Wipro Ltd (WIT) 2016 Q3 法說會逐字稿

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

(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.

I wish you all a very happy New Year.

A warm welcome to our Q3 FY2016 earnings call.

We will begin the call with business highlights and overview by T.K. Kurien, Member of the Board and CEO.

We will also have a short address by Abid, our CEO Designate, followed by the financial overview by our CFO, Jatin Dalal.

Afterwards the operator will open the bridge for Q&A with our management team.

The senior management team of Wipro is 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 obligation 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.

Thank you, Aravind.

Thank you for joining the call and I wish all of you a very happy and prosperous New Year.

Let me start by taking this opportunity to thank the Wipro team in Chennai and also other locations for their commitment, teamwork and customer orientation during the floods last month.

We've always worked to create a culture of ownership, with a sharper focus around making our (inaudible).

It was heartening to see our team stretching well beyond the call of duty, especially when in many cases their own residences and families were significantly impacted.

It was also encouraging to see teams located in other locations pitch in to minimize customer disruption and to return to stable operations.

In terms of financial numbers, our sequential growth is 1.4% in constant currency.

From a business unit perspective our healthcare and life sciences business and our retail and consumer business did well, with sequential growth of 6% and 4.6% on a constant currency basis.

From a geography perspective, India and the Middle East business grew well, with a 20.9% annualized growth rate in constant currency.

From a service line perspective, global infrastructure the services saw strong large deal events and we expect the momentum to continue.

Our product engineering business shows continuous -- shows consistent performance.

The overall demand environment is stable.

In the US the mood is largely positive on domestic demand.

However, with the strong dollar, corporates are in a cost-reduction mode.

Whilst clients are still finalizing their IT budgets, we expect to see strong momentum in this geography.

Continental Europe has a lot of potential and our acquisition of Cellent will enhance our capability in the DACH region.

We have seen pick-up in large deal events.

However, the large deal events are highly competitive with higher pricing pressure.

We have partially been able to offset this through higher use of automation and AI technologies.

While we had mentioned it last time that we are constantly looking at targeted acquisitions that will augment our capability from a market access and skills perspective, we have acquired two companies, fundamentally in line with this strategy.

The first is Cellent, which will give us access to local talents and strengthen our footprint in the DACH region.

The second is Viteos, operating in the emerging BPaaS model, which is shadow-accounting services to hedge funds from the buy side and supplements Wipro's sell side capability in the capital market space.

Moving on to our broader strategic direction, our vision for the digital business around the intersection of strategy, design and technology are bearing fruit.

From establishing digital commerce platforms to reimagining customer ongoing processes and enabling omni-channel sales service, we are delivering tremendous lot for our customers.

Designit's unique capability with Wipro's technology focus is driving good synergy.

We have won seven digital deals in quarter three.

A few example of the value that we're creating.

We are working with a leading South American bank on designing an entirely new banking concept and experience, targeting to create the next-generation banking experience for customers, who are usually not attracted to traditional banking offerings anymore.

For a major German telecommunication brand we are creating future smart service experiences using artificial intelligence and other emerging technologies.

We are also making significant progress around our focus program to train around 10,000 employees in digital technologies.

Last quarter I also spoke about our cognitive intelligence platform HOLMES, the value that it has created.

We now have 12 active engagements with customers across different industries.

In quarter three we engaged -- we initiated five more engagements whilst successfully concluding some of the previous engagements which are now moving into production.

For instance, the Know Your Customer compliance engagement with one of the world's leading banks concluded successfully and is now moving into production.

On driving productivity, our next-gen initiative leverages HOLMES, our cognitive intelligence platform, and other automation tools to drive significant productivity gains and to offer customers shorter life cycles.

The initiative brought on automation and autonomous intelligence to multiple areas in infrastructure operations and delivered productivity gains of between 25% and 35%.

We rolled out next-gen delivery across 93 accounts during this fiscal year, releasing close to about 4,300 employees.

We met our production key targets and used the same employees to retrain them and to redeploy them into newer technology areas.

Customer satisfaction remains a core [output] and a steady improvement in feedback scores.

Our latest survey, which was administered by a third party, went up 1% on a sequential basis.

From an employee perspective, we remain engaged across all levels as we drive initiatives across the broader organization.

Our employee perception survey in 2015 showed that our employee engagement levels have enhanced since the last engagement that we had in 2013.

Attrition has remained in a narrow band, with a decline of 0.5% in quarterly annualized attrition.

As you are aware, Abid will take over from me as the CEO on February 1 this year.

Abid brings some very unique skills to the table, especially around core execution which is where I think the focus of the Company has to be in the future.

