Wipro Ltd (WIT) 2018 Q1 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, Zed.

A warm welcome to our Q1 FY '18 earnings call.

We will begin the call with 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 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 detail in our 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 made available on our website.

Let me now welcome Abid to make his opening address.

Thank you, Aravind.

Ladies and gentlemen, thank you for joining the call.

This is a special quarter for us because we launched our new brand identity.

We thought as part our transformation journey it was imminent that we come up with a new brand identity, and it has been very well received both by our clients as well as our employees.

Let me now talk about the Q1 performance.

We delivered revenues above the upper end of our guidance range, quarter-on-quarter 0.9% in reported currency and 0.3% in constant currency.

As indicated in April, we are seeing strong traction in the Banking and Financial Services segment.

ENU, as we had said a couple of quarters back, is on -- back toward on the growth path from Q1.

And the BFSI segment, I mean across-the-board we are seeing very good traction in digital.

India recovery, while I talked about taking until Q2, we are seeing some very good early signs, and I am very comfortable with the restructuring of the India business and the uptick in both revenue as well as margins in that part of the business.

On the back of a good quarter of operational execution, we expect the momentum to continue.

While our core business continues to improve, the regulatory uncertainty remains in our HLS business, which has seen some headwinds, and that uncertainty we have built into our guidance.

We continue to build momentum towards getting to industry-level growth by Q4 this year.

A quick update on the 6 strategic themes that I have been talking about since the last 5 quarters.

Digital Q1 revenues now constitute about 22.5% of our overall revenues and about 3% growth sequentially.

It was a strong consulting quarter, with about 3.7% sequential growth.

We continue to do some path-breaking engagements and win market share in the market.

For instance, the Latin American entity of one of the largest U.S. banks has chosen Wipro for their strategic partnership to significantly change and transform how bank delivers new products and services and integrates with its ecosystem of partners.

Wipro will set up and run an API and microservices factory as part of the digital center of excellence for their digital transformation journey.

We will set up multiple agile teams, bringing the 2-speed delivery model and do all this work in an outcome or output-based model for the bank.

We continue to work with new age companies.

In India, we enabled the rollout of Paytm, a digital payments platform for the bank.

In Q1, we've trained about 15,000 additional employees on digital skill, taking the total number of reskilled employees in Wipro to over 75,000 now.

This has been a good quarter building on the momentum of last quarter on client mining.

The top 10 account growth has accelerated from about 2.9% quarter-on-quarter in Q4 to about 4.4% in Q1.

We've also added 2 customers in the greater than $50 million annualized revenue bracket this quarter.

Again, our teams continue to be able to position integrated services to our clients and cross sell and upsell other service clients in accounts where we have presence in a particular service line.

An example from this quarter is a major U.S. bank where Wipro won an integrated deal to implement KYC solutions across all the LOBs of the bank.

The deal encompasses application development, maintenance, domain support for the KYC implementation, processes, policies, IT systems, data management, reporting and analytics.

This used to be an IT infrastructure services customer for us, and we've been able to enter -- cross sell and upsell domain and platform-based services in an integrated services model.

This includes our IP, which is Wipro HOLMES, and this entire solution is -- embeds Wipro HOLMES as a key differentiator.

Talking about nonlinearity, during the quarter we filed 47 additional patents, taking our total patents to about 1,730.

Another example of nonlinear growth is for a large food dairy and bakery products company.

Leveraging our integrated trade promotion management system, we are going to be able to digitize the trade promotion and its management through Promax, which is a Wipro IP.

A unique end-to-end solution leveraging Promax and the integrated services is a clear differentiator, which enabled us to win this deal with this customer in the consumer industry.

As part our IP portfolio, we are investing to create derivative IP for technology partners.

So historically, we have been doing as part of our product engineering services practice sustaining services with a large number of technology companies.

We have innovated on the business model where now we are able to create derivative IP for these companies.

And we have the right to sell the derivative IP with a larger upside to Wipro.

The business model also includes shift on a higher gain-share based revenues for Wipro, where we get a percentage of the revenues coming in from the sale of this IP or product for the -- for our client.

On automation, we continue to deploy HOLMES and various automation tools across our clients.

We have now deployed over 2,000 instances of HOLMES bots across 175 customers, bringing significant improvement in efficiency of operation but more importantly customer experience.

As this program is maturing, from this year we are starting to measure L2 activities.

So if you recollect last year, we had been able to deliver productivity equivalent to about 12,000 FTs, primarily on L1 activities.

And now as the technology matures and as we move up the pyramid, this year we are measuring L2 productivity being delivered.

