Wipro Ltd (WIT) 2017 Q2 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 and there will be an opportunity for you to ask questions after the presentation concludes. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. Aravind Viswanathan. Thank you and over to you, sir.

Thank you, Jaz. A warm welcome to our Q2 FY17 earnings call. We will begin the call with the business highlights and overview by Abid, our Chief Executive Officer and Member of the Board, followed by a financial overview by our CFO, Jatin Dalal. Afterwards, the operator will open the bridge for Q&A with our management team.

Before Abid 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 the 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 a transcript will be available on our website.

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

Thank you, Aravind. And good morning and good evening to all of you. It is again a pleasure to speak to you. I will begin with comments on the performance of Q2 and talk a little bit about the demand scenario in the IT Services industry as we see it, and then have a detailed update on the execution of the six strategic themes that I have been talking about since the last two quarters now.

We have delivered a revenue growth in constant currency at about 0.9%, closer to the top end of our guidance. IT Services margin for the quarter was 17.8%, which is flat on a sequential basis. The operating margin was maintained in spite of the headwinds we had from the merit salary increase of two months that comes in, in Q2 for Wipro. And this was enabled by strong operational improvements, primarily on the themes that we have been talking about, which is execution discipline on levers like offshoring and utilization, but more importantly, the automation -- hyper-automation led productivity.

From a demand environment perspective, the IT Services continues to evolve fast. The tech spend continues to transfer from the run bucket where there is a lot of focus on cost efficiency, vendor consolidation, hyper-automation and simplification into the change bucket, which primarily is the digital spend, cognitive and artificial intelligence led transformation, transformation of the business model in as a service or transaction-based, outcome-based pricing model. And we just see acceleration of that trend to continue.

This transition (technical difficulty) client spend is happening at an accelerated pace from the companies, we believe, who will make bold bets to differentiate and capitalize on these opportunities will win. And I believe that Wipro is prepared to make those bold bets and execute on the strategy well. Our early investments in creating a separate digital unit, merging consulting with it, doing the Designit acquisition for the design and the creative part, our BPaaS focus with the HPS acquisition, our investment in Wipro HOLMES, our artificial intelligence and cognitive platform are all steps that we have taken in that direction and executed on it. And this differentiated value proposition is being appreciated by our clients and we are seeing some, not only good wins, but also good execution on those wins.

Of course, I'm very excited about the acquisition of Appirio that we announced yesterday, which is a leader in the cloud applications, especially across Salesforce and Workday implementation services. Appirio's leadership in transforming customer and worker experiences, combined with Wipro's global scale, industry focus, strong customer relationships and our broader application portfolio and understanding of the customers' current landscape creates practice with critical mass, leadership amongst our Indian heritage peers and for our customers an ideal digital partner of the future, to enable our customers to win in the digital economy.

I've talked about the client themes and I will cover those briefly. So, the first one out of the six is digital, and we are pleased to see that our investments in digital have been gaining traction with our clients and delivering results. Last couple of times, I've talked about the traction in the banking and financial services industry and the consumer industry. This time let me give you an example in the manufacturing industry. We're partnering with a global contract manufacturing company, which is implementing SmartFactory, a factory enabled by advanced automation, machine learning, IoT and data analytics. Wipro is responsible for enabling the connected journey, and in the first instance, data from the shop floor is being leveraged for knowledge and process automation, involving cognitive, involving artificial intelligence and machine learning and some of the technologies that I talked about.

During the quarter, we continued to progress in terms of employee transformation. As you know, we targeted to train 20,000 people in digital technologies in this entire year, and in H1 alone we've exceeded that by training almost 17,500. So I'm confident that through the entire year, we'll be way beyond the 20,000 target that we had. And this is enabled by the futuristic training tools and methodologies that we've put in, where training becomes a self-service for employees, and we see a lot of enthusiasm by Wiproites, in terms of taking that up and transforming themselves.

From a revenues' perspective, in Q2, Digital Ecosystem revenues constitutes now about 19.6% of our overall revenues. So, the overall growth is quite good. And the revenues from the Consulting Ecosystem, now considered about 5% of our overall revenues. So I'm quite pleased with the accelerated pace of traction that we are seeing in both these areas, which we started measuring and I'm sharing over the past couple of quarters.

The second theme is client mining and client mining continues to be a key focus area for strategy for us. Again, with a leading European technology company, with our integrated services offering, we were able to consolidate our share of the wallet in a rebid process that was aimed at vendor consolidation and it leveraged all of the solutions and tools that we have in the client mining space.