I wish Abid and the management team all the best and as far as I'm concerned, I would like to thank each one of you for all the support you've given me over the years.

I'll request Abid to speak a few words, after which Jatin will speak about the financials in more detail.

Thank you.

Thank you, T.K. A very happy New Year and good day to all of you.

It is an incredible honor and privilege to lead Wipro.

It is a responsibility and carries a pride and a strong sense of purpose to drive industrial leadership in vision and growth.

I am very excited by the depth of leadership I have inherited and the strength in terms of the strategic foundation of the Company across some of the differentiators which is technology, engineering, innovation, the pioneering spirit and the spirit of Wipro.

I think all of these put us on the cusp of an opportunity as the technology world permanently transforms itself.

I look forward to an ongoing interaction with you as we put together our strategy and our execution plan going forward I would love to give you a little more insight sometime.

I will now request Jatin to walk through the financials in more detail.

Thank you, Abid.

Good day ladies and gentlemen.

It is, as always, a pleasure to speak to you this morning.

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 December 31, 2015 for the cable transfers in Indian rupees as certified by the Federal Reserve Board of New York.

This was $1 equal to INR66.19.

Accordingly, our quarter three revenues of IT services segment, that was $1,838.3m or in rupee terms INR123.1b appears in our earning release as $1,861m based on this convenience translation.

Now let me talk about the numbers.

Wipro Limited gross revenues for the quarter ended December 31, 2015 grew by 7% year on year and was at INR128.6b.

Net income for the quarter was INR22.3b, which was an increase of 2% year on year.

For IT services segment revenues grew by 1.4% in constant currency, which was within our guidance range given in the beginning of quarter three as well as the expectation that was communicated in December post Chennai event.

Revenues in US dollar terms for the quarter was $1,838.3m, a sequential growth of 0.3% on a reported basis and 1.4% on a constant currency basis.

Impact on revenues from the Chennai floods was significantly minimized by exceptionally strong execution through our robust business continuity plans.

Margins in IT services segment for quarter three was 20.2%, which was 0.5% lower than the margins in quarter two.

The net gain from the currency was offset by the investment in additional capacity in the form of reduced utilization that we made in quarter three.

The impact of Chennai floods on revenue and cost largely drove the delta between the margin of quarter two and quarter three.

In IT products segment we delivered revenue of INR6.5b, which was a growth of 19% sequentially, yet the lower than planned revenues and certain provisionings in India and Middle East segment impacted our margins for the segment.

Now let me talk about ForEx and tax.

On the ForEx front, our realized rate for quarter three was INR66.99 versus a rate of INR65.74 that we realized in quarter two.

As of the period end we had $2.3b of ForEx derivative contracts as hedges, excluding capital hedges.

The effective tax rate for the quarter three was slightly lower at 21.8% as against 22.4% that we reported in quarter two.

This was largely due to the closure of assessments in foreign jurisdictions.

Now lastly, let me talk about the cash flow.

We are very pleased with the cash generation during the quarter.

We generated operating cash flow of INR21.8b for the quarter, which was 97.7% of net income, and free cash flow of INR21b, which was 94.1% of net income.

This better cash flow performance was driven by improvement in collection and consequent reduction of sales outstanding.

Net cash available as at the December end was INR208b or $3.1b (sic ? see slide 16 "INR306,242m or $4.63b").

The Board has approved an interim dividend of INR5 per share.

The interim dividend of INR5 per share is in line with the interim dividend that we announced --

Excuse me, sir, we are not able to hear you now.

Hello?

Ladies and gentlemen, there seems to be some audio disconnection from the management line.

We request you to please stay connected and we will call them back.

Participants, thank you for your patience.

We have the management line now connected, so you may go ahead.

Can you share with me until what time you heard me and from when I should repeat from?

That would be the last 10 to 15 seconds.

I don't know where we stopped.

Okay.

So let me just talk about the dividend.

As you are aware and you have noticed in our press release, the Board has approved an interim dividend of INR5 per share and this interim dividend of INR5 is in line with the interim dividend that we paid in fiscal 2014/2015.

We will be happy to take questions for here.

You may open the lines now.

Thank you.

(Operator Instructions).

Yogesh Aggarwal, HSBC.

Yes.

Hi.

Good morning.

Just have one question from Abid, if I may.

But firstly, Abid, congratulations on the new role and, T.K., all the best for your future endeavors.

We will all miss you.

My question is it seems hunting is doing pretty well.

It's just the mining which has been weak leading to the under-performance.

So, Abid, based on your last few months, do you think it's to do with the account management process or there are gaps in the service portfolio which you need to fix, because that may take a bit longer I assume?

