Wipro Ltd (WIT) 2015 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 participant lines will be in the listen-only mode.

(Operator Instructions)

I now hand the conference over to Mr. Aravind Viswanathan.

Thank you, and over to you, sir.

Thank you, Shama.

Good evening and good morning to all of you, a warm welcome to our quarterly earnings call.

We will begin the call with business highlights and overview by T K Kurien, Executive Director and CEO, followed by the financial overview by our Executive Director and CFO, Suresh Senapaty.

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

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

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

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

The uncertainties and risk factors have been explained in the detailed filings with the 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.

The conference call will be archived and transcript will be available on our website, wipro.com.

Ladies and gentlemen, let me now hand it over to Mr. Kurien.

Good evening and good morning to everyone.

It's a pleasure to be here.

I'm happy to announce the results for the first quarter of FY15.

We had sequential revenue growth of 1.2%, which is in line with our guidance.

Our quarterly IT service EBIT grew 35% year-on-year.

We continue to make investments to enable our customers to compete better in the marketplace and for improving our execution capability.

But let me first give you a sense of the demand environment.

The demand environment continues to hold steady.

In North America, we see a return of discretionary spending, Continental Europe continues to have significant potential for outsourcing IT services.

During the quarter, we saw a major deal wins.

We also announced a largest ever outsourcing contract last week.

The deal pipeline is healthy and we remain focused in converting these opportunities.

Within our SBUs we see strong demand in healthcare and life sciences, which grew 20% year-on-year in revenue this quarter.

Business momentum is improving in manufacturing and high-tech, while we continue to see challenges in retail for at least another quarter.

Among the service lines, global infrastructure services continues to score good wins with a sequential growth of 5%.

From a geo perspective, we saw good growth coming in from India and the Middle East businesses.

From an execution standpoint, we improved on our utilization by 103 basis points and we believe we still have further headroom for growth.

The share of fixed-price projects has steadily increased over the last four quarters from 47.4% in quarter one of 2014 to 52.1% in quarter one of 2015.

Our customers' stakeholders remain engaged significantly with project-level satisfaction scores increasing by 210 basis points quarter-on-quarter.

Two themes are becoming increasingly significant with the potential to transform the business landscape.

Open source technologies have moved mainstream, especially in infrastructure and the applications [layer], with traditional enterprises adopting models from Web companies.

Our open-source practice is engaged with leading customers to re-architect the technology landscape to achieve significant cost savings, innovation and agility.

We've also secured mandates from six customers over the last quarter in this particular area.

Digital transformation is driving our customers to [re-think on] how they protect themselves from disruption, by improving customer relevance and cost efficiencies, by digitizing their legacy processes and infrastructure.

Wipro Digital, a new business, raises capability, scale and acceleration to this vision.

We have recorded three wins in this quarter and see positive business momentum.

We've also launched a major organization-wide trading initiative to enable proactive response to shape future demand.

Our investments in employees are bearing fruit and they are gratified to be recognized as the Best Company to work for among the super-sized organizations by the Great Places to Work Institute.

We have implemented both our restricted stock units and our merit salary increases, one effective April 1 and the other one effective June 1.

I'll request Senapaty to talk about financials in a little more detail.

Thank you.

Good day, ladies and gentlemen.

Before I get started on the financial results, please note that for the convenience of readers, our IFRS financial statements have been translated into dollars at the noon buying rates in New York City on June 30, 2014, for cable transfers in Indian rupee, as certified by the Federal Reserve Board of New York, which was $1 equal to INR60.06.

Accordingly, revenue of our IT Services segment that was $1,740 million, or in rupee terms, INR105 billion, appears in our earnings release as $1,750 million, based on the convenience translation.

Total revenues for the quarter was INR111.4 billion, an increase of 14% year-on-year.

Total net income for the quarter was INR21 billion, an increase of 30% year-on-year.

In IT Services, our revenue for the quarter was $1,740 million, sequential growth of 1.2% on a reported basis.

Operating margins of the IT Services segment declined [169 basis points] on a quarter-on-quarter basis, largely due to an increase in compensation cost.

Let me remind you that we gave our merit salary increases effective June 1 to our employees, both on-site and offshore.

On the ForEx front, our realized rate for the quarter one was INR60.39, versus a rate of INR61.73 realized for the quarter four of last year.

As of period end, we had about $2 billion of ForEx derivative contracts as hedges outstanding.

Our IT Products business decreased by 6.2% on a year-on-year basis.

