its winning momentum.

We've added 35 customer engagements last quarter.

On Cloud, we've had over 21 wins in the quarter across technology and process transformation themes.

We've also inaugurated our Cloud Command Center which represents the future of managed services in the Cloud.

The Cloud Command Center provides the ideal platform to provision, configure, monitor and manage the client's IT infrastructure across multiple Cloud environments.

On mobility, Wipro's Mobility business continues to see significant growth and we've added 14 new wins in quarter two.

Over the last few quarters Wipro has been focused on building intellectual property that is significantly helping customers build differentiation in the front and helping them to standardize in their core business.

Wipro Digital, for example, is a platform that digitizes the market order process.

Some other intellectual property components include our omni-channel e-commerce solution and dealer distributorship management system.

On the core, we have built tool-based and application management platforms, which integrates delivery across applications and infrastructure.

Helix and Fixomatic are some examples of IP that we've built on the Infrastructure side of the business to eliminate human intervention, thus increasing productivity.

The results are evident in the numbers that you see, especially on pricing.

As discussed in the past, I believe we are well positioned to succeed as we drive innovation to address shifts caused by technology-led disruption.

I want to conclude by saying that we're prepared to take advantage of the environment in front of us to help our customers leverage technology better.

We remain focused on enabling our clients to do business better.

Thank you.

Good day, ladies and gentlemen and good evening to whoever are in India and Asia.

Before I delve into our financials, please note that for the convenience of readers, our IFRS financial statements have been translated into dollars at the noon buying rates in New York City on September 28, 2012 for cable transfers in Indian rupees as certified by the Federal Reserve Board of New York which was $1 equal to INR52.92.

Accordingly, the revenues for our IT Services segment that was $1.541b, in rupee terms INR84b, appears in our earnings release as $1.582m (see - press release "$1.582b") based on the convenience translation.

Moving into the quarter performance, our IT Services revenue for the quarter ended September 30, 2012 was $1,535m on constant currencies, a sequential growth of 1.3% within our guidance range of $1,520m to $1,550m.

From a vertical perspective, we continue to see strong growth in energy, natural resources and utilities at 8.4% sequential.

We also had strong performance in BSFI.

From a services line perspective, we saw growth coming back in Infrastructure Services at 3.6% and BPO business which saw a sequential growth of 5.7%.

From a revenue productivity perspective, there was a marked improvement in realization.

Offshore realization increased by 1.5% sequential and onsite realizations improved by 1.9% sequentially on a reported currency basis.

This was driven through productivity improvements.

Sequential volume growth in the current quarter was 0.2%.

Despite the impact of additional two months of salary increases, continued investment in sales and marketing, utilization drop and ForEx impact, margin impact was limited to 30 basis points through significant improvement in revenue productivity and other operational parameters.

As we anticipated, our IT Products business was sluggish due to push out of decisions on capital spend and declined by 10% on a year-on-year basis.

Profitability improved sequentially.

Consumer Care and Lighting business continued to see good momentum with revenue growth of 26% year on year and EBIT growth of 29%.

On the exchange front, our realized rate for our IT Business -- for IT Services for the quarter was INR54.35 versus the rate of INR54.89 realized for the last quarter.

On a quarter-on-quarter basis, ForEx, net of cross-currency impact, gave us a negative impact of 70 basis points to operating margin.

As of period end we have about $1.7b of ForEx contracts.

The effective tax rate for the quarter is 23.9%.

This trended higher this quarter because A, we had higher other income in the form of capital gains and lesser dividend income and B, the change in the proportion of IT Services provided out of units eligible for tax holiday.

We generated free cash flows of INR16b in quarter two which was 102% of net income.

Operating cash flow was INR19b in quarter two which was 117% of PAT, the net income.

The cash flow was benefited by improvement in the receivable days of IT Business, excluding India and Middle East business, by 3 days.

Our net cash balance on the balance sheet was INR84b, an increase of INR9b sequentially.

We'll be glad to take questions from here.

Sure, sir.

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

(Operator Instructions).

The first question is from Keith Bachman from Bank of Montreal.

Hi, I had two questions if you can hear me okay.

The first question is on the macro backdrop.