From a results perspective, the average revenue per client, which was about $6 million in Q4, went up to $6.4 million in Q1 and is about $6.6 million in Q2. So we are seeing good traction on that. And this is supported by a deep relationship building, investment in the accounts of client partners' architects and teams, which also is reflected in both our customer satisfaction and the recognition we receive from our customers.

Last quarter, I talked about receiving the award from our top client. This quarter, I want to talk about two awards from leading global retailers. One is a long partnership award for a decade-long partnership, where the relationship moved from the traditional IT relationship into the digital enablement and domain centric. And the second award is the 2016 Strategic Partner of the Year, from amongst all the IT and various other vendors that this large retailer -- large global retailer has.

And, let me give you an example of one of the engagements that we've done in retail, where Wipro deployed an integrated retail solution across 550 stores for a global retail major, enabling central visibility of inventory, price differentials, cash and sales forecast. The retail solution led to decommissioning of 10 legacy applications and the simplification of the landscape was the value proposition that we had gone into this. And it's also helped outcomes like reduction of stock, that is the stock that they could get rid of by 90%, resulting in an increase in in-store customer satisfaction and inventory turns.

In the beginning of the year, I'd also talked that enhanced mining needs huge investment in the delivery leadership transformation, and we had launched a program called ADROIT, where we wanted to cover the top 1,000 delivery leaders across the firm. We have cumulatively trained 488 people who've got trained and certified through 23 programs in the first half of the year.

The third theme that we've talked about is the non-linearity, and we continue to drive non-linearity through significant investments in intellectual property, in the form of products, platforms, frameworks and solutions. We now have about 70 engagements across diverse industry segments deploying HOLMES. The idea is to touch our top 100 customers with a deployment of HOLMES, either in the IT operations, which could be applications, infrastructure, or BPS, or through the domain industry business process implementation. And recently, we added use cases in the mortgage insurance industry and in the oil exploration business in our ENU vertical, as well as in corporate actions and settlement in the capital markets vertical.

Let me talk about one solution, which is our Medicare Advantage suite, based on the SaaS model. We have several dozen clients already on this, and this platform is being modernized for cloud and analytics. It covers enrollment, eligibility, verification and claims processing of Medicare providers across multiple states in the US. In Q2, we executed three more client contracts for the Medicare Advantage suite. So the focus on selling, led by IP, has been taken very well by the sales team, and we are seeing some very good traction. Overall, we continue to invest in intellectual property through -- protecting it through patents and we filed 97 new patents in Q2 alone, taking our patents to over 1,100 total patents.

The next theme I want to talk about is hyper-automation and we are rapidly deploying both the robotic process automation and the cognitive bots, as per the [HOLMES] platform. We deployed now about 143 unique bots and this has been done across about 75 customer engagements. And we have been able to take more than 2,000 core IT activities to be automated. So 143 is the unique number of bots, but they have been deployed across 2,000 activities in a repetitive manner. And on the BPS front, there are about 24 bots that we have, which have been deployed across 35 customers to automate about 450 process tracks. Totally, while we plan to release 4,500 people across the year through hyper-automation, we've already been able to release about 3,200 in the first half itself and we've been able to successfully retrain and redeploy Wiproites, who have been released from these engagements, to feed some of the growth requirements that we have.

Again, let me give you an example of the deployment of Wipro HOLMES for a large European technology company to reduce the number of tickets and the ticket cycle time in their [head-desk] process automation, where the value proposition that we went into the deal and successfully executed on, was to deliver a truly customer focus and end-user experience-based IT support transformation.

The next theme is about localization, and we continue to focus on localization. We've included US as a focus area. Our Mountain View, [Atlanta] and we launched the Dallas local delivery center, where we've been able to do digital and agile project delivery from. We continue to make good progress in UK -- Cellent, through the acquisition in Germany, Canada, in Singapore, Latin America and The Kingdom of Saudi Arabia, where we now have about 200 women in our center, delivering engineering services in the Kingdom, as manufacturing companies invest for their offset requirements in Saudi Arabia.

Let me talk about the innovation and partner ecosystem. During Q2, Wipro Ventures completed yet another investment in the Israel-based IntSights Cyber Intelligence Limited. IntSights basically has developed a sophisticated cyber threat intelligence platform, which provides not only advanced warning and customized insights about potential cyber attacks, but also recommends real-time remedial action. Overall, we have now made eight investments and already committed a spend of around $22 million from our Wipro Ventures capital fund, and on an average, we continue to look at about five to eight start-ups a week, and we've developed a core competence from a venture capital perspective, to both technologically evaluate and take some of these innovations into our customers. Today, we have 10-plus POCs running across these -- leveraging these investments across multiple customers. And the pipeline of the opportunities that we have seen is quite healthy.

