Wipro Ltd (WIT) 2016 Q1 法說會逐字稿

Ladies and gentlemen, good day and welcome to Wipro Limited Earnings Conference Call.

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

There will be an opportunity for you to ask questions after the presentation concludes.

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

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

Thank you, and over to you, sir.

Thank you, Inba.

Good evening and good morning to all of you.

A warm welcome to our Q1 FY16 quarterly earnings call.

We will begin the call with business highlights and overview by T. K. Kurien, Member of the Board and CEO, followed by followed by the financial overview by our CFO, Jatin Dalal.

After that the operator will open the bridge for question and answers with our management team.

The senior management team of Wipro is 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 Reform 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 are being explained in our detailed filings with the SEC.

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

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

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

Good morning; good evening to everyone on this call.

Let me begin by talking about our performance and then I'll share some perspectives on how we see this demand environment shaping up.

I'll also talk about our strategic areas of focus.

During the quarter, IT Services revenue grew sequentially by 1.1% in line with our guidance.

RCTG delivered a sequential growth of 5%, driven by Consumer Goods, Transportation and Government, while Manufacturing and Hitech business grew by 2.6% on a sequential basis, led by industrial manufacturing and software products.

Healthcare and Life Sciences had a soft quarter in quarter one, impacted by project completion, but we expect that business would pick up in quarter two.

Product Engineering has picked up with a 2.3% sequential growth, while analytics grew by 5.8% over the quarter.

Revenue from our Global Infrastructure business was muted this quarter, but infrastructure services continues to see a lot of opportunity at the marketplace.

And we are confident that we'll see a pickup in momentum in quarter two.

From a geo perspective, we saw broad-based growth except for Europe, where we saw a decline due to energy-specific accounts and structural slowness in telecom equipment sales.

Overall, we're seeing a stable demand environment.

Large deals, however, are competitive and with special pricing in new deals.

There is significant churn around the nature of technology consumption across the Run and Change side of the business.

On the Run side, deals are getting increasingly more competitive, while on the Change side, buyers and consumption models have changed dramatically.

We see positive traction in manufacturing and consumer goods.

The energy sector continues to be volatile.

However, considering our dominant position in the market, a sharp cut back in spends, driven by the plunge in oil prices have significantly impacted us in the past few quarters.

However, the good news is that we're gaining shares on consolidation.

We see a pickup in momentum in quarter two, as reflected in our guidance.

We also expect our second half to be better than the first one.

As I've mentioned earlier, the industry is going through changes requiring a very different level of operational efficiency.

We believe that [process] simplification, automation and artificial intelligence are key levers to achieve this.

At an organizational level, we brought in a Chief Operating Officer structure for offering integrated services and also for enhancing internal business efficiency.

In the quarter four earnings call, I've spoken about our investments in the 350-member team working on the process hyper-simplification and in the HOLMES platform.

We're driving over 70 projects, leveraging our automation platform, including HOLMES.

The HOLMES platform has become a crucial part of our solution, offering breakthrough innovation along with optimization on effort and cycle times.

As we go through the next level of evolution on the HOLMES platform, we propose to use our venture capital arm to invest in companies which can really add to this and take it to a different level.

On the Change side, we launched Wipro Digital more than a year ago.

We have consciously positioned the unit outside the current construction service lines, as a layer that cuts across technology stacks.

Our Customer Journey Engineering programs will create transformative end-to-end experience by pulling together design, analytics and rapid engineering capability.

The transformative process we design, keeping the user as the centre of what we consider digital, this approach is resonating with customers, resulting in transformative wins along with significant pull-through revenue.

Key wins in the quarter include channel redesign for Allied Irish Bank and a customer experience portal transformation for a large US bank.

In the past, we've consistently communicated our plans to make significant investments in digital.

Earlier this month, we actioned this and announced our intention to acquire Designit, one of the largest independent global strategic design firms, with a network of nine global studios and over 300 designers.

Designit's design capabilities in synergy with Wipro's scale in technology services would position Wipro uniquely in Digital, as an integrated design and technology player.

Let me now hand it over to Jatin to walk through the (inaudible) numbers in more detail.

Thank you.

Thank you, T K. Good day, ladies and gentlemen.

It is a pleasure to talk to you all.

Before I speak on the financial performance for the quarter, kindly note that for the convenience of our readers, our IFRS financial statements released today have been translated into dollars at the noon buying rate in New York City on June 30, 2015 for the cable transfers in Indian rupee as certified by the Federal Reserve Board of New York, which was $1 equal to INR63.59.

