Wipro Ltd (WIT) 2014 Q1 法說會逐字稿

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

As a reminder, all participants' lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes.

(Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. Manoj Jaiswal.

Thank you and over to you, Mr.Jaiswal.

Thank you.

A very warm welcome to all of you to our quarter one earnings call.

My name is Manoj Jaiswal and I manage Investor Relations along with Aarvind in India and Sridhar in the US.

We will begin the call with business highlights and overview by Mr. T K Kurien, Executive Director and CEO, followed by our Chief Financial Officer, Mr. Suresh Senapaty.

Post that, the operator will open the bridge for question-and-answers with the management team.

We have the senior management of Wipro here to answer all your questions.

Before Mr. Kurien starts, let me draw your attention to the fact that during this call we might make certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act 1995.

These statements are based on management's current expectations and are associated with uncertainties and risks, which may cause actual results to differ materially from those expected.

These uncertainties and risk factors have been explained in detailed filings with SEC of USA.

Wipro does not undertake any obligations to update forward-looking statements to reflect events and circumstances after the date of filing thereof.

This conference call will be archived and the transcript will be available on our website www.wipro.com.

Ladies and gentlemen, let me now hand over the call to Mr. T K Kurien.

Good evening and good morning to everyone across the world.

I'm pleased to announce the results for the first quarter of the fiscal year '14.

We have delivered a dollar revenue sequential growth of 1.2% in cost and currency for the quarter towards the higher end of our guidance.

Let me start by giving an overview of the demand environment.

I had mentioned in the quarter four earnings call that we thought quarter one to be soft due to delays in discretionary spending and seasonal weaknesses in India and Middle East.

We do see the demand environment picking up post quarter one.

This is playing out in line with our expectations.

We have seen positive traction in the demand environment with discretionary spend returning in specific pockets.

The US economy continues to show signs of strong macro economic recovery.

More importantly, we have seen a pickup in deal closures in quarter one and we are hopeful that the momentum would continue in the coming quarters.

On the customer front, our focus on the accounts management has borne results with Top 10 accounts growing at 2.8% sequentially.

We had indicated in the previous quarter about deepening our focus on the Top 125 strategic accounts, we have delivered 1.5% sequentially.

We continue to enhance our quality of customer engagement through this process.

Overall customer satisfaction scores continued to rise, an increase of 1% from the previous quarter and 11% year-on-year.

From an industrial vertical perspective, we saw strong traction in Retail Banking, Energy & Utilities, and the international businesses of Healthcare and Life Sciences.

We continued to see softness in Investment Banking and the R&D business in Telecom and in Hi-Tech.

From a service line perspective, infrastructure services continued to see the strongest momentum.

We have seen some large deal closures here.

Notable wins include a leading global bank where we'll rationalize the infrastructure landscape globally on a managed services model.

Another significant win was with a leading market research firm where we will manage critical data centers across US and Europe on a cloud-based model.

We are seeing increasing disruptive technologies transforming the traditional landscape.

We are working closely with our customers to leverage capabilities and for optimizing on the current investments.

To add to this, we are seeing increasing traction and the need to engage with business stakeholders directly and additional marketing space of solutions have been deployed at a leading retail firm to enhance customer experience.

Promax continues to drive traction in trade performance management.

We won a large transformation initiative to optimize promotion expense for one of the top beverage companies globally leveraging a SaaS-based model.

In the big data analytics space, Wipro has won a large contract with a leading telecom service provider to drive business transformation by reducing churn and enhancing decision-making capabilities.

Likewise, we've established a joint innovation council with two leading financial services firms and have delivered enhanced fraud prevention capabilities to reduce fraud by almost 60%.

Overall, we are bullish about our analytics business which grew sequentially by 6.5%.

Our advanced technology group, which consists of cloud and mobility based solutions, continued to be a major disruptive force.

Sequentially we have grown 9% in this particular space.

We recently launched VirtuaDesk, a workplace transformation solution that focuses on the new-age workplace and enables collaboration and mobility for the workforce.

This has delivered excellent results in the initial implementation at one of Asia's leading banks.

Wipro's Cloud Command Center recently entered into a managed service agreement with a large US food giant enabling our customer to deliver enhanced user experience.

Our mobility center of excellence continues to build traction with solutions deployed for multi-channel retail enablement in Banking and in a whole group of other industries.

On the execution front, we continue to be focused on de-linking revenue growth from headcount via non-linear growth.

This was driven primarily by leveraging processes and tools, most of them which are proprietary, in order to raise productivity, quality, and agility.

On the people front, we continue to be focused in aligning our culture to results and delevering the organization.

Our voluntary attrition at trailing 12-month basis has come down by 50 basis points.

We have also concluded our annual appraisal cycle and our salary increases effective June this year.

I wish to conclude by saying that we look forward to continuing to drive progress on the strategy that we laid out.

Over to Senapaty for his overview.

Good day, ladies and gentlemen.

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 rate in New York City on June 28, 2013 for cable transfers in Indian rupee as certified by the Federal Reserve Board of New York, which was $1 equal to INR59.52.

Accordingly, revenue of our IT Services segment that was $1,588 million or in rupee terms INR89 billion appears in our earnings release as $1,501 million based on the convenience translation.

