Wipro Ltd (WIT) 2013 Q3 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 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.

(Audio in progress) Manoj and Arvind from IR team in Bangalore.

And on behalf of the entire Wipro team, wishing all of you the very best for 2013 and extend a very warm welcome to all of you.

We are pleased to host Wipro's 3Q FY'13 earnings call.

Hope you have seen the press release we issued 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 the core business and comment on the macro-environment.

TK Kurien, CEO of Wipro IT Business, will share his perspectives on the IT Business.

And Suresh Senapaty, CFO, will comment on the IFRS financial results for the quarter ended December 31, 2013.

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 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 Securities Exchange Commission of the US.

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

The call is scheduled for an hour.

The presentation of the 3Q 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 am also available on email and through mobile as well to take any question 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 evening to all of you and let me wish you all a very happy New Year, though a little late.

In terms of a macro view, the overall macroeconomic factors are stabilizing globally.

US economy has shown improvement, which is evident from improved consumer demand and improvement in employment data.

When I talk to business leaders globally, the overall mood appears to be improving.

There is a significant focus on productivity and there is a lot of demand for IT services if we are able to show value to the customer.

In India, we welcome the policy changes announced by the government on the deferment of GAAR and clarifications on income tax which are pro-industry and investors.

For quarter three, on Wipro Corporation we recorded revenues in quarter three financial '13 of INR110b, a year-on-year growth of 10%.

Net income for the quarter was INR17b, a year-on-year growth of 18%.

IT services business delivered sequential growth in line with our guidance.

Specifically IT Business, technology is being leveraged by corporations to drive revenue and productivity.

We are seeing increase in influence of customer budgets by the CXO and our strategy is focused now on selling to CXO in addition to the CIO.

Our focus is to invest in aligning our go-to-market strategy with the changing nature of the demand.

Consumer Care & Lighting.

Wipro Consumer Care & Lighting posted a good growth in revenues and margins, contributed by the top brands of Santoor, Yardley, Enchanteur and Romano.

Flagship toilet soap brand Santoor continues to be the number one brand in the combined south plus west region and number three brand at all-India level.

In the international business, Indonesia grew 26%, China grew 32%, Middle East grew 32% and Vietnam grew 24%.

We acquired LD Waxson, which is a good strategic fit.

The transaction helps us consolidate our successful facial skincare business in Malaysia to a dominant leadership position and moves us to be market leadership in Singapore as well.

Wipro Infrastructure Engineering and others, financial '13 exit is seeing a temporary slowdown across geos and segments due to macroeconomic conditions.

In India, the general view is that while we have bottomed out, a lot depends on government fiscal and policy impetus for future growth.

In our key growth market of Brazil, it is poised for high growth trajectory, helped by $66b economic stimulus and localization effort.

Wipro Infrastructure Engineering is positioned more strongly than ever as a global player and partner of choice.

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

Good morning, everyone.

I have the entire management team of the Wipro IT Business here with me.

The results of the third quarter 2013 have been good and the revenues are in line with our guidance.

We continue to make progress on the strategy that we laid out.

Our strategy is built around differentiation and value creation at the front, standardization at the core, which is operationalized by focusing on customers, execution, investment in new technology and people.

On the customer front, we have maintained a heightened focus on opening new accounts and we have driven value creation in existing accounts through effective account management.

We now have 10 customer relationships crossing $100m revenue mark, with higher growth from these focus accounts, an increase from nine last quarter.

We've increased our hunting team to 160, and 50% of the large deal wins in this quarter were hunting led.

Our core focus accounts are growing at a faster rate, driven by increased involvement and strategic engagement.

Our deal pipeline continues to be strong.

We have seen improved closure rates in quarter three and it is our expectation that it will continue in quarter four.

On the execution front, we continue to remain invested in processes and tools in order to raise productivity, driving on linearity, improved quality and increased agility.

Our realization has gone up by 3.6% on-site and 3.4% offshore, primarily driven by productivity.

Our customer satisfaction has gone up 2 percentage points on top of the spectacular improvement in quarter two.

We continue to make investments in advanced technologies to help our clients reinvent their business and optimize their technology infrastructure.

Wipro has been recognized by Amazon Web Services as premier consulting partner for 2013.

Wipro's Cloud Command Center now provides managed services on the cloud command platform to customers across BFSI, media and consumer goods.

Some interesting examples include a cloud-based HR transformation for a European manufacturer across 64 countries and deployment and management of a next generation engineering cloud.

In the mobility space, we've deployed 20 solution accelerators for different industry verticals.

Our Smart Mobile Banking Solution was implemented by a leading bank.