Accordingly, Q1 revenues of our IT Services segment, which was $1,794 million or in rupee terms, INR115.8 billion, appears in our earnings release as $1,820 million, based on this convenience translation.

Let me start with Wipro Limited.

Gross revenues for the quarter ended June 30, 2015 were INR122.4 billion, an increase of 10% year-on-year.

The total net income for the quarter was INR21.9 billion, an increase of 4% year-on-year.

In our IT Services segments, our revenue in US dollar terms for the quarter was $1,794 million, a sequential growth of 1.1% on a reported basis.

In constant currency, our revenues for the quarter were well within our guidance range that was disclosed in our prior quarter.

IT Services segment's margin for Q1 was 21%.

The headwinds were primarily due to annual measures on employee compensation that we had mentioned in the earnings call last quarter.

There was also some impact from investments in growth programs.

These were partially offset by tailwinds from the currency.

In our IT Product segments, we delivered revenue of INR8.2 billion for the quarter ended June 30, 2015, which was a growth of 7% year-on-year.

Now, let me quickly talk about ForEx, effective tax rate and cash flows.

On the ForEx front, we realized the rate for the -- the real rate for the quarter was INR64.53, versus the rate of INR63.35 realized in Q4 FY15.

As of the period end, we had about $2.3 billion of ForEx derivative contracts as hedges.

The effective tax rate for quarter one was 21.2%, as against 21.5% in Q4 FY15.

We generated strong operating cash flow of INR22 billion, which was 101% of our net income and free cash flow of INR18.7 billion, which was 85% of our net income.

The net cash available as at June 30, 2015 was INR195 billion or $3.1 billion.

In the current quarter, that is quarter two, we expect to have cash outflows for dividend payments and other acquisitions and investment that we've announced.

You might note that earlier today we announced Wipro Ventures' investments in two companies, namely, Talena and Vicarious.

We will be happy to take questions from here.

Operator, you may open the lines now.

(Operator Instructions) Sandeep Muthangi, IIFL.

I have a question on the client mining for Kurien.

TK, we've seen strong focus on client mining for a while now and there have been a few false starts.

I wanted to get your thoughts on the assessment of the current situation and any steps that you're taking to address the account mining.

So, in fact, if you look at the top 10 account growth, I think we've really been hit by a couple of things.

One is a drop in growth on the top account that we have.

And there we've lost quite a lot of revenue.

But we expect that to be temporary, it will come back this quarter.

And the rest of the portfolio is a real drag on growth, being primarily led by our energy sector.

We expect that structural degrowth to kind of flatten out this quarter and we expect to see a positive upside starting this quarter, a bit small.

But I think the worst as far as energy is concerned is kind of over.

So overall, if you take out these two segments, the first one which is apparently a blip for the quarter, the other which is more structural, we expect the structural issues to kind of go away or at least start getting positive slowly this quarter, because we're actually winning share through consolidation.

We see that in [client] mining activity as far as the top 10 [customers] would look a little better as we go along.

Just quickly on the next quarter's guidance, are you including any revenues from the acquisition in next quarter's guidance or should we look at it as primarily the organic growth guidance?

So, this includes -- the guidance range includes the revenue that will accrue to us as and when we conclude the acquisition that we have announced.

Any direction on the impact of it, the size of impact?

It would not be a large number as we expect.

Keith Bachman, Bank of Montreal.

I was wondering if you could talk a little bit about a few practice areas in particular that looked weak.

And one was the BPO and the Consulting side.

I realize Consulting is not a large business for you.

But if you could talk about, in particular, the BPO business.

It actually is declining.

What's causing that decline?

Is that Wipro losing share or is the market weakening?

And then I have a follow-up question please.

Let me pass the call on to Abid.

Abid is our Chief Operating Officer.

He looks after the BPO business, as well as Consulting business.

Let me give an overall commentary on the practices.

So as TK mentioned, our global infrastructure business continues to look very good.

Also, we've had a slightly muted quarter this time, primarily due to some of the transitions happening and the revenue recognition likely to happen in the next quarter for them.

Analytics has done extremely well on a quarter-on-quarter basis and we continue to see very good momentum with clients, including the demand environment in both these practices.

On Business Process Services, we had a couple of client M&A situations where the clients consolidated and it impacted our revenues from those clients.

So we are past those ramp-downs.