Our revenues from IT Products segment declined in line with our strategy to stay focused on IT services with participation in selective deals, where products form a critical part of the solution.

This strategy has helped expand margins and grow profits by 26% year-on-year.

Note that IT Products revenue for the year ended March 31, 2014 included the sales of the Wipro branded desktops, laptops and servers, the manufacturing of which ceased in the quarter ended December 31, 2013.

The effective tax rate for the quarter is 21.9% as against 22.6% the previous quarter.

For the quarter, we generated operating cash flow of INR21.7 billion, which was 103% of the net income.

We generated free cash flow of INR18.4 billion, which was 88% of net income.

We'll be glad to take questions from here.

(Operator Instructions) Joseph Foresi, Janney Scott.

My first question is, you announced a large deal win, which I think is the largest one you have ever had.

Maybe you could just talk about any of the changing dynamics in the marketplace and if you feel like you're taking market share and if so why?

Joe, if you look at it, there are two components of our business that today exist in our portfolio.

One is the regular run business that we address.

The value proposition there is primarily around cost reduction.

And I think the deal that you alluded to with ATCO falls within that particular category.

Fundamentally, the objective of the ATCO deal would be to make sure that the client gets a superior cost position after they outsource with us, and along with that they get flexibility, and to some extent, they get variability in terms of the way they manage their cost structures on a going-forward basis.

So, I think that's one play that continues to remain strong and we see opportunities in that particular area, both in North America as well as in Europe.

The second segment is what customers typically define as changing their business, which means the movement to the cloud, analytics, digital, all that falls within that particular category.

In that segment, we've seen discretionary demand in some industries picking up in the US and in yet others, we see some headwinds, especially -- and they may be headwinds, which are primarily for us, which could be things like retail, where in client-specific issues we may have headwinds.

We clearly had headwinds for the last quarter which may continue for this [quarter too].

So on the change the business side, we see more SMAC technologies coming into that particular space and cloud is a fairly big element of that, cloud and analytics.

So that's broadly what we see in the demand environment.

As far as Europe is concerned, SMAC technologies are picking up, but not at the rate at which we've seen in the US.

Asia Pacific again continues to be cost play.

But have your win rates changed at all and the deals which you're seeing, are these renewals or they new business?

This is a new business that we talked about.

Frankly what we'll do is that -- if you looked at our business portfolio, there are two kinds of businesses that we're going after.

If you look at our client base, one is basically taking share where we are a dominant player, or if we're a marginal player, making an aggressive play at the incumbent's share.

That's one type of business that we are seeing.

The second kind of business that we are seeing is completely greenfield, like the one that we've announced.

That is again traditional business, greenfield, absolutely new business, net new revenue for us.

In terms of win rates, our win rates haven't really changed in quarter one.

And we think that we probably have a few percentage points that we can do to kind of improve it, but as of now, between quarter four and quarter one, it's been pretty much flat.

And last question from me, on the pricing front, have you seen any changes there?

I mean, how much of that is a factor in either your incumbent or greenfield deals compared to, let's say, two or three years ago?

I think on the newer deals we are seeing, especially on the cost side, we are seeing commoditization happening, there is no question about that.

But will that reflect itself in pricing, I don't know, I can't really comment on that because until now we've been able to kind of fold that off to productivity.

We don't see anything right now that makes us believe that will change, but in our industry you can never say never.

Pankaj Kapoor, Standard Chartered.

Yes, a few questions.

First, if you could just clarify if the second quarter guidance is building in the ATCO deal and if so, if you could quantify the contribution?

Is there any other question, Pankaj, or just one?

No I have a couple of others.

Should I go ahead or --?

[Please repeat] all the questions, then we can decide who to pass it on.

And the second one is, I mean it appears that the organic guidance is broadly in line with the 2% to 4% that we have been seeing in the last year as well.

So I'm just wondering that given that we had a good deal win momentum in the quarter, how should I look at the trajectory going on from the second quarter onwards?

Do you expect the impact of these deal wins to show up more in the second half or is it that there is some business attrition that is happening which is taking the growth away despite the momentum in the deal win?

My third question relates to the margin profile of these deals, especially the ATCO deal, if you could give some color in terms of how the margins profile of these deals is?

Let me pass the question on to Jatin Dalal, he can answer all those questions.

So, Pankaj, to your first question, yes, the revenues from ATCO has been factored in our guidance to the extent that we think it is reasonable, given the date of consummation that we expect it to close that.

So it has been factored in our guidance.

We are not sharing that number separately, Pankaj, but as I said, it is part of our guidance -- overall guidance that we do.