We have delivered two multilingual mobile-based solutions which will be rolled across four countries in the Middle East.

Wipro also recently won the Mortgage Technology Magazine Award for enterprise mobile origination.

We continue our leadership in the analytics space.

We're implementing a sophisticated, state-of-the-art global pricing optimization and launch sequencing solution for a pharma company.

We continue to see accelerating demand for big data solutions.

We are engaged with customers in executing 10 initiatives and providing advisory services in big data.

We are building an enterprise risk management platform for a leading bank, integrating traditional risk data with external sources and providing enhanced risk modeling and monitoring.

Finally, on the people front, we've increased our focus on engaging people, and imparting role relevant training and creating the next generation of leaders, which is showing positive results.

Voluntary attrition, at 12.9%, is the lowest that we have had over the past 12 quarters.

We've completed the assessment of our entire sales force, to help us identify capability gaps and training needs.

Based upon analysis, we've deployed sales training programs to improve sales effectiveness.

I wish to conclude by saying that we are well positioned to take advantage of the environment ahead of us.

Thank you.

Over to Senapaty.

Good day to ladies and gentlemen in the US, and good evening to all of them in Asia.

I wish you a very, very happy New Year.

Before I delve into our financials, please note that for the convenience of readers, our continental readers, our IFRS financial statement has been translated into dollars at the noon buying rates in New York City on December 31, 2012 for cable transfers in Indian rupees as certified by the Federal Reserve Board of New York, which was $1 equal to INR54.86.

Accordingly, revenue of our IT Services segment that was $1,577m, or in rupee terms INR86b, appears in our earnings release as $1,568m based on the convenience translation.

Moving on to the quarter performance, our IT Services revenue for the quarter ending December 31, 2012 was $1,571m on a constant currency basis, a sequential growth of 2%, within our guidance range of $1,560m to $1,590m.

From a verticals perspective, we had strong performance in healthcare and life sciences, which grew at 7.1%.

We continue to see strong growth in energy and utilities.

From a service line perspective, infrastructure services continued to perform well, growing at 4.3%.

Business application services grew at 4.7% sequentially.

Sequentially, volume declined in the current quarter by 1%.

We have increased tremendous focus on driving productivity and this is reflected in realization improvement.

Productivity drive had a good impact on volumes.

We were also impacted by incremental leaves during the quarter.

Despite the impact of regulation and our issue of restricted stock issued during the quarter, continued investment in sales and marketing and utilization drop, we were able to expand margin by 10 basis points, supported by ForEx benefit and through improvements in revenue productivity and other operational parameters.

Our IT Products business grew by 11% on a year-on-year basis.

Consumer Care & Lighting business continued to see good momentum, with revenue growth of 17% year-on-year and EBIT growth of 34%.

On the exchange currency front, our realized rate for the quarter was INR54.54 versus a rate of INR54.35 realized on the last quarter.

On a quarter-on-quarter basis, ForEx net of cross-currency impact gave us a positive impact of 80 basis points to operating margin.

As of period end, we had about $1.8b of ForEx contracts outstanding.

The effective tax rate for the quarter was 21.9%.

We generated free cash flow of INR19b in quarter three, which was 110% of net income.

Operating cash flow was INR22b in quarter three, which was 126% of net income.

Net cash balance on the balance sheet was INR104b, an increase of INR20b sequentially.

We'll be glad to take questions from here.

Thank you very much, sir.

(Operator Instructions).

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

Please go ahead.

Hi.

My first question here is that it seems like you were getting some feedback that perhaps the demand environment has improved a little bit or could improve heading into 2013, but it's coming off a very soft December.

I wonder if you could talk about what you're seeing in the pipeline, why you feel a little bit better about this year and any commentary about discretionary spending.

Joe, this is TK Kurien.

I'm just going to give you a sense of what we are seeing in our customers.

In terms of just the environment -- and I'll break up the question into environment, industry, and if you'd like to have it I'll give you a geographic flavor to it.

But if I look at the environment, what we are seeing is we are seeing the environment kind of improve a little bit from a sentiment perspective.

US, clearly what we are seeing is that if we were sitting in the same place last year, and we were five on 10 in terms of environment, right now I think we've gone up to seven.

I guess from the US perspective the worry would be the fiscal cliff issue, will that get solved, which increasingly we hope it would.

But if it doesn't, does that mean that you will end up with a shutdown, in which case what impact would be in terms of sentiment.

I think that's the whole issue.

There is a little bit of uncertainty there in that context.

As far as Europe is concerned, we see Germany actually quite strong in terms of manufacturing.

