Wipro Ltd (WIT) 2017 Q4 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, Zay.

A warm welcome to our Q4 FY '17 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 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 the Private Securities Litigation Reform Act 1995.

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

The uncertainties and risk factors are 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.

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

Over to Abid.

Thanks, Aravind.

Good day, ladies and gentlemen.

As always, it is a pleasure to speak to you.

I will begin with the comments on the performance of Q4, and follow that up with our view of the demand scenario in the IT services industry.

And then, and like I always do, I will give you an update on the 6 strategic themes that we have been executing on.

So in Q4, we delivered 1.7% growth in revenues on a constant currency basis.

It has been quite circular and towards the upper end of our guidance, which is 2.7% growth in U.S. dollar terms.

For full year FY '17, we delivered 7% revenue growth in constant currency terms and 4.9% in U.S. dollar terms.

While traditionally, Q1 is soft for Wipro, Q1 in FY '18 has its peculiar set of challenges, due to the uncertainties in the U.S. health care industry, about which I had spoken last time; and the continued structural challenge that we see in the consumer segment, especially in the retail vertical.

We believe that Q1 is not the reflection of the growth potential for the rest of the year, and we anticipate that the growth momentum to return in Q2 and expect to be at industry growth rates by Q4 of FY '18.

Our confidence of the recovery stems from the expectation of HPS to bottom out in Q1; the India business recovering, which is on the path for the execution on the restructuring that we have done, the; BFSI continuing to perform well; and ENU picking up.

You will remember I had indicated that the ENU business would start growing again from Q1 FY '18.

However, we saw growth in Q4 itself, and we expect it to continue in its growth trajectory.

Let me now cover the update on the 6 strategic themes.

Wipro Digital has scaled significantly over the past few years since its inception, and we continue to win deals with downstream engagements that leverage our deep capability across the organization.

For instance, a cleaning solutions and hygiene company has chosen Wipro for its digital transformation agenda, drawing on our full range of digital services that we offer.

First, our Digital Command Center has been chosen as a partner of choice for the support of all 'build and run' digital and IoT initiatives for this customer.

Second, drawing on our systems of engagement of front-end services, Designit will transform and enhance the multichannel customer experience, driving continuous improvement in customer experience across locations.

We are also working with clients on many emerging technologies.

We have won an advisory deal with a large European energy and utilities customer to evaluate their operational readiness for the production rollout of their block chain-based solution.

In FY '17, our digital revenues grew from 17.5% of our total revenues in Q1, when we started reporting it, to 21 -- 22.1% of our total Q4 revenues.

Similarly, our consulting revenues grew from 4.9% in Q1 to 5.6% in Q4.

In line with the growing demand for digital services, we continue to augment our workforce with digital skills.

We have seen great enthusiasm amongst our employs to upskill themselves.

Against our annual plan of training 33,000 people in FY '17, we trained 39,600 employees.

Overall now, we have reached 61,000 technical employees are trained on digital skills.

Let me talk a little bit about client mining.

I'm pleased to note that the number of customers in greater than $75 million, $50 million and $20 million buckets have all increased by 1 each.

The top-10 client bucket has grown 2.9% sequentially, which is above company average.

Clients mining continues to be a key focus of our strategy, our initiatives put together and our integrated services offerings and the delivery experiences delighting our customers.

Our Net Promoter Score has improved by 740 basis points in FY '17 over FY '16.

An Australian broadband network operator has acknowledged Wipro for providing win-win solutions and investing in their long-term success.

On the back of the integrated services offering, we won a deal with an American retailer.

The scope involves application development, QA services and analytics and mainframe across IT and business operations at the client's organization.

In the beginning of the year, I had talked about the launch of the ADROIT program, which is designed for delivery leaders to enable them to do to delivery-led sales and next-generation delivery.

We have completed the training of the 1,000 delivery leaders in FY '17.

Let me talk about nonlinearity in our investments in intellectual property in the form of products, platforms, frameworks and solution.

Wipro HOLMES, our flagship artificial intelligence platform continues to be a differentiator in the marketplace and has been recognized by various analysts.

The clearly defined use cases of Wipro HOLMES enabled us to win a deal with a F1 racing team.

Wipro IP solutions are designed to tackle some of the industry's complex challenges.

Let me talk about one of our IPs this quarter.

It's the digital -- it is the Data Discovery Platform or DDP.

