Wipro Ltd (WIT) 2018 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Wipro Limited 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, Margaret.

Warm welcome to our Q4 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 the 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 filing with the SEC.

Wipro does not undertake any obligation to update the forward-looking statements to reflect events and circumstances after the date of the filing.

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

Let me now invite Abid to give the opening address.

Thank you, Aravind.

Good evening and good morning, ladies and gentlemen.

It is a pleasure to speak to you all and share the results of our fourth quarter and full year performance for fiscal 2018.

I will also share our view of the demand scenario and an update on the progress of our strategic themes that I have been sharing over the last few quarters.

In Q4, our revenues grew by 2.4% sequentially in dollar terms and 1.1% in constant currency, in line with our guidance.

On a full year basis, we grew 4.6% in reported terms.

And we've surpassed the $8 billion revenue mark.

We entered Q4 with confidence driven by the improvements we saw in our deal trajectory, uptick in our client mining, our performance in digital and reduced headwinds in some parts of our business.

However, we are disappointed at the loss of momentum in Q1 due to surprises arising out of the bankruptcies faced by 2 of our clients with an annual run rate revenue of over $50 million.

And then, additional impact coming continuously from HPS business, as more clients continued to exit the exchange market and the continued weakness of our communications business unit.

We are confident we will return to a growth trajectory starting Q2 due to our strong deal wins and order booking throughout last year and especially in quarter 4, coupled with continued strength in digital.

Let me give you an update on our 6 strategic themes.

Our digital revenues grew 9% sequentially in 20s and is now 26.7% of our revenues.

In Q4, we closed one of our highest bookings yet on digital deals and one close to 70 deals over $5 million of TCV over last year.

Our client mining continues to perform well.

Our top 10 clients grew 5.5% sequentially and 14.8% year-on-year in Q4.

We added 2 additional clients in the $75 million bucket, up from $50 million, taking the count to 20 such clients now.

Two of our accounts crossed $250 million, which means one additional account in the $250 million bracket on a run-rate basis in Q4.

We continue to see traction in nonlinearity, especially around our home-grow IPs like Wipro HOLMES, AssureNXT, et cetera.

And for the full year, our IP revenue has crossed $100 million this year.

We continue to make a lot of progress in delivering productivity through automation and deploying Wipro HOLMES in the Run part of transformation of our clients.

We now have HOLMES deployed across 320 customers with 92 unique bots, which is helping us deliver significant service improvements to our clients across the Run services in IT, testing as well as business process services.

Leveraging the cognitive capabilities of Wipro HOLMES platform, these bots have helped us automate work and generate productivity of about 8,000 level 2 FTEs in the last financial year.

Our fixed-price mix has reached 58.7% in Q4, which is amongst the highest we have seen.

As a result, our revenue per employee has increased by over 6% in the last 4 quarters.

We continue to improve our localization levels across our markets, with U.S. having crossed 55%, about 75% in APAC and Latin America continuing to be almost 100% local.

We announced the divestiture of DCS business for a consideration of $405 million, and we expect that transaction to complete in the current quarter.

This strategically enables us to now transform our infrastructure services customers to cloud-based infrastructure, leveraging both public cloud, where we have very strong relationships with the public cloud providers, as well as leveraging private cloud where it is required through our strategic relationship with Ensono, which is part of this divestiture.

In Q4, we continue to see momentum in Wipro Ventures with 18 new deployments in various venture areas like threat management, test automation, conversational AI solutions, to name a few.

For the year, Wipro strategic investments in innovative solutions resulted in 68 joint wins with venture partners.

Overall, now we have 13 investments across artificial intelligence, Big Data, cyber cloud and IoT.

Our internal entrepreneurship program continues to deliver well, and we incubated 19 themes in the Horizon initiative, included 5 themes on technologies like additive manufacturing, autonomous vehicle and other industry platform and solutions.

Now I will request Jatin to speak on our financials.

Thank you, Abid.

Good day, ladies and gentlemen.

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

Let me start with revenues.

Our IT Services revenue for quarter 4 grew 2.4% sequentially in U.S. dollar terms and 1.1% in constant currency terms.

On a full year basis for FY '18, our IT services revenue grew 4.6% in U.S. dollar terms and 2.9% in constant currency terms.

In quarter 4, we signed a definitive agreement to divest Wipro's hosted data center services business to Ensono, a leading hybrid IT services provider for USD 405 million.

We'll unlock value by transitioning 8 data centers and over 900 employees to Ensono.

As part of the agreement, we will make strategic investment of USD 55 million in Ensono's combined entity.

We expect to complete this transaction in quarter 1.

Let me speak about the outlook for the June quarter.

For the quarter ending June 30, 2018, we have guided for the IT Services revenue in the range of INR 2,015 million to INR 2,065 million in constant currency.

For the purposes of outlook, we have not considered the impact of divestment of our data center business on the revenue for the quarter ending June 30, 2018.

We've revised the outlook for the quarter based on the actual date of completion of the divestment.

Operating margins.

In quarter 4, we have recorded a provision of INR 2,080 million -- sorry, as we are impacted by the clients' insolvency and also withstanding impairment loss in one of our acquisitions.

These events have cumulatively impacted our margins by 1.6% in quarter 4, adjusted for which our normalized IT Services margin for quarter was 16%.

This reflects a decline of 1.2% compared to quarter 3, owing to constant -- owing to currency moment and lower profitability in our India and Middle East business.