I also want to talk about the Horizon Program, which is, internally, commonly known as the H2-H3 program, which is promoting intrapreneurship, or enabling Wiproites to come up with ideas that we fund, again, on the same lines of Wipro Ventures, and incubate disruptive ideas to drive entrepreneurship within our employees. We have invested in 75 such ideas, and four in the last quarter, in areas around software-defined, open source platforms, the managed file transfer as a service, and so on and so forth, which has been scaling well and has started delivering revenues as part of the changes that we are driving for our clients.

So, I'm happy to note the recognition that some of our strategic partners have given, which has been our traditional partner ecosystem in the technology area. Hewlett Packard Enterprise, Microsoft, Salesforce, IBM have recognized Wipro in various areas of focus, in delivering some of the joint go-to-market plans that we have committed with them, to bring value to our joint customers.

Last quarter, I had mentioned about the launch of Top Gear, the crowdsourcing initiative, or the Wipro Private Crowd platform that provides virtual and physical environments, not only for our employees to gain hands-on experience on various technologies that are in high demand, but also defines the future of work, the Uberization of IT that we believe is going to be the next disruption in the IT industry. Since its launch in Q1, 22,000 unique Wiproites have experienced Top Gear and done at least one engagement on it in our journey towards creating a new culture in the organization for learning and solution building. The very interesting thing also is that it has been leveraged to develop about 100 solutions that are under creation within Wipro, which is Wipro IP. And the Appirio acquisition gives us access to Topcoder, which is a crowdsourcing platform that already has a large community of about 1 million members crowd sourcing. So, while Top Gear was primarily focused on what I would call as the Private Crowd, Topcoder accelerates that transformation into the Public Crowd, if you will. And Appirio, themselves, leverage Topcoder for sales, presales, design, POC development of the delivery that they do to the customers. So that's a great acceleration of the future of work as we believe will happen in the IT industry.

So, in closing, I would like to say that this is a fast evolving environment. We need to continuously evolve constantly. There's a lot of external uncertainty that we continue to deal with, but we are focused on staying the course on our strategy and we are executing very well, with investing where necessary in the future. Both buy and make, as you saw through my comments, are options that we are open to, to execute on our strategy and we are seeing good traction on both. Where we find a good asset we buy and integrate and make a success out of it. And where we see a capability that we can internally invest and build, we continue to do that very well and we don't hesitate in making the investments. Our strategy continues to find strong resonance with our clients and I'm confident that we will build momentum towards a stronger, sustainable and profitable growth.

With these remarks, I would like to hand over to Jatin for a slightly deeper dive on our financial performance.

Thank you, Abid. Good day, ladies and gentlemen. As always, it's a pleasure to speak to you. Before I speak on the financial performance of the quarter, kindly note that for the convenience of our readers, our IFRS financial statement released today have been translated into dollars at noon buying rate in New York City on September 30, 2016, for the cable transfers in Indian rupees, as certified by the Federal Reserve Board of New York, which was $1 equal to INR66.58. Accordingly, our Q2 revenues of our IT Services segment; that was $1,916.3 million, or in rupee terms, INR131.4 billion, appears in our earning release as [$1,973 million], based on the convenience translation.

Let me first talk about the consolidated Wipro Limited results. Gross revenues for the quarter ended September 30, grew by 10% year-on-year at INR137.7 billion. Net income for the quarter was INR20.7 billion.

IT Services segment is next in my commentary. IT Services revenue for the quarter grew by 0.9% in constant currency, which was close to the top end of our guidance. Revenues in US dollar terms, however, were affected by a depreciating pound sterling, leading to a reported dollar revenue of $1,916.3 million, a sequential decrease of 0.8%.

Margins in IT Services segment were 17.8%, flat as compared to the margins of quarter one. The margins were maintained in spite of headwinds from an incremental two-months impact of salary increase, by strong operational improvement in automation-led productivity, offshoring and utilization.

You heard Abid give an update on automation. Allow me to talk about utilization and offshoring. We increased gross utilization by 134 basis points to 71.2% and it is among the highest utilization we have achieved in recent quarters. The revenue mix from offshore efforts has also increased this quarter by 0.5% to 46.1%.