Total revenues for the quarter were INR97.35 billion, an increase of 5% year-on-year.

Total net income for the quarter was INR16.23 billion, an increase of 11% year-on-year and 3% sequential, quarter four being INR15.76 billion from continued operations, which is comparable to the now spun-off demerged company.

In IT Services, our revenues for the quarter ending 30 June 2013 was $1,588 million, sequential growth of 0.2% on a reported basis and 1.2% on a constant currency.

Operating margins in a narrow range, the impact of salary increases, investments in sales and marketing, and decrease in offshore mix has been partially mitigated through currency benefits resulting in margin decline of 20 basis points.

In the pricing environment where we are responsible for the outcomes, we do not see pricing pressure.

However, whether the pricing is ticket based, it is wherever pricing is ticket based with competitors.

We do not see coupon based pressure, but near deals are competitive.

On the currency front, our realized rate for the quarter was INR56.26 versus a rate of INR53.96 realized for the last quarter.

As of period end, we had about $1.9 billion of ForEx contracts.

Our IT products business declined by 14% on a year-on-year basis due to lower cap expense by the Indian corporates.

As you know, we sell largely IT products only in India and Middle East market.

Margins have also been impacted due to rupee depreciation making imports costlier for people to invest and therefore the muted spend on the IT products in India.

The effective tax rate for the quarter is 20.7% as against [25.1%] in the previous quarter.

Our normalized effective tax rate would be around 23%.

For the quarter, we generated operating cash flow of INR12 billion, which was 74% of the net income.

We generated free cash flow of INR10 billion, which was 58% of the net income.

We'd be glad to take questions from here.

Thank you very much, sir.

(Operator Instructions) Ankur Rudra, Ambit Capital.

Hi.

Thanks for taking my questions.

Interesting guidance there, I just want to dig a bit deeper into that.

We see in the current quarter your European business has grown a bit stronger than US, however your guidance and your outlook seems to have set a bit stronger growth from the US instead of Europe.

Just trying to understand what's happening there in terms of mix?

This is T K here.

Just to kind of give you a sense in terms of guidance.

Fundamentally the way we guide is that we look at visibility that we have in terms of deals closed and we also build in a certain amount of deals that we expect to close in the quarter in which we're operating.

Based upon that, what we see is that Europe in patches continues to be kind of strong, but given the demand environment in the US, we see more revival there and our larger pipeline coming in from the US than we see in Europe comparatively.

It could be due to the fact that US was traditionally weak for us, but we see that changing in quarter one and we see that change continuing into quarter two.

Okay.

And from a demand perspective, looks like demand conditions are improving in general, maybe if you can add some more color from a vertical perspective where you're seeing bit more promise in your US geography.

And also if you could layer off what you're seeing on discretionary projects and if these are coming primarily from emerging technology areas such as analytics, cloud mobility, or also around legacy ERP platform (inaudible)?

So I think I'll give you the answer to that, it's pretty simple and what I'll do is I'll ask two of the FDU heads that are around the table; Sangita Singh who runs our Healthcare business and Anand Padmanabhan who runs our Energy & Utilities business; to talk through in terms of what they see in terms of the demand environment including discretionary spend.

Sangita, want to start?

Thank you, T K. Good evening and good morning, everybody.

So in the Healthcare and the Life Sciences, which is the work that we do across pharma, biotech, payer provider, and medical devices; we are seeing strong deal wins that has given the confidence on growth.

The momentum is largely across being able to provide commercial effectiveness for analytics, for compliance, and around cloud-based opportunities to help drive patient sensitivity for our clients.

We are also able to provide cloud-based Medicare and Medicaid solutions for opportunities in the payer segment.

Outside of that; our bread and butter business, which is infrastructure and business process outsourcing, continued to be presenting a sizable opportunity for us.

Ankur, was that okay?

What I was trying to get a sense of, Sangita, was to an extent the discretionary spending you're seeing in your vertical.

It seems to me that it's a lot more driven by analytics or cloud-based solutions as opposed to legacy definitions of discretionary spending in terms of either implementing a big SAP solution or Oracle solution, is that correct?

That is correct.

And I would add to it that we still continue to be extremely strong in our bread and butter business; which is infrastructure, business process outsourcing with a more domain flavor, as well as enterprise applications with the lead around SAP.

So, Ankur, if I can just add on and I'll ask AP to kind of talk too a little bit about Energy & Utilities.

But more than that, if you look at the bulk of our topline growth, it will really come from bread and butter businesses.

Percentage wise, the other businesses did really good, but the traditional businesses still pay our bills on a daily basis.

Appreciate that.

Hi.

This is Anand here.

So from an E&U perspective, I think we are seeing a lot of continued momentum in the oil and gas space on upstream and specifically in the emerging markets.

Emerging as in we're seeing a lot of spend in Latin America, we're seeing a lot of spend in the Africa market, and most of them are in the upstream space in terms of exploration and production for the oil and gas segment and obviously in the shale gas exploration.

So we're seeing a lot of momentum and a lot of spend in that space.

And as you know, we have built a lot of capability by the acquisition of SAIC, we're seeing momentum in terms of our revenue growth in those spaces.

As far as Utility is concerned, we are seeing again specific investments for utilities in certain markets so markets where there is a significant deregulation and markets where there is significant deregulation that is likely to happen as we speak, right.