So, Yogesh, first of all, thank you very much for your wishes.

I think mining has been analyzed quite a lot and there are a few different aspects.

One, as you are already aware, the level of annual business in the application management space that we have has been traditionally more than it appears and that enables account mining, especially in the applications area because most of the infrastructure in other areas have a large deal base whereas the mining that happens on the application side is based demand creation and fulfillment as requirements come up.

The second part that you rightly mentioned is a lot of work has been going on in the area of account management and we have transformed a large number of our client partners.

We believe that in some of the accounts we now have a very strong account leadership team, including the domain experts, relationship managers and people who are able to consultatively sell.

We need to continuously work on it and this continues to be the main enabler of priority funding.

So if I can just add one more thing.

This is T.K. Even if you look at the performance up to quarter three, while the numbers don't show everything, there are a couple of facts we must look at.

If you look at the $100m dollar accounts that have dropped, two years ago -- a year ago we had, in our top 11 accounts we had four accounts from energy and utilities.

That this quarter is down to one.

So there has been a change in the portfolio itself because energy and utilities have really taken a hit.

And then what has happened is that, if you look at the top five accounts, the top five accounts have grown by roughly about 9%.

Now there's a lot of work to do.

And frankly from my perspective, Abid is the right person to do it because Abid brings tremendous execution focus and this is one of his strengths.

His transition could not have come at a better time.

Right, right.

Thanks, T.K. Thanks, Abid.

And all the best.

Thank you.

Thank you, Yogesh.

[Anand Tanarain], Credit Suisse.

Yes.

Thank you.

I wish everyone a happy New Year and congratulations, Abid, on the elevation.

Only one question to Abid.

You've been with Wipro for a while now.

So in terms of going forward should we expect any significant changes in strategy or it will be more business as usual?

So, Anand, thank you for your wishes.

I think, as you rightly mentioned, I've been here for about nine months and some of things work from a strategic perspective as well as on execution.

We have been driving certain strategic initiatives which will continue.

Obviously, as I have announced my organization, I have brought a higher level of strategic focus towards intellectual property creation, integrated solutions and stacks.

And we now have a GK personnel leaving that entire area where we believe we can differentiate in the market.

And if you look at some of our M&A that we recently announced, one of them is a platform-based business process service available on the cloud in the capital market space.

So you will see staying the course on the strategy that we have outlined, but an ongoing fine-tuning of the strategy in areas that are relevant to our customers and to the market, leveraging on some of the foundational strengths that Wipro already has, and you will see a very high level of execution focus on the stated strategy.

Thanks for that, Abid.

And just one follow-up on that.

You have lost a couple of senior folks in the last four or three months.

Now is that, is this potential senior management churn something that's worrying to you or not really?

No, I think that we have a very deep leadership bench and have an excellent team which we, all together as the top management of Wipro, feel very comfortable with each other.

So that doesn't worry me.

Obviously every loss is sad but, if you notice, we have been able to replace from within and immediately announce [Jeff], who took over the HLS business, as well as [Jamie] took over the communications business.

So you don't see an impact from a leadership change perspective.

Okay.

Thank you and good luck.

Sandeep Muthangi, IIFL.

Hi.

Thanks for taking my question.

Happy New Year.

Congrats, Abid.

All the best, T.K. I have two questions.

One on infra and the other one the pricing situation.

On the infra services, the commentary so far has been quite good, that traction is good, momentum is good and stuff like that.

But the growth rates have come off sharply compared to last year.

I wanted to see if this is because of the nature of the business changing.

Whether the deals are getting more complex, are the transition times increasing, any color on that would be great.

So maybe I'll leave it to Abid to answer the question.

Abid, do you want take that?

Yes, sir.

It is both the things.

One of the things is that fundamental nature of the infrastructure services business, as you know, is changing.

It is becoming more an as-a-service utility-based business.

Cloud is fundamentally transforming that entire business.

What we would call a software-defined everything is coming into play.

So there has been a shift in the market.

And the good news is we are investing ahead in all of these areas.

As you know, we are able to provide cloud service because we have data centers and we have partnerships with all the major cloud providers.

We have developed a very good offering and we have piloted on a couple of very large, significant customers who actually went live on infrastructure as a service and in this holiday season a record volume of transactions were processed on that customer completely on a utility basis.

So I feel very excited about our infrastructure as a service offering.

And we've invested heavily in partnerships across the ecosystem, on software-defined storage, software defined data centers.

And we've created an in-house capability along with our partners to be able to transform our clients too.

So if you look at (inaudible), we've had a very good run on the infrastructure space where we've announced some very large deals in it.