There's been a number of companies that provide technology such IBM, EMC, VMWare, Teradata that have all talked about slower demand.

And it has been over the past where the service companies might see it one or two quarters later than some of the transaction-based companies.

So I was wondering -- my first question is if you could just revisit what your recent conversations have been particularly from the US and Western European geographies and then I have a follow-up.

Thank you.

Morning, Keith, this is T.K. Kurien.

So I'll give you a little bit of color in terms of what we have seen, at least with the CIOs that we tend to deal with.

So there are broadly two trends that we see.

One is that if you look at run and change, the run part of the budget is under tremendous pressure.

Fundamentally what's happening is that most organizations have taken a view that most of the run business can pretty much be done by anyone.

And it doesn't require a very great degree of expertise or very much of a differentiated service offering there.

So fundamentally that's been driven primarily on price and to some extent, incumbency.

So that is something that we're seeing on the run side of the business.

On the change side of the business, what we're seeing is that we're seeing that value is moving very quickly from components of the stack to top of the stack.

So let me give you an example of what that means.

If you look at a typical stack which consists of hardware and operating -- database and operating system and application that sits on top and a process that sits above, the stack is slowly moving to the front, to the place where customer interaction is happening.

And fundamentally questions are being asked on how technology can be used to enable that process which means that ownership to some extent of the stack becomes critical for both the customer to get value and for the service provider to get value.

That's becoming more or less a secular trend across our customer base.

So broadly that's what we're seeing.

On the second piece, we see no let-up on capital expenditure.

But the way the capital expenditure is being incurred is very different from what we've seen in the past.

In some cases the CIO himself is not involved in the decision.

The decision is being taken directly by business.

And it's easier when it's a cloud-based service because then pretty much most folks do it in their own without too much of an interface from the CIO [organization].

On the run side, we are seeing CIO involvement significantly and we're seeing decisions that come up for renewal.

We see about 50% to 60% of them going to the incumbent, but 40% of them are probably up for grabs.

And that ultimately becomes the price game.

Okay, thank you.

My follow-up question, if you could talk more specifically about global media and telecom.

Growth continues to be fairly weak here for you and for the industry.

If you just think broadly about the opportunities in calendar year '13, do you think that industry vertical represents growth for yourselves and for the industry?

So there is still growth on the run side of the business on the communications service provider piece.

On the -- for us that has been a stress business because we have a large engineering portfolio where we do product development for most of the telecom companies across the world.

And that part of the business especially in the old age equipment manufacturers is a little stressed on the engineering side.

On the other hand, we see opportunities on the enterprise side and we see enough opportunities on the enterprise side on the communications service provider piece.

But what is very interesting is the geography that this work is happening is no longer the traditional Western markets that all of us focused on.

It's going into the emerging markets and that's where I think the opportunity is as far as communications service providers are concerned.

Okay, that concludes my questions.

Thank you very much.

You're welcome.

Thank you.

The next question is from Joseph Foresi from Janney Montgomery Scott.

Please go ahead.

Hi.

My first question here is just obviously we're not looking for guidance, but maybe you could give us some color on your thoughts on the current pipeline and what you're expecting from 2013.

It sounds like some of your remarks earlier may imply that people are more careful with their budgets and there's more people to sign off on CapEx spend.

But maybe you could just give us some early color on your thoughts there.

So in terms of getting color specifically on 2013, whatever I say right now will be very, very premature.

Because what we are seeing is that we're seeing an industry wide trend and it varies by segment, by industry.

I think we'll have a clearer picture sometime before Thanksgiving.

Right now budgets are still pretty much being decided and worked upon.

But there are certain segments where we see no particular reduction in terms of -- there are long-cycle industries where people are clearly going out there and saying it doesn't matter what it is, we're going to spend the money.

The short-cycle industries is where I see stress and that again has got a little bit of geographical color to it.

But I'll certainly be able to give you a little more of a -- guidance is the wrong word -- an impression of which way the budgets would go first week of December.

Okay.

And just on the demand environment, has the spending stabilized in capital markets and are you seeing any other issues on the pricing front?

So on capital markets now it's become a game of consolidation.

This is the way it goes, consolidation, utility, and better -- business process and applications coming together and ultimately lower costs.