So we are seeing growth or potential growth in Turkey, we are seeing potential growth in Latin America, and we are seeing potential growth again in the Eastern European market and Australia.

So these are the segments where we are seeing a lot of growth.

As far as Natural Resources industry is concerned, we probably will see a slowdown in terms of spend because fundamentally the prices variation in the natural resources have pushed the companies to slow down on discretionary spend as we speak.

So that is sort of the outlook for E&U.

Alright, great.

Thanks a lot.

Joseph Foresi, Janney Montgomery.

Hi.

I wonder if we can just kind of drill a little bit further down on the pipeline and the improvement in the second half of the year.

I know you talked about what areas are kind of working for you, but what is fundamentally happening there that's driving that increase in pipeline?

Are your clients feeling better about their own businesses?

We've seen a number of different quarters where spending has been weak so I'm wondering what's changed at the end market and how sustainable is it.

So just to give you a sense of what's happening with the customers is that number one, I think what we're seeing in terms of pipeline is that the pipeline continues to be pretty much strong.

I mean we don't see a significant variation up or down.

What we've seen during the quarter is our win rates improved and I think that's primarily the reason why the quarter two guidance is a little better than quarter one.

Now going into the quarter, we have deals on the table.

Our ability to close those deals effectively will determine how we're going to do in quarter three and quarter four.

But as of now where we sit today as far as quarter two is concerned, we are pretty confident that as far as customers are concerned both in terms of the traditional businesses as well as in non-traditional areas, we continue to see spending.

So there's been a moderation in spending upwards, it sounds like it's more company specific and that you're more confident because your win rates not necessarily may change in demand?

There are two reasons.

On the traditional business, we have seen win rates improve.

On the discretionary spend, we have seen discretionary spends actually going up.

It's too early to call as to whether this is a secular trend as far as discretionary spends are concerned, but as of now we feel a little more confident than we did about a year ago sitting where we are.

Okay.

And then just on the margin side of things, the rupee kind of moved in your favor, but it seems like you still lost a little ground on the margin side because of the salaries.

How should we think about the margin profile particularly for the IT services business going forward or the currency movement?

So as we are concerned, our ambition has always been to make sure that we increase sales and defend margin.

That's been primarily the game.

So to that extent, do we see huge pressure in margins because of pricing?

If that's the question, the answer is we see pricing fairly stable.

So overall while there are ups and downs in terms of margin in terms of impact in and out, we're fairly confident that in a narrow range we'll be able to kind of maintain margins.

Okay.

And last quick one from me.

On the immigration side, have you seen any change in customer behavior because of the pending visa reform?

Thanks.

No change as of now.

In fact frankly, what we've seen is that while customers are concerned, they are not worried as of today.

The thing is it's too early for both the customer as well as us to actually decide on which way the immigration bill would go and I don't think customers are actually cutting back spending looking at the immigration bill.

Okay.

Thank you.

Sandeep Shah, CIMB.

Yes.

Congrats on a good guidance.

T K, just one question.

Companies are saying that we are seeing a pickup in large deal closures so can you give some more color?

Is it being skewed to one or two large deals or do you witness the same across most of your larger portfolio as well as your hunting investments?

What I meant is, is it a one-off kind of large deal closures or do you believe that this is like a broad base and things may improve hereon?

What we are seeing is that the large deal pipeline has clearly improved over the past year, there's no question about it, and the number of deals that we're competing for are significantly higher than where they were last year.

Is it a secular trend across industries?

The answer is in most industries.

There are one or two industries where we don't see that trend coming in; but in most industries primarily driven by two areas, technology infrastructure and to some extent application management, we are seeing deals coming in.

So to that extent, like I said earlier, we are a little more bullish than we were last year.

And in terms of in the infrastructure management side and in the traditional outsourcing business, you believe that the win ratio has gone up so any particular reason here.

Is it more specific to the client of the Wipro spending or is it more to do with our proactive approach leading to this kind of a deal win ratio improvement?

So I'll ask Anand Shankar, who runs our Global Infrastructure business, to comment on that.

Hi, Sandeep.

This is Anand here.

I think the reason why we are seeing a few good wins in the infrastructure space is because of a whole lot of investments that we've been making in (inaudible) higher capabilities in this area for the last six months.

We've really built strong capabilities around our solution architecting skill.

We built strong capabilities onshore to be able to effectively position our solutions with the customer.

We've also built great capabilities around tools and automation, which is also yielding great results in terms of productivity improvement.

So, this is something that we've spoken about I think for the last one year and we've been able to drive significantly higher levels of non-linearity and productivity as a consequence of implementing the automation systems and tools that we have developed over the last 12 months.

So I think what's happened is that all these capabilities are now being brought to bear in front of the customers, our pipeline has gone up significantly, we've had two good wins in quarter one, and we hope to sustain this momentum in the interest of the services space going ahead.

Follow-up to this, is it relating to when you have wallet share from an existing vendor or is it leading to your proactive approach leading to a new spend coming to you?

So it's a mix of both, right, so it is an increase in wallet share in some of our large accounts.