I'm happy to report that this quarter we have delivered a productivity of about 2,100 people, who have been redeployed from the L2 bucket.

A case in point for a European customer, where we manage end-to-end IT operations, covering close to 2.7 million tasks per month.

By deploying HOLMES and integrating it with the customer's ITSM platform, we have been able to provide 50% auto resolution of tickets and 42% auto resolution of service requests.

So the ticket resolution typically is an L1 activity and that we were able to do.

But auto services -- auto resolution of service requests is an L2 activity, and that is where artificial intelligence and cognitive technologies and analytics are leveraged better to be able to drive productivity at the next level.

And we've been able to successfully deliver these kind of outcomes across our client base.

As we had announced during the quarter, we have passed in terms of localization the 50% mark in our largest market with local employees.

And we have over 1,000 employees now in 4 states in the U.S, across Florida, California, Georgia and Texas.

And we continue to establish delivery centers across U.S., localizing our U.S. workforce more and more.

We are also this quarter announcing the Digital Innovation Center in Mountain View, California, that we are going to inaugurate, which will be the first Innovation Center outside of Bangalore for Wipro.

In Mexico, we added capacity in Guadalajara for another 7,000 people.

Our Latin American operations are over 98%, 99% local.

And we continue to localize in other key markets like U.K., Singapore, Saudi Arabia, which will be bigger.

We are also replicating the various community activities across the markets where we are localizing, including university relationships.

And we also are investing in building STEM capabilities, especially within the U.S., through teacher development programs, which we have very successfully done in other parts of the world.

And we are engaging with some key public schooling districts and universities to be able to promote the creation of STEM talent that we will be a big consumer of, especially in the U.S.

An update on the ecosystem.

Appirio continues to excite us quite a lot.

In Q1 alone, we won 25 synergistic deals in cloud applications and implementations.

As announced previously, the InfoSERVER acquisition was consummated in April, augmenting our capability in the BFSI segment in Latin America.

During this fiscal, Wipro Ventures closed an investment in Tricentis, an established leader in test automation segment, taking our total number of investments to 12 and total dollar investment commitment of over $34 million.

We are leveraging our investee companies well.

Wipro cybersecurity solutions are integrated threat management solution where we have a leadership position in the market.

It is a cognitive-based offering which helps organizations take full control of security incident detection and response life cycle and leverages the technology capabilities of Demisto, Vectra and IntSights, all 3 of which are Wipro Ventures investments.

And we've been able to integrate the 3, bring them together, embed them in our platform and deliver the platform service to our customers.

During the quarter, we have seen 7 joint customer wins, which these venture capital investment -- investee companies.

I have previously spoken about the Horizon program, which is the Wipro's entrepreneurship program.

In Q1 we've approved another 2 teams in the areas of connected vehicle and digital insurance platforms, now taking the currently ongoing investments to 13, which have been incubated through this program.

We continue to gain recognitions in industry analysts and advisers.

Wipro is in leadership quadrant in 62 services to date, spanning across digital, automation, cloud, engineering, R&D, Big Data analytics, BPM, B2C mobility testing, Oracle and other domain and technology areas.

Overall, I continue to be very confident that we are executing well on our strategy, and our investments are delivering the right results.

And I've seen a trajectory shift within the current financial year.

I will now request Jatin to speak on the financials.

Thank you, Abid.

Good day, ladies and gentlemen.

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

Let me start with consolidated Wipro Limited results.

Gross revenues for quarter ended June 30, 2017, grew 0.2% year-on-year to INR 136.3 billion.

Net income for the quarter was INR 20.8 billion, an increase of 1.2% year-on-year.

For IT Services segment, IT Services revenue for quarter grew by 0.3% in constant currency.

Revenues in U.S. dollar terms for the quarter grew 0.9% due to strengthening of cross currencies.

We saw an all-round growth except for healthcare, which was impacted by what is happening in U.S. and communications, where we saw some softness due to project closures.

While we see growth momentum overall continuing, these 2 sectors are likely to remain in an uncertain zone.

IT Services margin for the quarter was at 16.8%, which was 150 basis points lower than quarter 4 margins.

While the net impact of the one-time benefit that we had of 70 basis points in quarter 4, our impact of ForEx was 130 basis points for quarter 1. This was an adverse impact.

Q1 was also impacted by lower utilization and higher cost of incremental salaries for 1 month.

These headwinds were partially mitigated by improved profitability in India and Middle East business and better business efficiencies.

ForEx and effective tax rate is the next topic I want to talk about.

On ForEx front, our realized rate for IT Services in Q1 was INR 66.06, as against INR 68.57 for $1 for quarter 4. The 68.57 was for quarter 4. The variance cost us 130 basis point impact on margin, as I mentioned earlier.