To that extent, we see demand coming back, which was always there in Germany but not necessarily the kind of demand that we could easily access, being opening up for us primarily because of [skill] charges.

If you look at France, we think it's a different game altogether; we think it's going to take some more time.

The UK continues to be fairly positive.

I think it's kind of tracking the US.

As far as Asia is concerned, Asian economy which is dependent upon natural resources we'll continue to do well, primarily because of the prices have recently shot up.

So we see Australia doing well.

We see the rest of Asia, Indonesia, those kind of countries, doing fairly well.

If you look at India, I think sentiment is positive in terms of steps that the government's taken.

It has not yet been translated into buying that we are seeing.

I think folks haven't really opened up their purse strings.

I think that's the issue.

And overall, if you look at demand itself, if I could break up demand into run and change, the run part of the business we see it under pressure.

Discretionary spending, we see it in pockets in specific industries.

For example, in oil and gas we see it; in parts of manufacturing, especially industrial manufacturing, we see it.

In the silicon part, which is the high-tech part, I think it's pretty stressed for us right now.

And I think in retail banking too we see demand, especially discretionary demand.

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

I think for us, our performance last quarter and the quarters to come is going to be fully reflective of, A, the markets that we play, B, the portfolio that we have, and, C, our ability to win against competition.

I think that's a combination of all three.

Okay.

Just looking at the guidance for next quarter, is that volume-based guidance?

And what drove pricing this quarter and why don't you expect it to continue, just depending on what your answer is on the guidance side?

I'll ask Jatin Dalal, our CFO, to talk to that.

Yes.

So the guidance is expected both from volume and pricing.

But I must say that we will not relent our effort on getting more and more productivity from the fixed price projects, and to that extent the [dilemma] to get the realizations up will continue.

But the future growth, not necessarily guidance but future growth, will continue to be both volume and pricing there.

Okay.

And what caused the pricing to spike this quarter?

Right.

So, as you are aware, Joseph, there are two components to our pricing.

One is the classic time and materials rate card that we charge to our customers whenever we deploy an IT resource for a customer.

And second is the fixed price engagement where customer pays us let's say $100 and we put 10 employees in our offices or 10 employees with customer to get that work done.

And when I do $100 divided by those 10 employees, I get the realization as a result.

And our realization is a combination of both the rate card and its realization.

What we have got in the current quarter is substantial benefit of introducing automation, technology, tools and productivity techniques into our fixed price engagement.

That's why we have got same revenue by deployment of a lower number of employees.

And to that extent that realization has increased, which is reflected in our pricing.

And, Joe, this is not a one-quarter phenomenon.

It's been going on for the past two quarters.

Got it.

Okay.

And just the last question from me, TK, maybe you could give us a general update on how you feel the turnaround or restructuring or realignment has gone and any thoughts about when you could return to maybe better than industry growth rates.

So, here is -- Joe, from my perspective, I kind of laid it out in the opening remarks.

But just really to look at it, we said our strategy was kind of laid out in a couple of stages.

The first thing we said is consolidate our base and start account mining and make it effective.

That has worked fairly well.

So when we started this journey, we had one $100m account; now we have 10.

On the hunting side, which is the other part of the strategy that we kicked in last year because fundamentally we couldn't invest in both simultaneously, we have ramped up our hunting team and 50% of our large deals come from that particular side.

So the go-to-market side, if you ask me on a scale of one to 10 what would I rate myself internally, it would probably be in the region of about five or six.

I think we have plenty of more head space to do more work effectively outside the focus accounts that we have called on, both in terms of services as well as in terms of the value proposition that we put in front of them.

As far as people are concerned, I think our engagement model has worked fairly well.

Our attrition numbers have dropped significantly.

In fact, the attrition that we have this quarter is probably one of the lowest we have ever had in 12 quarters.

I don't know whether you recollect, at one point of time we used to run 24% attrition, and from there coming down from 12.9% is a big, big change.

I think what we have to work on right now, if you ask me, is really kind of going out there and getting breadth of coverage in terms of new customers and going into geographies where growth is currently happening.

We are still missing some geographies where growth is happening and that's something that we need to fix.

Okay.

Thank you.

Thank you.

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

Please go ahead.

Hi.

I have a couple of questions, please.

Number one, on the previous question you mentioned that pricing was good for both the last two quarters, certainly this quarter.

Why wouldn't that continue?

What would be the circumstances that would suggest that you wouldn't get pricing benefits over the next couple of quarters?

So to keep -- this is Jatin Dalal.

The expectation is that some of these gains will continue, but there will always be variations which are quarter specific which could always creep in.

There could be, for example, number of days impact in a particular quarter.