We've proactively invested in solution architects in some of our large accounts and that's yielding results wherein we're going in and improving our share of wallet in existing accounts, in some accounts really looking at cross-selling infrastructure services where we're doing ADM or AD work, and also in new accounts where we are actively pursuing deal renewals that are coming down the pipe.

So we're going after large deals that are coming up for renewals and if you look at our pipeline today, close to 50% of the deals would be deals that are coming up for renewals in the next 12 months.

So it's a mix of both, Sandeep, it's a mix of going after our existing accounts and upselling and cross-selling in them as well as going after new ones either directly or through advisors and going after deal renewals in those accounts.

Just last question.

Unbilled revenues have gone up significantly on a QonQ, what is the reason for the same when the fixed price has actually gone down 50 basis points?

Jatin Dalal, who's the CFO, will kind of answer that question.

Jatin?

Yes.

Hi, Sandeep.

Sandeep, actually if you see, this is predominantly on account of the exchange rate movement.

Our days sales outstanding has been flattish between last quarter and this quarter so we do not see any including unbilled.

So there is no material business volume impact there, but it is on account of translation of those [datas] now at a much higher exchange rate which was prevailing as of 30th of June compared to 31st of March.

Yes.

But, Jatin, it's 19% to 20% increase with a flattish growth in dollar revenue.

There is little bit of a regrouping that has happened, but otherwise from an actual dollar point of view, there isn't any significant change.

Okay.

Thanks.

Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, may we please request you to limit your questions to one per participant.

Manish Hemrajani, Oppenheimer.

Thanks for taking my call.

Can you talk about the discretionary spend environment especially in Investment Banking where you have some exposure?

And also geographically, if you could comment on the environment in UK?

So on Investment Banking, what I'll do, Manish, is that I'll pass it over to Soumitro Ghosh who runs our Banking and Financial Services business.

And as far as UK is concerned, I'll talk about in a little bit after Soumitro finishes.

Yes, hi.

Soumitro here.

So specific to Investment Banking, discretionary spend has definitely been under pressure for the last two, three quarters and it continues to be so.

However, the opportunities in that particular segment is really around two areas.

One obviously is the cost takeout part and cost variabilization part and the second is in the area of regulatory compliance and changes.

So specific to the cost takeout part, we are seeing two initiatives.

One is there is a clear trend in the market towards utilities, right, so this is all around platforms for securities processing, reconciliation, reference data, et cetera.

And around the vendor consolidation piece, that is one other initiative which is there in play.

On the regulatory and compliance, really it is all about addressing the Basel III requirements and (inaudible).

UK, you want to do it.

So on to the question, Manish, on the UK.

Fundamentally what happens is if you look at our exposure in the UK, it's primarily driven by three components; one is Retail, the other one is Banking and Financial Services, and the third is really the Energy & Utility segment.

On the Energy & Utility segment, we continue to see our discretionary spend continuing.

We don't see any particular drop.

In National Resources we see some drop, but in all the other segments we see continued investment.

And more importantly, we see more investment going into Europe as markets kind of deregulate.

In the Banking side, retail banking continues to be very, very strong.

Investment Banking discretionary spend is a little weak.

On Retail, it's been kind of flat and it's mostly client specific and it's specific to the customer base that we serve in the UK where spending isn't really happening.

That's essentially what we see across the UK in the segment that we serve.

Thanks.

I'll get back in queue.

Edward Caso, Wells Fargo.

Hi.

Good evening, T K. I was curious if your attitude towards local hiring has changed with the sort of rise in protectionism in the US, Canada, Australia, United Kingdom so it's more than just the US.

But are you rethinking and are you moving forward with any plans to sort of reposition where your workforce is located?

Thanks.

So if I had to kind of break up the workforce into two if I had to break them into sales, solutioning, troubleshooting kind of roles; for us, we've been very, very clear that those roles necessarily have to sit in front of the customer.

So we believe that the business capture and the value creation role has to be close to the customer and that will be always driven by recruitments from the local geography.

When it comes to the factories that we run, which is today primarily in India and to some extent in Philippines and in Latin America, nothing has changed as far as our recruitment is concerned.

But clearly given the nature of the business that we are in today, with more and more development work starting onsite, it's important for us to kind of change our mix to more onsite resources.

It's not being driven by protectionism as of now.

Any pressure from your clients to switch your mix at all or is it, as you said earlier, still too early?

It's still too early, but we are seeing some requests, even though I must admit they are spotty, from some industries.

And it's primarily coming not necessarily driven by protectionism, but driven by regulation.

Great.

Thank you.

Viju George, JP Morgan.

Thanks on a good positive guidance.

I think my question really relates to the kind of growth we've seen in this quarter, T K. Looks to me that it's a bit lopsided when I look at geography and look at vertical and you look at practice.

For instance in the vertical side, it's energy and resources that's driven growth.

From a QoQ perspective as well as from a YoY perspective in geography, it seems to me that APAC has come into force in this quarter.

So my question is what are you doing to sort of broad base your growth and get it to other areas as well?

Also a little bit curious as to why Americas didn't fire given that we're probably in the midst of a US recovery and your peers have started growing this geography once again.

So, Viju, very good question and I'll answer the US geography question first and then get on to the vertical question.

So if you look at the US, it's primarily being driven to a large extent by some of our US-based customers looking for invoicing from countries other than the US.