Let me now talk about foreign exchange and effective tax rate. On the ForEx front, our realized rate for quarter was INR68.55 versus a rate of INR67.89, which was realized for quarter one. As of the period end, we had $2.3 billion of ForEx derivative contracts as hedges. Going forward, we see currencies remaining volatile, especially pound sterling in the quarter to follow. The effective tax rate for quarter two was 22.2%.

Now, let me talk about cash flows. For the quarter, we generated robust operating cash flow of INR26.4 billion, which was 127.5% of our net income. And free cash flow of INR19.5 billion, which was 94.5% of our net income. As you can see, these are very good measures. For the first half of the current fiscal, the operating cash flow was 99% of net income, as compared to 85% of net income during the first fiscal of last year -- during the first half of the fiscal 2016. Net cash on the balance sheet as at September 30, 2016, was INR189 billion, or $2.8 billion.

As you might have read, we announced the acquisition of Appirio, a global cloud services company, yesterday. The purchase consideration of acquisition is $500 million. Appirio is headquartered in Indianapolis, with an employee base of 1,250 and their calendar year 2015 revenues were $196 million.

Let me talk about the outlook. For the quarter ending December 31, 2016, we have guided for a revenue growth in IT Services of 0% to 2% sequentially, in constant currency. The exchange rate is mentioned in the press release. We expect to consummate the Appirio acquisition in quarter three. And hence, revenues from the acquisition are included in our guidance.

We will be happy to take questions from here. Operator, you may open the line now.

(Operator Instructions) Moshe Katri, Wedbush Securities.

Good performance in margins. A couple of questions on Appirio. So, based on my calculations, if we exclude Appirio from your guidance for the next quarter, your sequential growth is going to be anywhere between, I don't know, 0% to minus 1.6%. Is that a ballpark correct? And then Appirio had some issues in terms of the crowdsourcing business, making it work. And I don't know if they were ever able to make this work. How do you suggest fixing that as part of Wipro? Thanks.

I will start with the first question and then I'll request Bhanu to take the second question. So Moshe, as we have shared, we announced the acquisition yesterday and we will close the acquisition during the course of the quarter. And based on what we think would be a reasonable time period for customary closing conditions and regulatory approvals, we have factored in the guidance the revenue coming out of Appirio. And as you know, we have never broken our organic and inorganic revenues from a guidance standpoint. So I'm unable to share or confirm an organic revenue number there. But we have made a reasonable estimate of what we'll get out of Appirio and that has been baked in, in the guidance range that we have shared with you.

So Moshe, this is Bhanu here. This is regarding the question you asked about the crowdsourcing platform. We already have an internal platform that we utilize for doing work internally. Abid referred to that in his opening remarks. It is called the Top Gear. And what we believe is that, first of all, the Topcoder business for Appirio is a small part of the business. And second, we could leverage that for our internal use, as well as for some of our customers, and it will actually augment the platform that we already have.

Moshe, the way we believe is that crowdsourcing for customers is right now -- I would put it on late Horizon 2, early Horizon 3 kind of activity, because it is like what cloud was in 2008, 2009, that security, data privacy, intellectual property protection and lot of other questions are yet to be answered. But our experience from Top Gear has told us that it is a significant advantage for, what I call, as Private Crowd, which is for Wiproites to be able to use it. And this gives us a lot of early experience, both for Private Crowd and Public Crowd. And that is what that excites us about the platform.

And just final question, what are you doing just to make sure that the Appirio's top talent doesn't kind of bail out before -- after the acquisition? Maybe, you could give us some color on that. Thanks.

So we've created, what I would call, as a playbook for acquisition integration. The most recent one, which has been about a year old, I will talk about, which is Designit, where we decided to leverage the brand to attract the skills that we want to attract and continue to command the pricing and the customer differentiation that it has. And we've, over the one year, successfully executed on it. At the same time, leveraging (technical difficulty) revenues, [able] to get those capabilities into some of our large accounts' key client portfolios. That model has worked quite well for us. We replicated that kind of integration for HPS. And the whole idea for Appirio is also that, that Appirio will be our cloud application services practice. We are reverse integrating whatever -- about a $40 million practice that we already had into Appirio and we will be delivering through Appirio, keeping some of the cultural aspects of Appirio intact. While there will be a higher level of financial integration, there will be a very concerted effort on go to market, so that we are able to accelerate the pace of taking that capability across our customer portfolio, at that same time maintaining the uniqueness of this.