And the philosophy I will share, so that you can understand.

This is part of -- like -- it is like any other deal, it is a large total outsourcing contract which does have an element of acquisition, which is embedded into it, but for all practical purposes, we win large deals and we have ramp-downs and we similarly have a start date here too, which we have factored in our guidance.

So I think it is therefore we are not breaking it out specifically for this deal, because we don't see it very differently in this case, as against the other cases where we win large deals.

So that's to your first question.

In terms of your third question, which is the profitability of the deal, it's a large contract, as you are aware and the way we have done the deal is that over the life of the contract, it certainly won't to be dilutive to the deal, and dilutive to the overall Company margins.

The impact on margin would not be material.

And even in the early years, we don't see a significant delta versus the average of 10 years.

So, obviously, there will be some changes year-on-year, but it's not a large number for us to talk to you about.

Lastly, your second question, vis-a-vis, guidance, so, Pankaj, I will say that we -- the guidance is a reflection of where we see our current quarter performance.

Do we see traction in the marketplace?

Certainly, we are seeing the traction in the marketplace, as we will just sign one of -- not one of the -- the largest deal that we have done in terms of absolute revenues, and therefore, our expectation is that as we go through the year, the performance continues to improve from here on and that is the overall expectation.

Jatin, my question was more in terms of the ramp-up in these newer deals that we have won in the quarter.

My presumption is that the deal wins in the current quarter was better than what we have been doing in the last few quarters.

So, do these -- the profile of the deal is that they will have a normal ramp-up, so that it is factored to that extent in the guidance or it will -- in the subsequent quarter, or you see the profile is such that the ramp-up could be slightly more staggered, so we will see the full revenue impact more in the second half?

So it is difficult to comment, because the ramp-up is really a factor of which service line it is, and to that extent, I don't see a difference in mix materially to talk about here, Pankaj.

Keith Bachman, Bank of Montreal.

I had two questions also.

If you could talk about some of the practice areas that had much substantially weaker [growth] sequentially, how you would anticipate those areas ramping as we look at the back half of the year?

So, for instance, product engineering, ADM, consulting is fairly small for you, but if you could just talk about your expectations for some of those practice areas, and if you want, I can ask all my questions now.

But I was going to leave it one at a time.

If you could just finish off, Keith, all the questions at time, I think that will be much helpful.

And then the second one would be specifically addressing BPO.

How are you'll seeing the pipeline in BPO and any pricing pressures?

And then third is, you talked about utilization rate -- realization rate.

I was hoping you could just repeat what you said what the realization was, but more importantly, talk about how you see realization unfolding through the year?

So, Keith, maybe what I'll do is that given the three sets of questions, I have to kind of break them up separately.

So, what I'll do is that I'll have Ayan Mukerji who runs our Product Engineering business and he can give you a sense of the outlook for Product Engineering going forward, and then I will come back for the next two questions that you have and give you some color on that.

Thanks TK.

So Keith, as you know, I have recently taken over this role as the Head of Product Engineering Services.

My sense is that some of the weakness that you see in the Product Engineering Service revenues is primarily stemming from our silicon services.

Hardware and systems as a line of service business is changing dramatically and the way Product Engineering Services is taking a look at the market.

However, on the brighter side, our automotive business and our consumer electronics business is doing exceedingly well.

But to keep the answer short, my sense is that quarter three to quarter four, our Product Engineering business should be in line with the rest of our Company growth.

One of the things that we are doing separately -- sorry, just one last point -- is our Company strategy, which is being led by -- from a Company strategy standpoint, which is being led by [BRS] is the whole initiative of Internet of Things.

And as I was saying, the way [BRS] is looking at the market is changing.

And hopefully that should help us get in line with Company growth rates.

Okay, let me -- I'll take the question on BPO.

As far as BPO is concerned, we're seeing the deal flow improving.

It's too early to call victory on that point, but clearly we see the flow improving, especially over the past two quarters.

The second component of pricing pressure on BPO, I think what we see is most of the BPO work that we're getting is transformation-led.

It's not just pure BPO.

If you're doing commoditized BPO work, it's pretty clear that there will be huge pricing pressure and making money in that business is tough.

But whenever it's re-engineering led, we're able to kind of hold on to our prices, our ticket prices and that's where I think the value of technology and BPO both come together.

On the third question in terms of realization, I think the point really was around -- or the comment that I made earlier was all around the fact that if you look at pure cost base plays, which are primarily around run the business, while we see increasing commoditization happening on standard services, we've been able to make that up through productivity.