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

The effective tax rate for quarter 1 was at 22.4%.

Now let me talk about cash flows.

For the quarter, we generated robust operating cash flow of INR 29.6 billion, which was 142% of net income and free cash flow of INR 22.7 billion, which was 110% of net income.

The cash flow includes $46 million of investments made in opportunities to create derivative IP that Abid spoke about.

This investment is part of committed $90 million.

Net cash as at the end of the quarter was $3.5 million.

Let me talk about shareholder returns.

During quarter 1, we completed the bonus issue that we had announced in April.

Board of Directors have approved a buyback proposal for the purchase by the company of up to 343.75 million shares from the shareholders of the company on a proportionate basis by way of a tender offer at a price of INR 320 per equity share, aggregating to INR 110,000 million, which is INR 11,000 crores.

The price is 24% premium over the preceding 60-day volume-weighted average market price of NSC.

We look at shareholder returns through a combination of dividend and buyback.

At a philosophy level, we intend to remain our payout ratios over a block of years.

The buyback process involves obtaining shareholder and regulatory approvals and may take until November to complete the process.

For the quarter ending September 30, we have guided for a revenue growth in IT Services of negative 0.5% to positive 1.5% sequentially in constant currency.

In quarter 2, our margins will be impacted by salary increases for additional 2 months.

We will endeavor to offset the impact with operational efficiencies.

For the full year, our focus is to build revenue momentum that will further enhance our ability to maintain and improve margins.

Our endeavor will be to keep full year margins in a narrow band of FY '17 margins on a constant currency basis.

We'll be happy to take questions from here.

Operator, you may open the line now.

(Operator Instructions) The first question is from the line of Ankur Rudra from CLSA.

Just one question from my side.

Abid, you've said last quarter and you repeated this time that you want to end the year with growth rates matching the industry.

Could you clarify, do you want this to basically imply that on the fourth quarter exit rate basis you will be at industry growth rates?

And should we assume then, from FY '19 basis, we can peg you with industry growth rates?

That is the endeavor, Ankur.

We see a robust deal flow.

We see some of the transformational efforts delivering results in -- on the expected lines.

And we also see being successfully addressing some of the Wipro specific challenges that we had.

So unless we get into a situation where new uncertainties show up, I feel quite confident on exiting at industry-level growth rates in Q4.

This would make in any kind of recovery from HPS that we currently see?

We've effected -- and of course, we don't give guidance beyond 1 quarter.

But for at least this quarter, we have baked in any potential uncertainties that we see in the HPS.

The next question is from the line of Viju George, from JPMorgan.

Just one question on automation.

I think you've sort of said that in addition to L1 you're also displacing people from L2 as well.

And I think you gave a number of 2,100, if I caught you right.

What's the impact on margins you're seeing on this?

Because it doesn't seem to be reflected at the overall margin profile of the company.

So my question really is that do you end up surrendering those benefits -- these benefits substantially declined?

Or it just gets lost in some of the other moving parts that impact margins?

Good question, Viju.

So number one, as you rightly pointed out, when we are able to deliver productivity through L2 resources, leveraging more of artificial intelligence, machine learning and machine reasoning technologies, the savings expected are higher simply because this is the higher rung in the pyramid, which means they are more senior people.

One of the things that we are learning as we have changed this metric and have matured in this is the redeployment of those people takes longer because the skills that they get released from are obviously automatable skills.

So they don't get redeployed with their same skills.

So we need to reskill them.

And unlike the reskilling that we did for the lower end of the pyramid, which were relatively shorter reskilling cycles and then redeployment, these more senior people need to learn more complex technologies for a longer time to be effectively redeployed in new engagements.

And that will also -- you would have noticed a utilization impact because of that.

So in the near term, yes, you won't see that those margins flowing in.

But in the long term, we believe that it provides us both a differentiating capability in terms of going to market as well as better ability to deliver from a cost structure perspective.

So on L1 have you been able to see those margins at a broader level as desired, Abid?

Yes.

Okay.

And the second question that I had was on buyback.

I think you've said that it will take till November to probably conclude the entire process.

Just to understand, is this time frame because you're area listed and they also need to participate.

So is the process a little elongated because of that factor?

No, Viju.

The only difference from last year because last year also we went through a buyback process.

The only difference is that because the same -- the buyback size is greater than 10% we will have to go through the postal ballot, which is approximately a month-long process.

So that's the only differentiation vis-a-vis last year.

There is no other change.

Okay.

The fact that you're area listed does not complicate things at all?

There is no difference.

It was last year too, and we will work through the process this year too.