And all of these deals base are transformative in nature, incorporating some of the things that I just mentioned.

So, as you rightly said, while the infrastructure business has been transforming and we saw a couple of quarters of lull in deals, which also resulted in some of the growth numbers that you see, but I feel very upbeat about our infrastructure services practice going forward.

Right.

Thanks for that.

The second question was on the large deals.

And the commentary across the players in the industry has been quite consistent that there is a lot of pricing pressure in these large deals.

I want to get your thoughts on how much of it can be offset by the automation initiatives that you have.

And when you're looking at these large deals are the automation you're building in, what's the kind of automation levels you've been building in?

Are you building 5%, 10% lower resources in these projects compared to what you're doing now or is it something a lot more than 10% lower resources?

So this is T.K. Let me answer that and then I'll hand it over to Abid.

If you look at last year, really two things.

Number one is that we started an initiative called the next-gen initiatives where basically we went after all the fixed price deals that we had on infrastructure around applications.

And we said that using HOLMES, our cognitive intelligence platform, as the backbone, how do we make sure we're able to reduce the crowd significantly?

The good news is that we have been able to take out roughly about 4,300 people from our base, which is pretty significant.

In terms of ?- and, do you know, that is good news that they go out because as we expand the depth of automation, we believe there is significant headspace space to do more of this.

Now obviously from a pricing perspective I'm not going to tell on a call whether it's 5% or 10% because that way I'd be giving away my pricing.

But fundamentally the objective would be to make sure that we're able to drive automation significantly ahead of the market.

That's number one.

Number two is a very subtle change taking place in the technology space itself.

Our view is that infrastructure, especially in the cloud, is going to go through significant levels of disruption.

The focus is going to move from heavy lifting to user experience, and the ability to provision workloads on the fly, which seems that the architecture that we use for infrastructure has been very different from what we've been used to in the past.

So that was why, if you look at it, we've brought that whole thing under Mr. Bhanumurthy, who's our Chief Operating Officer, who today runs infrastructure along with the applications.

Because integrate that is what people are going to buy.

And that, when Abid made his opening statement, Abid was very clear about it that this is going to be a critical part of his focus, getting the integrated stack to work effectively.

So this is Jatin.

I will just add a color financially.

Yes, there is a pressure in the marketplace, but you heard T.K. talk about some of the initiatives that we're taking and core philosophy is to create a multiplier effect.

By putting IT and application together, multiplying the impact of productivity (inaudible) and automation together.

So eventually when we execute some of these deals we should be able operate at a far healthier margin than we're able to see when we put the initial proposals.

All right.

Thanks, T.K. Thanks, Abid.

All the best for the year ahead.

Ravi Menon, Elara Securities.

Thanks.

T.K., thank you for your contribution there.

Best of luck for the future.

Abid, I extend a warm welcome to you.

I had a couple of questions.

Since you've been here, are there any parts of the portfolio where you think that you're significantly ahead of the peer group?

And which parts of the portfolio do you think will need some more work to achieve your goal of at least being in line with industry or ahead of the industry?

Ravi, thank you for your wishes.

We have a very strong, from a verticals perspective when I look at it we have a very strong vertical in energy and utilities.

As you are aware, we have a very strong communications vertical.

We do pretty well in our manufacturing and technology vertical.

We have an opportunity to gain more clients and as a percentage of our total revenue in the banking, financial services and insurance vertical, and those are the areas I would obviously focus on.

But more importantly also is my focus, strategic focus, would be leverage on our strengths going forward, while we try to bridge the white spaces that we have in our portfolio.

Similarly on service lines, I think we have the world's leading global infrastructure services practice.

Our security practice, our testing practice, our product engineering services, which again becomes very unique.

Our digital practice where we've, if you look at what we have done in digital it's quite unique, bringing in creativity and value, which becomes prime in terms of the user experience.

So those are the areas definitely I feel pretty good about and we will continue to invest.

From a markets perspective I think we can do more in some of the new growth markets.

Especially in Latin America, we've made some early moves over there.

Continental Europe, as you've been hearing, we've been strengthening, but there have been ecosystem issues there.

And cross-currency has been quiet; you won't see it in the numbers right now.

We are continuing to increase our focus in Australia and Japan.

As you know, we are very strong in the India and Middle East market, which is -- we are the leaders in that space where we will continue to focus.

And US and UK continue to lead us from a markets perspective.

So that's I hope you get a color across all the three dimensions.

Great.

Thanks, Abid.

Sandip Agarwal, Edelweiss.

Yes, thanks for taking my question.