So, overall, we don't see a great productivity -- a great realization up or a great realization down, we see it kind of operating in a narrow band.

Okay, so you think it will remain steady through the year?

Yeah, we don't see -- I mean, I'll put it this way.

If I'm losing sleep over three things, this wouldn't be right on top of my agenda.

Okay, maybe you want to address what the three things are that you're losing sleep over, but obviously I will cede the floor.

Given the fact that your three questions that you've asked them Keith, I'm waiting for one of the other folks in the line to ask that question, Keith.

No, I'm finished.

Thank you very much.

Viju George, JP Morgan.

I have two questions.

In the previous quarter when giving guidance for this quarter you had mentioned that India is one big reason -- because of seasonal weakness that you see in the June quarter is one big reason where guidance is so muted.

Now, given that you've come in between -- below the median of the guidance you've indicated for this quarter and the fact that India hasn't done too badly, I'm just curious where the miss occurred.

It seems to me that it's occurred more in the developed market side.

My second question relates to the declining trends that we're seeing happen in the ADM side of the business.

It's been continued declining as a percentage of revenues.

Maybe just comment on what's happening there.

So on the India, Middle East business, Viju, there were two things that happened, at least as far as we were concerned.

One was that we expected to see significant headwinds coming out of India, given the fact that elections were there and we expected that it would get a -- quarter one guidance would get affected to that extent by poor results out of India.

Fortunately, for us, that did not happen.

Our Middle East business also kind of kicked in.

I think if you look at that particular segment, it's just not pure India, India and Middle East.

So our Middle East business performed better than what we expected it to and that was primarily the reason for that bump-up that you saw there during the quarter.

Having said that I think we've got new leadership there.

Our teams in the ground are executing.

So that's a positive, I don't want to take it away from them and I don't think it's going to be an incidental kind of a bump-up just for last quarter.

We expect to see that momentum continuing into this quarter too.

Number two, on your question in terms of the -- sorry, just repeat your second question -- ADM, sorry, on the ADM piece.

I think that's a question that somehow we get asked in every call and we tend to kind of explain it in the same way, which is if you look at the way we classified ADM, ADM in many ways for us is all the legacy business which does not fall part of application services, or which is our old erstwhile EAS business or anything else that falls within our Advanced Technology Services business.

So that in a way is what we have.

And if you look at that segment, that segment consists of couple of components.

That segment consists of our legacy telecom business and to some extent whatever other legacy business we may have in the other verticals.

And that's why you see a decline.

Long-term, you will have maybe one or two quarters where you will have a bump-up as we do transition.

But long term that particular segment would be down.

So it's not generic ADM that we are taking about, in that particular segment it's the way we reflected it, it's really legacy ADM.

And Viju, if you see our classification where we have business application services, which is a unique way of looking at from an industry standpoint that continues to grow ahead of Company growth rate, including this quarter.

And then there is an advanced technology solutions, which is another high-growth segment.

So for us applications is really three separate pieces and in some form they reflect the growth momentum in the marketplace.

Trip Chowdhry, Global Equities Research.

Two quick questions.

First, you did mention about there are more work or more implementations using Open Source Technologies.

Two sub questions in this category is, what kind of technologies are we seeing in Open Source, which customer -- which enterprises are really adopting other than Linux?

Secondly, in terms of pricing and duration of the deal, how different are those, versus, say, a package application installation?

And then the second set of question I had was more on the lines of, we are talking about cloud implementations, mobile implementations, is it global phenomenon or is it more like more in USA and Western Europe versus Middle East?

And that's all from me.

Trip, I will just kind of give you a quick sense of what's going on as far as Open Source is concerned.

More and more what we're seeing is folks trying to run specific workloads using an entire Open Source stack and it's not just Linux, it's Hadoop, it's Spark, everything on top in terms of analytics and down below in the infrastructure.

Fundamentally what people are doing is disintermediating a lot of the hardware layers and putting in OpenStack components on top, which can actually kind of cut the hardware costs significantly.

We have just won a fairly large deal in Europe, where we are providing an entire Open Source stack with guaranteed workloads back into a large customer, large enterprise customer right now.

So in the past Open Source used to be a little bit of an experiment, a little bit of a leap of faith.

It's early days yet to declare victory in that particular area, but we are clearly seeing that that's an opportunity that's kind of opening up.

As far as pricing is concerned in terms of skills, the skills, given the fact there's a fundamental skill shortage in that particular area, we don't necessarily have any pricing pressure for that segment.