The next question is from the line of Diviya Nagarajan from UBS.

My question -- 2 questions for you, Abid.

One, could you run us through the relative strength that you've been seeing in the Banking Financial Services Insurance base the last couple of quarters in terms of what are the markets and subsegments that you're seeing this growth come from.

That's question number 1. And number 2, I think you talked about getting to industry-level growth rates from an exit perspective by 4Q.

What are the key assumptions in terms of factors and segments that you will expect to return to growth by then?

So I will answer your second question first, and we have Shaji on the call, Shaji Farooq, who is the President of our business.

And after I answer your second question, he'll answer your first question, Diviya.

So as I said, the 6 themes that I've been talking about a couple of them relate directly to our ability to create a pipeline and growth; one of them is client mining, which we have identified as an issue.

And if you've seen the trend over the past few quarters, I talked about customer satisfaction improvement in our top clients -- top 100 clients.

We have seen more than company average growth in those clients.

Again in this quarter, I talked about moving customer in revenue bands.

So that is one lever of confidence that we get in terms of the successful execution of the strategy that we have embarked on.

Second is our traction on digital and consulting, which is a key transformational lever in terms of how the deal flow is changing our pipeline on that.

Although we don't publish the pipeline, our win rates on that and our execution on those deals have been very encouraging.

And that also gives us the confidence that as the industry is transforming our ability to capture market share in that space is superior, and hence it adds to our confidence.

For your first question, Shaji if you can take it over.

Yes, Diviya.

Yes, overall to your question about where the growth is coming from.

It's fairly broad based.

Definitely seeing significant strength in the U.S. banking sector.

Again, the opportunities are very much driven by digital transformation-based opportunities.

And I think that's giving us an advantage in many ways.

Our investments in digital are being leveraged, extremely heavily, and our investments in cloud-based transformation as well.

And I expect that, that opportunity in the digital space will continue to provide the necessary momentum.

Overall, the deal pipelines are looking pretty good.

And as you will recall, in my last -- in the last quarter call, I had mentioned that we are in the midst of several transitions related to strategic deals that we had won in the past.

These transitions do tend to be a little long.

But most of these transitions are coming to an end, and that is also giving us additional momentum from a revenue standpoint.

The next question is from the line of Ashish Chopra from Motilal Oswal Securities.

Abid, just wanted to understand that why the growth in this quarter in terms of regions was more driven by India, Middle East, emerging markets, APAC.

And you expressed good confidence in the India, Middle East segment.

But as far as the guidance for the next quarter goes, how do you see the geographical spread of this growth shaping up?

Will it be more or less similar or do you see it balancing out?

Yes, so Ashish, I see pretty secular growth broad based across geographies.

And although I pointed out India, Middle East because that was under restructuring, and we had said that it will come back to growth in Q2.

But with superior execution of our India, Middle East teams, the restructuring has gone well, and we are already seeing early signs in Q1 itself.

But from a Q2 guidance perspective, I see a broader-based growth across the geographies.

And just secondly from my side, on the margins front.

So you mentioned the benefits of automation now even at the L2 level expected to kick in.

But how do I kind of tie that in with the comment earlier in the prepared remarks of trying to maintain the margins within the band that where they are?

And why not target to exceed the margins over the next 1 to 2 years?

Probably handsomely, given that now you're also being able to replace more higher-end workforce with the help of automation?

So although we don't guide on margins, I'll just give you a color of what we have seen in the industry.

So number 1, as you are aware that we had the last quarter about 70 basis points of onetime, and about 130 basis points this quarter of ForEx, about 200 basis points has been relatively offset; and this offset by operational efficiencies, primarily delivered by automation.

And this also includes the merit salary increase that we give annually, which we gave on time on June 1. And about 50% of that impact comes in the first quarter for us, and 50% will come in the second quarter, which needs to be offset again in the second quarter.

We continue to invest in some of the areas of our transformation of our business.

I talked about our Horizon investments, I -- the M&As that we have done in the area of cloud and digital and all are still investment businesses for us.

So we are not shying off from investments, and that has an impact on our margins.

And there is areas where we cross sell and consolidate initial discounts given in anticipation of automation and efficiencies that we are able to drive.

And that does have near-term impact on margins.

So in spite of all of those headwinds, we feel comfortable in maintaining the narrow range that you alluded to.

But in the long term, I do see our ability to be able to deliver better margins in line with our ambition.

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

Just related to U.S. and Europe in this quarter.

I think Europe we have a lot of volatility in the growth rates, and most of your peers has done well in terms of Europe in this group.

Even U.S., if we look at, it's been largely flattish.