I think that's what is happening.

So people are basically moving to models, which are more outcome-based and that's becoming a big trend.

And frankly, when capital markets under pressure does that, our view is that the other markets would follow within a certain period of time.

Okay.

And then the last question from me is just on organizationally how you feel that Wipro has progressed as far as the changes that you made and any thoughts on obviously separating the two businesses and what impact that can have on returning to industry growth rates.

So operationally I think there are two parts to the question that I'll answer.

The first is what does the separation do to the IT business.

I think fundamentally it's this that today if you look at it, most people saw Wipro as an IT company yet treated us like a conglomerate.

So fundamentally what happened was that whether it be customers, whether it be employees, some of them had a little bit of confusion in their minds -- few customers and many employees -- as to what really Wipro stood for.

I think right now getting more focused around technology, I think is a big plus for everyone, because it brings value to the IT side of the business, which really helps us to focus and really differentiate out there and more importantly, get a clearer message out into the marketplace.

I think for the other businesses too, it gives them the freedom to run the business effectively in the way they choose to.

On the organizational side, I think we're pretty much tracking to plan.

I wish we could get growth back at a much faster pace in some segments of the market.

But the way, the place where we are today, we still believe that organizationally we are aligned there and we will get there very soon.

I think the key for us was when we started the whole reorganization, there were some parts of the market that we invested in and yet other parts of the market that was not invested.

That was a very conscious decision.

The parts of the market that we invested in, we've been doing fairly well.

Where we didn't invest in, obviously the results are showing there.

So that's broadly where we are.

Okay, thank you.

Thank you.

The next question is from Jesse Hulsing from Pacific Crest.

Please go ahead.

Yes, thanks for taking my question.

First question, to follow up on your commentary earlier, TK, on the run versus change part of the business, to what extent -- I guess what's the extent of the pricing aggressiveness that you're seeing from competitors to grab that 40% that you mentioned was up for grabs.

And any particular changes that make you concerned about the pricing trends in the industry?

So if you look at most of the deals that are coming up for renewal, they really come up on the infrastructure side of the business.

And Anand Sankaran who runs our Infrastructure business can give you a little bit of color on what's happening there specifically in terms of pricing.

Okay.

So before I get to pricing, let me just give you a quick overview of what we are seeing in the Infrastructure space globally.

Over the last, I would say, a quarter and a half, we've seen an enhanced momentum in customers wanting to outsource their infrastructure services.

And the funnel that we see today for Infrastructure Services is much better than what we had a quarter and a half.

In terms of pricing, I think there are different kinds of pricing models that are coming up in Infrastructure Services right now.

So people are moving from -- away from the traditional T&M based model to Infrastructure Services where it's end-to-end managed services; it's SLA based.

There are rewards and penalties and stuff like that.

And that's becoming -- we're seeing quite a big momentum towards that kind of pricing model.

In terms of pricing itself, I would say that it is -- a lot of the companies would really vie for this infrastructure services outsourcing.

And we are seeing that in terms of our margins, we're not seeing any difference in the infrastructure services vis-a-vis our other service lines.

So we've been able to maintain our margins in these large outsourcing deals.

And a lot of these deals also throw up opportunities for us to use some of the tools capabilities that we've been developing to drive higher levels of productivity.

So we've been investing heavily on creating our own IPs and on the Infrastructure Services side we've been working on creating these self-heal tools which enable us to use some of these tools capabilities that we've been developing, to drive high levels of productivity.

So we've been investing heavily on creating our own IPs.

And on the infrastructure services side we've been working on creating these self-heal tools which enable us to drive much higher levels of productivity than what it would have been in the last year or so.

And those investments that we have made in the last couple of years are helping us drive productivity and consequently maintain margins, but still give a fairly aggressive price point to our customers.

So that's what we see the infrastructure services face from a pricing standpoint and a deal structuring standpoint.

Okay.

And it sounds like you're maintaining your margins by becoming more efficient on the Wipro side, so does that imply that rates are under pressure or are rates kind of being maintained but not growing on -- for infrastructure services.

Well, some of our -- from our -- as I said a lot of the cost takeouts that we are able to get in infrastructure services is through the investments that we have made on our own IP.