Otherwise, there have been deal wins within the BPO business and we have added and are in the process of transitioning new accounts.

So from a demand environment perspective, we see it very robust and we will continue to invest in the BPS business, across automation, where we are doing very well and we will continue to invest in platforms.

Again, we have some very some strong platforms and we see some strong traction there as well.

So I don't see any cause of concern in the long run for the BPS business as well.

And again, product engineering has done well, as you see in this quarter.

Application business has started picking positive momentum and again we see good demand, especially in the Enterprise Application Services space and some of the cloud migration space where we are developing good traction.

I want to ask a follow-up if I could.

Across the legacy areas, if you could talk a little bit about the pricing environment, what you're seeing in terms of deal bidding and any color that you can add to the pricing metrics.

This is TK.

Let me just kind of give you a quick sense of what we see from the market.

So if I look at the business, really there are two areas that we see, the way we break up the businesses between Run and Change.

If you look at the Run business, the Run business is traditionally the legacy business.

It's been the business that's been around for quite some time.

And typically those businesses, we're finding that more and more consolidation is happening across vendors and hence what we're also seeing is a fair amount of price pressure when deals up go for rebid.

However, from our perspective, we believe that from a margin perspective, did we have enough within our cost base to make sure that we're able to kind of neutralize it, plus having invested in all our platforms, including HOLMES, our AI platform, there is significant level of leeway we're able to get with that, just from a cost perspective.

Last quarter, for example, we are now working on 70 projects using HOLMES as back plane.

So that's a pretty significant number.

So overall, if you ask me, there is going to be a little bit of price pressure on the legacy business, but nothing that kind of disturbs me from a margin perspective.

On the Change business, on the other hand, we're not seeing the pricing pressure at all, because fundamentally what happens to the Change side, people are buying value and there we see that the business has actually -- the ticket pricing is not a problem.

So at the end of the day if you ask me, our ability to maintain rates within a narrow band, I think we're pretty confident about that.

Well, the last one, then I'll cede the floor is, your constant currency year-over-year growth rate was 8.1%.

Your constant currency sequential growth rate was 0.2%.

I think at the end of the day when we see all the data that will be lower than your peer group.

What needs to happen for your organization to reflect growth that I think is more consistent with your large cap peer group?

So two things, I think, which are important.

One is if you look at it -- if you look at Wipro itself, quarter one for us has always been a quarter where we've had slow growth.

Historically, if you go back many, many years you'll find the same thing happening.

Quarter two, quarter three, quarter four is when we actually pick up.

Quarter two, if you look at our guidance, we've guided better than quarter one.

Quarter three and four, we also made a statement that we expect the second half of the year to be better than the first half.

To that extent, I think from -- all you can read into it is that -- since we don't give guidance for the full year, all you can read into is that we've -- we are going to do better in quarter two and we're going to do better in quarter three and quarter four.

I think that's (multiple speakers).

And so by doing better, you mean year-over-year growth improves?

That's what doing better means.

I'm not sure, that's likely the definition.

Ankur Rudra, CLSA.

TK, you highlighted that you think energy for you has bottomed out on the back of [perhaps] vendor consolidation situation.

However, with oil prices that are still being somewhat volatile, is it perhaps risky to call a bottom yet?

Well, you know, I have Anand Padmanabhan who runs this business right here with me.

And, AP, you can kind of answer the question.

So to your point in terms of the prices of oil impacting our business, you're right, so it did impact us for the last two quarters.

But what happened in the processes is a lot of our customers consolidated their business to pure vendor.

So to an extent we gained from that and we see a positive momentum on that from Q2 onward.

But the other customers who were also impacted, who were not actually Wipro customers are also coming into the market, right, because that also gives us an opportunity to grow on those basis.

So from our perspective, I think we are seeing a positive momentum on this change.

And this vendor consolidation, would this have an impact on realization and perhaps margin in the second half?

Well, it will have some impact, yes, but as TK said, we would deploy some of the new technology in automation to sort of take care of some of the margin impact, but [influenced].

Just thinking on healthcare, if you could highlight some comments on what's being impacting it.

Is it maybe the [peer] segment, which has seen a lot of M&A or something else is impacting it?

So, Ankur, couple of things.

One is that what we've seen there, as far we've concerned, last quarter has come with a blip.

And what we expect to see is that this quarter we see revenue coming back.

The issue that we had last quarter was some of our projects finished, we have won deals and those deals have not yet been signed and delivery hasn't started.