Congratulations to Abid and also best of luck to T.K. I have just one or two question and I don't want a specific number or specific answer, but a broad view.

So Abid, if you see our FY2016 numbers, looks like a 3.5%, 4% dollar growth.

I understand that there is a huge cross currency impact.

But even if you take that, maybe we are at 8%, 8.5%.

So I just want to know a couple of things.

What is that will take us to at least double-digit growth in the future?

And will it be okay to call this year as the bottom of our numbers?

Because, as T.K. rightly mentioned, that four out of our top 11 clients were energy and so we have taken a hit in the energy side.

Even on the Middle East side, we have -- I am sure that we would have taken some hit by now and given the changes in the IMS also.

So will it be fair to call that all our pain points have kind of bottomed out or at least they are -- you are seeing early signs of some kind of revival there, point number one.

Point number two, are we too far from the double-digit growth?

At least we don't know what will be the industry growth rate now given the circumstances.

But can you please throw some light on this?

So thanks, Sandip, for the questions.

As you would imagine, I'm occupied with exactly addressing this issue.

I think we don't like the growth numbers that we have right now and we definitely have the opportunity to execute on a better growth in terms of -- including our environment.

But, as you also know, there are areas which are our strengths.

As I said, energy and utilities is an area of great strength and we are also quite exposed to that area.

And we've still not seen the bottom if we look at it from an oil prices perspective.

So there is a level of uncertainty over there.

But I think we have multiple levers across our portfolio and the idea would be to diversify our portfolio so that while there will be business cycles in verticals, in geographies or in specific services, but still we would be able to deliver growth.

And that will be my endeavor from a strategic perspective.

Okay.

Thanks.

That's all from my side.

Nitin Mohta, Macquarie.

Thanks for the opportunity.

Abid, congratulations and good luck, T.K. I have two questions.

First for Abid.

Can you share some experience on the past nine months, what kind of execution challenges you saw at Wipro?

And how do you plan to tackle them?

What kind of a tailwind would they provide for growth or margin improvement?

So thank you, Nitin, for your wishes.

Let me talk about the strengths that I found at Wipro and then allude to some of the things that you are interested in.

So one is Wipro has always been a very engineering technology-centric organization and it has maintained that strength over the years.

There is a high level of pioneering spirit in the number of businesses that Wipro has been and that kind of almost makes us look like a start-up and again very relevant in the current technology environment.

Wipro has the strength of, as part of the innovation, both intellectual property and R&D around some very leading-edge technologies.

But more importantly we are able to leverage our balance sheet in terms of the corporate venture capital point and we've made some very strategic investments.

We have been relatively aggressive in making M&A bets and that has been a strength in terms of acquiring and integrating those acquisitions.

So, seeing that, I think there is a huge potential.

I think the area where we need to do better is -- and I have been working over the past nine months -- is simplifying our organization structure, which to a great extent has been accomplished, and as I've announced the new structure which is in line with the realigned expectations that we have.

And the whole idea of simplification is to be able to increase the velocity of our responsiveness to our customers and to our employees.

And I already see some green shoots in those areas where we have been able to respond faster to our customers' needs and be more agile as an organization.

Because the technology cycles which used to run for about five to seven years in the past are shrinking to four to two years I would say.

And hence the ability to be nimble or almost like a start-up to be able to transform ourselves and help our customers transform at speed is key.

I wouldn't say that part is complete, but we've started on that and I'm seeing some great results.

Given a very good understanding of what we need to do differently and a large amount of buy-in and support from the leadership team that I have inherited makes me very comfortable that we have a common agenda, common purpose to be able to execute on what we've put together as our strategic priorities.

Thanks, Abid.

That's very helpful.

And second one, T.K., if I can check with you.

Earlier in the day you commented about IT, IT outlook being flat to marginally negative.

So if I can understand if this negativity is just related to a reduction in pricing on run of the business or are you seeing some freeze on overall spend as well?

Here's what we see.

Every customer of ours that we've spoken to until now and this is, remember it's a little early on in the budget cycle for us to actually comment with any degree of certainty, but what we've seen is that the run budgets are under pressure.

And we typically see people taking costs out of the run budget which typically means that increased pressure on, not on ticket pricing, but on the overall deal values.

And that is something that I expect that we'll see during the year.

The second part of this is that the budgets themselves are being reallocated to a couple of areas.

Broadly two areas, and I won't talk about the industry-specific area because when you go into financial services like compliance, it's still an area of big spend.

But if you look at broadly two areas, I would say security, we're seeing significant reallocation into and we're also seeing significant reallocation into digital.

Digital more in terms of front to back simplification; that's where the real focus is coming in.

So both these areas I see opportunities.