So, we've been investing heavily in autonomics and that's something -- and just to give you an idea we do a lot of these -- when you do infrastructure services you cover the spectrum of tasks that come into command centers [that are] here for evolution, L0, L1, L2, L3.

And with the IPs that we have developed we are today able to achieve very high levels of incident closures as high as 70% to 80% on our L0, L1 tasks, which really don't require now any human intervention.

So we are actually eliminating human beings while providing infrastructure services especially on the L0, L1 areas.

So that is really giving us much higher levels of productivity.

So what we are able to do is to drive productivity to levels which are much higher than what we have seen heretofore in the infrastructure space.

So I would say that that productivity benefit has helped us retained our margins.

And also helps us become competitive in the market.

That's helpful, thanks.

And looking at your large customer growth, top 10 again outperformed the broader company growth.

T.K. is growth in your top 10, is that mostly sole sourced business or are you gaining share at these larger customers versus your competitors?

So I would say about -- today in the large customer base I would say about 40% of our business is probably sole sourcing.

Hello?

Okay.

Sorry.

Yes, thanks T.K. And I guess a little on the demerger side do you plan on issuing more shares in the US?

Yes, so if you look at the -- this is Suresh Senapaty, so if you look at the scheme that is in (inaudible) for the holders they will get the shares of the new company being formed which is Wipro (technical difficulty) Ltd.

And that will get exchanged with the [promoter], and for the shares from the promoter PP in replacement to the Wipro Enterprise Engineering -- Enterprise Ltd.

And that will be potentially possible for any additional listing for which there are certain regulatory approvals that is required.

And hopefully we'll be there, but if that does not happen then it gets sold in the local market and then money remitted after the withholding.

But perhaps the first reference would be to the first one which will be subject to approval from the regulatory here in India.

Great guys, thanks for the color.

Welcome.

Thank you.

The next question is from Moshe Katri from Cowen.

Please go ahead.

Good morning, thanks.

You had very strong client wins during the quarter.

I think it would be helpful if you talked a bit about what you're doing differently there.

Do you feel that you are taking share from some of your peer group?

Some color there I think would be helpful.

And then when can we expect some of the new client wins to translate into stronger sequential growth rates more in line with the peer group?

Thanks.

Moshe, can you just repeat the question I didn't get parts of it I'm sorry, repeat it.

Hello, Moshe?

Yes.

Sorry, I didn't get parts of the question you kind of cut out, so if you just repeat that I'd be grateful.

I am sorry about that.

Sorry, you had very strong client wins during the quarter.

I think it would be helpful to give us some color in terms of what's driving it.

Are you doing things differently?

Do you feel that you are taking share from some of your peer group?

And then when should we expect some of those new wins to actually translate into stronger sequential growth more in line with your peer group?

Thanks.

Moshe, here is what we done.

There are two parts to it.

If you look at what we had laid out our strategy what we did was that we appointed a whole bunch of what we call hunters.

We had split up our sales force into hunting and farming.

I think what you are seeing right now is early signs of the hunting organization kind of working and that's (background noise) new additions that we've had.

In those (inaudible) cases fundamentally what we have done is we've taken away share from incumbents.

It's not a question of whether -- it's not something which is completely -- it's not a greenfield customer.

In -- of course, in those you can see there may be one or two cases that we have done something completely new with the [group].

But I am just talking about -- primarily it's a share gain at that point -- at that -- in that particular segment.

The other thing that we've seen is that we have also started seeing early signs of closure in terms of deals.

And that -- the deals that we kind of started contracting at the end of last quarter we'll probably finish contracting this quarter and announce it next quarter.

My own sense would be that towards the tail end of quarter four versus quarter one and our quarter one, which is quarter two, calendar quarter two, we will start to see growth coming back.

Okay.

And then kind of following up on an earlier question you didn't really have any growth in roughly about 75% to 80% of your business sequentially.

When -- are we -- are you still expecting that to ramp you said maybe a couple of quarters from now.

And maybe some color there will be helpful, because again your top five and top 10 customers are growing; the rest of the business is just not growing at all.

Right, so let me kind of give you a little bit of color on that.

