Wipro Ltd (WIT) 2018 Q2 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.

Thank you, Zed.

A warm welcome to our Q2 FY '18 earnings call.

We will begin the call with the business highlights and overview by Abid, our Chief Executive Officer and member of the board; followed by a financial overview by our CFO, Jatin Dalal.

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

Before Abid starts, let me draw your attention to the fact that during this call, we may make certain forward-looking statements within the meaning of 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.

I would now request Abid to make his address.

Thank you, Aravind.

Good evening, and good morning, friends.

For those of you joining from India, wish you a very happy Diwali.

Let me give you a commentary on our Q2 performance and then cover the overall demand scenario that we see in the IT services industry.

So this quarter has been special for us because we crossed the milestone of $2 billion of quarterly revenue for our IT Services.

In constant currency, our revenues were in line within the guidance range.

Our strong performance in operating margin with an expansion of 48 basis points, incorporating the 2-month impact of wage hike and all of those 48 basis points are primarily driven by operational efficiencies that we've been able to deliver within the business.

Our demand commentary remains unchanged.

This has strengthen in the BFSI and a stable demand in the consumer verticals, primarily driven by the strong digital capabilities that we have invested in and these 2 verticals adopting digital ahead of the industry.

ENU continues to be stable, although Q2 got impacted by Middle East, especially Q2 is a holiday quarter due to the holiday season there in Middle East.

We continue to see progress in India business.

One of the key things is this quarter, the India business, in the product segment has generated positive margins, which has helped us with our net margins as well.

Health care continues to be volatile due to the concerns around Affordable Care Act, although we are hopeful of revenues bottoming out in Q3.

Right now, we are in the open enrollment season and we are closely watching the developments.

Communication business, as I had mentioned last time, was challenged due to a couple of customer-specific project rundowns, which we believe we bottomed out in Q2 and we should see growth in the quarters Q3 and onwards.

Our Q3 outlook has the seasonal impact of furloughs and higher leaves that happen in the holiday season.

Adjusted for the seasonality, we have seen improvement in our growth trajectory, in Q3 compared to Q2, and we are on path to match the industry growth rates exiting this financial year.

Now I quickly provide an update on the strategic themes that I have been consistently updating you over the past 6 quarters now.

Digital revenues in Q2 are now 24.1% of our overall revenues.

We have further enhanced our Design and Advisory capability in the U.S. through the acquisition of Cooper, a design and business consultee -- consultancy.

I'm happy to note that our cloud business in Q2 has crossed $1 billion in annual run rate revenues.

We have won multiple engagements to be able to deliver digital at scale, becoming the digital partners of our enterprise customers.

Let me give you an example of a multiyear omnichannel customer experience transformation engagement that we have won from a leading telecom company in the Asia Pacific region.

Given leverage of our digital engineering capabilities design, we will improve customer advocacy, issue resolution rates and accelerate end-customer shift toward the digital CRM and self-help channels as part of the outcomes of this engagement.

We will deliver this through iterative Agile and DevOps methodology with scrum teams, which work on individual customer stories and customer journeys.

Wipro Digital opened 2 pods in Q2, one in Mountain View, California and other one in Edinburgh in Scotland.

This brings the total number of digital pods globally to 16.

And we see good traction in customers being able to come and do rapid prototyping and design [between] workshops and our ability to deliver the minimum viable product at a velocity that digital requires through these digital pods.

We continue to reskill our staff at an ever-increasing pace with about 12,000 employees acquiring and getting certified in digital skills in Q2, which takes the total number of employees to about 80,000 who are now digitally certified.

Our consulting business continues to grow well.

Consulting revenues, which were 5% in Q2 of FY '17 are now 6.2% of overall Wipro revenue in this quarter, which is almost a 30% growth year-on-year.

We continue on our path to build momentum in client mining, which has been a focus area, and our teams and customers have responded quite well.

The momentum in Top 10 accounts growth continues to be very good, and this quarter, we grew 4.9% sequentially in the top 10 customers.

Our Mega/Gamma customers or the top 100 customers are growing faster, not only competitive customer -- company average but also, we are able to sell a lot of our new offerings into these clients, and the average revenue per customer is continuously improving, and so is our customer satisfaction in these customers, which is now higher than the average company's customer satisfaction.