Abid, do you believe any go-to-market strategy needs to be changed in these 2 markets to accelerate your growth?

By the time you are seeing about the 4Q, you would be in the industry-leading growth rate?

Or close to the industry average growth?

Yes, so Sandeep, I will request Abid to answer the question as you're paused.

But I do want to leave one data point with you that for the whole of last year our both large -- largest 2 markets, which is U.S. and Europe, grew ahead of company growth rate.

So this quarter is one data point, and I would request you see it over a course of period and not just one data point.

But having said that, your questions about future and demand are relevant, and I request Abid to answer.

And again, this quarter if you look at Europe in particular, a significant transformational engagement in our communications vertical has got over, which has had an impact on the other 2 dimensions of both Europe as well as product engineering.

So I wouldn't read too much into it.

As the new projects come in the pipeline, it's quite healthy, and it will be back to health.

We continuously evaluate opportunities of how we can enhance our go-to market.

And right now, we feel quite comfortable with the go-to market that we have in these and all other geographies.

We -- our deal pipeline in both these markets especially is very robust.

So I wouldn't get overly concerned by this quarter's numbers.

Okay, okay.

Just having 2 book keeping questions.

For depreciation, even if I exclude the onetime ones in last quarter in this quarter, it looks like there is a sharp decline Q-on-Q.

And second on the dividend, if we look at the buyback amount as a percentage to the quarterly annualized PAT for this quarter, you handed in 30%.

And you said on a block of period, you want to maintain at close to 45%, 50%.

So last year, we have not announced a large dividend.

So is it like fair to say that FY '19 dividend amount can come down?

Yes.

So, I would -- on the depreciation, I would not read too much into it.

It is driven by how much of our assets come off in terms of recapitalization, once they are through the depreciation cycle.

And once in a while you have this bump.

On the -- your other question, can you just repeat your other question?

Yes, just the buyback amount which you've announced as a percentage to the quarterly annualized -- yes.

Yes.

So you are right, Sandeep.

It is -- we have said following things.

One, fundamentally, we want to maintain a payout ratio which is around 45%, 50%, but that's a combination of dividend and buyback.

There is a rhythm to dividend, which is different than the rhythm of buyback because buyback you can conduct and complete in a -- only over a certain period of time.

And therefore, rather than looking at it on a annual basis, it is appropriate to see it over a block of period basis.

By the time we'll complete this buyback, we will be in November, which is more than 6 months down of '18/'19.

So a portion of our current buyback also reflects our payout for FY '18/'19, and that's how you should see it.

It doesn't mean anything for future, except for the broad guidelines that I've shared, that we'll maintain a payout ratio over a period of time.

The next question is from the line of Ashwin Mehta from Nomura Securities.

Just one clarification in terms of your outlook of growth being similar to the industry by 4Q.

Do you mean sequential growth or Y-o-Y growth here?

I don't think we clarified that, Ashwin.

We have said that we want to be in line with industry growth.

Okay.

Just one more question.

In terms of your growth in top 10 clients, that seems to be very strong, and I would believe that most of these clients would be in developed markets.

But your traction in developed markets seems to be weak, with U.S. being flattish and Europe declining.

So just wanted to get a sense in terms of what's causing this divergence?

Again, as I said, I wouldn't read too much in -- one quarter certain programs get over.

Typically if you look at it, the top 10 clients are a large portfolio of services and mining kind of accounts.

When projects get over, these are one project customers which form toward the tail end of the customer pyramid.

And as they get over, they have compensating impact, which is what has happened in this quarter.

So as you rightly read, our top clients and mature markets in the core business are performing well.

These are some one-off impacts which have offset the overall revenue numbers.

Especially, the Healthcare and Life Sciences decline, you should read the other dimension is United States because that has got impacted, as we had said in the last couple of quarters as well, due to the repeal and lack of replacement of Obamacare.

But do you think the health plan revenues stabilize over the next few quarters?

Yes.

I think -- so at least the project cancellations that we had, there were some logical steps of completion, et cetera, which will bottom out in the next quarter.

So you'll still see some impact in Q2 for it.

After that, there is a base rhythm which will be maintained.

But I see a huge upside if there is clarity on what is the next.

Because we are -- we have, as you know, about 33% market share and leadership in this market.

And we believe -- and we are right now investing in positioning ourselves for success not only for the existing clients but post-clarity other customers who decide to enter the market.

So that part of where it's kind of -- when it stabilizes, it's clear; when it'll come back to growth is based on the regulatory environment and how the legislative or administrative decisions are taken in the U.S.

The next question is from the line of [Rahul Jain] from Emkay Global.

So we said that there's still revenue growth at 3% Q-on-Q.