Obviously, as you would imagine, we've also -- talent is what we get as part of all of these acquisitions and we developed a good playbook around some of the earn-outs that we provide to the management team and we've replicated the same for Appirio as well. Essentially, we believe that providing the right environment, continuing to maintain the brand and the culture which has made it successful and providing the larger growth opportunities by opening the full canvas of Wipro in terms of its global customer reach and combining it with some of the services and capabilities that we already had. For example, the managed service and support capability that we had for ERP and enterprise applications, could further enhance the Appirio share of the market that it can get, and we plan to execute on that strategy.

So we feel very comfortable in terms of retaining the talent and being able to give opportunities for growth, to not only that talent, but also to be able to transform some of the Wipro talent into those new technologies. And Designit is a good example. If you remember, about a year back when we acquired Designit, it had about 300 creative designers. While we were able to hire 20 or 30 internally at Wipro, we reverse integrated them into Designit. Today, as of last count, about 450 designers are within the Designit umbrella, which is about a 50% growth of that, primarily very low attrition of the existing talent and ability to build on top similar skills and attract some of the best talent within the market through that brand. So we feel quite comfortable in replicating that acquisition integration strategy for HPS, for Appirio, and other acquisitions that we do.

Pankaj Kapoor, JM Financial.

I had just a few question again on Appirio. If you can just give me what the share of revenues for the Topcoder would be, any idea on that?

Pankaj, the biggest benefit of Topcoder is what the opportunity it brings to us in terms of crowdsourcing. The revenue is not large, but the capability is very powerful and that's (inaudible). And it's very small percentage of the total revenue that we have disclosed.

And from a margin perspective, is it fair to assume that this will be, maybe, given it's onsite-centric and consulting kind of a work, it would be more of a high-single digit kind of a margin profile for Appirio?

So, Pankaj, the margins are very similar for the companies in this space, which are growing rapidly and investing in building the capabilities and investing in SG&A that is needed to continue to build the growth momentum. I would put it slightly differently. I think they deliver tremendous value, and that value is reflected in the business model that we are able to see in their P&L. So, overall, I would say, yes margins would be akin to a company of this nature. But, the overall value proposition is quite powerful, the way it is represented in the business model.

And I understand that they have some offshore presence currently, right? They have a center I believe in Jaipur, if I'm not mistaken. So I was wondering that if they have a slightly different profile of margins. So, that's fine. And lastly, in terms of the senior management team, what is the kind of a period that you have for them to be with the company, the lock-ins, or in terms of retainership structure that you have, any sense of the timeline, like it is three years, four years or lesser than that?

Pankaj, the plan is to have them forever by ensuring that we grow the business and give them opportunities to grow with us.

And lastly, Abid, maybe you can answer this, that we are trying to, of course, build our digital footprint [effectively], and I think inorganic appears to be quite a key component of this. Designit has been one good acquisition and this also appears to be fairly interesting acquisition. So, while I understand you have a structure in terms of ensuring the integration of Wipro service lines with the acquired entity service lines and all, but how about the cross-selling of services between these entities themselves? So what's the plan in terms of ensuring that there is active synergies flowing in-between, say, Designit and Appirio also, not just between Designit and Wipro, and then Wipro and Appirio? So what kind of an overall game plan do you have as you go ahead in terms of building out this digital portfolio?

Let me answer it in a slightly different way. The way we operate Wipro is we operate it across about 27 verticals that we have, or we operate it across the six major geographies that we have, or we operate it across the six service lines that we have. And there are sufficient forums that provide the ability for each one of these operating units to synergize with each other. For example, some of the customers that we have in the manufacturing SBU, leverage our healthcare and life sciences SBU quite effectively, to be able to provide services to some customers who are, not only in traditional technology manufacturing, but also have a medical devices and diagnostic component of that.

So, the world going forward is going to be much more matrix, where there is a need -- a vertical becomes a horizontal service line. These are horizontal and there is an interplay of integrated services across multiple horizontals, and this is the DNA that we are transforming the Company into, and some of the steps that we took in August to October last year, through the initiative which we named as Drive Internally, to enable the might of Wipro to come together. The integrated services that I talked about in some of those quarters have now become a way of life in Wipro. So I would not have a different strategy, for example, for Appirio and Designit to come together. It is exactly the same strategy, through which any one operating unit of Wipro comes along with the other operating unit and provides an integrated service, which is relevant to the context of the customer.