The DDP is an integrated platform capturing and managing data to generate actionable insights through advanced, predictive analytics, offering cost, performance and time benefits to clients.

It accelerates the time to insight for an enterprise using prebuilt industry apps, including advanced visualization, thereby enabling faster decision-making.

In the last quarter, we have onboarded about 5 customers across industry verticals on the Data Discovery Platform.

One of the example is an American medical technology company, which has chosen Wipro as its preferred partner to enable its advanced analytics journey.

Wipro will leverage the DDP to build data lakes and analytical use cases for the client.

At the end of FY '17, we have total 1,662 patent applications, which is over a 50% increase from end of FY '16.

Our hyper-automation journey has been progressing very well, and we continue to scale the deployment of the instances of Wipro HOLMES, our artificial intelligence platform, across clients.

In FY '17, we generated productivity of over 12,000 people across 140 customer engagements in -- by deploying over 1,800 instances of HOLMES bots in IT services across application, business process operations and infrastructure services.

Localization is a theme that we picked up since the launch of our strategy.

And in FY '17, we've seen immense progress in localization in our key markets.

In Q1 FY '18, we expect to have more than 50% of our U.S. operations localized.

We have been significantly investing in U.S. in terms of increased hiring, setting up of delivery centers and focusing on sustainability initiatives, specifically in the area of education.

In U.S., we have further enhanced our capability by adding 2 more multiclient delivery centers.

One is located in Mountain View, California, which is our new hub for next-horizon technology and collaboration, a center for our partners and clients, with a focus on creating highly relevant advanced digital offerings for our U.S. customers.

We've also added another center to our delivery network in Farmington Hills, Michigan to offer engineering services to our customers, particularly in the automotive segment -- in the engineering space, thus, becoming strategic for our customers from a time-to-market perspective.

This center also is predominantly staffed with local talent from the local Michigan or Detroit regional community.

Our partner ecosystem continues to deliver well, and M&A continues to be part -- integral part of our strategy.

We had announced the InfoSERVER acquisition, which we consummated in April.

Appirio has had its full quarter as part of Wipro, and we're incredibly excited about what it brings to us.

We had numerous wins in Appirio, including 14 synergy wins in Wipro customers where we're able to take Appirio offerings.

We completed the divestment of EcoEnergy, and received a sale consideration of $70 million in this quarter.

Wipro Ventures completed 4 minority investments plus a follow-on in the last 12 months.

We are leveraging the capabilities in our invested companies.

We now have 10 commercial engagements across a number of our portfolio companies in various areas of our investment, including securities, customer care automation, business process automation and big data life cycle management.

I had spoken about our Horizon program, which is Wipro's entrepreneurship program.

Our employees continue to be very excited about this program.

And in FY '17, 11 new ideas were approved and funded, and a total of 15 ideas incubated in the areas of artificial intelligence, cybersecurity, digital, Industry 4.0, IoT, and Software-Defined Everything.

We successfully delivered around 40 proof-of-concepts and pilots proactively to our existing customers to drive the innovation agenda for our key clients.

In Q4, we approved 3 new themes in areas such as artificial intelligence, Industry 4.0 and digital.

Overall, I'm confident that we're making the right investments, and we will see the trajectory starting to shift from Q2 onwards.

I will now respect Jatin to speak on the financials.

Thank you, Abid.

Good day, ladies and gentlemen.

As always, it's a pleasure to speak to all of you.

Let me start our view of financial with consolidated Wipro Limited performance.

Gross revenues for the quarter ended March 31, 2017, grew 2.6% Y-o-Y to INR 139.9 billion.

Net income for the quarter was INR 22.6 billion, an increase of 1% year-on-year.

Gross revenue for the year grew 7.4% year-on-year to INR 550.4 billion.

Net income for the year was INR 84.9 billion, a decrease of 4.7% year-on-year.

Now let me go to our IT Services segment.

IT Services revenue for the quarter grew by 1.7% in constant currency, which was towards the upper end of our guidance bank.

The revenues in U.S. dollar terms for the quarter grew 2.7%, due to strengthening of U.S. dollar -- strengthening of cross-currency against U.S. dollar.

IT Services margin for the quarter was at 18.3%, flat as compared to quarter 3. During the quarter, we completed the sale of EcoEnergy division.