On nonlinearity, we applied for 80 patents in Q2, taking our total number of patents granted and applied to 1,789.

And we have filed a significant number of patents around our HOLMES platform and blockchain technology this quarter.

One of the engagements that we have won and are delivering using Wipro's IT is on data discovery platform solution from our analytics service line, and this platform continues to have significant traction.

We won a midsize health care provider in the U.S. The DDP solution will be leveraged to drive more insights on population health care management and derive operating cost savings as well as health quality improvements for its client base.

An update on hyper automation.

I had talked last quarter about how we are focusing on L2 productivity, and in Q2 we generated productivity about 2,500 FTEs through deployment of Wipro HOLMES.

We now have about 2,000 instances of 74 unique HOLMES-based bots across 250 customers deployed.

An example of an engagement that we recently won in Europe is for a lighting major, where we are reducing the operational failures in their IT landscape by 17% and the volume of work measured in man-hours or person hours by 45%, enhancing the efficiency of our Run service to the client as well as delivering much better end-user experience.

We continue to execute on localization with about 200 basis points on an average improvement across all the markets where we are focused on localization, taking our U.S. workforce to over 52% in this quarter.

We continue to engage with local communities in all the geographies we work.

And especially, Q2 was a special quarter for the U.S., where we inaugurated our first innovation center outside of Bangalore in Mountain View, California.

And we are finding very good customer traction in experiencing the new brand Wipro, which essentially brings not only what we have been strong at but also a lot of innovation and thought leadership is being able to help customers strategize for their future and rapidly prototype and be able to leverage new technologies from start-ups and from within the Wipro ecosystem to be able to deliver technology-based competitiveness to their businesses.

As part of our partner ecosystem, Topcoder and ConsenSys, the leading Ethereum incubator, entered into a partnership to create an Ethereum engineering community on Topcoder platform.

As you know, Ethereum is one of the fastest-growing blockchain technologies.

We've seen about 18 customer wins in joint go-to-market with our Wipro venture invested partners this quarter, and we approved 2 additional teams in our internal entrepreneurship program called Horizon program in the area of autonomous vehicles and additive manufacturing.

We continue to gain traction with influencers, which essentially are analysts and advisers.

And in analysis support, Wipro is in leadership quadrant now in 65 ratings in calendar year '17 compared to about 14 leadership quadrant ratings in calendar year '14.

As you can see, we are making visible progress in each one of our strategic themes overall.

I'm confident that we are moving in the right direction, and we will be able to match industry growths in Q4 as we have said before.

As we enter the holiday season, I would like to wish all of you a very happy holiday season for the various holidays globally that will happen in this quarter.

I will now request Jatin to speak on the financials.

Thank you, Abid.

Good day, ladies and gentlemen.

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

Let me start with revenues.

IT Services revenues for the quarter grew by 0.3% in constant currency.

Revenues in U.S. dollar terms for the quarter grew 2.1% due to strengthening of euro, GBP, Australian dollar and CAD.

IT Services margin for quarter 2 was 17.3%, a 48 basis point expansion over Q1 margin of 16.8%.

We overcame the impact of 2 months of salary increase through productivity improvements during the course of the quarter.

We continue to make significant investments in HOLMES and our automation suite.

We generated productivity of over 2,500 person months due to automation initiatives at L2 level.

On the ForEx front, our realized rate for IT services in quarter 2 was INR 65.40 for every dollar versus a rate of INR 66.06 for every dollar realized in quarter 1. The net impact of currencies on margin was broadly neutral.

Our effective tax rate for quarter 2 was 22.7% vis-à-vis quarter 1 of 22.4%.

The net income for quarter was INR 21.9 billion, an increase of 5.5% sequentially and 6% year-on-year.

Now let me talk about cash flows.

For the first half of fiscal '18, we generated robust operating cash flow of INR 46.9 billion, which was 110% of our net income, which compared to first half of FY '17, when operating cash flow generated was 99% of net income.

And as you can see, we have been able to get a sizable improvement on that this year.

Our net cash as at the end of the quarter was $3.7 billion.

As of the year-end, we had about $2.4 billion of ForEx derivative contracts as our hedge.

Let me talk about mergers and acquisitions.

In early October, we announced our intention to acquire Cooper, an award-winning design and business strategy consultant.

Let me update you on buybacks.

In August 2017, shareholders by way of special resolution approved a buyback proposal, which was approved by the board in July 2017.