So we expect that to happen in this quarter and we expect to see revenue coming back.

So you expect the year-over-year growth trajectory in healthcare, it should sort of improve?

Well, I don't know about year-on-year, because now I will be giving the full year guidance.

All I can tell you is in quarter two it will

grow.

If we just look at more from a multi-year perspective, CFO, years ago you'd highlighted to us that Wipro was going after a few momentum verticals; energy, healthcare and financial services, I think at that time were those.

Where you're standing today, would you want to change what you consider momentum verticals?

I don't think just because energy is done, the energy price has gone down this year.

I wouldn't drop them from being a momentum verticals, because the reality is this that in energy business today commodity prices go through cycles and we don't think we are at a stage where commodity prices, as far as oil price is concerned, will remain at this level or go lower.

We just think that long term, the oil prices are probably headed higher.

So as long as we can maintain our position with customers, we continue to kind of consolidate those customers and win deals.

We believe when the market goes up, we'll be in a fabulous position to go out there and win.

So I don't think any redefinition is required.

I don't think we can redefine market, based upon our (inaudible).

We really have to worry about market longer.

Edward Caso, Wells Fargo.

Good evening, this is actually Tyler Scott on for Ed.

Thank you for taking my question.

First, I was just wondering if you could talk about the wage increases in the quarter and how that impacted margins.

And then also what FX impact was on margin.

Let me club the question to two folks here to talk.

One is Jatin Dalal, our CFO, and other one is Saurabh Govil, our Head of HR.

So I'll request Saurabh to first give details of MSI and I will then talk about the margin.

From a MSI and salary increase perspective in this quarter, we had given increases, both offshore and onsite, a 7% average increase offshore and a 2% increase onsite.

We also did give out promotions for employees, [for the quarter 1,000] promotions.

All that has been baked in from a cost perspective.

Last one was that key leadership were given [options] in the quarter.

If you see from a people standpoint, all the four actions have been taken.

We've given merit increases, we've done promotions, we've done stock options to key leadership.

All those costs have been baked in into -- from a margin impact point of view and I request my colleague Jatin to (inaudible).

So it's got -- approximately all the employment compensation measures that Saurabh described impacted our margins by approximately 1% and that is what you're seeing as a reduction in margins.

We got tailwind in terms of foreign currency exchange benefit of approximately another 1%, which has got reinvested in the business in form of additional investments in our growth programs with a view to improve the mining and customer satisfaction.

I'm sorry, what was the offshore wage increase?

I think I missed it in the beginning.

7%.

I have did 7% increase offshore.

10%?

7%.

Also, so just to tag on that; the headcount growth was really strong in the quarter.

Is there anything to call out there and then how do you expect that to change relative to revenue growth moving forward?

(Technical difficulty)

Scott, you can go ahead with your question.

So, my question was just on headcount growth, was pretty strong in the quarter.

Is there anything to call out?

And also, moving forward, how do you expect headcount growth and revenue growth to -- that relationship to change or stay the same?

Scott, Saurabh here.

If you look at the entire supply chain, healthier headcount growth of about 3,500.

We've also looked at the -- utilization has improved quarter on quarter and we still feel there's space to improve further.

As well as we have stable attrition.

Over the last five, six quarters if you see, attrition has been in a very narrow band.

So, from that point of view it's all about how we're gearing ourselves for investing in future growth.

And just my final question is what is the constant currency guidance for next quarter for IT Services?

Thank you.

Yes, as we have shared in our press release, the guidance in percentage term is in constant currency 1.5% to 3.5%.

Viju George, JP Morgan.

I really had one question for Abid please.

Abid, what might be some of the things that have caught your mind to work on at Wipro, you know, maybe somehow bringing some of the best practices to the new place.

And, B, how are you beginning to address them?

Thank you.

So Viju, some of the things -- obviously it's about 112 days in the organization, of which the first month or so went into familiarizing myself.

Some of the things that I have initiated is to address some of the key challenges that we've had and the opportunities that we have in the market.

So the first one is around our ability to cross-sell better and couple of things that we've initiated over there, is we've set up a integrated solutions and services group, which helps us take the service line in an integrated fashion to our customers and help us cross-sell, because we have a number of accounts here, there would be a single service line servicing those accounts and improving our ticket size within those clients.

The second initiative is around certain level of re-alignment of delivery, which essentially provides velocity, in terms of our ability to fulfill, our ability to respond to opportunity with that customer and provide the ability to transform our talent to more relevant newer technologies that are emerging as part of digital.