Does that answer your question Trip?

Yes it does.

My second question was regarding the deal flow on cloud and mobile in different geographies, are they same across all the geographies, or more deals, say, in Western Europe, Europe versus, say, Middle East?

I think on the infrastructure layer it's pretty much kind of common, given the fact that hybrid is everywhere.

If you look at applications, fundamentally what's happening is, on standard applications that are used across like sales force, it is kind of common across sales force and HR.

Besides that we are seeing more and more adoption happening in the US, not necessarily that much happening in Europe.

Sandeep Shah ,CIMB India.

The first question is in terms of what Viju has asked.

Just the guidance what we are giving for the first quarter was assuming muted growth from India.

However, if we look at the growth from India as per what you said, the headwinds were lower than anticipation.

But does that mean that there has been a negative surprise in the US and the Europe, because the positive surprise in India has not given you a positive surprise to your mid point of the guidance?

So here's what happened.

In one particular segment, if you look at retail and transportation, we had expected a downside.

I think we were a little surprised by the downside that we got.

The other area primarily was in our -- couple customers in Europe and in the US, specifically within our top 10 customers, some of the projects that we had kind of we had [planning] shutdowns and that's why if you look at our top 10 customer growth rate, that's been affected there.

And that's happened primarily in some of the large projects that were finished, the new projects were not initiated.

We expect to see that situation continuing for at least one more quarter and then we expect to see this coming back.

TK, just in terms of the deal win momentum in this quarter, outside the deal win from the Canada, can you throw a color, because last quarter you said that we expect the record TCV wins of fourth quarter to continue in the first quarter.

I'm just asking outside the Canada, has it been as good as what we have seen in the fourth quarter?

So, not as good as we've see in the fourth quarter, but being good enough for both in quarter one, it's been decent.

So, from that perspective it has been spread between US and Europe -- or North America and Europe, I must be a little careful about US itself.

And just the last question, with the good order books for the last couple of quarters, one can assume that the growth momentum should be better in Q3 versus Q2.

I'm not asking guidance, but qualitatively is it a fair assumption?

I think Jatin answered that question pretty clearly.

Really, as far as we're concerned, if you look at our quarter one and quarter two, our endeavor would be to make sure that we perform better in quarter three and quarter four.

I have a question on margin.

I will come in a follow-up round.

Manish Hemrajani, Oppenheimer.

Good growth in the India business.

Can you talk about the India business on a longer-term basis, how do you see it playing out given the new regime in the center?

Manish, typically what happens is, if you look at our India business, there are couple of things that we must really see.

One is that after the new government, there has been a renewed sense of kind of positivity, if you may, that has come up and that's opening up opportunities for us, primarily around a couple of specific industry segments.

One is banking, other one is government and the third is in areas which are traditional, like manufacturing, these are the three areas.

But, overall, if you look at the trend this year, we don't see it being worse than what it was last year.

We actually hope to see it better.

But if you want to get more color on it, Soumitro Ghosh who runs our India and Middle East business is on the call and he could kind of give you some more specific color, if you may.

Soumitro?

Hi TK, thanks.

We had a pretty strong quarter, and fundamentally if I look at it from different lenses, from a geography perspective, I think we -- since Wipro Infotech looks after three regions; India, KSA and Gulf, we did very well in KSA, which is Kingdom of Saudi Arabia and we had good growth even in India.

From a vertical specific, we had pretty strong traction in financial services, we had strong traction in the telecom segment and we had strong traction in the energy and utilities segment.

Going forward, my this one is that as TK said that with the new government and the new budget, there is a lot of optimism, which is there in the market, right?

And one sees good opportunities coming up in government, as you yourself should have seen the type of investments the government is willing to make in, say, the railways, or the [Mission Moon] Project or the financial inclusion piece, or the smart cities piece, et cetera, there is a lot of opportunity, but many of these will take time.

For example, the smart cities, it is a long haul opportunity.

So lot of the initiatives one will have to break into herein now opportunities and opportunities which are going to take time.

But there will be a lot of opportunities from government.

We'll be selective, but we'll be focused on the ones which give high returns.

Financial services, we see a lot of traction in the market, especially around the new business license, which has been issued, some of the core banking replacements, some of the risk management initiatives etc.

In the energy and utilities segment, a lot of this one in the Middle East, which is in the engineering construction piece and the oil and gas piece.

Overall, there is a fair bit of deal traction and we hope to continue the momentum which we had in quarter one.