Buyback offer period will commence on completion of regulatory requirements.

For the quarter ending December 31, 2017, we have guided for a revenue growth in IT Services in the range of 0 to 2% sequentially in constant currency.

Traditionally, Q3 has lower number of working days due to leaves, holidays and as follows.

We expect revenues and margins to be impacted by the same.

We will endeavor to offset the impact to the extent possible.

For the full year, our focus is to build revenue momentum to enhance our ability to maintain and grow 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 now open the lines.

(Operator Instructions) The first question is from Mukul Garg from Haitong Securities.

I had 2 questions.

First to Abid.

Abid, you mentioned that from Q4 onwards, you would expect to grow in line with the industry.

So just want to get a sense of where do you see industry structural growth going in FY '19.

Do you think it will be something similar to what we have seen in the last 2 years in terms of growth in the industry or do you think it will accelerate going forward from next year?

And the second question was for Jatin.

Jatin, can you help us understand the impact which happened at this quarter in the cost of hardware and software?

It declined from almost INR 7.5 billion from last year to INR 2.9 billion, almost a 350 basis point impact on margins in Q2.

Yes.

So Mukul, let me talk about both the questions.

This is Jatin.

The first, it will be too early for us to talk about FY '18/'19.

We have shared our outlook for quarter 3. We have shared the trajectory that we want to be in FY -- in quarter 4, and we will wait to see how we pan -- how the early indicators pan out before we start talking about quarter 1 of next year.

Let me come back, Mukul, to your question separately on hardware and software, please.

Right.

This also -- basically what I was looking for, I was not looking for a guidance for next year, which I know you guys don't give.

But a general sense of where do you see the overall industry going -- industry growth going next year?

Is -- are you guys getting a sense that the growth trajectory is going to improve going forward or will it remain in the same ballpark range we have seen in the last couple of years?

So let me share the way I look at it.

There are 2 components to the industry growth rate.

One is the component on customers' uptake of technology, and that depends on the overall growth rates of various economies in which the customers are working.

As you see, I think the overall world economy is getting better.

U.S. economy is showing improvement.

Europe is showing improvement.

India, obviously, in the large economies, has one of the fastest growth rates.

So from that perspective, definitely, there is an uptick.

The second component of the growth rate of company like ourselves in the IT services industry is a combination of the growth that happens on the digital side of our business and some of the efficiency delivery and the runoff that happened in the legacy side of our business.

And as the proportion of the digital business, as percentage of our revenues grow, the growth rates of the industry become closer to the growth rates of the digital business, which will obviously take a few years.

But as the proportion between the 2 modes that we are right now working changes, definitely, there is an opportunity for the growth rates to accelerate.

So I continue to be very optimistic about the future of our industry, the future of consumption of technology.

And hence, there is no reason that in the next few years, why the growth of the industry should not be higher than the growth it is today.

Mukul, I will also answer your earlier question.

If I read you correctly, your question was regarding why the revenues and costs related to IT products and services have fallen substantially.

So as you can see in the segment reporting, our IT products revenue has shrunk and that has shrunk because for us, IT products is something that we do to get additional services revenue and where we -- and not on a stand-alone basis.

So we are running the business with tight discipline around it.

Where we can do a profitable business, we are pursuing that, and that is reflected in overall trajectory of revenues for IT products.

Got it.

So should we expect the revenues in IT product to remain in -- or to not accelerate back to the levels we saw in the previous quarters?

Yes, it will remain in a similar trajectory except seasonal variations because IT products do have certain seasonality driven by buying patterns of our customers.

But intent of ours is not to secularly grow that business, but to do it in a way that helps us gain market share on services business.

The next question is from Diviya Nagarajan from UBS.

My question is on the headcount trajectory that we've been seeing for the last 4 quarters or so.

You have been declining in headcount for the last 4 quarters.

Is -- what should we expect as a trend going forward?

And do you expect this trend to reverse anytime soon?

And the second part of this question is that could you run us through how you're able to derive these headcount efficiencies and areas in specific where you think your hyper automation initiatives will benefit?

This is Saurabh here, and I'll answer your question, Diviya.

So if you look at the headcount decline this quarter, I think you need to keep in mind both from a total -- people supply chain which is hiring, attrition, utilization all put together.