Can you share the same number on a TTM basis?

And are we satisfied with a 3% sequential growth in this kind of portfolio?

So Rahul, we have not shared that number, and you can be in touch with Investor Relations team to get a TTM growth rate for the digital.

But the way I will position is like this, that we have significantly improved our digital proportion of revenue.

When we started reporting 5 quarters back, it was very different.

I would request Rajan Kohli, who leads our digital, to talk a little bit about the success so far.

Thanks, Jatin.

Thanks, Rahul, for the question.

We have done quite well in digital, and we take a very long-term view of our investments and growth strategy in this.

If you see over the last 4 quarters, we have moved our digital market share within Wipro from 17.5% of Wipro's business to now today 22.8%.

So that's significant growth on the back of consistent quarterly growth in digital.

And we also measure quality of revenue beyond this.

And we are quite satisfied with the quality of business that we are guiding within revenue, especially moving us outside [Sehal's] office to get deals directly with business by leveraging both Appirio and Designit acquisitions that we have.

Okay, interesting.

Secondly, on this 50% market you made on the U.S. delivery side and the kind of commitment we want to do on the incremental hiring as well as screening.

So is there any CapEx, OpEx budget in mind for FY '18 and '19 towards this?

As you've noticed, we went from at least about 18 months back to less than about 35% or so a 15% increase.

I think now we've created a rhythm of being able to do the localization.

Initially, you did see an impact because there is a transition cost involved when we localize.

But over time, that cost gets baked into our operating margins.

So we don't incur incremental costs.

And while we will continue localization and the transitions will continue, but, for example, if there are 500 people transitioning every quarter that cost gets released from the last quarter and then gets again incurred in the new set of 500 people in the next quarter.

So for us, we don't see any additional margin impact going forward.

So we have not need to budget for OpEx on that.

CapEx, obviously, as more and more work moves to our own delivery centers, we will incur the CapEx, but that is nothing out of the ordinary.

It is an ongoing process that we have, which will be able to fund those delivery centers.

And just lastly, if I can squeeze one.

The realized rates for us has been better than the peers.

So and -- do we see that impacting adversely in Q2, given the rate that we have closed in Q1?

Rahul, you mean ForEx rate?

Yes.

Yes, so, you are right.

Our realized rate for quarter 1 is INR 66.06, and that's not really the market.

We do have hedges that will continue and give us benefit in quarter 2 as well.

But reality is that if ForEx remain at this level, sooner or later we would be at the market.

But so far, we have been benefiting from our hedging program, and we will see how much more the benefit continues to flow.

The next question is from the line of Pranash [Satrilla] from Edelweiss.

Sandip here from Edelweiss.

Abid, I have one question, and I know you have kind of addressed it.

But just wanted to know -- this is 2 parts to the same question.

One, if you see our growth in this quarter -- and I understand that it is one-off quarter and you will not be able to give more data on that.

But just wanted to understand that this quarter growth has been driven by volatile markets and maybe next quarter guidance weakness is because you might lose some growth in this volatile market and among the developed markets the growth might come back.

Is that -- that is something which you are thinking, while issuing the guidance?

Or you think that it is best to be very conservative while issuing the guidance?

So that is point number one.

And point number two, I wanted to know on the digital side like 22.5% is our digital revenue.

Is it purely the revenue which has started from, let's say, 0% few quarters back and we have won deals and it has come from that way?

Or there is also some angle of some kind of reclassification which has also been part of this?

So Sandip, we don't reclassify for digital revenues.

So we have a very strict governance process in how we calculate the digital revenues.

And we've been consistently following that process.

And the last 6 quarters that we've -- the last 5 quarters that we've been reporting digital revenues is based on that same basis.

And as we win more and more digital revenues, you will see the percentage of revenues going up.

This does to a certain extent replace our existing legacy revenues.

I wouldn't -- I don't have any additional comment on the market question that you ask compared to what I said before.

As I said, I see very robust mature market growth, as Jatin mentioned, that we've had the last few quarters of very robust growth in those mature markets.

We have a very good pipeline.

Some of that degrowth or slow growth has been explained by certain account-specific or project-specific completions.

I talked about communications, one large transformation project getting completed in Europe.

And a significant degrowth in our healthcare business, impacting -- or offsetting the core business growth in the U.S. So beyond that, I wouldn't read too much into it.

So if I can squeeze a follow-up on that.

So basically then, this 3% quarter-on-quarter digital growth, which you mentioned, is it again a kind of -- some kind of impact because of some purchase which got closed?

Or it is -- you are not very unhappy about this number?

No, I'm not at all unhappy about it.