Consequently, we recorded gains due to profit on sale of EcoEnergy division in our profit and loss account.

Also during the quarter, uncertainties around the regulatory changes relating to the Affordable Care Act led to a revision in estimates of our revenue and earnings of our acquisition, HealthPlan Services.

This resulted in revision of carrying value of certain liabilities and assets.

The net effect of these 2 events was a 70 basis point favorable to the margins in quarter 4. Barring the effect of these 2 transactions, our margin would've been, therefore, 17.6%.

IT Services revenue for the year grew 7% in constant currency.

Revenues in U.S. dollar terms for the year grew 4.9%, which was a headwind of 210 basis points primarily on account of depreciating pound sterling.

IT Services margin for the year stood at 18%, 220 basis points lower, primarily due to the investments that we made in our acquisitions and the restructuring activity that we undertook in our India and Middle East business.

Let me talk about ForEx and effective tax rate now.

On the ForEx front, our realized rate for IT Services in quarter 4 was INR 68.57 versus the rate of INR 69.35, which was realized in quarter 3. As of year end, we had about $2.5 billion of ForEx derivative contracts as hedges.

The effective tax rate for quarter 4 was 22.9%.

ETR for FY '17 was 22.8% compared to 22.1% in fiscal 2016.

We sustained strong cash generation in the quarter.

Operating cash flow was 113% of net income for the quarter.

For the full year, operating cash flow was 109% of net income as compared to 89% of net income in fiscal 2016.

We grew our operating cash flow year-on-year 17%.

Net cash as at March 31, 2017, was INR 202 billion or $3.1 billion.

Now let me talk about acquisitions and divestitures.

As I mentioned before, we completed the sale of our EcoEnergy business in the -- during the course of the quarter.

We had announced an agreement to acquire InfoSERVER during the course of the quarter.

We have announced the completion of this acquisition in the first half of April.

Shareholder returns.

We will always strive to enhance shareholder value for our investors.

The company's policy has been to provide regular, stable and consistent distribution of returns.

There is no change in our philosophy on shareholder return.

Last quarter, we had announced an interim dividend of INR 2 per equity share for the year 2016/17.

The directors of the company did not recommend any final dividend for the year, but adopted this as a final dividend for the year ended March 31, 2017.

We have announced that the Board of Directors will consider a proposal to buy -- for buyback of equity shares of company around July 2017.

You may remember that we were among the first few to successfully execute a buyback strategy in 2016.

Now let me talk about the outlook for the quarter ending June 30, 2017.

We have guided for a revenue growth in IT Services of minus 2% to 0% sequentially in constant currency.

We expect Q1 margins to be soft due to lower revenues, impact of rupee appreciation, annual salary increase and absence of 70 basis point that I had spoken about earlier, emanating from the 2 events, which ensued in quarter 4. We have not made any compromises in our investments in business as well as talent.

We have said that we will continue our merit salary increase as always from 1st June.

We expect our profitability to improve after quarter 1 as revenue growth picks up and acquisitions become more profitable and our automation initiative builds significantly.

Our endeavor will be to keep our full year margin in a narrow band on a constant currency basis, and we will endeavor to improve our operating margin in every quarter, post quarter 1.

That concludes our remarks, and we'll be happy to take questions from you.

(Operator Instructions) The first question is from the line of Moshe Katri from Wedbush Securities.

Can we get some clarification on organic growth on a constant currency basis?

Sequentially for the quarter, what was that?

And then, if we look at your guidance for the June quarter, what does that include in terms of organic growth assumptions?

Moshe, this is Jatin.

We have not broken down our organic and inorganic growth for quarter 4. And in quarter 1, we will have a [small stream] on account of InfoSERVER acquisition that we have concluded.

But we have shared the size of this acquisition in past when we completed this acquisition.

And therefore, the impact on this would be quite small.

So the performance of quarter 1 would be almost entirely organic.

How about if we factor in Appirio?

Appirio, as you -- as we have mentioned before, got -- concluded it from 23rd of November.

So we have seen the full consolidation of that acquisition in quarter 4. And hence, there is no incremental consolidation of that in quarter 1.

And then just a final question.

You mentioned narrow margin -- narrow range for margin during fiscal year 2018.

Can you quantify that for us?

No, we have not quantified that, Moshe.

We wanted to give a directional sense on the margin.

The next question is from the line of Sandeep Shah from CIMB.