And as you know that we have always called out that we had headspace to improve our utilization, we have actually gone ahead and done that in this quarter and we've seen the uptick in our utilization.

So very clearly, that is one driver which is there.

Attrition has slightly moved up from last quarter, that's another piece which we are driving.

But I think, from a longer-term perspective, very clearly we have seen and -- that the trajectory of revenue growth versus headcount growth, revenue growth will be the fastest given the nonlinearity of platforms and digital work and automation which we are doing than what you will see on the headcount side.

So that's the way to look at the entire piece, and not look much at 1 quarter.

The next question is from the line of Ariel Hughes from Wedbush.

First question is going to be around cloud business.

You said that you've recently reached a $1 billion run rate in the cloud business.

Just wondering if I can get some color behind what's driving growth.

What is the growth rate in the cloud business?

And if there are any particular markets that are outperforming others.

So first of all, all of our cloud business is a subset of the digital business that we report.

This is an important milestones, so we highlighted the cloud business, in which we have been investing over the past few years already.

So to give a color on the cloud business, I would look at the cloud business from -- in 4 different segments.

Segment number one is related to our GIS business where infrastructure gets delivered on cloud.

The cloud could be -- public cloud that we deliver through our partnerships through various public cloud companies and it could be in hybrid cloud, which incorporates both the public cloud as well as a private cloud that both -- from within Wipro or it could be also a customer's pronounced-based private cloud.

We as a strategy have been transforming our GIS business from the erstwhile on-prem kind of data center business into the cloud business.

And I think we've got good traction.

We've done some very transformative deals for our customers and we've been able to not only keep that business but grow it by helping customers transform their infrastructure to the cloud.

The second part of the cloud business is of application migration to the cloud.

We call it application refactoring, where you enable applications not only to sit on the cloud but also have an API economy through which applications can interact with each other and refactor the application for the cloud.

We have very good traction in this space because as enterprises move to the cloud, they need to get the benefit of the cloud.

They need to migrate their application.

And we have a completely automated suite of tools that enables us to migrate customer applications and workloads to the cloud.

The third component on the cloud is applications born on the cloud, which essentially is the capability that our Appirio cloud services provides, which has been able to deploy cloud applications for customers who are transforming themselves by moving to a completely cloud-based economy.

We have now amongst our peers leadership position in that market, and we continue to deliver enterprise transformation through platforms like Salesforce or Workday and other cloud platforms to enterprise customers.

And the fourth component of the cloud business is data on the cloud, which is getting a lot of traction.

And now that regulations across various geographies are becoming clearer and we have both cloud consulting practice which helps customers decide their data strategy on the cloud and then execute on -- moving the data on the cloud so that they can make the most out of the cloud by having their entire IT landscape sit on the cloud.

And we have executed a large number of engagements, although a small size of moving data to the cloud that we need but in the future, that will scale up much more.

And this -- all of these 4 components, we are able to provide an end-to-end cloud transformation to the enterprise and that is where we are seeing traction.

Okay, that's great.

And my second question is related to the health care and BFSI segments.

Just wondering if you could give us some more clarity behind what's driving growth at the subsegment and market level.

Is that for the health care segment?

The health care and BFSI, yes.

Yes.

So clearly, BFSI -- historically, we've had as a percentage of our revenues relatively lower market share of BFSI.

But as the fundamental mix of the BFSI business changes, BFSI is one of the early verticals to adopt any new technology, and we see them adopting the digital technology quite rapidly in -- at scale compared to some of the other verticals, and that is driving growth because of our early investment in digital capabilities.

We are able to grow digital at scale with banking customers.

And that is driving the growth across various geographies in the BFSI space.

On health care space, while our core health care business continues to grow at a historic rate, but as you are aware, we did the HPS acquisition which gave us almost 30% market share of the ACA members.

And that business right now is under stress given the uncertainty, and that is slowing down growth.

And just to give you a sense, over the last few quarters, we lost on a run rate basis about $125 million worth of annualized revenues in that segment of our health care business.

And -- especially now that most of that uncertainty in terms of the project discontinuity or the market exits from the (inaudible) has completed, we believe that we bottomed out in that business and we should be able to show growth in Q4 if not from Q3 itself.

The next question is from Ravi Menon from Elara Securities.

So first question is about the impact that you've seen in (inaudible).