Or the portfolio shape, where I am told a particular service line which has more or less -- significantly more or less realization compared to the averages.

So those things will continue.

And also the new deals could come at a different price point than the existing portfolio.

So, all those things will continue to impact the realization that we report.

But the productivity benefits that we have achieved over the last two quarters, our expectation is that we certainly sustain and improve on those.

I don't want -- Keith, just to add onto that, the idea is that we would like to hold onto pricing but in a narrow band.

And ultimately, as we drive our record productivity and we get volume in, it's going to be a little bit of a trade-off to see where they'll finally end up, but a narrow range would be a fair kind of a guess.

Okay.

Okay.

Well, along the same lines, your utilization dropped a little bit this quarter.

What are your expectations for where you want to take utilization to?

Do you have specific targets that you're hoping to reach on utilization?

What does that portend for your margins, please?

Hi, Joe -- Keith.

This is Bhanu.

I manage the delivery and operations.

With respect to utilization this quarter specifically, as you understand, it's the end of the year, and it had a good number of holidays and personal leaves of lost people, so that impacted utilization.

It also had to do with the fact that we continued to onboard freshers, as well as certain specific skills specifically around program management, architecture, as well as domain consulting.

These three areas we continue to build up for the deals that are likely to close.

So that's one of the reasons why you see a dip in the utilization levels, and our brief going forward is that utilization will move in a very narrow band.

Would you expect utilization to go back up to the 66%, 68% level on the gross utilization?

Yes.

So that will be the intent, Keith, in terms of taking it up to that level, without sacrificing the agility for serving the new deals that are likely to close.

Okay.

Well, the final one from me then.

Americas had weaker growth.

What would you anticipate both on a sequential and a year-over-year basis?

What would you anticipate your revenue growth to be directionally, at least over the next couple of quarters?

Does that improve or what's the trend line you see there from the Americas?

Thanks.

So, from an Americas perspective, the way we see it is that market we presume will start kicking in this year, because it's been driven to some extent by the portfolio that we have and the growth that portfolio has had over the past couple of years that's kind of led to this stage.

Our own sense is that the recovery of Americas would probably grow equal to or probably faster than the UK and the rest of Continental Europe.

That's at least the expectation in the medium term.

And that's just -- and why is that again?

Why do you think it improves better than those geographies?

It's very simple.

If you look at our portfolio, our portfolio in the US was primarily investment banking, retail, and to some extent and to a limited extent the way it gets reported is that in the oil and gas sector companies that operate out of the US are typically tagged based upon the location from where our billing happens.

So to that extent there is a little bit of a misnomer in the classification.

So it's work done in the US for US companies.

That's the way we kind of classify it.

Right, right.

So the way we expect it is that when that happens, when there is a demand pickup in the US, we expect that our work automatically should go up and the percentage should probably go back.

Okay.

That's it from me, guys.

Thanks very much.

Thanks.

Thank you.

The next question is from Edward Caso from Wells Fargo.

Please go ahead.

Hi.

Good evening.

Thank you for taking my call.

There's some of the advisors feel that the global 500 to 1,000 now are more willing to embrace outsourcing and offshoring.

Are you seeing that trend?

And is part of your strategy to go after that market, or are you more focused just on the large 500 -- 100 or 500?

In fact, Ed, we are seeing it more than just 1,000.

Especially on the BPO side, we are seeing it going beyond 1,000 too.

And Rishad can give you a quick sense as to what our brief is over the past year in terms of companies that go beyond 1,000 and where we are seeing demand coming in from.

So, Ed, you know in fact the hunting bit consists of about 1,000 accounts, which really are spread way beyond the top 100.

And all the customers that actually bring us revenue are customers that are between $5b and $10b in revenue.

So our base of accounts and our target base includes very much customers outside the top 100.

Is there a different model you have to deploy to retain the right pricing and margins outside of the larger clients?

So, the person who has done it most successfully in this room is probably NS Bala from Manufacturing, and Bala can talk a little bit about this.

Yes, Ed.

Hi.

This is Bala.

Ed, to your question, I think we have consistently seen that the opportunity that the beyond 1,000 provides is the ability to pick up combined infrastructure applications and in some cases including a BPO play.

In fact, this year some of the deals that we did win have an integrated flavor in infrastructure and application.

So fundamentally the deal is in the shape of providing all the different hosting of applications to moving, providing a roadmap to move all the applications to the cloud.

So these are really cloud-based deals.

Eventually, part of it is in the form of [integrated] model.

So frankly the pipeline also doesn't really follow the same trend of a normal outsourcing game.