The third area is an ongoing journey at Wipro, which is around simplification, especially again, to ensure that how we sell and how we deliver.

We have a more empowered organization structure, which is able to -- relatively simple, which is able to respond quickly to client needs, both existing and new customers.

The other area is around capturing the opportunities in emerging markets, especially in the order of Latin America markets that we feel quite excited about.

And then just initiated -- announced an ADM practice, primary focusing on our ASM and ADM revenues, where we think we have the opportunity to disrupt the markets, simply because of the assets that we have around HOLMES, which is our artificial intelligence and cognitive intelligence platform, as well as tools like ServiceNext, which can provide a differentiated proposition in the application development and maintenance.

Just one question, one more on this.

How much time do you think you might need before some of these initiatives start to show results?

I know not all of them will start showing up results, but based on some indications of what might give some results in what amount of time?

Thank you.

So, Viju, as you know the industry very well, some of these will have a short-term impact, some of these will have an impact in a relatively medium to longer term.

So right now, we've just started the journey and the results you will be able to see as we traverse the journey.

Robert Simmons, Janney.

Hi, I'm actually asking for Joe Foresi.

Can you quantify at all the size of your digital business or how fast it's growing?

So, let me hand it over to Rajan Kohli who runs that business to talk about digital.

But just to give you a sense, we don't follow the traditional definition of digital here.

Fundamentally what we've done is and we believe that digital, at the end of the day, is the wedge that drives downstream revenue for us.

And Rajan can describe on what he is doing there broadly and what he sees in terms of the size of the opportunity.

So, Robert, the way we describe digital, as TK alluded to earlier in his comments, is sort of an overlay across all our technology practices.

Some of the other services companies look at it SMAC or other technology stack.

To that extent what we think of that, the CMO market, the COO market and the CRO market, which used to be discrete boxes of influence earlier, are coming together.

To just give you an example, earlier CMO was responsible for designing experiences, designing campaigns.

Now all those experiences and campaigns are heavily leveraging technology.

Similarly to deliver those experiences he needs to now rely on COO, who was responsible for delivering those experiences.

Our hypothesis is that for -- the company that will gain the maximum out of this convergence is the company who will have both strategic design capability as well as deep engineering capabilities, including things like artificial intelligence and cognitive intelligence and that's what we are building.

And some of the steps that we have taken, the Designit acquisition that we have announced is towards that.

And we are quite confident that we have made the right steps in this journey.

And then can you clarify, when you talk about second half being better than first half, I assume you mean that on the headline your year-over-year revenue growth, but also do you mean constant currency as well?

Well, I would -- I mean we have not got into the semantics of constant currency versus reported currency.

I think the way we have described is that we have delivered a performance in first quarter.

Our guidance for second quarter is better than that of first quarter.

And what we believe is that second half should pan out better than first half for us.

There's a commentary or qualitative feel that we have given.

Yes, of course, it means that we have to grow faster in the second half and that should translate into better YoY growth.

But we have not gone in a numerical quantitative terms what that number means.

Diviya Nagarajan, UBS.

Sorry if I've missed this earlier.

Did we talk about 70 projects where we're running HOLMES already?

I was wondering if you could give us some details on how HOLMES has been integrated into these projects.

That would be helpful.

So let me give you a quick sense of what's happened.

Fundamentally, what we've done is that we have used HOLMES in terms of reducing the amount of work that we do, the real touch time on an activity is where we've used HOLMES to fundamentally eliminate that Diviya.

So overall, if you look at it, the total headcount that we got across HOLMES and what we call the NextGen initiative, this quarter, roughly about, give or take 100 people, about 1,000 people have come down, in terms of total headcount in the projects that we have addressed using HOLMES and automation.

So I think that has been the benefit that we have realized.

As we go forward, we're going to kind of roll this out into more and more projects, especially on the Run side of the business and that's where we see big opportunities.

And probably I've missed it earlier, but is the second quarter guidance also inclusive of Designit?

If yes, how much of the inclusion that we've had for the second quarter?

This quarter it'd be -- it's not going to be very significant and it's really going to be based upon when we close the deal.

So it's not something that's going to kind of move the meter for us too much in the second quarter.

And it is included, therefore, in the overall guidance range that we have shared.

Ashwin Mehta, Nomura Securities.

I had a question in terms of margins.

What is the outlook in terms of margins going forward, given the fact that we've seen margins coming off for the last four to five quarters.