Let me give you a couple of examples from the existing acquisitions. HPS is an acquisition we did recently, as you know. And through our IFOX acquisition, we had acquired the Medicare business, and we've been able to effectively create an integrated offering of under 65 and over 65, which is an innovation in the industry and has been cross-sold very well, to not only some of our existing peer customers, but also positioned to some of the new clients, as well, as a powerful offering, backed by bringing the two capabilities together, bringing a Wipro HOLMES on top of it for mining and analytics of data across these two platforms, so that data can be effectively monetized by our customers. So this is a way of life. And I would say that as an organization we are getting better and better. We are not perfect. That's not how historically we've operated, but I'm very encouraged by the momentum and the value that operating leadership sees in cross-leveraging -- I can go on with examples after example. For example, a lot of technology customers who sit in the technology vertical, today are disrupting the financial services industry, and for them, actually our payment domain becomes a horizontal, rather than a vertical. So it is happening across the board and we have a concerted effort. It actually is part of all of the training and stuff that we're doing for teams to be able to leverage the might of Wipro through the One Voice sales transformation program, and the ADROIT delivery transformation program, where our leadership across the organization has a minimum level of understanding of organization-wide capabilities. And then we have processes in solutioning, by bringing all the service line capabilities under Bhanu, our Chief Operating Officer, to be able to integrate those, before we take it to the customer, rather than the customer having to integrate some of these capabilities from within Wipro, or across their multiple providers.

And another example that we talked about last time is a bank in UK, which selected us as their digital transformation partner, replacing two of their incumbents. One, in the design space, which was a niche company and one in the technology delivery space, which was one of the traditional competitors. And we could integrate both of them and reduce hand-off for the customer and provide a more outcome focused model for the customer. So, this is becoming a way of life. It needs continuous focus and investment and that is what we are doing through training of our sales and delivery teams.

Keith Bachman, Bank of Montreal.

Hi, this is Steve Schneiderman calling in for Keith. Thank you for taking my question. Wanted to start off talking about the Financial Services sector. Growth for the quarter was only about 2.8% year-over-year, constant currency, below your Company averages. Can you talk about some of the dynamics that you're seeing within that segment right now?

Shaji, can you take that question?

Yes, so here are the trends that we're seeing, right. We continue to see a very strong shift in spend from run to change in BFSI. The change engagements, in particular, are driven by digital, agile and DevOps initiatives. Our strong capabilities in these areas have -- positioned extremely well for winning in this space and we continue to see an acceleration in wins across the entire BFSI client portfolio. And also, in anticipation of this shift, we have already scaled up and we'll continue to scale up strongly the unique skill sets that are required to service this space.

The next trend we are seeing is that there is an increasing shift towards IT, plus BPO platform-led deals, particularly in the securities and capital markets and insurance space. This is an exciting trend that can result in annuity revenues through long-term contracts. And, finally, our revenue growth in the run side, where we are seeing the shift, in our view, will be driven by winning highly competitive consolidation deals. Profitability in the run part of our business will rely on implementing hyper-automation driven efficiency and productivity realizations. Our win rate in such consolidation deals continues to remain strong. So, basically, these are the key trends. And digital is happening, it's real, and is definitely top of the agenda for all CIOs in the BFSI space.

I mean, is there any challenges that you're particularly finding that's impacting the growth, for why it would not be at higher levels like the rest of the Company average?

So, see, the challenge has really come about because of the fact that these shifts are happening even at our client base. Okay? So the end state looks very promising in fact. I think we will see some choppy growth, particularly as the shifts happen and as these consolidation deals happen. And in fact, you also have to realize, as you win these consolidation deals, we go through some very elongated transitions. And when we do these transitions, we actually are adding people, but we are not recognizing revenues yet, because of the nature of the contracts, because transition of these deals, we do not charge explicitly for transitions in these deals. So that again causes a choppiness. But, in fact, if you look at the addition of headcount into these areas, particularly in consolidation deals, are actually increasing very rapidly and that bodes well for future growth.

Just more general to the entire Company, are you seeing any changes in the pricing environment over the past quarter or so and as you look forward?

So, [Keith], while on pricing I'll let Jatin speak, but I don't see -- I do see pressure on the overall cost of ownership on the run side of the house that customers are demanding, and given that competition and the provider space, overall, is aggressive, there is a total cost of ownership challenge. However, the strategy and focus at Wipro that we are driving is, while we provide the services to the customer at the price point that makes the customer win, internally we drive the levers that we require to drive, especially hyper-automation and the operating discipline to be able to realize the revenue per employee, or the pricing that we think we are comfortable with in terms of our aspirations and our clients.

And one more for me on the margin front. You had painted a picture on the last call that you weren't going to cede all the benefits from the productivity offsetting the wage impact for Q3, and it sounds like that's holding through again. My question on the margin front is a) was there any impact from foreign exchange in the quarter, and did that hurt or help you? And b) how much of the pick-up in margins are you theoretically expecting to -- for the productivity to be able to offset all those wages as we move forward?