Should we read this as a one product kind of phenomenon or would this remain volatile?

Ravi, this is Jatin.

We have seen -- we have maintained in the past that we see this bottoming out as the sector has stabilized itself after the sort of stable oil prices.

It is yet not picking up.

So therefore, there is a lumpiness around project closures and new commencement of projects.

Specifically in this quarter, they got impacted because Middle East holidays, which -- and Middle East does have a large exposure of our oil and gas business.

Going forward, we believe that it will -- it directionally will improve, but with a little bit of volatility around it.

Okay.

And secondly, it looks like you had a good uptick in realization this quarter.

So how much of that would we really cross currency?

And what would you attribute to really this shift towards digital?

Yes.

So Ravi, as -- so there are 3 factors which would play out when you look at realization.

The first factor is the cross currency, which you talked about and it has had a positive impact on the realization for sure.

The second factor is the automation and productivity led by automation where we have done very good work over the last 4 quarters and certainly in quarter 2 as well.

So that does play out on realization of our fixed-price project which is roughly 55% of our revenue -- 57% of our revenue.

And the third factor is the core pricing power where we do see that we are realizing superior pricing in some of the newer technologies, certainly in digital space as well as some of the newer technology in traditional space.

And that is also -- has slowly made its way into the mix.

So these 3 factors have contributed to overall a comfortable position on realization.

Great.

And if I could ask one follow-up to this.

You're talking about a lot of automation.

Abid had mentioned about the application migration to the cloud and how you have highly automated tools for that.

If you could elaborate a little bit on that, that would be great, because I don't think that we've heard this from anybody else.

So -- Ravi, this is Bhanu here.

On the tools that we talked about, we have been investing in our HOLMES platform.

And with the HOLMES platform, now we have deployed over 2,000-plus instances of our bots on various places, and it is growing for the regular business as well.

On the cloud part that you specifically talked about, we have built tools and platforms around multiple areas.

One is -- obviously, multicloud orchestration is one big area that we have done.

We have done tools for migrating customers on their cloud journeys depending upon their custom applications or the third-party applications.

We also helped customers to migrate from what Abid talked about in terms of data of how we can take data and convert them into insights using the tool on the cloud.

So multiple tools of this feature have helped the cloud business to accelerate as well right now.

And one important thing also is in the -- our partnership with the public cloud providers like Amazon, Azure and Google as well.

The next question is from Nitin Padmanabhan from Investec.

I had 2 questions.

The first one is there was an executive order yesterday in the U.S. by the President on -- which I think impacts the exchange business on the health care side.

So just wanted some color in terms of how you think that could impact our business there.

The second is when looking at the commentary of Q4 being industry level growth, what do you think will change from a portfolio perspective?

Because if you look at all the business units, apart from energy and BFSI, the others seem to be pretty weak.

Do you think the others would also contribute to growth by Q4?

And what could change in those units?

So again, it's a little early to talk about the impact of the executive order.

But essentially, as I have said, we've bottomed out over there.

So whatever comes now in terms of ACA or its replacement, finally, we do believe that the population that is impacted by ACA needs some kind of health services.

And as the administration looks at what the form of those health services is going to be, we have a platform, we have the domain expertise, we have the ability to deliver it, we have the customers, we should be able to very quickly react to it and be able to deliver.

The base health care that stays -- open enrollment season is there right now.

So by next quarter when we talk to you, we'll be able to give you a much more specific color on how that open enrollment and participation of people is on that.

Because as you know, technically, the ACA in its form that Congress had passed still stays as it is.

Executive orders do slightly change how they are funded, how the consequences of small businesses or individuals not buying that mandatory insurance, how the government deals with the consequences of it.

And some of those things get changed, but the fundamental regulation stays till we have a replacement from the Congress.

Coming back to your question on Q4, let me just give you a little of commentary on Q2 itself.

If you look at our 6 business units, the way we report, we see a strong delivery from Banking and Financial Services.

Our consumer business unit in the market that they work is delivering well.

As I said, Energy, Natural Resources and Utilities has undergone a turnaround.

We see a good spend starting to happen by the energy companies, and we will continue to see growth.

As I said, this one quarter was an aberration.

But on a year-over-year basis and constant currency, ENU has grown by 5.2%, which is quite healthy as part of the early signs of recovery.