So have we reached the bottom here?

And secondly, in terms of wage hikes, what is the impact that you envisage going into the next quarter?

Ashwin, we will -- as we enter quarter two, we will have two months impact of the salaries and progression and related measures that we've taken.

So we will have two months impact, because we've taken only one month impact in quarter one.

We've had a decent performance on margins -- in fiscal 2013-2014 our margins were 22.6% and in fiscal 2014-2015 we delivered 22.2%.

So we have remained in a decent range.

We don't guide on margin, so I'm unable to comment for this year.

But our endeavor would be that we continue to drive operational efficiency to mitigate some of this additional cost and investment that we take.

So that's the overall commentary.

But I want to overlay with the fact that our priority is growth, Ashwin, as we've always mentioned and therefore if we need to invest a few people to kick start an engagement or do a POC or to put a spot of marketing spend, we will not hesitate to do that and get the growth kicking in as early as possible.

And secondly, in terms of traditional levers to manage your margins, so while TK talked about the automation initiatives.

In terms of traditional levers, where do you think there is scope for improvement to manage the headwinds that you see, both from an investment perspective and (multiple speakers).

Let me pass the call on to Abid.

Abid can answer the question.

So, using both traditional levers, as you would imagine, we have headroom in utilization, we have headroom in [spam and bunch] management and all of the traditional levers.

While that is an ongoing activity, we do feel that there is more that we can do there.

Also what I feel most excited about is some of the non-traditional levers, in terms of the assets that we have in putting together the NextGen delivery, model it and the hyper automation that can help us deliver a higher level of productivity, compared to even the traditional levers.

So both of them are in action and we feel that whatever we need to do in the market from a pricing perspective or other headwinds we'll be able to defend our margins based on the lever that we exercise.

And I had one more question.

In terms of Europe, ex of energy, how are you seeing demand in Europe, and have you seen any impacts of the recent Greece-related crisis on demand, especially in BFSI sector?

As far as demand is concerned and BFSI, I don't worry about Greece too much.

I worry about competition.

So to that extent I think -- as far as Europe is concerned, we expect Europe to be a little weak this quarter too, but expect it to start picking up from quarter three onwards.

But Greece is not exactly top of my mind when it comes to BFSI's revenue.

Mukul Garg, Societe Generale.

TK, just wanted to understand on the next quarter's guidance, you mentioned that there are quite a few tailwinds, including GIS, healthcare, even energy.

Can you help understand, are there any areas, which we should continue to experience weakness in the second quarter, because if you look at the first quarter performance and if you would add back the energy, which got missed out, first quarter would have been quite good and normally there is a significant jump between the first and second quarter.

So, can you help us understand, are there any issues which are impacting the guidance for the 2Q?

I think the only thing that we would look at within our service line, I think our BPO business, like Abid

mentioned earlier, it's going to continue to be a little soft for the next couple of quarters.

That's one.

Second is that we see a little bit of softness in our Consulting business, which should continue.

Our Digital business is right now in the ramp up phase.

I don't expect significant ticket from that business in quarter two, but I would expect that to start after that.

So overall if you ask me, the only other business where I don't see very substantial growth, at least in quarter two, would probably be our retail business.

We've seen a little bit of headwinds in our traditional retail business.

We've seen a big positive in our consumer business.

How that's going to play out for us in quarter two I think is a little bit of -- a little tentative right now, but that's basically it.

And the second question is, I remember you mentioned last time that FY16 will be better than FY15 in constant currency terms.

Does that guidance still stand?

Well, I don't think I give specific guidance.

We don't give guidance for the full year.

I think basically what we're talking about is indications of what we see right there.

You can take our guidance for one quarter.

All we have said is that our second half could be better than the first half.

We just had to read both those statements in conjunction.

Sandeep Shah, CIMB.

Just further to what had been asked in the earlier question is looking at the guidance for the second quarter, I believe there are tailwinds in terms of higher number of days.

We are also expecting the growth to come back in a top account.

Energy also we believe there could be some growth, there could be some amount of addition coming through new acquisition.

Healthcare also we expect the growth to come back.

And other verticals, except Retail and CPG, you're saying that the growth momentum may not be that bad.

So why not the guidance is still in line with the industry average, where the expectation that the industry may grow at 3% to 4% Q-on-Q in the coming quarter?

So, is it a conservative way of looking at giving the guidance for Q2 or this is what we believe?