Digital, one of the things is digital is all project-based business.

Almost I would say -- it's not 100%, over 90% is project business.

So digital doesn't have run business at all, which means on an ongoing basis as we complete projects, you will see a little bit of volatility in the digital growth.

I feel very good about it.

Again, the order book that we've closed in digital is extremely good.

I do know a couple of projects that could have started in this quarter in Q1 are starting only in Q2, which also could have contributed a little bit to this.

But again, I'm pretty satisfied, and I don't -- I wouldn't read too much into this quarter's slightly lower growth rate.

In the last 4 quarters, our revenues have been growing very robustly.

And based on the order book and already some of the ramp-ups that have happened, I think we are on a good wicket on this one.

And in some of the areas, we have market leadership amongst our peers, especially if you look at design.

If you look at the cloud application services, some of the customer experience offerings that we have, we feel pretty good about it.

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

Abid, just wanted to understand a little bit on the HPS side the opportunity.

I believe earlier in the day you mentioned that you have lost about INR 120 million in last 4 quarters in that.

So what are you hearing from your clients in case the Obamacare replacement does not pass through U.S. Congress and Obamacare stays?

Would that immediately lead to a pickup in deals and orders from clients?

Or would that continue to have some uncertainty in -- from the client budget point of view.

So Mukul, the way I look at it is certainty of what is the future of U.S. healthcare is extremely important for our clients.

And the repercussion of that is our business.

If, for example, there is uncertainty continuing that whether it'll get replaced or not and when it'll get replaced, no client is going to invest in entering Obamacare again because it is not only the platform that we provide to do it, but customers have to also invest in their IT systems for integrating that with our platform.

And customers won't make that investment.

So the key is clarity on what U.S. healthcare in this affordable care space is going to look like in the next 2 or 3 years at a minimum for customers to start reinvesting.

We do feel confident that the base business that I talked about -- after this ramp down of projects and new client acquisitions, the base business should continue as it is, unless there is another set of development where these 20 million Americans who get some kind of coverage through Obamacare don't get any coverage at all.

For example, next year the 6 million of that happens through our platform.

We have 1/3 market share, and there could be further adverse impact to it.

But it's very hard to guess right now what could be the outcome.

But I'm just painting a couple of scenarios that could take place.

Got it.

And in case when there is continued uncertainty, how are you going to keep the workforce engaged there?

And how are you going to reuse the platform for some other purpose?

Do you have any contingency plan for the same?

Oh yes, we have not only contingency plan but we are already seeing some good results of the deals that we did because now we are already almost 2 quarters into it.

So if you look at our HPS business, it brought us 2 things.

One is obviously what is very clearly known, it is the platform to do the member registration and member on boarding and servicing of the ACA members.

The second it brought to us is a capability to deliver business process as a service.

And there are a couple of deals which are significant in size where we are leveraging this opportunity and leveraging the talent and the IP from this acquisition, which as those deals come to a closure we'll be able to ramp up quite quickly and leverage this asset for both from a synergistic perspective and actually some of that infrastructure to be able to do that.

Not only that, we are also engineering the platform for some adjacent reuse of the platform in the areas of healthcare, Medicare, insurance and so and so forth, which also create new market in a very similar business model for us.

So obviously, while we are very hopeful that the opportunity in the primary domain will return, but irrespective of whether or not this would have happened, some of the other synergy leverages that were planned for HPS are being accelerated so that we can bring this business back to health.

Got it.

And the final question, if I may, is on Energy side.

So you mentioned that Energy you guys are seeing a pickup, and last 2 quarters have been good on that perspective.

So what kind of growth rate -- I know you don't provide guidance, but is there something given the weakness in this space for the last 2 years is that a space which should further accelerate from what it has been reporting so far?

Anil Padmanabhan, who is the President of our ENU business is on the call.

And Anand, if you can take this and give some color.

Although we don't give guidance by individual units, but Anand will be able to provide some color to you on this.

Yes.

I hope you guys can hear me.

From an energy perspective, if you know what's happening in the market, I think the market has -- market prices -- the primary market has stabilized from a cost perspective.

And the market -- we're expecting the oil prices to sort of fluctuate.

And I think by now the realization that this price is going to be around this range for a period of time has come to them.

So fundamentally, I think everybody has accepted the fact that it will be more around the current range of $45 to $50 or $55 per barrel.

So to that extent, I think, a lot of organizations across the world have rebudgeted or set their budget across -- around the new factor.

And to that extent, that market has stabilized.

So we are seeing a lot of activity in terms of focusing around new way of doing things and adopting digital to reimagine the process and redo a lot of things which they were doing -- we probably were not doing for the last 2 years.