We do have uncertainty and challenge in the health care and Life Sciences, but we do believe that we bottomed out over there or at best in Q3 we will bottom out.

Communication, as I said, had a couple of customer-specific issues in Europe and Africa, where those customers were under stress, and because of that a couple of large transformation programs that we were doing had got impacted.

They got canceled.

So now we see a growth trajectory going forward in line with the industry for our communications business.

In Manufacturing and Technology, our technology part of the business has performed well at industry or more.

The manufacturing part of the business, we aren't making certain changes in the leadership and our offerings there, and we do believe that there is nothing fundamentally wrong over there.

It is just that the transformation that is happening, the capabilities that you need in terms of selling as well as delivering to those manufacturing companies need to undergo a change, and we have already executed on it.

So we feel that we should be in good shape in the next couple of quarters over there.

So overall, I -- whether you see it from an industry verticals perspective or geographies perspective, if you look at geographies in constant currency, Americas has been under stress, but primarily all of the health care stress is for U.S. So that is why you see the U.S. growth lower.

The moment health care bottoms out, we feel -- I feel quite comfortable with our traction in the U.S. market.

We see good traction in Asia Pacific and emerging markets.

In Q2, we have delivered about 3.4% sequential and 7% year-on-year growth which is robust.

Europe, we are finding good traction.

And as I've said, India and Middle East, we're undergoing restructuring and we are past that.

So going forward, we should be seeing profitable growth in the India and Middle East segment.

The next question is from Abhishek S. from Equirus Securities.

Just rephrasing the question on BFSI.

Your commentary is -- it is strong relative to your peers.

So just wanted to understand, are you kind of winning market share that in the U.S.?

Or you are seeing customer specific traction?

So we have Shaji Farooq, the President of our BFSI business.

Shaji, you want to take this question?

Yes, thanks Abid.

Overall, I think BFSI -- I think the important thing to -- I can't comment on the market share because that definitely depends on the relative performance of all our competitors.

But I will say this much that we have had very strong wins in our accounts.

Our mining performance has been extremely strong, particularly in the U.S. We continue to make significant progress on our digital initiatives.

And I think that has been a key part of our overall success.

We are also taking a view that this is an industry that is undergoing a major transformation in itself, right?

And the way services are now purchased and the kinds of results and outcomes our customers desire is evolving very rapidly.

And based on that, we are making some very strong bets and investments and particularly BFSI is one of them.

Also a great amount of focus on delivering platform-based services, both horizontal and vertical, that will deliver the kind of results our clients expect.

So I think these are the factors.

In many ways also, it's back to the basics, strong connect with our clients, understanding their pain points, understanding their challenges.

And I think given -- as the state of the industry itself improves, which is expected given the firming up of interest rates, I think it bodes well for anybody who's positioned to grab the opportunities that will come our way.

The next question is from Dipesh Mehta from SBICAP Securities.

Just wanted to get some sense about digital and cloud.

I think you alluded we crossed a new run rate of about $1 billion, which is broadly half of what our digital revenue run rate is.

So if you can help us understand overall digital, what else a component is there?

And how different component is growing?

Secondly, is it possible to provide cloud business for bucket you alluded to about any kind of mix?

Or where it sits into your service revenue when you report it separately?

Second thing is about digital only.

How you see digital is changing over last few quarters?

And whether digital business has different seasonality or no seasonality in that business.

So Dipesh, one of the things which is quite important is, digital is pervasive across our service lines across our verticals.

So if essentially you look at what digital transformation means, it means that we help the customers think about it, which is part of our consulting business, help the customers design their digital transformation which is part of our Wipro Digital unit.

We help them deliver that through various service clients, technology units, whether it is our GIS practice that we are migrating to the cloud.

Whether it is our BPaaS practice, which is around application services and Agile and DevOps method, the customer experience practice which is the front-end practices of user experience in the application space, whether it is IoT which would fall in the product engineering services space that I talked about big data analytics and data on the cloud, which falls in the traditional analytics practice.

So we -- when we measure digital, we don't get to break it down by service lines because digital pervades across traditional service lines.

And it is also a way of working and a way of delivery, a way of engagement commercially with the customers.

In some cases, it is an add-on service and outcome-based commercial arrangement.

So it's very difficult to look at it in the traditional way and try to break it down in the traditional service lines.