Yes, just the first question is in terms of the margins, Jatin.

If we look at, on a recurring basis, the margin is 17.6%, which is a decline of 70 bps on a Q-on-Q basis.

This is -- I do agree there is a currency -- on a realized basis, there is appreciation, but that was restricted at 1% versus the other peers had it close to 2%.

You had a tailwind coming through fixed price.

You had a tailwind coming through higher utilization.

You had a tailwind coming through offshore pricing.

So what has led to this 70 bps margin decline?

So is it still a pricing pressure being a big culprit for this margin decline?

And how do we see that going forward in terms of a pricing pressure?

So Sandeep, there were -- operationally, there were puts and takes.

And certainly, you have seen that in our global business, we have driven operating parameters, which has provided a tailwind.

But we have spoken about that we will continue -- our restructuring of India, Middle East will be complete only at the end of quarter 1. Second, in some form, there is an additional dilution, which has flown in on account of full quarter integration of Appirio, which has had its impact on the margins.

So I would think that effectively, we had an offset between the 70 basis point upside we got on onetime transactions, which occurred in quarter 4, and the additional dilution that took place, give-and-take some basis points.

Okay.

Okay.

And just coming to some client-specific issues, which we had in communication [as well] in the BFSI, especially with some euro-based clients.

Those are largely over?

Even the communication as a vertical, you can believe that the growth has bottomed out and it can now start growing, the challenges have bottomed out?

So Sandeep, in BFSI, some of the softness that we were seeing in certain customers, I think we've been able to overcome that, as you see from trend.

And we feel quite positive about it.

Our digital offerings in BFSI customers are being accepted well.

In telecom, we have had some completion of transformational engagements that we were doing for -- across 3 CSPs, Communication Service Providers.

And we do expect the softness in Communications to continue as we ramp up new deals, which is taking relatively longer right now.

Okay.

Okay.

And just last thing.

In terms of the deal pipeline, how does the bookings looks like in this quarter versus last quarter?

Is there any change whether the decision-making has further slowed down or it has picked up going forward?

And that gives you confidence to say that 2Q onwards, you will be back to the growth path?

Or what gives you confidence to say that?

So you know some of the investments that we have made as part of our strategy in specific areas of digital transformation, consulting, domain-based IP, hyper-automation, based on these investments, we see good traction with our customers and certain engagements that we are ramping up that we've won, some of I've mentioned in my opening remarks as well, gives us a good sense of the traction we are seeing in the market.

And overall, I think from a Wipro perspective, we believe that we are on the receiving end of some of the opportunities that come up in our customers in both client mining and digital transformation.

And that feels -- makes us feel quite good.

Obviously, there is a certain level of overall uncertainty, as you know, at an overall industry level.

And we carefully continue to monitor that.

Next question is from the line of Pankaj Kapoor from JM Financial.

Couple of clarifications.

First, Jatin, you mentioned you expect margins to be in a narrow band on constant currency basis.

So should I presume you are referring to the current spot rate, or the FY '17 exit spot rate, and the margins will be constant on that basis.

Yes, so our reference for that is really the base -- the period over which the previous year's margin were delivered, which is fiscal '16/'17.

Okay.

So on a spot rate basis there could be some headwinds coming into the reported numbers.

That is right.

Yes.

Okay.

And second, did Abid mention the Appirio contribution in this quarter was about $70 million?

Was that the number?

I talked about specific -- the number of engagements that we have been able to win in Wipro customers from the Appirio acquisition that we did.

So this was the number of engagements -- synergy engagements.

I talked about 14 synergy wins that we had.

And then I talked about $70 million coming from EcoEnergy.

I'm not sure which exactly that you're referring to.

Okay.

Maybe I heard it wrong.

And on the outlook front, Abid, of course, you expect the revenues to start accelerating from the second quarter onwards.

And you expect to exit the year with industry-leading or matching growth.

But that obviously will require a significant acceleration over the next 2, 3 quarters.

So I'm just trying to understand that you -- this is more of a hope in terms of recovery in some of -- a challenged vertical, which is giving you this confidence?

Or do you actually see some deals in pipeline or some deals, which are already won, which probably, as they ramp up, can give us this kind of growth?

If you can give some color, if quantitatively on the -- either on the order book or in terms of pipeline, that would be helpful.

Sure.