The pricing tends to follow a utility-based model in many of these deals, so that actually was beneficial to us.

If I could get an update on the BPO business process outsourcing business, where you stand, what areas you are specializing in, maybe your voice versus non-voice mix.

I assume you are well past the Spectramind legacy at this point.

Just an update there, please.

So, Ed, this is TK.

Very quickly, what we have done is that if you look at our portfolio, fundamentally what we are finding is back office continues to be an area of strength.

And we are seeing quite a few F&A deals as part of the pipeline, but coming from geographies that traditionally did not do too much of F&A.

We are seeing a certain amount of pickup coming in from areas like Scandinavia, to some extent from Switzerland, Germany and also from Asia Pacific.

So that's what we're seeing on the back office side.

On the side of industries like [classes], we believe we have a dominant share in terms of securities [trusting], and in that business we continue to grow.

In terms of the retail bank too, across markets, we are finding significant level of interest coming in from the smaller players and not the large banks.

In terms of voice to non-voice mix, and sadly we don't look at it that way, but if I had to just classify a non-voice transaction which has still got voice components in it, the number of agents that we have that provide some kind of voice support including transaction support, the number would probably be in the region of 1.6%.

Thank you.

My last question is around if we can get an update on the timing of the divestiture, please.

Thank you.

Yes.

We are making good progress with respect to the entire demerger plan.

So far, after the Board meeting got over on November 2, we have got to the approval of the stock exchanges, the Securities Exchange Board, or SEBI in India.

And also we file to the court.

The directors and the shareholders' meeting has approved it.

Regulator's meeting also has got approved.

So we have filed the reports with the court.

Court is likely to be hearing this matter in the month of February.

So our expectation is we believe in the next three to four months this process will get -- the court approvals will get done, and thereafter the exchange of shares will take place.

Thank you.

Thank you.

The next question is from Manish Hemrajani from Oppenheimer.

Please go ahead.

Yes.

Hi.

Thanks for taking my call.

This productivity drive that you talk about, is this something that is client-driven to improve ROI or is it a Wipro initiative?

And where are you placed now as far as productivity is concerned?

Should we expect to see further gains on that front?

And what impact could that have on volumes?

So I'll ask Jatin Dalal and Bhanu, our Head of Delivery, can talk to that.

Manish, on the productivity front, obviously there will be a certain number of competitive pressures that we need to win deals.

So for that effectiveness you need to do some more to productivity.

But a large portion of what we are trying to do right now is to take some of these solutions in the completely different way of delivery and in the process doing this, to help on our commission, eliminating a lot of work that is required to be done.

So that's the goal that we have taken internally, to manage the cost of delivery for especially the run side of the engagements, to take the cost of delivery to a completely different level, at a lower level.

So that's the combination about the productivity part.

Going forward, I'm really pleased that there is still a lot of tools that can be introduced into run the business part of the engagements, which can take the cost of delivery lower from that.

So we continue to implement certain tool sets, we continue to implement certain tools that we are developing internally as well, to bring the cost of delivery down.

And the impact on margin is very similar to the realization benefit that we typically have from any other price gain that we get.

Only additional benefit that it does, as Bhanu mentioned, it makes a significantly more competitive proposition deal.

So to that extent it's not just improving the profitability or realization of that particular deal or account, but creating a base for future wins.

And, Manish, it's a very, very key part of our strategy -- this is TK -- because ultimately we believe that this gain it has to be more IT-led on the horizontal platform side, which is primarily where is a lot of our propositions.

So we have to build vertical platform competency around specific industries.

But over and above these, we have to build intellectual property on how we deliver to scale.

I think that's the entire journey.

Okay.

You had nice productivity gains over the last couple of quarters, but despite that margins seem flat.

Can you just dive a little bit deeper into why margins haven't improved?

Yes.

So there, if you see, we have kept the margins in a very narrow band this year.

We have been able to do that despite giving the salary increases in the first quarter and the full impact flowing in second quarter.

And the third quarter we have indeed given the restricted stock units as well as given promotions to our employees and so that -- for Q3 specifically, that was the incremental cost that we incurred.

Secondly, as you see, out utilization, we have invested in that.

So our last quarter number was 66.8% and we are at 64.8%, so in some form that's up.

That's a continued investment that is happening.

We have also increased our -- a significant -- and also we have invested in our sales and marketing.

So if you see, over the last few quarters, that number has really gone up by close to 100 basis points, and certainly it has increased this quarter too.

So, overall, I would say that the investment in the bank is investment in -- it's (inaudible) and promotion.

And finally, some -- our India business has a slightly lower profitability, given the demand environment which it operates in.