But yes, today, purely from a run budget perspective, we see increasing pressure in terms of both deal cycles as well as in terms of the overall value of every deal.

Got that.

All the best for 2016.

Thank you.

Nitin Padmanabhan, Investec.

Yes, hi.

Thanks for taking my questions.

Congratulations, Abid and all the best, T.K. T.K., this is a question for you.

In the last quarter specifically you had mentioned about how the declines in the top clients would actually come back in the new year and we actually see that actually picking up this quarter.

You had also mentioned about how we had won in a large energy consolidation and that should actually drive growth.

Now if I just look at the numbers, it looks like there has been some declines out of Europe and energy, and even the top two to five clients.

Do you think that, one, that energy which lost close to $200m last year should actually drive growth going into the next because of all the consolidation wins?

And two, do you think that from a BFSI perspective, it being a little weak this quarter, how do you see that improving going forward?

So let me answer the question in two parts.

I think in terms of the top accounts, while we have seen a one quarter of improvement, I expect to see some pain continue for at least another quarter as far as that top customer is concerned, but it'll come back long term.

The second part is with regards with energy and utilities.

Frankly, sitting where we are and where we were three months ago, we never thought a $30 barrel of oil was ever possible.

Now it's passed $30; it's gone down to $29.

But, having said that, we have won one more consolidation deal with a very large oil major, one of the super majors, where today we own roughly about 85% of the technology real estate.

So once those kind of customers start kicking in, as long as their capital budgets start, we'd seem to be -- we will be in a very good position to get back our growth.

Today the uncertainty that we have, and we expect that it'll continue, would be the fact that most oil companies today are cutting costs rather than people investing in anything new from a CapEx perspective.

So the discretionary budget is really the big concern.

So while you can sit on real estate and if people in the real estate don't spend any money, fundamentally you're sitting on fallow land, and I think that's the concern that we have.

So to answer your question, really calling energy out today I think would be -- it needs a very brave man to call that out and I wouldn't be in a position to do that.

Sure.

And the second thing was from a -- could you give some color from a margin perspective?

One is that if you look at over the last year you have saved some 4,000 odd resources due to automation.

One, do you think that this savings on automation is largely going through in terms of trying to win new deals and thereby it's passed on the clients to really drive higher wins?

And two, how do you see margins roughly going forward?

So first is let me give you a sense of what happened last quarter.

I think it's important for you to understand the fact that we have managed through automation we have been able to take out 4,300 people.

That is a correct statement.

That's a factual statement.

Now if you look at our utilization, our utilization last quarter to this quarter has dropped by roughly about 3 percentage points.

So fundamentally what's happened is that the people who have come out of the automation projects have gone on to the bench.

They are right now going through a retraining cycle.

As they complete the retraining cycle you will find the utilization actually improving.

Near term I think we have opportunities in terms of improving our margins from where it was last quarter because last quarter it's also been to some extent vitiated by the issue that we have had in Chennai.

So quarter four again, like I said, we have opportunities to improve it.

But I think if you look at the long to medium term, and Abid and me have clearly discussed this, we do not believe that it's important for us to sacrifice the long term for short term because the minute you do that then you will be under pressure.

There is a significant level of investment that's going to come in both in our infrastructure management space as well as on the digital space, as well as in terms of driving automation.

To that extent we will not be wary about making those investments.

Great.

Abid, do you want to add anything?

Thank you.

Ankur Rudra, CLSA.

Thanks.

Congrats, Abid, and thanks and best of luck, T.K. Just a couple of questions.

Firstly, Abid, could you perhaps elaborate on how the new integrated solutions stacks and new org structure will help you improve or enhance execution going forward, particularly maybe with respect to the client mining issue, broadly, not just portfolio issues?

Thanks.

Thank you, Ankur, for your wishes.

So let me explain what we have done is I have created a separate unit called MIT, which has all the strategic market-facing functions.

It has the innovation and all the technology functions that we have.

What it enables us to do is provide a place where we are able to strategically develop intellectual property and do product engineering for all of the IP that we need to develop.

So the IP will get developed from a functional perspective across our verticals, across our technology practices, but this unit will be the central unit which will govern all of that IP development and more importantly enable the monetization of that IP in a non-linear model.

Now that could be a standalone IP.

That could be embedded in our services, which is what our larger objective would be.

And in a lot of cases it would be products that we are able to provide to our customers.

So it will work on all of these areas.

Also the Wipro HOLMES platform and our robotics automation platforms get integrated into this unit so that it is able to drive better internal industrialization of our delivery processes internally.

So all of these aspects which are related to Wipro's internal IP will be done by this unit.