That's really been the reason behind that because the way we segregate revenue is based upon where the invoice is sent to and that's why you see this change.

Frankly, overall the US revenue hasn't really changed too much as a percentage of total revenue.

As far as industries are concerned, you're right, last quarter was all about Energy & Utilities.

We expect growth to be more broad based and we expect that out of the six verticals that we have, substantial portion of them should be firing going forward, but it has been lopsided in the last quarter.

And remember one more thing, in the results that we give, we give consolidated results along with India so typically what happens is the India business always kind of is poor in quarter one and then picks up in quarter two and quarter three.

So to that extent, we've been hit by that too in the verticals, but overall we expect to see more broad-based growth going forward.

For example, Viju, if you look at the HLS that we talked about, which is showing a decline in terms of sequential; if we take India out, it is actually 3.8% up.

So there's a little bit of mix on that and particularly because quarter one is a weak quarter so far as India is concerned and this is a combined revenue.

Sure.

I have one follow-up question as well.

I would just look at your client metrics and look at a YoY progression and I find that there's been a fairly noticeable decline in the number of $3 million to $5 million clients on an annual basis.

This count has come down by 26 and I would have been happy to see if this decline had been translating to increase in higher balance, but instead I find that a number of $1 million to $3 million has gone up by 35 suggesting to me that a lot of these clients in this bank have migrated downwards instead of upwards.

Just curious if you've thought about it?

Viju, here again, this is a translation issue because you saw a sharp depreciation of rupee to dollar and crosses that for some of the Indian clients, et cetera when you convert them into the revised rate at INR60, you have that particular.

And that is why the improvement, but otherwise it is not a significant change.

So overall the way we see it, Viju, has had no significant change and there should probably be more change, which I agree with.

But I think fundamentally what we're seeing there is that the translation difference has impacted us especially for customers who are sitting at the margins and the rupee impact has also changed, impacted some of the Indian customers.

Sure.

One last question from my side.

Your involuntary attrition is up quite a bit this time and it's inching up.

One would have thought that some of the changes you'd want to be effect would have been effected now (inaudible).

And so I'm just curious to understand why that's trending upwards as well.

So I'll ask Saurabh Govil, who is our Head of HR, to kind of answer that question.

Hi.

This is Saurabh here.

Viju, our involuntary attrition is a consequence of conclusion of our performance management cycle as of 31st March and we've seen these exits on performance happening in Q1 and Q2.

And if you see the trend, it's been around this number so it's not that it's gone up something or we need to worry about it.

It's in line with what is expected post a performance management cycle.

It doesn't seem to match up with similar trend in Q1.

In any case, I'll probably take that offline.

Thanks a lot and all the best.

Nitin Padmanabhan, Espirito Santo.

Yes, hi.

Thanks for taking my questions.

If you look at the Investment Banking space, the Telecom space, and also the Manufacturing space, which has been weak for sometime; I think last quarter we alluded to that sort of at least bottomed out.

How do you see that going forward?

And that would be my first question.

And the second one would be how do you look at taking currency benefit on to margins and also reinvestment?

So I'll answer the second question first and then I'll hand it over to Mr. Ayan Mukerji, who runs our Telecom business, because the larger exposure in terms of R&D sits right in the Telecom business and followed by Bala, who runs our Manufacturing business because he runs our Hi-Tech business which is part of Manufacturing.

So broadly the way we see this that if you look at it, we believe that on the operation side there is head space to actually reduce costs significantly.

And on the sales and marketing and the front that sits in fact in that really creates value, it's what we call the value accretion there.

We clearly see more investment going into that particularly so that's the cost side equation.

On the revenue side especially on billing, we have not seen any significant pressure in terms of pricing that we cannot manage through efficiency and I think that's the kind of leverage that we're trying to kind of maximize off.

With that, let me hand it over to Ayan and Bala to answer the first question.

Ayan, you go first.

Thanks, T K. So Nitin, I have two parts to your question.

First is on the R&D side and then second part is you thought that the Telecom business had bottomed out last quarter.

So we are fairly broad based and present in most of the large telecom equipment customers as you know that the market is quite fresh.

We still continue to see major consolidation and R&D cost optimization in all these players.

I'm hopeful that our win and loss in our R&D market share would compensate each other and from an R&D perspective, I hope that this year we stay neutral.

Now to the second part of your question, I do agree that the Telecom spend has bottomed out.

We're seeing much more number of deals that we are contesting it and you heard T K also mention a few minutes ago that growth is expected to be a little more broad based and I'm hoping that over the next few quarters we have our own share of growth in the Telecom business.

We continue to see our own share of wins.

We're seeing more number of wins right across both Telecom as well as the Media sectors.

I'll hand it over to Bala for his Manufacturing comments.

Hi, Nitin.

This is Bala, I handle the Manufacturing and the Hi-Tech segment.

On your comment on R&D, it has been challenged over the last few quarters primarily because of our exposure to discretionary spending in the semiconductor segment.

But we've been putting a lot of effort into going after more annuity based engagements with our larger clients particularly helping them out as they struggle through their own transformation.

So the propositions that we have won with some of our larger customers in the segment are now a lot more sticky and a lot more enhancing to their business.