And to that extent there is a little bit of a, I would say, reduction there which has been offset through the improved pricing and a little bit of a ForEx gain.

Coming back to your sales and marketing comment, do you think you're the right size now as far as your sales teams are concerned or do you expect to continue to add heads there?

So we are invested today and will remain invested, but we do not see any step up increases from here on.

Got it.

Got it.

Thanks.

That's all I have.

Thank you.

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

Please go ahead.

Thank you.

Happy New Year to everybody.

You know, when we look at this year, it seems like it is going to be a very dramatic year, and the commentary we are getting is somewhat different from Wipro.

What we are seeing is probably this is the year of investments; this is the year of changing the vocabulary of the industry.

For example, early indications are that for the first time in 20 years IBM would be a technology first company and services as a second company.

And if you recall, over the last 20 years IBM has been the services first and everything else second.

From that as a background -- as a backdrop, I was wondering, what investments is Wipro going to do in not people but really something that a person can hold onto, like your Amazon Web Services initiative.

It's phenomenal.

But what I'm trying to understand is how is Wipro going to change the vocabulary and tone of the industry, because the word offshoring is not healthy for the industry?

That is what our research is showing.

And all the best.

Thanks.

Thank you, Trip.

So maybe I'll -- this is TK.

I'll give you a quick view of what we see from where we are.

And you probably see a little more where you're sitting, but nevertheless this gives you a sense of what our strategy is going to be.

So, fundamentally, the way we see this market evolving going forward is if you had to break up a company into three parts, we can have a look at the back office, the middle office and the front office.

Our view is that the back office over a period of time would move substantially -- now, substantially can be anything, anything between 40% to 60%, depending upon the customers that you serve -- into some kind of a model where people pay for business results.

It could be a [BPAT] model.

It could be something else.

It could be a managed service.

But fundamentally our customers become important there, if nobody would pay any more in terms of input.

I suppose we're trying very hard to variabilize that cost in that particular segment.

That's one trend that we see.

The second trend that we see is in the middle office.

We typically see that there is going to be a significant level of some integration work that's going to come in, but that has to be domain-led.

And the first thing that we see is in the front office we're going to see a lot of change happening and a lot of [us] getting bills which are typically in our view more based around open source components.

So that's how the customer landscape is going to change.

Now, if you look at us, the way we're positioning ourselves in the space, we're saying for the back office we clearly don't believe that building platforms for the back office is going to help us too much.

So we have to partner with a whole bunch of folks in that space, who typically play in a space where -- basically who provide applications in the cloud.

That's the first thing.

So we have pretty strong partnerships with F&DT and a whole host of companies out there who provide this kind of service.

On the other hand, now our challenge would be to build a BPO business behind this which can actually variabilize costing.

That's the first strategy.

On our existing base, what we're doing is building intellectual property accelerators that can go out there and drive productivity which is significantly higher than what the market has seen in the past.

So those two take care of the back office.

In the middle office, it's going to be domain-led.

So picking the areas where you want to play, and more importantly picking the area that you don't want to play in, is going to become a critical component of our strategy.

And there we have to tie up with a whole bunch of partners who are completely different from the normal partners that we have seen traditionally in the IT business.

On the front office side, what we believe is that the whole social mobile, cloud, analytics story comes together.

We've created a separate group that we call the Advanced Technology Group.

The job of the Advanced Technology Group is really to build trust, that can go out there and change the workplace, change the way customers buy, because fundamentally I think for the first time in history we are not going to see customers or companies market to customers directly the way we've seen it in the past.

It's going to be customers coming to companies.

So, to that extent, the infrastructure you require to manage that is very, very different.

So internally what we are doing is investing heavily in domain to handle middle office transactions, building accelerators and tools and BPO-based models for the back office, and in the front office really building groups that can go out there and invest and build products to address specific needs of the customers that will help them really survive in the world tomorrow.

That's broadly what we're doing.

Excellent.

Very, very impressive.

I think what -- based on six, seven companies that we are really following, the companies are a little less interested to grow profitability and also a little less interested to grow the revenues.

The companies are really focused to rechange and invest really five years, 10 years out.

So if you look at Apple, Google, all the market companies, they are doing a lot of stuff to build the competencies right into the company I think that goes right in the same league.

So all the best.

Thank you, Trip.

Thank you.

(Operator Instructions).

The next question is from Avishai Kantor from Cowen & Company.

Please go ahead.

Yes.

Hi.

My first question, maybe it's been answered but what exactly drove the increase in pricing realization this quarter?

Yes.

Hi, Avishai.