Also it will extend the ecosystem into educational institutions and some of the venture capital investments that we do in start-up organizations and the innovation ecosystem to be able to channel all of that innovation through our business units into our customers.

Okay.

Sir, I was wondering how does this link back to account mining because perhaps that's the biggest execution challenge the Company's faced in the last three four years.

I was wondering if you could help us bridge that gap.

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Participants, we have the management line now connected.

Mr. Rudra, please go ahead.

Thanks.

Abid, thanks for that initial piece.

I was just also wondering if you could help me bridge the gap between how the new structure will also help on the client mining side.

I understand you're investing a lot in terms of monetization of HOLMES automation, which will differentiate it.

But on the execution side is that the main strategy?

Yes, so on the client mining side, Ankur, as you know, I've been here for about nine months already, so what I announced recently as the structure under me as CEO, before that we had also announced what we internally called as DRIVE or I would call it is delivery realignment, which went live in the month of October, which primarily enables a higher level of client mining.

Which essentially what we have done is for all those technologies which are fundamentally transforming the business application services and analytics (inaudible), which going into the future will all become part of the digital, have been moved into the verticals and into the accounts so that the accounts can drive the technology transformation of the talent which is relevant to each one of our individual accounts.

So what we have done is clearly with high amount of account focus within how we are organized and how we take certain decisions on talent and investments.

Again, part of the simplification that we did is we've driven a high level of budget-based empowerments to these account teams so they have an investment budget for the customer and they are able to do the right thing which is relevant for the customer.

Some of these initiatives have started showing early results where we are more agile, more nimble-footed.

We are able to respond to customer needs faster.

And essentially, one of the important aspects amongst many others is the ability of the frontline team on the ground to respond to customer needs in existing accounts, which enables us to mine accounts better.

There are a few other things that we have done in terms of strengthening our domain consulting practice so that we are able to create demand and do more consultative selling.

We have been historically very strong in what I would call as demand capture or hunting when there is a deal or an RFP.

But mining is an ongoing sales activity that happens and that requires a slightly different set of skills and processes.

And some of those things have been done.

So I would say partly these are being addressed by the structure.

Partly it is being addressed by the simplification of the structure and ensuring that there is a continuum between sales and delivery, there is empowerment and accountability at the frontline so that we are able to improve the speed of our responsiveness to our clients as an organization.

Great.

That's very helpful.

Thanks, Abid.

Just one quick second question.

I noticed a lot of as a service deals among the large deals announcements this time.

I was wondering how does this impact going forward on perhaps your revenue recognition.

Will we see slower revenue growth as you transition to this as part of your large deals?

Will it change the nature of investments on the balance sheet and margins especially as the new models ramp up compared to the traditional model?

So on the financial, I think I will let Jatin give that.

But let me tell you that this is the strategic change we are trying to be ahead of the curve in the industry because the customers' buying and consumption pattern is moving towards hours of service.

And I believe that the organizations who will internally align themselves better to be able to deliver in a as a service model whether it is infrastructure as a service, whether it is application as a service or whether it is business process as a service, will lead in the future.

And we are seeing some good uptake as you rightly observed from our customers.

There is a lot of work happening internally to do that in terms of financials, in terms of how we deliver, how we deploy our people, how we deploy our intellectual property, how we deploy partner assets and intellectual property.

So a lot of transformation internally is going on and as I said it is being led by the MIT organization that we have just formed.

I'm sure that there are impacts from a financial accounting perspective, which I will let Jatin cover.

So before that, before Jatin gets into it, I think it's a very important question that you have asked which is the balance sheet exposure.

I think one things that we have to do as the model changes is to make sure that we don't carry balance sheet exposure for as a service because [that's not] scalable across different services.

So we have a fairly good view of what we can scale in terms of core infrastructure investments across different businesses and what are going to be specific product businesses.

We have a risk management process in the back where anything that's specific we kind of down-sell back to our partners and whatever is common we invest in.

I think that's primarily the approach that we're taking.

Jatin can add a little more to it.

Sure.

So, Ankur, nothing more but to just reiterate what T.K. just mentioned, that we will capture the upside and market opportunity of as a service provided, the opportunity that it provides, but remain very balanced vis-a-vis how do we manage the risk in the entire value system.

Some risk would be on balance sheet, but probably that would be very, very minimal and there we are confident that would be used across customers.

And the rest would be in the ecosystem of technology providers that we work with.

Okay.

Thank you very much and best of luck.

Diviya Nagarajan, UBS.

Thanks.

Congrats, Abid on your new role and all the best, T.K. My question is partly related to what we've been discussing so far.