When we invested in our business last year, when we really -- what we did was we pulled out a bunch of accounts that we called narrowed down and we substantially increased the investment in those particular accounts.

The result is showing today in that particular segment.

So what we have found is that from moving from that segment to the next set of customers it's taken us -- and the next set of customers we invested in a year later, we invested in June this year.

Hopefully we won't take the same amount of time to get growth in that segment, but I would expect that even if that happens that it's partly [year away].

So I would say again quarter one next year would be the time that you would expect us to see growth in that middle sector.

Okay.

And then talk a bit about the weakness we've seen in the healthcare side of the business I think on the R&D side as well.

And what (technical difficulty) in those specific businesses.

Okay, on the healthcare side of the business it's something that is -- I would say it's a two quarter phenomena for us but it's not something that's secular, that's been caused primarily by a project ramp down.

We don't expect that to continue.

On the engineering side of the business fundamentally what we -- most of our engineering business was with telecom customers.

And there we have seen the decline that you've seen in the engineering side have been reflected in the growth of the -- or the lack of growth in the telecom segment especially on the equipment side of the business.

We have also seen some level of de-growth in the high-tech segment where we have been doing, especially on the semi side that we have been working on.

And that in turn is reflecting the muted growth that we have seen in the manufacturing.

Okay.

And then just in that context given the new charter for the company is there (technical difficulty) to kind of evaluate or re-evaluate how you look at the R&D business?

Should it be part of the IP services operation (technical difficulty) and obviously that's been a core business for a while.

So if you look at the way we go to market today the engineering side the shop is gone for directly by the engineers the R&D side of (technical difficulty) so it's government, it's a government account framework but people calling separately because the [economic buyer] very different.

So that's been the philosophy.

I think what you are seeing in that business is two things.

Earlier we used to be staff augmentation shop in some form or shape.

People came to us for skills, for technology skills.

I think we are right now repositioning the business to become a system integrator.

And that's what you're seeing fundamentally in terms of shift.

And I don't know if Sanjay Gupta from the engineering side of the business is on the call, but if he is he can add some color to it.

Sorry, he's on a flight.

So I think Moshe we would be very happy to give you some color on what we are doing in that business separately.

Okay, no problem.

Then a final question on margins, Suresh, maybe you can talk a bit about some of the leverage that you have in terms of maintaining or potentially protecting your margins down the road given some of the changes you are making in the business.

Moshe, this is Jatin Dalal here.

We had this quarter is a classic quarter where we have had visibility of what we are getting into and how do we execute to remain in the narrow band of our margin trajectory.

So we had two large headwinds.

One was two months impact of the salary increase that we gave on June 1. And we had the foreign exchange which had been beneficial in earlier quarters was reserving the trend, and we had a negative impact on account of foreign exchange also in the current quarter.

We also had investment in form of increased utilization because we continued to hire from the campuses as we had scheduled as well as increased S&M spend that was planned in the beginning of the quarter.

We have got the offset through superior execution in our express projects where we have got overall increase in onsite and offshore realization by 1.9% and 1.5% sequentially.

And we also executed well on host of other operating parameters which helped us mitigate most of the headwinds and investments, and therefore our margins for the quarter were 20.7% which was within the 30 basis point range of our Q1 margins.

Going forward too, our endeavor would be to plan for our investment and our headwinds and execute in a way that we don't create large volatilities in the margins.

Thanks, thanks for the color.

Moshe, I'll arrange for the call with Sanjay to get back on the project and services piece.

Great, thanks.

Thank you.

The next question is from Swami Shanmugasundaram from Morningstar.

Please go ahead.

Hi, guys, thanks for taking my question.

I think my first question is around growth.

You guys have done a tremendous job in terms of the client mining or in terms of employee attrition.

But at the end of day if I look at the growth, the growth kind of lags behind what [NASCAM] has been saying and what some of your competitors have delivered over the last few quarters.

So what kind of timeframe are we looking at for you to catch up or say to accelerate the pace of growth from here, and what are you guys doing to achieve that?

So if you look at the entire market, and if you look at the two levels of growth from most companies, Swami, it's been around infrastructure and around BPO.

Those are the two areas where growth has been pretty strong.