So we have changed the face of what we've been selling in the R&D space so that could help stabilize the decline that we have seen in the past.

So to second what Ayan just said, we expect the R&D piece to have more or less bottomed out and we expect it to remain stable going forward.

Great.

Just one last question if I may.

T K, in the past you had talked about rationalization of clients which you felt wasn't strategic over a longer period, relatively smaller clients, and they did have some impact last year.

Is there any impact that you saw during the quarter and how much of that is left going forward?

Not substantially during the quarter.

Sure, great.

Thank you so much.

Best of luck.

Abhishek Kantor, Cowen and Company.

Yes, hi.

From a longer-term perspective in the pipeline, can you please talk a little bit about those areas with potential large contracts that you mentioned that could be opened up for recompete?

Abhishek, if you look at where we sit and what it was that we're strong on, we see clearly Energy & Utility being a segment that we clearly see large deals in that part of the pipeline.

We see large deals in Banking and Financial Services, we see it in Healthcare, and we also see it in Telecom even though the kind of deals that we see are more system integration and not traditional outsourcing related work.

In Manufacturing, the size of the deals are not large, but we see plenty of medium size deals coming in there and in Retail too, we see large deals especially on the infrastructure side.

So if I have to kind of break up the segment and if I can get one vertical to kind of talk to what they do, maybe I should just hand it over to Bala to talk about what's happening in Manufacturing and then over to Sangita.

Sangita, you want to go first on large deals?

Go ahead, Bala.

Yes.

Hi, Abhishek.

The trend in the Manufacturing segment has largely been around a significant focus on productivity and cost optimization on multiple fronts.

So we see deals emerging where there is a lot of focus on the cloud transformation both on the infrastructure and the application space.

So you would see that there's been a significant amount of activity with respect to transforming the application landscape into the cloud so you would see a focus on salesforce.com, (inaudible), and similar transformation.

Likewise, we also see a fair amount of activity in transforming the infrastructure space into the cloud.

So, that's one segment of activity and a lot of this is also coming from renewals of existing contracts that have been traditional outsource contracts, a ten-year contract with the traditional players.

So that's been one of the shifts that have been happening.

Secondly, the options that we are seeing is business led transformation segments and therefore to T K's point, these are not the traditional $150 million, $200 million deals that you will see in infrastructure and so on; but they are medium size business led deals that are being driven by the business and not from the CIOs necessarily.

So that's the other area of opportunity that we're seeing in Manufacturing.

I can elaborate later offline if it's of interest.

Over to Sangita.

So with respect to large deals, I'll talk about two segments to give you a flavor.

One, let's start with the provider vertical so if I look at the provider vertical, my clients are really squeezed with respect to topline as well as bottom line implementing the healthcare reforms.

That translates to us helping them in building a more accountable care organization, which implies that we would be participating in large deals that are around cloud mobility and analytics, also our bread and butter business, which is infrastructure and business process outsourcing.

We've also seen a strong pipeline, which is led by our domain; all of that has largely been because of the investments that we've made in the industry solutions group.

This is largely in the pharma vertical.

In my pharma vertical, my clients are looking at revenue improvement, cost efficiency, quality and compliance management, and transformation and innovation.

That essentially puts us again in those two buckets where we would see ourselves participating in some of the newer emerging areas, which is a combination of cloud mobility and analytics to revitalize their innovation for sales and marketing as well as R&D productivity and participating in driving better operational excellence, which is through infrastructure outsourcing and business process outsourcing.

So that's really where we are seeing our large deal pipeline.

Thank you.

Sandeep Agarwal, Edelweiss.

Hi.

My first question is to T K. T K, I understand from your comment till now that there is definitely some trend although may not be secular, too early to assume it to be secular trend.

But I believe there is definitely some uptick in the discretionary part of the business.

Again I understand that Energy has been little okay this quarter, but if you can throw some light how analytics has been picking up there and also some more data point if you can share on the Healthcare side because we saw some positive numbers for our competition in that vertical, but we are not seeing similar trend here.

What I'll do is I'll ask Sangita to talk about the Healthcare side on analytics on the healthcare topline on what she sees going forward.

And oil and gas, I'll ask Anand Padmanabhan to kind of respond to that.

Sangita?

So coming to the provider vertical again and I'll just give a background of the external factors that are influencing some of the strategic imperatives of our clients.

As I mentioned before, they're looking at revenue improvement largely because of the change in demographics, largely because of the rise of consumerization that you're seeing, and the expansion of the health coverage access.

They really need analytics to help expand their footprint through outpatient access points; for example, to be able to attract higher patient volumes, improve their revenue cycle management by plugging the leakages.

We've made an investment with Opera Solutions in the last quarter and they have the ability to provide very high-end analytics for revenue cycle management, staff optimization, so on and so forth for some of our provider clients as far as analytics is concerned.

When it comes to pharma, most of it is largely targeted towards commercial effectiveness, which is how do we help our customers drive better launch and better pricing excellence emerging in new markets.

Over to you, Anand.

I'll take that question, this is T K, on the discretionary spend.

Right now we have seen discretionary spend coming back this quarter, whether to kind of call it a secular trend or not, I think it's too early to comment either way.

So I guess we'll wait for the quarter to progress and in the next quarter's guidance call, we should be able to give you a sense of where it is that we see discretionary spend happening in the quarters to come.