So if you look at of our overall portfolio, there are parts of our portfolio, which had headwinds through the past year and some very Wipro-specific issues.

We've talked about the India and Middle East business and the restructuring that we undertook.

Our restructuring has been executed per plan, and we think we'll be done by end of Q1, providing positive momentum in Q2 and beyond.

Similarly, I talked about ENU vertical bottoming out by Q4 and growth starting in Q1.

But as you will notice, we've executed on that a quarter in advance, and growth has returned to ENU in Q4 itself, which will further accelerate based on what we have seen today with those customers.

As you know, we have a significant market share in that space.

Similarly, some of the engagements that we have started in the BFSI and the Manufacturing and Technology space will ramp up in Q1.

And we'll started -- start seeing some contribution from them in Q2 and beyond.

So overall, if I look at the portfolio, I think as you see in Q4, across the board, we've seen some good deal execution.

And we think that as we execute on some of the Wipro-specific headwinds that we've historically had, we should be done by end of Q1, so that growth returns in Q2 and beyond.

The next question is from the line of Ankur Rudra from CLSA.

First question, Abid.

You mentioned that HPS, you expect it to bottom out in 1Q.

Just some color in terms of what gives you confidence that all of the cancellations will just end in first quarter?

Is this contractually that you have visibility on?

Or is it other customers that ramp up after this?

So Ankur, if you look at the HPS business, there are 2 distinct part of the business.

One part is, the annuity piece or the ongoing customer service contract that we have.

And the second part is, when we acquired -- if you remember, we had 3 synergy deals for new customers onboarding on that platform.

So we see -- so we saw in the first couple of quarters after our acquisition, we saw a revenue spike coming from the execution of those projects of onboarding the customers.

And around the U.S. election results, we saw -- started seeing cancellation of those projects because it became very apparent that the primary regulation around which that business is based is going to get repealed and replaced.

So the ramp down of those engagements will complete by Q1, which means we will bottom out on our project revenue in Q1.

The foundational base revenue of continuing to maintain the service increase of the individuals who bought the insurance on the exchanges during open enrollment of November, December for the calendar year FY '17, we will continue to do, and we get paid on a price-per-member basis, which will continue.

So from that perspective, we believe that we will bottom out in Q1.

There will be clarity in -- by the end of Q1 or early Q2, because the next open enrollment season starts in November.

And as we read the situation right now, once there is clarity on what is the replace going to be, a number of payers will need a platform to be able to align their offerings and their services on -- in this space.

Since we have a significant market share and since we have deep domain expertise, we believe that post that, we will be able to capture a significant market share of new payer onboarding as there is clarity from the regulation.

But right now, we don't know the time line for that, but we do know that we have bottomed out on the project cancellations, and the foundational servicing business will remain stable till end of the year.

And just on your second point, you alluded to the target of returning to industry levels of growth by fourth quarter.

Could you perhaps clarify: a, are you referring to growth on a sequential basis or on a year-on-year basis that we can measure in March '18?

And b, when you say industry levels of growth, approximately what range are we looking at?

Can you repeat your questions, sorry?

Sure.

So the first part of the question is, when you say you want to return to industry levels of growth by the fourth quarter, should we expect this to happen on a year-over-year basis when we look at March to '18 or on a sequential basis, a. And b, what are the sort of range of numbers you're benchmarking yourself against?

So the way I would answer this question is that by Q4, we think that our Q-on-Q growth from Q4 to Q1 will become in line with the industry.

And if you look at the overall growth numbers that -- although we don't guide, they consist of 2 components: One component is company-specific component for any company; and then the market component, the external environment.

We don't know about the external environment, but from a Wipro perspective, the company-specific challenges and the restructuring and the transformation that we had, we have been executing well over the past 4 quarters, and we believe during the next 3 or 4 quarters, some of that execution will reach a logical point.

So that then our growth will be in line with what the external environment provides for.

The next question is from the line of Dipesh Mehta from SBICAP Securities.

Can you help us understand about industry-wise trend and geography-wise trend, how you see and how it is likely to play out?

Some of the vertical you already alluded, but if you can provide broad-based commentary.

So I'll go industry by industry.

And I have a few of my colleagues over here, so I will have them pitch in.

But I feel quite good about Banking and Financing Services.

Shaji's on the call, and he can give a little more color.

I feel better about our Manufacturing and Technology business.