So, Sandeep, as you are aware that ever since we're giving guidance we have been giving guidance.

We give guidance based on what we see as how the quarter will play out and our performance sort of speaks for itself in that manner.

Our guidance is never conservative or aggressive.

That is a reflection of what management thinks is likely performance for next quarter and boundaries around that and accordingly we guide.

And when we say second half better than the first half are we also looking at Q-on-Q growth rates in Q3 and Q4 would be better than Q2 as well?

So, I sort of tried to answer this before too.

This is not a quantitative guidance.

We guide only for the next quarter, that is ensuing quarter, which is quarter two.

What we've said that qualitatively given, the way the businesses and our portfolio is performing, we believe that,H2 could be better than H1 and that's a more of a qualitative feel than a numerical guidance for second half.

And just, Jatin, on the margins, as you said there was a headwind also in terms of 100 bps, including the investment in client mining.

If you look at the SG&A in this quarter, it's largely been flat, so this impact looks like is coming in the gross margin.

So is it what the pricing is impacting and this headwind is coming through the pricing?

As I said, it's not a sales and marketing investment, you're absolutely right.

It is more investment in the growth program where by deploying additional effort we could achieve customer satisfaction or customer delight that could help us win more business and therefore, it logically is consumed in the cost of goods sold line.

So in that scenario, we still believe that we can maintain margin in a narrow band or we may reduce our band at the lower end little bit lower side?

So Sandeep, we don't guide for quarterly or future margins as you're aware.

But as I said before, we will have a headwind of two months impact of salary increase in quarter two.

And we will have to work through operating levers to the extent that we can mitigate that impact and that's whatever we can mitigate will finally come out as margins.

So therefore, since we're not guiding nor we are indicating a range, I'm unable to comment whether it's a higher end or the lower end.

But all that I would say is that we have been very focused that we invest on one hand, but at the same time also look at our cost structures and challenge our cost structures, so that we remain competitive in the marketplace and we generate a margin that is a satisfactory margin for our shareholders.

Ravi Menon, Elara Securities.

Could you give some color on what sort of project ends happened in healthcare, was it any data center cum transformation deals or any of the large IMS deals?

It is primarily transformational deals which came to an end and the new project pickups did not happen at the time that we expected Ravi.

Secondly on the telecom equipment, is it vendor consolidation in Europe that affected you and should we expect some more headwinds there?

Actually, telecom equipment, that is once upon a time our largest vertical and ever since then, every quarter we've seen only sequential decline there.

So it's not something to do with our loss in terms of accounts.

I think it's just a question of the total pie actually coming down.

Right, I understand that.

I'm just questioning whether with the competition you see -- I've been hearing that Nokia is going to be a lot more aggressive in their offshore efforts.

So would you think that there are more headwinds there for you, I mean, considerable?

I don't think so.

We are not seeing any particular headwinds.

I can't talk about specific customers, but we're not seeing any specific headwinds.

Abhiram Eleswarapu, BNP Paribas.

I have a couple of questions regarding the changes to the fact sheet.

The first one is that in previous fact sheets there was a separate segment called ADM.

I guess that was a segment where you said that you couldn't classify that business as part of anything else, and that wasn't doing particularly well.

So could you give us some color on how that's done this time, and why would you have to merge it with another segment?

So I'll get Jatin to answer that question, but before that this is one question that we get at every call.

So we decided that it's about time that we kind of stop the questioning and we merge it logically where it should be.

But Jatin can explain the rationale.

So, Abhiram, thanks.

I think that will clarify probably some questions which other investors on the call, which may also have.

See, this is not a unplanned change.

We have in past stated categorically that our application business is combination of two lines, which is traditional application development and maintenance and business application services and should be always seen together, because that truly reflects our application's portfolio.

And since we do not want to make any changes in the middle of the year, we have logically done it in the first quarter and I think now this measure gives a better indication to the shareholders about how our application portfolio is performing, as against seeing it in two separate buckets, which was ADM, which was in a matter of speaking a legacy business and was structurally lower and that used to cause more exciting questions, rather than seeing the whole portfolio together, which had both legacy, as well as the growth components logically combined.

And the second question also relates to the fact sheet.

I'm trying to understand the fact sheet a little better and one of the things that I do not see, global IT revenue available any longer.

Well, I guess that's not so much of an issue by itself, except that now we have so many metrics, such as utilization, attrition, onsite, offshore headcount, all of them seem to pertain to different portions of revenue right now.