I'll ask Anand Sankaran who runs our infrastructure business to give you a little bit of color on what will happen with growth on the infrastructure side of the business.

Yes, Swami, so on the infrastructure side of the business we had a sequential growth this quarter of 3.1%.

The good news is that as I had mentioned earlier as a response to a question that came up, the funnel that we are seeing for infrastructure services is quite robust.

So we believe that there is a lot of opportunity in the market.

And we are very strong in the infrastructure services space.

We are number one in the infrastructure services space with respect to our Indian peers.

And we have been driving a lot of -- I think we have been driving across areas in the infrastructure services space, and really investing in trying to see how we can create levers of productivity.

And I did speak about some of the tools that we've been investing on.

So we believe that there are -- the funnel is robust.

There are deals in the market.

We are positioned quite strongly with our capabilities in the market.

So, I am reasonably bullish about the next two quarters.

And (multiple speakers), just a small correction the Infrastructure Services -- in Infrastructure Services we grew at 3.6% sequential and not 3.1% that I mentioned earlier.

I think, Anand, the follow up to that, if I look at all the readings about cloud and everything if generally cloud picks up then probably infrastructure will be the first service to get hurt.

That's because we are looking at companies moving away to cloud rather than having their own data centers and network centers.

If that's going to be the case, don't you think maybe in the near term you may see some growth, but over the long term as infrastructure as a market comes down, what are the Group's plans to counter that?

Yes, Swami, I think that's one of our differentiators.

We see that as a differentiator because in our data center services as in our info-crossing business which is the data centers that we have in the US, as a part of that we have a fairly strong offering on infrastructure as a service, so we call it iStructure which is infrastructure as a service for customers of ours in the US.

And we are seeing reasonably strong momentum in that space.

So we would see that as a differentiator for ourselves because we have an offering today through the investment that we had made in cloud, an offer in infrastructure and service to our data centers that we have in the US.

And that's a big differentiator for us.

So today we are seeing customers of ours who are looking at a mix of public cloud, private cloud, SLS on-premise, bare metal kind of solutions.

And we are today able to offer that quite seamlessly across the capabilities that we have in info-crossing and our global capabilities in our infrastructure services business.

So you are right, there are customers of ours who are looking at cloud.

And we believe that we are uniquely positioned in that area, because we offer a combination of both public as well as on-premise services.

Thanks.

I think my next question is related to your implied utilization rate.

What are we looking at over the long range?

You guys have operated at 80 plus and now it's at 77.

So what do you think would be the average at least in terms over the long term?

Yes, so -- Swami this is Jatin Dalal.

See, if you really see over last six quarters our utilization excluding trainees has been in a range of 70 -- 7.5 to 78.5 kind of numbers barring one quarter when we were actually closer to 80.

And we feel comfortable operating in this range.

The larger variation that you will see would be in the utilization that is including trainees.

And as we take freshers from the campus there might be larger volatility to that.

But excluding trainees you will see it in a narrow band.

My last question is related to your ADM business, if I look at the growth it has declined year over year as well as sequential.

So do you mind talking about what you guys are seeing there and when you think the trend would kind of reverse?

So on the ADM business, most of the people would be primarily in our telecom business, in our [infrastructure] providers business where a lot of the ADM work that we are today is on the -- it's on the engineering side.

That's where the major drop has been.

And I think the rest of the business if you look at it, fundamentally what (technical difficulty) from the new deals that we are kind of right now going after, we have primarily (technical difficulty) new deals which are include infrastructure and engineering both together.

Yes, and also if you see it is relayed to you share of the service line and that's how we should look at it as against the de-growth this quarter, de-growth is really minus 0.2% which is more or less flattish versus last quarter.

And if I see Y-o-Y that number is 2% negative which is also not a share displacement of existing volumes but really the other service lines growing faster for the sheer fact that the new services lines will continue to have a higher growth rate.

Okay, sure.

And that's it from me.

Thanks, guys.

Thank you.

The next question is from Trip Chowdhry from Global Equities Research.

Please go ahead.

Thank you.

A couple of questions, first regarding the Cloud Command Center and other offerings you have in the infrastructure as a service.

Are these prices by time and material or they have a real utility pricing mix to it?