As I said, ENU has bottomed out.

We have had some good deal wins, and we see that returning back to growth, which has been the growth first time in about past 10 quarters for us.

In consumer, there is a structural issue in the retail vertical, which I think that industry is seeing.

We think that our digital offering in that space is getting good traction, but it'll still continue to have headwinds, given the state of the retail business.

Although, in some of the new-age companies, we are seeing some traction, but it is relatively very small compared to the large core, which still is in the brick-and-mortar space for us.

We do see headwinds in the Healthcare and Life Sciences business, both on the health care side as well as life sciences side.

And we see softness in communication, because some of our large turnkey engagements have got over and ramped down and some decision-making on some of the deals, which we are currently bidding for, is taking longer.

So that is kind of the broad summary.

And then I'll ask Shaji to throw some light on BFSI.

Thanks, Abid.

This is Shaji.

We're seeing pretty circular trends overall in the financial services industry.

If I look medium to long term, things look good, particularly as the Change spend kicks in.

There is continued downward pressure on our Run spend.

And as the shift happens, one should expect a little bit of volatility.

That might create a little bit of choppiness.

But from a circular medium- to long-term perspective, I feel that this industry, as is reflected in the strength of most of the financial services firms out there, should actually pick up.

And we'll continue to see traction in areas.

We are seeing traction as a shift of the Change spend into digital, which is an area of strength for us.

And we're also seeing a lot of interest in our offerings around automation, robotics and artificial intelligence, which is our HOLMES platform.

BFSI, as you know, is our largest vertical and MNT, or Manufacturing and Technology, the second largest.

I'll have Bala give some color on the MNT segment.

Thanks, Abid.

This is Bala.

I head the Manufacturing and the Technology business.

We've seen good recovery in the discretionary spend in parts of our business, which gives us good confidence that we will see a recovery in the business.

We've had some challenges in the technology sector over the past year, but we see some good recovery in that part of the business.

The areas of growth are basically around cloud transformation, where we see customers wanting to move their workloads to the cloud and variabilize their cost model.

We also see good pick up in the digital conversations we're having with our customers.

Particularly in areas like aftermarket service transformation, we are seeing a lot of conversations around that, and we've been able to invest in platforms that are able to give us the momentum to pick up that business.

We are also seeing reasonable recovery in the technology part of the spend, where we're seeing customers going back and looking at creating a more of a standardized ecosystem.

And therefore, we are seeing that their ability to spend in the discretionary parts of the business again picked up, and we're well poised for that.

So overall, I would say that we are quite confident about what we see going ahead.

There could be some [more] specific challenges, because of [movement] and specific accounts.

But overall from a market environment, it looks slightly better than it what it has been in the past.

Thank you, Abid

So just on BSFI, what subsegment is driving spend, or where we are more incrementally positive?

If you can provide color?

Could you repeat the question, please?

This is Shaji.

In BSFI, which subsegments we are more positive than others?

If you can provide some color, subsegment wise?

Yes.

I mean, overall, if you look at banking, capital markets, I think there -- definitely, that they are the ones that are trending -- clearly trending positive.

You'll always find exceptions here and there that are specific to certain client challenges.

Insurance, again, it's a mixed bag.

Some areas are growing and some are not.

I think the most relevant thing to note is the whole shift from reducing Run, and Run spend and moving into Change, and the entire Change portfolio gradually shifting over to digital and digital ways of working, which I think is the most important thing to note about this sector, right?

And different clients are in different cycles, stages of the cycle.

And consequently, you will see some level of variability within how our clients reacts.

But overall, I would say banking and capital market sectors, you're beginning to see a circular trend that is moving in this direction.

The next question is from the line of Mukul Garg from Haitong Securities.

First just a question to Jatin.

Jatin, what levers do you think you have in FY '18 to stabilize margins?

You're exiting that year with 17.6% debit margin, which has again declined because of the acquisition.

And then first quarter and second quarter, you will have impact, which will come in from wage hikes.

And then the growth is a still a little bit weak.

So if you can highlight some of the levers which you have, which you can utilize?

And second, you know if you can give an idea of what the wage hike going to be for FY '18?

Yes, Mukul, so happy to answer that.

So there are 2 types of levers that one is focused on: One is the structural levers, and second is the operational levers.