And the margins in the India business, are they similar to corporate average?

So, on a margin piece, yes, the rate realizations in India are obviously very different from what it is globally.

So the entire this one is in terms of how we can drive costs lower and drive productivity to have margins, which are in line with our expectations.

So the entire game is all about driving efficiency.

TK, attrition seems to be ticking up again.

Is that a result of a better business environment and what steps are you taking to curb attrition and then what impact do you expect higher attrition levels to have on wage inflation?

So I'll ask Saurabh Govil who runs our HR function to talk thorough that.

Saurabh?

Thanks, TK.

Hi Manish.

So, Manish, a couple of things.

Yes, attrition uptick has been seen across the industry and that is a function of a better business environment, very clearly.

From our side, in this quarter, as T.K mentioned earlier, we've gone ahead with the salary increases and stocks to key people and very clearly we see that in the coming quarters attrition would come down.

Another critical piece I want to highlight is that attrition for us spiked only in the two-to-five-year categories.

In that people with more experience it's very flat.

And the third is, given that we had differentiated or MSI, our merit increases, we are seeing clearly attrition in the top performers coming down drastically, which is what we had wanted.

So it's a combination, but as we move forward, we clearly see that this would come down.

And then what impact expected to have on wage inflation from this higher attrition?

Manish, as far as wage inflation is concerned, we've already given our salary increases, we don't expect to see any more increases happening in terms of wages still next year June.

Ankur Rudra, CLSA.

Mr. TK, you've done really well in the large deal space in the last couple of years, but just wondering what's happening in the $20 million to $75 million band of accounts.

This seems to be a bit of a struggle in terms of mining goes.

What are you doing there to maybe improve this going forward?

That's question number one.

And secondly, if you could just comment on, you have done very well in terms of increasing utilization in the last few quarters.

Do we have further headroom for margin expansions from utilization the rest of the year?

So, Ankur, I'll ask Jatin to take the second question and maybe even continue with the first, because he is completely [in at the first] but I can jump in.

So, Ankur, if I understood your question, second question, was utilization improvement by 1% and what is the head space for us to do more?

That's right, yes.

Ankur, we have historically operated at significantly higher utilization and therefore, I don't see at all a constrain on growth because of utilization.

We also continue to induct people through the year from campuses, as well as selective lateral hires that we do and that adds to our flexibility of staffing the newer engagement.

So I don't see that should be a cause of any concern vis-a-vis our ability to grow.

As we grow, I think it will continue to flex that capacity that we have created.

Now, on your first question, you are right in terms of $20 million to $75 million accounts have been a stable number for us and not a number that has increased materially.

But we have -- as you are aware, last two years, we have done very well in our top accounts, what accounts we call [mega gamma] and that has been reflected in the growth that you're seeing in top 10 accounts in last two and three years.

And this year, our focus is to really go after the smaller accounts, which could contribute meaningfully to the revenue growth and therefore we have effectively charged that unit with a structure which enables the growth, faster growth, and therefore, we believe that this year you would see some incremental growth meaningfully coming out of the second layer of our tiered organization account hierarchy.

If I could just get a clarification on the margin question, the utilization question, the question was, I'm not so worried about growth being a challenge, I was just questioning whether you could use that in the margin levers for the rest of the year?

Yes, certainly.

Certainly.

I mean if we grow and we use from our bench, certainly that will help in terms of margin.

Edward Caso, Wells Fargo.

With the attrition rising here year-over-year on the voluntary basis, is that -- you did mention that this is getting better, but is it a mix killing, is some of the turnover reflecting the fact that the incremental business may be in areas where you have to develop new capabilities?

Absolutely, Ed.

If you look at the way the business is kind of changing, in the past, if you've dealt with 12 or 13 specific skill sets on the application side, that number has now expanded multifold and to that extent what's happening is that there is certain level of attrition, which is caused by people trying to hire niche skills away from the organization.

And, similarly, we do the same when it comes to making sure that we staff up our projects with people that we need niche skills.

So to that extent I think that part of the market would continue to churn.

But if you look at the secular number, the real issue that we have as far as Wipro is concerned is the up-to-six years category, two to five years category, and in that particular case, there are two reasons behind that.

Number one is that these guys are taken in the Company for quite specific skill sets.

And number two what happens is (inaudible) outsized sometimes, especially with [capital] is significantly higher than what they get here.

So, for us that's the band that we need to worry about, the critical band that kind of holds the customer together, our attrition rates have been significantly lower in that.