Look purely on utility, Trip.

This is Anand Sankaran here.

It's not at all on time and material.

It's difficult to price a cloud service on T&M.

And especially if it's going to have some intellectual component business behind it.

That's wondering, that's wonderful.

Second question I have is regarding the catastrophe related to Sandy.

I was wondering do you see because of that there could be a certain surge of certain kind of services or maybe certain kind of services which may see some downfall.

Any thoughts about how are the various IT managers and CIOs thinking about the recovery on the IT front of it.

That's all.

Thank you.

So IT (technical difficulty) because Sandy is an event something that happens once in God knows how many decades.

Excuse me this is the operator.

I am sorry to interrupt, sir.

We are not able to hear you.

I am sorry.

Sandy is an event that happens once in a couple of decades, so from my perspective we ourselves are affected by that.

And the CIO (technical difficulty) So Bhanu can give you a little bit of color on what he seems from his side, because from a customer perspective we really haven't evaluated what it means for the business.

Yes, so some bits in the internal organization in terms of the services that we provide for our customers obviously we have -- whenever you see such incidents you have to look at the disaster recovery plans that you have and when you can invoke the disaster recovery measures and so on.

So for our customers for this event we have not seen any disruptions from our services.

In fact we monitor all our services, all our services we've been able to provide critical services for our customers.

But at the broad level in terms of such events causing disruptions, obviously a lot more planning is required in terms of infrastructure, in terms of the tools and techniques that we can have on ensuring connectivity for people and ensuring connectivity to systems.

So, keeping the systems up, monitoring them closely that's the (inaudible) we have -- as I guess you talked about some of the examples already.

We have invested heavily in terms of monitoring tools and tools that can do self-healing and applications that can detect errors by themselves.

So there is a lot of IP that is going on in that area to ensure to continue to have service to our customers.

So I think, Trip, [ground] services there we are not very sure whether people will actually pay for a catastrophe or whether they take insurance.

And fundamentally you can't plan for a catastrophe of the size of Sandy.

Thank you.

Thank you.

The next question is from Shashi Bhushan from Prabhudas Lilladher.

Please go ahead.

Yes, thanks for taking my questions.

Sir, you talked about in the morning conference call about some 87 clients who are not doing good business with us and we have starting to defocus from them.

I have three questions linked to it.

First, were those clients Fortune 500 or Global 2,000 clients who are not doing business with us are doing business with other IT venders, or were those clients so small that they don't have [significant spend] even in an economic uptrend?

Okay, now first on the -- the answer to the first question is no they weren't Fortune 500 customers.

Number two they were basically customers in the INR3b to INR6b range who frankly had a dominant provider sitting there and we were playing a peripheral role.

Sure.

And second were those clients with us for more than one to two years, or these were some recent won logos, and I meant majority of them?

Some of them have been with us for many years, but what happened is remember the kind of engagement that we had they were primarily staff augmentation engagements.

So it is very difficult for us to go out there and kind of do something different to actually scale that.

Sure, sir.

And hardly -- we have added nearly 53 clients in the quarter the strongest since quarter four FY11.

Now how are the qualities of these clients?

Do these client additions are linked to our stated objective of adding must-have accounts, or do we see these clients having higher propensity to do business with us in good time?

Excellent question.

So let me just -- I'll give you a sense of how the hunting organization works.

The hunting organization is not an organization that just goes and hunts at every opportunity.

There is a set of targeted accounts and that's what they are kind of chasing right now.

So to that extent its accounts that we want and not necessarily accounts that we don't want.

I would, just to supplement I think when you look at the Indian geography it tends to be a little more reactive stuff.

And except to that extent I think what T.K. talked about on a global perspective was good, but in India sometimes you do chase deals and it could be of that reason.

Sure, sir.

Thanks, that's all from my side.

Thank you.

(Operator Instructions).

So if there are no questions I think we can close the call Marina.

Sure, sir.

Would you like to add a few words?

I will give a -- yes.

Thank you so much for your participation.

The IR team in India and the US are available for any offline queries.

Thanks once again.

You can close the call, Marina.

Sure, sir, thank you very much.

On behalf of Wipro that concludes this conference call.

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

Thank you.