Structural levers, we have already spoken about in my opening remarks, which is making -- as we realize more synergy benefit from our acquisition, both on revenue and cost side, they become more and more profitable and less dilutive at the company level that's one.

And two is, India and Middle East will complete its restructuring effort and come back with growth and expansion in margins from quarter 2 onwards.

So these are some structural levers.

I'll request Bhanu, who's our Chief Operating Officer, to talk about the levers that he's focusing on overall IT business to expand -- to improve the cost structure and expand that.

On the operational level, we talked to you about one of the big levers that we have, and we have started to utilize that lever well.

This is focused around our HOLMES hyper-automation platform.

And utilizing that, if you look at the last year, we generated about close to 12,000 people's worth of work across the delivery organization.

And as we look more and more into deploying HOLMES significantly into our delivery organization, we do see opportunities for looking at further optimization of our work.

The second lever that we want to look at is, we have engaged with our cloud-sourcing platform within Wipro, the platform that we got as part of Appirio, Topcoder.

We have leveraged the same platform within Wipro as well.

We call it the Topcoder for Wipro, Top Gear.

And utilizing that platform, we're able to get higher value from Wipro associates for executing our programs.

The third lever I want to look at is in terms of executing the large programs [integral].

There's a significant amount of best practices that are generated across running various programs in various geographies.

And looking at those levers, we are trying to improve the operational execution for some of the programs that we have running right now.

So 3 broad levers: hyper-automation, cloud-sourcing capabilities and operational excellence in terms of our delivery.

Got it.

And any idea which Saurabh could provide on, on the wage hikes during the quarter?

Saurabh here.

The wage hikes for us will be effective 1st of June for 1 month, in line with what we are doing with the industry, single-digit growth.

Got it.

And then final, one for Abid.

Abid, can you provide any idea in terms of the first quarter growth, if we take out the issues, which are happening at HPS.

So any idea about other areas from a quarterly point of view?

You also have commented about optimism and hope in the banking vertical.

So are you sharing the same hope that this is going to improve from next quarter onwards?

Or are there any other issues as well, except for the one which you highlighted?

So the first quarter, the growth is primarily impacted by 2 major units: One is the HLS and the second is the Communications unit.

Rest of the others, while it doesn't become evident from the guidance, which is at the net level.

But other 4 verticals are delivering positive growth in Q1, which will kind of continue for the rest of the year.

The next question is from the line of Ankit Pande from Quant Capital.

My question is -- you just mentioned that the first quarter softness is coming from health care and communication.

I think on the press conference you...

Ankit, we are unable to hear you.

Can you pick up phone or...

I'm sorry.

Is it better now?

Yes, please.

My question was that in the press conference, you actually referred to the retail segment, seeing some softness in Q1.

Could you highlight that?

And my second question would be in the next year, again drilling down on margins, so sorry for belaboring that.

But in the next year, if I look at your margin levers, again, the way you say it that in the constant currency terms you may expect it to be in the range.

But would you expect it to be in a range, given the impact of Appirio, of HPS, will these -- excluding these, will you be in the range?

So Ankit, we -- I will answer both questions.

I think our guidance factors in all the headwinds and tailwinds that in fact that we have shared.

And Abid has given his view on individual business units.

And beyond that, it's difficult to break down what specific business unit will do what.

So I would much rather stay at the overall guidance that we have shared for quarter 1. Now again on -- and very similarly, while we don't guide formally for -- on the margin, we have shared our current endeavor would be that we will remain in a narrow band of FY '17 margins in -- as we improve margins from next quarter, which is quarter 2. And that's a broad directional sense that we're giving.

We have called out currency because currency remains sort of a joker in the pack, it has been hugely volatile in last 40 days.

And before that, it was also quite volatile.

And we are also seeing some new volatility emerging in Europe as we speak.

So that's the reason we have called it out, to give a view of what is our operational focus would be.

So Ankit, we are -- it would be difficult for me to share including, excluding a certain acquisition or entities.

Okay.

And just if you could comment also on the softness in retail?

Yes.

So softness in retail is more structural, and we saw it last quarter, we saw it this quarter and we'll see it next quarter.

The specific 2 vertical that I talked about, the HLS and Communications, are creating the growth in -- from Q4 to Q1.

So softness in retail is more an ongoing phenomena that we see, whereas HLS and Communications have, as I mentioned, project cancellations or turnkey engagements getting logically over, and that is creating a dip in one particular quarter for us.