Yes. In quarter two, we did not have any material impact of foreign exchange on our operating profit line. However, in quarter three, the currencies are volatile, as we have spent 20 days and we will watch it carefully. Sorry, can you repeat your second question, I missed it?

The part b of that is, as we look forward and as productivity offshore and utilization starts offsetting all your wage increases, how much margin increase should we be looking at as we look forward for Q3, Q4, et cetera?

So, we don't guide on margin. But as we enter quarter three -- let me first talk about quarter two. Quarter two, we had two months impact of salary, which we were effectively able to mitigate through the variety of levers that we spoke about, which was automation and offshoring and utilization. And that I think was quite satisfactory from our execution standpoint. Now, as we enter quarter three, we have investment in form of Appirio that we've made and it will have its impact on margin, depending, as we consolidate the quantum of revenue into the quarter. And the second is, I would look at the volatility in currencies, which could potentially have a headwind to the margin. Apart from these two, we don't see any large headwinds, or any other headwinds on the horizon, and we will continue to invest our efforts on utilization, offshoring and automation, and see how much of that is offset. The other factors, of course, are furloughs and related impact on revenue, but when factoring in the revenues, I wouldn't separately call those out.

Sandeep Shah, CIMB.

When I look into the guidance for the 3Q, my sense is it's one of weakest 3Q guidance in the last several years, because generally 3Q turns out to be better seasonally for Wipro, despite furloughs, as a whole. And Abid, I think there are several transformational deal wins, which we have spoken about last quarter in the Europe BFSI; this quarter about manufacturing and retail, which you have spoken about. So a lot of things has been changing on the transformational side in terms of the wins. However, our organic growth does not pick up. So what is your post-mortem analysis, because you are also in the system now more than one year? So what is your analysis, when do you believe that this is a bottom and the organic growth will pick up, besides the client-specific issue, which we keep talking about?

So, Sandeep, if you look at our performance in Q2 across verticals, the good news is the growth is very secular on a constant currency basis, although the currency impact across verticals are different, because of the GDP and hence it doesn't become visible in the reported currency. But constant currency, except for manufacturing and technology, every other vertical has had a positive growth momentum. That to me is quite encouraging. And in the manufacturing and technology also we are a little more challenged on the technology side of the portfolio compared to manufacturing. So that gives me positive confidence. But we do continue to live in an environment where a level of surprise does keep hitting us, like there is an uncertainty because of Brexit and its impact. Although we have not seen -- except for the GBP depreciation, we've not seen direct client impact on that. But there is a level of spending slowness that we see, due to that kind of uncertainty. The US elections have limited themselves to certain uncertainties on spend, especially for Wipro, because ENU has been a large portfolio for us. While the oil prices have achieved -- what I would call as a level, where companies are willing to plan and spend. I don't think we'll see that spend before our Q4 and their new calendar year for budgets to become available. And we did see a little bit of an unexpected slump in retail and the overall consumer business for us, which was going quite strong in general. And we can either have good deal wins and consolidation wins. But in Q2, typically, there is a higher spend, because three is normally seasonally free spending in Q3, given that that is their season of highest revenue generation and they don't encourage a lot of IT changes and deployments. But this time we saw headwinds in Q2 itself.

So, those levels of uncertainties do get built in the guidance that we give out, while we continue to execute very well, we have a healthy pipeline, we have a healthy fulfillment rate internally for the skills that are in demand in our customers. So, as long as we see demand, we have very good confidence to be able to fulfill that. But the guidance that we give, as you know, takes into account what we see on the day that we give the guidance. And that does have the reflection of what we can see with certainty.

Just a follow-up on the energy utility. I think in your earlier comments you said that it all depends about the stability of the crude oil. And if you look at, of late, there is no much volatility. So, do you still believe that the bottom has not reached and it will not be still a recovery phase, it would be still a stable to a declining phase?

No. I'm more optimistic than I ever was in the last three or four quarters on our ENU vertical, which also includes the constant currency growth, sequentially, of about 1.3% on our ENU vertical this time. So, as you rightly pointed out, I was a bigger votary of stability in price, rather than a certain -- oil price spend at a certain level, because the stability allows the organizations to plan their spend. And once they plan their spend, we do end up being, in a lot of cases, the choice of the vendor they go with. So, I think that if the prices stay in this range-bound manner of oil and if there are no further uncertainties on political front, or geo front in the oil sector, I think we will see an uptake in terms of services and spend. They have a level of pent-up demand in digital transformation, as I talked about one of the examples, where we've been able to apply HOLMES in some of the upstream oil production space. We have a very strong domain consulting practice, we have a very strong presence in the sector, across the various stakeholders of the sector. So, I think, if we don't see further surprises in terms of their business environment, I would exhibit a level of optimism that I've not exhibited in the past in our ENU vertical.