Abid, my -- I was trying to get -- sorry, so I was trying to get more sense about roughly half of the digital business seems to be cloud related.

And then there are some areas which you just now alluded about analytics, IoT, all those security.

So if you can help us understand how the composition for us on digital side?

And then on cloud side, you alluded about 4 bucket kind of thing.

If possible to view how those buckets are moving in terms of growth trajectory.

Is it similar to digital, which is roughly around 30% Y-o-Y?

Or you are seeing any difference in growth momentum across these buckets?

Yes, Dipesh, that is what I was trying to explain that cloud, for example, the $1 billion is not mutually exclusive to, for example, the application bucket.

Because as I said, cloud also has an application component or it is not mutually exclusive to big data because big data can be delivered on premise or big data can be delivered on the cloud.

So again, the conventional way of thinking across service lines will need to change over time as we think about digital.

And hence, the answer is no.

We can't give you the breakdown by the traditional service lines of the digital business because it is a lot of overlap and the engagement with the customer is about delivering an outcome, not delivering the traditional service lines.

The digital business does have more of project work compared to annuity.

The size is going up on the projects as we create capacity for customers to move to digital ways of working.

Earlier, some of the customers were starting 1 or 2 engagements in digital.

Now they are creating centers of excellence for being able to deliver customer journeys or customer stories, and we are doing more and more of that.

So the average size per customer is increasing.

A lot of the digital growth that is coming is also coming by converting the traditional waterfall ways of working in our existing customers to Agile and DevOps and leveraging digital technology stack from the conventional technology stack.

So that transformation is happening at scale because the customer if they are doing a certain volume of work with us, now no customer is developing new applications on the traditional stack.

So all of that capacity gets diverted to the digital stack.

But digital does have more discretionary spend.

Right now, we are seeing good discretionary spend but that could be seasonality as discretionary spend varies by season in certain verticals.

For example, retail doesn't spend in the holiday season in our Q3 because of the code freeze that they have.

And hence, to that extent, it would have seasonality.

But nothing specific that would be different from the seasonality of our normal business.

Sure.

And just on getting -- so broadly, I understand about the overlap of the different component in digital.

Where I am coming from is, is it possible to give some idea about our digital?

What are the component?

How it is growing that kind of different?

Because I believe, there might be different trajectory of growth of different component of digital.

So if you can provide some colors there, if possible?

So Dipesh, this is Jatin here.

As Abid indicated, we have not broken down digital component-wise.

So it will be difficult for us to share the individual pieces and various growth trajectory.

But overall, the growth is visible to you as of overall portfolio.

Next question is from Gaurav Rateria from Morgan Stanley.

Abid, my question is where are we currently in the investment cycle?

If revenue growth indeed turns around as you are indicating from fourth quarter onwards, is there a potential for margins to improve?

And should we see company moving towards its goal -- 2020 goal from fiscal '19 onwards?

Definitely, we continue to execute on the operational efficiency headroom that we have.

But as you know, in our industry, growth does provide tailwind for margin improvement.

So the answer is yes.

And while in the short term we will remain in the narrow band that Jatin alluded to earlier, in the medium term, we do see an opportunity for margin expansion.

Sure.

Secondly, just wanted to check if you could provide some color on profitability of the digital business vis-à-vis other lines of businesses.

And how would that move forward as digital gains scale?

Yes.

So Gaurav, certainly, the premium pricing plays down on the profitability of digital business.

So overall, we see that those businesses are one and executed at higher project margins.

However, you must realize that this is the opportunity for industry and for a company like us.

So we have doubled down our investment in that area, and that does impact the final operating margin.

But if you look at project wise or program wise, these margins are certainly superior to the traditional, more commoditized part of our industry.

Next question is from Sandeep Shah from CIMB.

Have 2 questions.

Firstly, my sense is, I think this quarter, deal wins are much better versus what Wipro used to do it earlier.

And also in the digital, the deal sizes are going up.

So is it -- the observation is correct?

And Abid, do you believe this is a wallet-share gain?

And how consistent we can be doing this on an ongoing basis and what has led to this.

So Sandeep, you're right.

I'm very pleased with our order book this quarter and we're fortunate to have good deal wins and that shows customers both in existing customers which we said mining as well as with our hunting portfolio.

And to some extent, we are seeing a churn because customers are moving to digital.

And as they move to digital, they really evaluate their vendor options.