So we are seeing a lot of -- one, a stability and new initiatives being launched by the oil companies.

So I think -- fundamentally, I think we're pretty optimistic in terms of the direction in which this particular industry is going as we speak.

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

My first question would be just a clarification of the indication that you've given that your Q4 exit rate should be industry level.

Is there any secondary reason to believe that Q1 from next year will not be the seasonality that we've all been used to seeing in Wipro?

So Ankit, it's a good question.

But I must confess we have stopped about quarter 4. And at this juncture, we will stay with quarter 4, and we will certainly like to talk about more about '18/'19 once we come closer to it.

Great.

All right.

And there was one mention that the HPS business will have some negative impact as well in Q2.

Could you just clarify whether that was more from the growth perspective or from the margin perspective?

Again, we don't guide specifically on a particular part of the business.

As I was just trying to explain, when customers shut down projects they don't kind of stop the next day.

There are certain logical conclusions that happen.

And as you've been seeing that big growth -- that big growth tapers off from Q3 onwards.

So in this quarter, some of that residual tapering might be visible.

And this is factored in our guidance.

So there is nothing forward and above that that I would have to comment.

There's another one -- if you could just carry on in this HLS vertical.

Could you just clarify business impact of this in decision HPS versus non-HPS?

There's Healthcare and there's Life Sciences, there's pharmaceuticals.

Currently, this quarter you've recorded about 3% decline, and your immediate peers are growing at 3% or 4% in this particular quarter.

That's the kind of near term at least divergence.

Would you believe that once this is clarified, let's say a couple of quarters down the road, that your vertical can grow at industry level?

So Ankit, you are aware of the size of HPS, so it is a meaningful part our healthcare SBU.

But once you do an acquisition, it is part of the business as good as any other part of any other business.

So I wouldn't want to call numbers ex-HPS or including HPS.

When we bought it, we had a fabulous couple of first 2 quarters.

We did have a headwind of the change in the regulatory aspect in U.S. And we are confident that we are in it for long, and when the good times return, we will participate in those good times.

So why to call out separately a part of the business.

Okay.

So when you talk about the ACA impact, because of the recency of the acquisition and by [closing] it, all of it was pretty much selected at HPS?

Yes.

So Ankit, I just said I wouldn't want to call it out and quantify what part of it is towards HPS or what type when we grew was contributed to HPS.

It's one healthcare BU for us now, and we have to work towards getting overall growth in that BU.

Also on the consumer business, if you can just comment on a little bit.

I think last quarter you did mention secular weakness.

Other competitors have also mentioned the same.

This quarter you've been flat.

Will the commentary remain the same or is there some change to be assume there?

We have Srini Pallia, the President of our consumer business, and I'll let him give some color on that consumer business.

All right, I think, we are running out of time.

So I think the commentary remains the same.

We are seeing headwinds.

At the same time, we see this as an opportunity to gain market share.

So I feel quite good about this.

We have undergone a similar cycle with the ENU.

And I think a lot of times we see these opportunities to invest in clients.

And we are seeing some good consolidation deal flows and wins happening.

So overall, I feel comfortable with this business.

There are definitely headwinds in the environment right now.

And one last one for me if Jatin could take this.

Jatin, utilization rate we are in early 70s.

Our competitors are pushing 80s and even mid-80s.

So can we say with some confidence that this is an area that we will focus on and tighten, we can have a lot of upside in margins?

Would you say that this is something that the management would be working towards?

Yes.

So Ankit, the measurement is different.

What we say early 70s is the growth utilization, which in the -- so just for the clarity, the denominator is same.

But when I say calculation of gross versus net utilization, which is also for us in early 80s, I take out the support staff from the calculation, which will never get billed.

So if you compare apple-to-apple, we are not far off from our competition, at best within 100-150 basis points.

Okay, but if -- let's say even net utilization, this quarter 82%, competitors are now pushing above 85%.

So would you say that this is a significant lever for us?

This is Bhannu here.

If you looked at the last 6 to 7 quarters of our utilization, I think the utilization has been doing very well.

This quarter, as we talked to you about, we have taken the Level 2 automation incorporated in our delivery organization.

And using those people for further training, right, we are utilizing those people for further trainings.

If you look at last quarter, quarter 4, our net utilization excluding support is almost about 81.9%, one of the highest ones.

So we will ensure that the -- as the utilization -- as the training for these people gets completed, the utilization levels return back to normalcy.

Ladies and gentlemen, that was the last question.

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

Over to you, sir.

Thanks.

Thank you all for joining the call.

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

Thank you all for joining us.

You may now disconnect your lines.