So -- this is Jatin Dalal -- the key driver for our increase in price realization this quarter was the benefit of the productivity gains that we are able to get by implementing tools and automation and some of the productivity techniques into our fixed price projects, and that has been the driver for the overall realization uptick.

So, talking about those productivity gains, can this affect recruitment, gross additions going forward?

Is this an ongoing trend that could affect wage pressures going forward?

Yes.

So, if you see, we remain invested on the bench.

Our utilization for -- gross utilization for current quarter is approximately 200 basis points lower than what we want, because we continue to hire people from campuses as (inaudible).

What it means really is not any impact in the gross hires that we bring into the Company, because that's how we will build a pyramid and that's how we build our competencies.

But what we do is it would bring a significant shift into the people that we deploy to do a piece of work, permanently.

It required us -- 10 people to do a tangible piece of output.

Probably, going forward, that number will be 9.7 or 9.8, and so on and so forth.

Thanks.

My next question, talking a little bit about Asia Pacific, what's the outlook and the plans for China and Japan in calendar '13?

So, yes, there was no impact on the Japan market.

I'll ask NS Bala, who's got the biggest -- who runs the Manufacturing business, who's got the biggest -- who's most (inaudible) that particular geography.

As far as China is concerned, I think China in the past has been a terrific place for execution.

It's proved to be a pretty hard market for us, excepting when we have global customers who want to go out there and get us to do implementation, which we do fairly well.

But China for China has been a tough market for us.

We don't plan to invest our sales effort on China for China.

But clearly we have a fairly big practice around specific areas, especially around package implementation, which addresses global customers who are going in the channel.

But I'll hand over to Bala to answer the question.

Yes.

Avishai, my name is Bala.

As far as Japan is concerned, there are two sectors for me particularly that -- the currently interesting one is obviously the automotive sector and the other is the industrial sector.

To some extent, electronics is also a fairly active sector.

But having said that, while we have really strong customers and it's steady business for us, Japan has been by and large just that, a steady market, steady business, good quality of business and a fairly reasonably profitable business.

So that's how it's been.

However, we have not seen much deals coming from the Japan market.

It's more incremental spend that emerges from these customers.

So to answer your question on the strategy, we have a fairly strong Japanese presence.

We have a center in Yokohama, and we leverage that extensively in terms of providing a service to the Japanese customers.

We also use China as an offshore, quote/unquote, for some of our Japanese engagements.

Thanks.

And my last question is, regarding your stronger verticals, can you tell us a little bit how's the momentum in the financial services, healthcare, retail and some of your other stronger verticals?

So, we have Soumitro Ghosh who runs the Financial Services business, and we have Sangita Singh who runs our Healthcare business.

(Multiple speakers) and retail.

So we have Srini Pallia who runs the Retail business.

All are here, all three of them are.

Hi.

This is Soumitro here and I head up the Financial Services business.

So I'll break it -- break the question up into two parts.

One is the industry perspective; the other is our quarter three performance.

So from an industry perspective, at a sectorial level, if I really look at the overall market into three parts, insurance, retail banking, securities capital markets.

Broadly, retail banking and insurance are segments which are doing fairly well.

When I say fairly well, they are doing a fair bit of discretionary spend, besides the [cost stakeholder] initiative.

The securities capital market space is relatively challenged, and that has been something over the last two, three quarters.

On the international banking side as well as on the asset management asset servicing side, we see discretionary spending to be very low.

A lot of pressure in terms of a lot of the banks' spend to be reduced, and that really to be channel us to do the critical piece of the CDP work.

So that's the overall sectorial outlook.

The demand in terms of from the respective one is across the three segments there is a large amount of cost effort and cost variabilization initiatives.

Right?

And broadly speaking, there are a lot of initiatives around run the bank on the BPO side as well as on the infrastructure side.

See, we are seeing a whole lot of deals in both BPO as well as infrastructure.

On the application side, we are seeing a lot of initiatives around the [ARP] rationalization.

And another big area which is a recent trend over the last two quarters, a whole lot of internationalization.

So that's on the cost effort and variabilization piece.

On the run the bank, which is more on the insurance side -- sorry, on the change the bank side, both in insurance and in banking a whole lot of investments are happening on the digital channel, whether it is the Internet channel or the mobile or smartcards -- smartphones.

On the regulatory compliance, that's a big area, especially in the investment banking side and to some extent even on the retail banking side.

A whole lot of initiatives have been taken around Basel 3, AML, Dodd Frank.

But a large amount of the investment is happening in Europe and we won quite a few deals, especially from the European Investment Bank and even some of the retail banks.

That's cutting across Basel 3, AML and FATCA.