Could you talk a little bit about the India budget proposal and any implications that may have for the Company around, say, transfer pricing, tax rates and so forth?

Ed, I'll hand that over to Senapaty.

I think the budget has primarily been pretty status quo so far as we are concerned.

But definitely from an IT industry point of view, it gives a huge opportunity in terms of the kind of spend and the kind of programs that the Government of India has talked about, whether it is private-public partnership models to be strengthened, the kind of investment they are looking at in railways or the kind of e-commerce they're talking about.

E-governance projects they're talking about are reaching out 4G into the hospitals and the schools of the various villages.

So that clearly will give a lot of business opportunities.

Apart from the fact that there will be two legislations which will be contemplated, which is GST, General Sales Tax, and the second is Direct Tax Code.

I think we need to be cognizant of the fact that these are the two related documents which will perhaps be -- one of them will be coming this year and the other (inaudible) in this year and next year to be able to contribute in this process that it really supplements and encourages more trade and commerce and business, as opposed to trying to have any kind of impediments more than what is currently in the law.

Last question, any help here on the forward tax rate?

If you look at the tax rate, we had got some write-backs, so the normalized tax rates that we have it will be within 1% to 2% range of the normalized tax rates.

Srivathsan Ramachandran, Spark Capital.

I just wanted to get commentary on the healthcare, because it's been doing pretty well for the last four quarters, so just wanted to get on a forward basis how do we see this shaping up and there are some broader headwinds and tailwinds.

So just wanted to know in terms of both pipeline orders how is it shaping up?

I think if I look at the healthcare space, it's been doing very well over the past couple of quarters, and we have no reason to believe that (inaudible) in that particular segment.

If I look at our structure of the business that we are operate in, there are really three large segments that we look at.

One is primarily around pharmaceutical companies, and there because of consolidation we see a play in terms of playing the aggressor.

Then the second big opportunity that we see is in the provider space and the payer -- payer and provider put together.

We've had a lead in terms of the provider segment, which we continue to kind of capitalize on.

On the payer segment, given the legislations that are in the US, again, we see enough opportunities for growth in that particular segment.

So, overall, if you ask me, it's a secular demand that we see and no particular reason to be concerned about the fact that something is going wrong.

In fact, we see lots of opportunities coming up as we go into the future.

Just wanted your comments also on the margins front, currently how do you see margin shaping up over the remaining of the year?

So let me past that call to Jatin Dalal and he can answer the question.

So, as you are aware, we have two months impact of our salary in quarter two and we have also given our restricted stock units to our employees, which has impact on in terms of the cost line.

But one more factor will also play out that some of the deals that we continue to ramp in, we will hire ahead of the revenue that we generate from that.

So, that will be another factor that will play in near term.

Having said that we always maintain that there will be volatility in margins in a quarter-to-quarter basis as some of the sectors play out, but our outlook for medium-term is positive from that standpoint.

Mitali Ghosh, Bank of America.

On the deal wins, I think you've mentioned six large deal wins and three wins in digital.

I was wondering if you could share a similar deal win number or perhaps a TCV number across the last couple of quarters for us to be able to put it in context, and also if you could provide some color on these deals in terms of services, verticals and geographies?

Second question was again on -- I think the question it was asked during the call as well, the initiatives and outlook in growing the existing clients, because if I really look at growth in the number of clients more than $50 million that's been kind of stagnant over the last one year.

So what really is the plan there?

And the third one really is on the reason for the weakness in the US and what trends -- unlike your peers who actually saw growth in that geography this quarter and what trends you're factoring in for the rest of the year?

Mitali, I'll start with the last question first and which is -- I think this quarter what we've seen is we've seen some of our top customers, the top 10 customers (inaudible) in the US, you are seeing a decline in a couple of them and that's clearly contributed to the decline in [total US] itself.

It's not a secular trend.

We expect to see the North American market coming back, especially in the next half of the year.

We expect to see (inaudible) starting again in quarter three.

So next quarter, I'd probably have a little bit of headwind, but not too much going into quarter three (inaudible).

So I don't think we need to read too much [into it].

On the category of account mining, I think Jatin alluded to that in the beginning.

I think that's been the area of weakness.

So that's one area that [we've done a] change and we see that growth in the next category of accounts, well as they start picking up during this year, that's (inaudible).

In terms of the breakup of the deal, (inaudible) data with me right now, but we will be happy to kind of, at some point of time, happy to kind of give it to the entire investment community.

Ashwin Mehta, Nomura.

I had three questions.