Nitin Jain, Credit Suisse.

This is Anantha actually. Abid, just if we look at your acquisition strategy over the last couple of years, and has been a lot more aggressive than that of many of your Indian peers. And many of them have actually looked quite interesting and promising as well. But, overall, growth has been so weak compared to the same peers. So what would you -- and I know you all don't break out your revenue growth into organic and via acquisitions, but what would you attribute this weak growth? Has the acquisitions been a positive contributor, or have some of these actually dragged down revenue?

My view about Wipro is that there are three parts to our overall strategy. The part number one is the change and transformation that is happening in the market. The part two is some of the Wipro-specific -- and I won't go into the details, because we've talked about it over the past three, four years, but some of the Wipro-specific challenges and headwinds that we had, which did not allow us to have industry-leading performance in the past few years. And the third is some of the ongoing external uncertainties that show up, which is more across the industry. In some cases, we get impacted a little bit more, like in the oil and gas. In some cases, we get impacted a little less, like in Brexit.

So, the dynamics to answer your question is across all the three. And if you look at the six strategic themes that I've been talking about and we as a management team have been executing on it, addresses all the three quite adequately. It takes care of some of our historical challenges of, whether it's client mining, integrated services, consultative selling, et cetera, which I could call it as a little more Wipro specific. It addresses the change and shift happening in the marketplace, which primarily, you see a track of M&A doing that, because there is already a lot of work at hand for us to do within Wipro in getting to what we would call as a norm that we've, in parallel, pursued a strategy of M&A for going beyond the norm to be future ready. And that you see as part of the acquisitions. And then, obviously, like the entire industry, uncertainties that creep in, we try to address it on a very nimble footed basis and that's also a behavioral change and a culture change that I think we are successfully undergoing as an organization, where we are agile and responsive to market changes and we are able to -- like technology changes, we are able to predict, or if not predict, at least react swiftly to some of those, so that it doesn't have a more than, what I would call, as reasonable impact on either capacity build and hence margins, or capturing demand, as in our ability to sell and have the expertise to fulfill and deliver it.

So, slightly complex answer to this, but the way I look at it is, it's about three moving parts. And to get to industry leading growth and margins, we need to work on all the three together, and I feel very comfortable that as the management team, both our strategy addresses that and our execution is focused on all the three parts.

And just as a follow-up, Abid, would you say that you're satisfied with the way these acquisitions have panned out for you?

Yes, I would say I'm quite satisfied with the acquisitions that we've done. From a business plan perspective, they're on plan. Designit is slightly above plan. We've been able to do more synergy than we had originally planned. HPS has had a little bit of current uncertainty, again, given the US elections. And as you are aware, some of the peers who are our customers, have either decided to, or certain to withdraw from the public exchange domain, which HPS addresses. So this being the enrollment season, Q3, our Q3, which is October, November, December is the open enrollment season and there is a level of uncertainty on that depending on how things pan out and it also has -- the US election has some bearing on that as well. But for that I think the synergy win has been very good. We've been able to penetrate some of our existing customers with its POS offerings. We've been able to integrate some of the other services with HPS. And most importantly, we've been able to build a business model of BPaaS, Business Process as a Service, or Business Process on the Cloud, which we are extending to some of the other service offerings and some of the other IP. And from that perspective, HPS has been a very successful acquisition.

Cellent, which is a local market presence in Germany, has panned out well. We've been able to cross-sell in that, but that -- just by the nature of the geographies, some of the geographies like Continental Europe, or Japan and other state is slightly longer, so the time horizons are longer. So, well, I can talk about Designit, where we were able to more quickly accelerate the synergy benefits. Cellent, again, as per plan, is factored into taking a longer time to be able to deliver all the benefits, but it's on plan, broadly, is what I would say. And Appirio, of course, quite new, but I'm very excited about that as well.

Thank you very much. Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Viswanathan for closing comments. Over to you, sir.

Than 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 the Investor Relations team. Have a nice day.

Thank you very much, members of management. Ladies and gentlemen, on behalf of Wipro Limited that concludes today's conference call. Thank you all for joining us and you may now disconnect your lines.