We've gone through the key strengths in the business.

We've gone through the areas that we have to address.

What is the first three steps that you think that you're going to put in?

So if I have to look at the next 12 months, which are the three key areas that you'd be focusing your attention on?

That's one.

And second, you did give us an interesting number of 4,300 people who have been -- whose jobs have been released due to automation.

But I do notice that's a trend that we've seen for your competitors as well, that despite the increasing automation trends, the headcount addition seems to be only going up.

I'm trying to reconcile those two facts.

Thank you.

So thank you, Diviya.

Let me answer your second question first and then I'll take the first question.

So while there is ongoing productivity, if you look at the new deals that have come in, those new deals come in at the new productivity benchmarks in terms of how we estimate that gets delivered.

So while you will see a lot of productivity that we took out from our existing portfolio, on an ongoing basis that also helps us to not only conserve and improve our margins, but also helps us to price more competitively in the industry.

On the top priorities, I think while this transition is important but, as you know, since I've come in here, some of the initiatives that have been kicked off need to be taken to a logical conclusion because they are still in process.

Apart from that, some of the top two or three things that we are embarking on is one is on the sales transformation.

On the front end a lot of things that I mentioned need a level of transformation of our sales teams and we have initiated a very focused program on that to help our frontline teams to be able to sell and deliver in the new model.

Also we are looking at the areas of consulting and how we are able to transform consulting.

And again some of the work has been started already and soon we will be giving a little more details around it so that we can enhance our ability to consultatively sell and create demand within our existing clients.

And obviously an ongoing focus on industrialization of our service delivery and flawless execution using Wipro HOLMES and some of the robotics that we have developed to be able to continue to maintain our operational excellence and our cost of delivery in line with the market requirements.

So this is Jatin here.

I just want to add to a comment which was made a little earlier in the call where we had said that the quarterly revenues from E&U customers moved from 4 to 2. In fact they have moved from 4 to 3, but their relative positions within the top 10 have changed in a manner that does not take away the essence of the message which was given earlier.

Thank you and all the best.

Inba, a last question please.

Thank you.

Sandeep Shah, CIMB.

Yes, thanks for the opportunity.

Congrats, Abid, and all the best, T.K. and thanks.

Just in terms of the large deal wins which have been improving especially in the infrastructure management services.

But at the same time when we look at the organic growth guidance for the fourth quarter it looks tepid.

So is it fair -- and we do agree that the large deal wins take time in terms of the ramp up.

So is it fair to say that this time with more large deals in the kitty, the first Q of the next financial year would be better versus a seasonally weak quarter for Wipro, which actually leads to a slow start and a slow growth in the full year?

So is it fair to say that this time it would be different entering into FY2017?

Sandeep, what we will try to say, Jatin here, is that we give quarterly guidance and therefore I would not hazard a guess for quarter one as we speak.

But, yes, the deal wins are there and that does give a confidence to us about our future.

Okay.

But, Jatin, is it fair to say that the seasonality which is impacting 1Q every financial year is getting behind entering into FY2017?

Well, I think it will be behind when we -- really it is behind us.

So I would not probably try and estimate it now.

We will come back with our outlook for the future at the end of quarter four and hopefully we will have a more solid and accurate answer for this.

Right now we will want to remain focused and executing that quarter four very well.

Okay.

Thank you.

Just last question, Abid.

With due respect to the portfolio issues which Wipro had because of the issues in the macro, especially in the energy as a whole, do you believe that the main reason for the underperforming growth of Wipro was largely due to the delivery issue or maybe due to the sales issue?

And if both are there, what are two or three things you would like to do when you take over as a control?

And will you believe that that would require some bit of a transition period before those measures will start progressing results?

So let me clarify that I think our customer satisfaction, as T.K. mentioned in his opening remarks, is an all-time high and we have a set of customers where we have trusted relationships with them.

Our execution has been very good with our customers and in fact we've done some very path-breaking transformations on time, within budget for our customers.

So I don't see delivery as an issue at all.

As you also know, sales, we've been very successful in hunting; we've had some challenges in mining.

But at an overall level I wouldn't put it as a sales issue as well.

I think I did allude to some of the areas where we need to work and where I would be focusing.

And as we develop this strategy and the execution plans in more details I would be happy to share them in due course of time.

Just a last thing, clarification.

Those measures when they are under the implementation will you believe that it will impact the growth momentum or you believe that both will go hand in hand?

I believe that it will accelerate the growth momentum.

Okay.

Thanks and all the best.

Thank you, Sandeep.

Thank you.

Ladies and gentlemen, that was the last question.

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

Thanks Inba.

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 nice 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.