Analytics is of course a key enabler in all the three initiatives, whether it is cost effort, whether it is (inaudible) or whether it's regulatory.

So we see a fair amount of demand in the analytic side coming.

So that's the first part of your question.

The second part is our quarter three performance.

Actually, last quarter, if you see, we had a fairly robust performance in terms of we did deliver about 4%, 4.5% sequentially.

This quarter also, overall we did 2%.

However, if I break it up into segments, Insurance did about 5% and the Retail Banking did about 3.5%.

Capital Markets is where we had a little bit of a challenge.

So, bottom line, two of these segments we did fairly well.

One of those segments, we had a little bit of a challenge.

In terms of deals, we see a fair amount of deal flow and quite a few large deals which we are achieving.

Unfortunately, some of the deals were postponed.

But overall the deal flow looks very good and a large amount of focus has been put in terms of generating and getting large deals.

Hi.

I'm Sangita, and I head the Healthcare and the Life Sciences business.

We had a great quarter, with 7.4% (sic - see presentation "7.1%") sequential quarter-on-quarter.

And all of that growth was really in line with the execution of the business strategy, which is new multi-logos as well as good growth in existing accounts.

I'm happy to report that majority of them were really domain wins.

A lot of it has been the investment that we've made over the last eight to 10 quarters around new domain areas, largely around cloud, mobility and analytics, as well as investment in building IP around our bread and butter business, which is in the infrastructure space.

Both of them are really giving us the momentum that we should see ourselves wanting to ride on.

Hi.

My name is Srini Pallia.

I head the Retail, Consumer Goods, Transportation & Government Industry business.

I just want to reflect on the retail, since the question was around that.

And if you were to just look at, from a US point of view, the holiday season, I think the store sales increased by 3% and the prediction was it would be around 4% to 4.5% by (inaudible).

Having said that, the online sales or the non-store sales went up significantly, by 11%.

So clearly that's the direction, the online sales is driving the overall retail in the context of growth.

And if you were to look at retail Europe, it has been a lot more muted over the holiday season.

Having said that, and if you were to look at our customers, they are looking at how do we maximize the revenue in the new context, especially with the omni channel becoming a lot more significant.

The cost is variable but consumers are buying in from different channels and selling it on -- returning the products on different channels.

How do you manage the entire multi-channel operation, if you will?

I think that's where we're seeing our customers invest in.

The second one is in terms of big data analytics.

They want to be a lot more focused in terms of the kind of promotions and the pricing that they want to do with their end consumers.

And the third one is the store operations.

It's the in-store experience for the consumers, if you will, and of bringing their own devices and having sales checkouts and so on and so forth.

I think these are the areas that are driving technology investments for the retailers, and this is also helping them maximize on the revenue side.

But if you were to look in the cost side, definitely retailers are under pressure on the costs.

The more online you sell, obviously the margins are much lower.

So they're looking at cost optimization opportunities both in terms of store operations.

For example, they're looking at how do we reduce the store energy operations.

And that's one of the areas that we are focusing on, on the energy management, and we have won a couple of customers around that.

And also workforce management within the stores, and so on and so forth.

And obviously that's also driving some of the managed services opportunities for us.

Consumer goods is another vertical which is going through a significant change.

And if you were to look at most of the consumer goods companies, the kind of business growth that they are getting is mostly outside of the mature markets, essentially Europe and US.

And there's a lot of global expansions, if you will, in LatAm and Asia Pacific and a lot of investments going around that.

And I think that's where we're seeing the investments going in.

Two consumer goods companies are looking at how do we attract additional consumer and the whole aspect of digital marketing, digital brand management, and that's a new area where we see investment going on.

This is broadly the trends in terms of investments and that's the focus areas for us as well.

The other vertical is energy, if he's there.

I'll request TK to comment if he's not there.

So our Energy business I think is doing very well.

If you look at it, our growth rate last quarter has been a little muted, but our pipeline and our weight in that segment have been pretty substantial.

The kind of solutions that we work around in that particular area are primarily domain-centric, so currently both on the oil recovery side as well as on the field side in terms of making sure we have the stratgegic solution, whether it's just completely domain-centric, which we offer to a whole bunch of customers.

The interesting thing is that amongst the top 10 customers, oil companies in the world, five of them are our customers as we speak.

So it's a pretty substantial practice for us.

It's growing very well.

And that's a segment that we could remain invested in and actually grow our investment.

Thanks.

Avishai, if you have another question we'll take it.

Thanks.

Thanks so much.

Now we can conclude the call.

Sure, sir.

Thank you very much.

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

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

Thank you.