Also one more question which I would like to ask is on the utilization front, we were like hopeful that now utilization will pick up with some kind of volume uptick which will happen, that was our expectation.

So I don't see that kind of number this quarter again.

And secondly, we have seen quite a good growth on the onsite compared to the offshore so if you can throw some light, is it a strategic move or something similar to that or there's something else which we are not able to understand?

So what I'll do is I'll hand it over to Bhanu, who runs our Global Delivery, to kind of respond to that.

Hi, Sandeep.

It is Bhanu here.

On the utilization front, Sandeep, we are definitely getting the supply chain ready for the growth that we need to have.

It must necessarily be an efficient supply chain and also you understand that during the course of the quarters, there is a certain level of fresher intake that we do on a regular basis.

So I don't see the utilization decrease that you're seeing as a secular trend right now.

There is definitely an opportunity to improve, but we're just getting the supply chain ready for the growth.

And I think the other piece is the onsite component primarily is kind of geared up for the growth that we expect in the quarter to come.

And I think you had a question on discretionary spend.

I think it's important for us to realize that we've been talking to our customers.

Right now, customers are holding to their discretionary spend that they expect to see in the quarters to come.

Okay.

Thanks a lot.

Thanks, T K.

Pinku Pappan, Nomura.

Hi.

Thanks for taking my question.

T K, traditionally your third quarter has been stronger or equally as good as the second quarter.

I just wanted to get your thoughts on how the seasonality is likely to play out this year?

The minute I talk about seasonality, I'm commenting on full-year guidance.

So if three quarters are done, then the fourth is just a theoretical kind of exercise.

So I'd rather not comment on quarter three.

I just like to go back to the answer I gave earlier, which is talking to our customers today, we are quite confident the discretionary component of the spend would continue.

Now obviously, quarter three is really far away and we'd be able to give you a better idea of quarter three as we get into the quarter two guidance call.

Okay.

And just a quick follow-up -- sorry.

Go ahead.

Just a quick follow-up.

Can you just give a sense of your pipeline how it is broken up across farming versus hunting?

I'm sorry I didn't get that question.

Can you repeat that question once again.

I just was asking about your pipeline, hunting versus farming, usually you give us a split.

How has been the farming initiatives and can you tell us how it has improved over the quarter?

So our faming initiatives can be pretty much seen in terms of how our accounts have grown, Top 10 accounts have grown 2.8% sequentially and we have ten accounts today that are over $100 million.

In fact our Top 125 accounts grew 1.8% sequentially, ahead of Company average.

So farming is working.

I guess on the hunting side, we have made investments.

Hunting has been fairly positive.

In fact the revenue component of hunting has almost doubled over the past year as a percentage of our total revenue.

So to that extent, the hunting component is working.

We don't breakout hunting pipeline and farming pipeline separately nor do we breakout topline by way of hunting and farming.

Alright.

Thank you very much and all the best for the coming quarters.

Keith Bachman, Bank of Montreal.

Hi.

Could you talk a little bit about the Financial Services vertical?

It was a strong sequential growth quarter.

How do you see that unfolding over the next four quarters?

Where are the risk and opportunities as you look at the pipeline for both yourself as well as for the industry?

I'll hand it over to Soumitro Ghosh, who runs our business in the Financial Services area, and he can talk through in terms of what he sees in that particular space.

Hi there.

This is Soumitro here.

So broadly across the landscape if I look at insurance, retail banking, and capital markets; so discretionary spend in capital markets is challenged so there the initiatives are really in terms of cost takeout and regulatory.

In retail banking, there is a fair amount of money being spent on the discretionary initiatives like channel, like analytics, et cetera.

And in insurance, there is a combination of cost takeout as well as some incremental spend on the discretionary side.

That is more in terms of the core insurance areas like the claims or the policy admin side.

But overall, the trends which one sees is that from a geography aspect, retail bank is fairly strong in UK, right.

And overall, the opportunities seem to be in three or four areas, I'm talking across now.

One is in the infrastructure services side, second is in the Utility side more across IT and BPO, and the third is around vendor consolidation.

So these would be the three typical trends one is seeing in the market.

In terms of the deal traction and funnel, there is a fair bit of traction which we are seeing in the market and a fair bit of that is in the large deal side.

And if I can just add, I think the US markets in specific, we're seeing kind of renewed spending coming back as far as Banking and Financial Services is concerned.

Okay, great.

Thanks very much.

Divya Nagarajan, UBS Finance.

Hi, T K. This has been the third year we have been putting in (inaudible) strategy, good to see some of results coming in.

What I'm trying to understand is that how much of your recovery that you've seen this particular quarter at least has come from your initiatives such as looking at new segments, new markets, and larger deal sizes versus the recovery in the broader market itself?

The reality, Divya, is a combination of both.

I wish I could kind of cut it down into a lot of what that we have done and the market being down.

Frankly, it's a combination of both.

We see US recovery, we see some change in our clients which make them bullish in terms of opening up their wallets for discretionary spend, and to that extent we have been a beneficiary of the market revival if you mean.

Apart from that, I think in certain segments we continue to kind of push hard to get growth especially around infrastructure and large application maintenance because fundamentally if you look at the mix that we have, our mix of business is very much based on discretionary spend.