One, what was the margin impact due to wage hikes in this quarter and what's the anticipated impact next quarter?

Second question is in terms of ATCO, how will the $195 million cash consideration be accounted for?

Would it be amortized or would it be considered as an acquisition consideration?

And third, why have we stopped giving the cost of goods sold and SG&A breakup in IT services and products and also stopped our involuntary attrition disclosures?

I'll hand the whole thing over to Jatin Dalal to answer.

Okay.

So let me start with the last question first.

In [Telecom] we have gone through a segment reporting which is the revised segments, but we are very happy to share the IT services gross margin, SG&A percentage, and if you can connect with Investor Relations team offline, they will be able to share that data point.

If you want I can share those numbers right now and let me go ahead and do that for benefit of everyone.

For IT Services segment that -- the gross margin number is INR38,626 million -- sorry -- that is INR36,941 million, S&M is INR7,084 million and G&A is INR5,856 million.

So gross margins INR36,941 million, S&M is INR7,084 million and G&A is INR5,856 million for quarter one.

Now to your second question, which is related to the salary increase, we had three different impact effectively in salary.

One is the one-month impact of the salary increase that we give.

The second is that we have given our restricted stock units in quarter one to our top employees and impact for that also flow through and there is obviously when you give salary increase there is certain amount of actual provisioning related to long-term post-retirement benefits also goes up and that has also impacted.

Collectively, I would say a very large component of the margin difference that you are seeing is because of salary impact, all three put together.

Now, when we get into quarter two, I would think that the RSU and post-retirement benefit-related impact will not come, but there will be two months impact of the salary increase that will flow through in quarter two.

Ashwin, if you can repeat your first question, we will be happy to answer that?

Yeah, in terms of ATCO, how would the $195 million cash consideration be treated?

Would it be amortized or would it be tested for impairment and treated as an acquisition consideration?

No, we will be happy to answer that question in next quarter, because we are concluding the deal as we speak and accounting we will finalize during the course of the quarter.

And just one thing in terms of involuntary attrition, if you can share that number as well?

Yes.

So Ashwin, the muscle of the organization is really the team which is performing and to that extent that is the impact which is felt by the organization in terms of the customer connect or internal performance and so on and so forth.

So we felt that there was a greater importance of sharing voluntary information and we should share that and we had that thought for some time now, but we didn't want to make the change on the disclosure during the course of the year.

But now we have made a call to share voluntary information going forward, because that's what really impacts our ability to perform in front of our customers.

Sandeep Agarwal, Edelweiss.

I have just a question for Kurien.

Can you please highlight a little bit more on the US side?

Already you mentioned that this quarter has not turned out as expected, because if you see, we were expecting that at least US and Europe will do well in this quarter and we were building in a little bit of negativity from India, but it turned out that India was not that bad, it was actually better than expectation, but there was some disappointment coming in US and Europe.

So if you can highlight something, whether it is a kind of one-off to look at -- would it be right to see it as a one-off or is there a trend or you are seeing that it is not picking up the way we expected, what is the right way to look at it?

This is Jatin.

I will try and attend that question and if needed, TK you can jump in.

If you see our number for quarter one for US and Europe both, they are respectively YoY growths of 9.9% and 11.8% kind of numbers.

And Sandeep, that number is ahead of Company growth rate, so effectively for last four quarters we have been doing better in our largest markets, which is US and Europe.

You are right that when we started the quarter, we had an expectation that maybe those markets will continue to do well and India will be get impacted, but the reality of business is that there'll always be certain movement during the quarter that you would not have visibility in the beginning of the quarter and this turns out to be a similar -- one such quarter.

Having said that we are not -- we remain confident of our performance in our largest markets.

This is one quarter where it has played out like this, but over the course of last year we have continued to do well.

And, Sandeep, if can just add on, I think what happened was two things affected us.

One was the fact that our ramp-ups for our deal wins did not happen the way we expected them to.

That to some extent got -- hit our revenue.

Second was in some of our larger accounts we had a few ramp-downs that happened.

We expected projects to again restart, that's not happened.

We expect that to continue for one more quarter, that piece of it.

But, overall, as far as we are concerned, in quarter two and in quarter three, especially, we should see growth coming back.

Quarter two, it's a little early to judge right now and say what it's going to look like.

But my own sense is it will probably -- you will see some positive momentum happening in quarter two also.

Thank you.

Participants that was the last question.

I now hand the floor back to Mr. Aravind Viswanathan for closing comments.

Thank you and over to you, sir.

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Thank you and have a good day.

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

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