The next question is from the line of Sandip Agarwal from Edelweiss.

Just a couple of things, Abid.

I agree from the industry vertical side that you and other things have kind of bottomed out, and that gives us a big advantage.

And that will be a big -- we'll be big beneficiary out of that.

But my -- I want to just be able understand that, one, is it going to be only because of bottoming out, or you see some kind of circular uptrend in spend?

That is question number one.

And question number two, are we behind the damage in the legacy business, which has been happening for the industry and everyone?

And third, are you seeing some kind of structural change in the digital deals and sizes and participations?

So that you know it gives us some comfort that we will get lot of compensation from there for the destruction in the legacy site.

On the digital, if you look at it, we've been reporting our digital percentage of revenues as a ratio of our total revenues.

And you see that in FY '17, we bulked up from about 17.9% to 22.1%, where we see good traction in deals.

We do see a certain increase in average deal sizes, and we are getting more and more opportunities to become the digital partner of certain clients, which helps us play in a larger space in the digital transformation of our customers.

I think overall, for the second part of your question, there was certain Wipro-specific issues that we've had.

And we've worked on it over the last 3 or 4 quarters.

And we see some green shoots in that.

So that is the reason for our optimism.

Although, there are a lot of industry uncertainties, so I wouldn't call it an extremely positive commentary.

But we need to continuously watch the uncertainty in the environment around the sociopolitical, around the regulation around the mobility piece.

And that is why, I would say that some company-specific issues, we are better off than we were earlier.

The overall environment continues to remain the same.

And from a strategic investment that we have made, we do see some good traction with our clients.

The next question is from the line of Moshe Katri from Wedbush.

Just another point for clarification.

One, did you include the proceeds from the sale in operating income rather than below the line?

And then is there a way to kind of quantify the dilutive impact from Appirio on margins during the quarter and maybe for the fiscal year?

Moshe, can you just repeat your question?

I missed the second half.

Yes, the second half was can you quantify the impact in terms of margin dilution from Appirio for the quarter and for the fiscal year, for fiscal year 2018?

Yes.

So I will -- so your first question was whether the sale of proceeds of the EcoEnergy business and the resultant gain, whether the again has been included in the operating profit line.

And the answer to that is yes.

And your second question was the dilution, which came through on account of Appirio for the quarter 4. That would be approximately 40 basis points that we accounted in quarter 4.

So just as a follow-up, if we take out the gain from proceeds from your operating income, the margin degradation sequentially would've been, I would say, significant than reported, right?

So Moshe, we have spoken about 2 events, which took place during the course of the quarter.

The one was, the onetime gain on sale of EcoEnergy business, which is part of operating income line.

We also talked about the impact of the certain changes in accounting that we did for the intangibles that we had for the HPS business.

And that -- net effect of that was 70 basis points at an operating margin level for quarter 4, which will not recur in quarter 1.

Okay.

Is there any way to quantify the actual impacts that you're seeing in terms of cannibalization in your legacy business, especially given the structural headwinds that we are seeing?

And obviously, I think you're doing whatever you can do in terms of client mining and getting new business on board.

And -- but on the other hand, clearly that's not offsetting the deflation that you're seeing in the legacy business.

Any color on that will be really helpful to kind of understand where we are in that process of kind of migrating away from legacy and going towards digital.

So Moshe, I'm afraid that we have not broken that down.

But you're right, the impact on legacy business continues to be quite a bit in terms of the pricing pressure.

And we are mitigating that to a good extent by the automation initiatives and other cost drivers.

We also get premium for the new services that we sell, which is digital and cloud and some of the newer service lines, which are in vogue and client is ready to pay right premium for that.

As we speak, the balance for FY '16/'17 was more tilted towards legacy reduction in pricing vis-à-vis the overall uptake of new services.

But we remain optimistic that some of the work that we have done, acquisition investments that we have made, will overall make a balanced play and enhance the overall scenario.

But we have to be cognizant that in short term, the pressure on legacy business is real, and we should -- we will continue to do as Bhanu indicated before, everything to reduce its impact.

But it is there, and that is reflected in our margins.

Ladies and gentleman, that was the last question.

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

Over to you.

Thank you all for joining the call.

In case we could not take any questions due to time constants, please feel free to reach out to the Investor Relations team.

Have a nice day.

Thank you very much.

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.

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