We need to change that and get more annuity bills again and that's been the endeavor over the past couple of quarters.

Okay.

So if I read your answer correct, that endeavor will continue so regardless of how the market picks up or doesn't, we expect to see greater deal wins in those spaces especially in infra and applications maintenance.

Is that a good assumption?

Divya, it's like this.

I don't think we can stop and say look, there's enough discretionary spend for us to kind of be happy about.

We have to play the aggressor in this game especially when it comes to annuities.

It's absolutely vital for us otherwise the amount of variability that we kind of bring into our topline and we can't afford it.

Okay.

And any timeframe that you're willing to look at in terms of coming back closer to the market growth rates?

Can't comment on that, we've given guidance for a quarter.

We don't give full-year guidance in any case so I'd rather not make any comment that kind of will and by which I'll end up giving a full-year guidance.

Got it.

Thanks and have a good year.

Ashwin Mehta, Nomura Securities.

Hi.

Just had one question on our sales and marketing expenses, they seem to have gone up sharply in this quarter so what was driving that?

And secondly, is there a change in our view on S&M spend given that we had been indicating earlier that most of the investments are done and we should start to see some leverage playing out on S&M going forward?

So I think if I look at the overall S&M spend gone up by 0.5%, it's been driven by a couple of factors.

It's been driven by more investment especially in resources that create what -- we have broken up the business really into two.

One is what we call the value creation layer and the other one is what we call the value delivery layer.

The value creation layer are really architects and most of that is going to customers since they are largely the (inaudible) and create deals for customers working with the customers.

I think in that particular area our investment has gone up.

Overall, we don't see investment bumping up significantly, we see it almost flat.

We'll probably have a 0.5% up or down depending upon quarters.

Okay.

Thanks a lot and all the best.

Pankaj Kapoor, Standard Chartered Securities.

Hi.

Mr. Senapaty, I was just wondering that since we are not trying to align our reported metrics with the changing profile of the business, if you could give some sense of the total TCV of the deal wins that we had in this quarter?

Pankaj, we haven't started sharing that as yet so hopefully, we'll build a record from now onwards to be able to maybe share next year.

But at this point in time, we don't share the TCV one; but number of deals we have talked about.

Okay.

And T K, I mean if I have to just throw out from the next three to four quarter perspective, do you think that the growth will be more concentrated or driven by the wins that we had in this quarter or what we may have any convergence in the next few quarters or do you see that there is a pickup in the momentum in the existing or non-large deal business as well?

It's a combination, Pankaj.

I wish I could point one particular thing out and say this is what is going to drive growth.

I think it's more or less a combination of everything.

It's partly what the market does and partly what we do to the market.

Okay.

So given that the wins that we had in this quarter and as we ramp up, do you think that the growth in the subsequent quarter will be one uptrending trajectory from here on?

Again, I hate to tell you this that I don't give guidance and I wish on the following quarters, I just like to speak to what I have given for this particular quarter that is for quarter two and not go beyond that.

That's clearly the endeavor.

Great, sir.

Thank you and all the best.

Sandeep Muthangi, IIFL.

Hi.

Thanks for taking my question, good quarter.

I wanted to get some more insights on the margins.

If I look at your levers, to me there are lot of delivery levers; your utilization is at a five-year low, currency has anyway depreciated, you invested in automation and tools also.

So what's the right way to look at the margins in the medium term?

Are you going to plow back all the benefits you may get from improving some of these levers into the front end?

Well, strategically I think what we have done is and our belief is that on the front end there may be marginal ups and downs in terms of investment; but in the secular trend, we don't see a big blip in terms of an increase.

We'd really like to drive far more efficiency and as we drive efficiency, there will be quarters in which there will be reduction in terms of utilization, there will be some quarters where we'll improve utilization.

So really shouldn't read too much into all those numbers.

No, I wanted to get the medium-term sense anyway.

But Sandeep, there will be volatility in a quarter-to-quarter basis.

For example, the two months' impact of salary will come in Q2.

Of course, there would be levers in form of improved utilization, there could be levers in terms of ForEx and other things.

So there will be volatility, but our medium-term effort will be to take care.

Yes, thanks.

Just one last question.

Clearly you highlighted a lot of areas that are showing improvement, but are there still any areas except maybe some pockets in Europe that are still at the back of your mind that could turn negative on the margin, maybe Telecom or any other areas?

So as of now, we don't see any big blips on the negative side so to that extent our guidance kind of factors that.

But as far as Europe is concerned, overall as far as margin is concerned we don't see too much change.

We've got positive levers, we have some negative lever headwinds in terms of salary, so overall I don't see too much of a change.

Okay.

I think in the shorter term there could be volatility, but medium to long-term sustainable with a positive bias.

Understood.

Thanks a lot.

All the best for the year ahead.

Thank you.

Ladies and gentlemen, due to time constraints, that was the last question.

I now hand the conference over to Mr. Manoj Jaiswal for closing comments.

Thank you, [Inba].

Thank you, ladies and gentlemen, for joining the call today.

I wish you a good day ahead and everything ahead.

If you have any question that we could not take due to constraint of time, please feel free to write us and we'll be happy to answer them.

Thank you.

Thank you very much.

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

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