I mean by themselves as absolute numbers that will give us a trend, but beyond that I'm afraid I don't think they can be used as inputs for any further analysis.

So maybe one of the solutions could be to include either some other metrics or maybe change these, so that we can understand the business probably the way you see it.

So Abhiram, again, a very good question and I'm glad that we have opportunity to answer that question.

See, fundamentally the reasons we have kept certain metrics specific to a certain segment of business is because the business rhythm of that segment is very different from the rest of the business and merging the two will probably not give you a right indication of overall health of the business.

For example, for attrition, we shared the BPO attrition separately because the rhythm of that business is very different than the IT Services segment.

And one of the reasons we have kept that revenue out because that revenue number used to cause more questions vis-a-vis how it ties up in overall revenue.

While we have removed that we have retained the onsite and offshore percentage, because it's a very good indication of overall margin movement of the organization.

So we will be -- so this is the broad philosophy with which we have given operating metrics, but we are always open to hear and take feedback and suggestions to improve further as we hear from you through our Investor Relations team.

Aishwarya K, Spark Capital.

My question is on Energy and Utilities.

Generally cost pressures have always brought in first-time outsources to the market.

Are you guys seeing a lot of deal activity in this space or do you think it's some quarters away?

Aishwarya, let me do one thing.

Let me pass it on to Anand Padmanabhan who runs the Energy business.

And he can give you some color on the new deals coming into the pipeline and what he is doing to compete in that space.

So you're right, Aishwarya.

There is a lot of momentum in the market.

So obviously, as we said, this market has been going through a lot of pressure for the last three to four quarters.

So we were seeing a lot of activity, but now is the time when most of those activities are coming to a final decision and I think that will continue for the next two or three quarters.

People will continue to take further decisions, either in terms of consolidating or coming in as a new vendor into the outsourcing market or looking at new opportunities in terms of transforming their business.

So we are seeing all type of activities in the market.

And hopefully we are seeing a lot of momentum getting into the final stage of closure and we will see more of those coming in the next couple of quarters.

Nitin Padmanabhan, Investec.

TK, I wanted to have your thoughts on something specific.

See, on one hand this business basically demands we need revenue growth and basically the KRAs that you define for people would be on revenue growth and on the other hand, you are trying to drive productivity and improve productivity for clients and thereby add automation and bring down -- in some way which cannibalizes some revenues.

So how tricky is defining KRA for employees today and what are your thoughts there basically?

It's pretty simple.

I think every manager has to learn how to manage short term and long term.

That's the reality of the life between the world that we live in and the reality of life that we deal with everyday.

So from that perspective, ultimately the true test of the managers is how they handle both.

As far as cannibalization is concerned, let me be extremely clear about.

The technology industry is not the most forgiving industry in the world.

If we don't cannibalize ourselves, somebody else will cannibalize us.

And the time frame for that we have for ourselves is pretty limited.

So if it means that we take a hit that we go ahead and we make sure that we're able to cannibalize our own business.

I'd love to see ourselves doing that.

In fact, I'd like it better if we can cannibalize our competitor's business first.

But how do we incentivize employee to really go ahead and cannibalize their own revenue?

So here's what it is.

So you know ultimately what happens is --

Historically it's been on driving it, right?

Yes, so there are four measures that every manager in Wipro has.

It's incremental growth in terms of topline, incremental profit growth, customer satisfaction and employee satisfaction.

These are the four measures would be used for driving performances.

The only baseline that we set for ourselves is this.

If you do not hit your customer satisfaction metric, the other three measures are completely irrelevant.

In fact if you don't hit customer satisfaction, you don't get paid for the other three metrics.

That's the first thing.

The second thing that we've done is that we've also changed our variable pay plan to make sure that people lower down, they have a higher fixed component rather than a variable component.

And the reason behind that is pretty simple.

A lot of people today execute work.

They have to do it with quality of course, which is a gauge, but otherwise the fixed component is much higher.

But as it goes up for managers, the variable component actually grows.

So we're trying to isolate the observation, if you may, in terms of two different buckets.

One is people who take decisions which can affect the outcomes and the other, people who execute to outcomes and both these are measured differently.

Thank you.

Ladies and gentlemen, that was the last question.

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

Over to you, sir.

Thank you.

Thank you all for joining the call.

In case we could not take any questions due to time constraints, please feel free to reach out to us.

Have a good day.

Thank you members of the management.

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

Thank you for joining us.

And you may now disconnect your lines.