So from that perspective, if you have a (inaudible) in digital or cloud, there is an opportunity to gain volume share as well, which we do see in certain segments.

Okay.

And one of your peer was also saying that within digital, deal scope has been moving from Phase 1 to Phase 2 where it has been touching the core.

You are also saying that lot of large deal wins are happening.

So is it -- going forward such kind of a deal may continue to reoccur where system integration may lead to a higher size of digital deals going forward?

Do you believe that's a start of trend?

Yes, certainly, if we look at, for example, our numbers, almost 1/4 of our revenues are now coming from digital.

So it does indicate deal sizes are becoming bigger.

The way I would look at it is certain customers, certain enterprises have moved 100% or 80% of their technology spend to digital, which means whatever they do is in the digital stack.

It is delivered in the digital ways of working.

And they will not go back to what I would call as nondigital or legacy.

So from that perspective, digital is here to stay and grow bigger.

Okay.

And just last question.

With improving deal wins, the growth rates according to me may improve.

But at the same time, you are saying still we will -- are close to the industry average.

So is it the leakage in the existing basket or traditional revenues, do you believe that may also bottom out going forward as you are saying most of the portfolio related issues are behind?

Yes.

So Sandeep, this is Jatin.

Fundamentally, accounts can grow when 1 or 2 or both happen, that the reduction doesn't take place and you are able to add on the top.

If you see for our Top 10 customers, you will realize that the numbers talk about it, that even in quarter 2, we have grown 4.9% sequential.

So certainly, it's the combination of both, Sandeep, which is playing out and we are happy to see that progress.

So in the large account, you believe the pressure through cannibalization after the renewal is largely behind?

So Sandeep, I don't think one can make a broad statement as every account has specific dynamics around it.

I think our objective is to manage the portfolio effectively, which delivers a growth overall.

So I wouldn't say something is behind or something is ahead, but we have to play every account by its dynamics and make sure that we are able to remain stable and incrementally add to the revenue trajectory.

The next question is from Ankit Pande from Quant Capital.

My question would be, I think you mentioned a little bit about the guidance part and that you said, Q3, because of low billing days, would have an impact both on revenue and margin.

So could you please especially clarify the margin piece of it?

And also whether the revenue growth of 0 to 2% that you guided for is more or less below your expected trend?

That would be my first question and then I have a follow-up.

So Ankit, I didn't follow your last line.

What -- can you just repeat?

Yes.

Just that, first of all, the clarification on margin impact in Q3 that you may expect.

And also on whether the revenue guidance of 0% to 2% is sort of below your expected trend.

Yes.

So Ankit, let me start with your last line.

No, I think we give guidance what we see today.

And as you can -- as we have talked about every quarter, our guidance trajectory has been improving.

So it is in line with that improvement in trajectory.

We did talk about the fact that quarter 3 is impacted by furloughs and lower number of working days, and that has been factored in our guidance number that we have shared with you.

So far as margin trajectory is concerned, we don't guide it but we have given a broad direction for FY '18 that we will want to remain in a narrow band of FY '17 numbers with an adjustment for currency.

And that's what we'll stick by.

You've seen some of the outcomes of the execution in quarter 2 where we have expanded margin by 50 basis point after absorbing the impact of 2 months impact of salary increases.

And overall, net profit has grown sequentially by 5.5%.

So we are executing well, and I will -- I think we are entering quarter 3 with that tailwind of confidence behind us.

All right.

And just one more clarification.

If I look at some of the segment reporting, going by verticals, I see substantial -- sort of more decline, especially year-on-year and trend-wise in the MNT and COMM, the communications, Manufacturing and Technology and Communication verticals.

Is there something that you'd like to highlight here as far as profitability moves are concerned or trends are concerned?

Yes.

So nothing, Ankit.

We talked about individual factors.

Abid gave a detailed commentary, and revenue trajectory also plays down on overall margin performance.

So nothing in particular about those specific segments vis-à-vis profitability.

Operator, we will have to request for a closure.

We have another engagement to go to.

Thank you.

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

Over to you, sir.

Yes, 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 IR team.

Wish you all a very happy Diwali.

Thanks.

Thank you very much, Mr. Viswanathan.

Ladies and gentlemen, on behalf of Wipro, that concludes today's conference call.

Thank you all for joining us, and you may now disconnect your lines.