Our reported operating margin for Q4 was 14.4%.

On a full year basis, the client insolvency and the impairment loss in one of our acquisitions, that I talked about earlier, had an impact of 1% on our margins.

Adjusted for these events, our normalized margins for FY '18 were at 16.8%.

Full year normalized margins for FY '18 on constant currency basis remains flattish.

Our reported operating margins for FY '18 was 15.8%.

On currency, on the ForEx front, our realized rate for IT Services in Q4 was INR 65.04 versus a rate of INR 65.74 realized for Q3.

Net impact of currencies was minus 0.5% on margins.

ETR, the effective tax rate, for Q4 was 20.4% compared to 21.7% in Q3.

Reduction in ETR is largely due to the onetime benefit from certain losses and impairments written off in Q4.

On a full year basis, for FY '18, ETR was 21.8% versus 22.8% in FY '17.

This reduction was driven by the U.S. tax reform-related benefit in Q3 and tax benefit from impairment losses written off in Q4.

Net income.

Net income for the quarter was INR 18 billion, and for the full year was INR 80 billion.

Cash flow.

We generated operating cash flow of INR 84 billion in FY '18, which was 105% of our net income.

This was the second consecutive year where we generated operating cash flows in excess of 100% of our net income.

Our net cash is $2.4 billion.

ForEx, we had about $2.4 billion of ForEx derivative contracts as hedges at the end of quarter 4.

Capital allocation.

In FY '18, we returned INR 115,420 million through buyback and dividend for our shareholders, which is 144% of our net income.

We remain committed to 45% to 50% of our net income to shareholders going forward.

We'll be happy to take any questions you may have.

(Operator Instructions) The first question is from the line of Sandip Agarwal from Edelweiss.

Abid, I have a question, which is more on the strategic side.

If you see, we have been trying to get the growth back for quite some time now.

And every quarter or the other quarter, we get some or other reason because of which we missed that path which we have been trying to go on.

But unfortunately, something or other has been hitting us for quite some time now.

And in spite of very good announcements and deal wins, it doesn't reflect in the growth at all.

And if you see last year, also, we have been probably one of the lowest in the large caps in terms of growth numbers.

And the way we are starting Q1, again, looks very painful.

It means, we are going -- definitely going to have a bad start, I would say.

So what is missing or you think that we have a lot of moving parts still in the business, which will keep on impacting us and we are not certain when the stability will come?

So, Sandip, as I have mentioned in my opening remarks, we are certainly disappointed about the momentum loss in Q1.

And it is because of a few specific areas, which we have been sharing continuously.

On the revenue front for Q1, primarily, it is 2 major reasons.

One is a continued fall of HPS revenues, which right now, there is a level of uncertainty simply because the legislative changes that we expected, which will enable a lot of peers to stay in the market in the ACS space doesn't seem to be on the horizon.

And that is why our customers are exiting.

Both in the last quarter and this quarter, we've seen a fall in revenue.

Just to give you a sense, as I've mentioned, our highest revenue was around -- over $70 million about 5 quarters back.

Now it is in the range of low 30s.

So that is the quarterly impact in terms of revenues.

The bankruptcy wise, margin impact happened in Q4.

As you will imagine, the revenue impact happens in Q1 where a significant part almost all of that revenue goes away from both of these bankruptcies, which happened in the same quarter 1 in the first week of Q3 and one in the last week of Q3, both of which we announced.

So if I kind of broadly answer your question, yes, there are parts of our business where there is a level of uncertainty and restructuring that we are doing, which is around HPS, India, Middle East and the consumer vertical and some other subsegments.

But the bankruptcies have been unfortunate and simultaneous, too, in this one quarter, which has created additional headwind for us in Q1.

Having said that, if you look at the core business and its growth, I feel very comfortable that our strategy is working, whether it is on client mining, whether it is on digital and consulting revenue growth, whether it is on some of the other levers of modernizing the core of our customers through hyper-automation and deployment of HOLMES, whether it is on bringing innovation to our customers through our venture and the deals and the successes we are seeing over there.

So as you have rightly pointed out, the headline number is yet to deliver up to our own expectations.

But the parts that we see, which are in good health -- if you notice this quarter, both our largest business units, the Banking and Financial Services and Manufacturing and Technology on a constant-currency basis have grown by nearly 3% quarter-on-quarter, which I believe is healthy growth.

Also, our Energy and Natural, ENU business, especially the energy part, has been growing much faster.

It has been dampened a little bit by our Utilities business where we had a couple of large engagements getting over and the new engagements ramping up is taking a little longer, but it grew at about 1.6%.

Healthcare and Life Sciences, where the major impact of HPS is taking place, still has positive growth, which means that the rest of the business is showing a relatively healthy trend.

If I talk about the order booking, Q4 has been one of our highest order books ever in terms of deals.

And these deals are primarily digital deals, a very strong digital funnel across all of our BUs.

So overall from the core business and execution of the strategy, I continue to feel quite confident and positive.

But as you rightly said, something or the other does show up, which doesn't allow us to show a headline growth that we would like to see ourselves.

However, after having taken the impact of these surprises in Q1, I do feel comfortable that Q2 onwards we'll be back on our growth trajectory, as we have planned.

The next question is from the line of Sudheer Guntupalli from AMBIT Capital.

So over the last 2 quarters, we're kind of getting surprised by insolvencies of clients.

So is there any internal assessment, which you have undertaken to see if any other client in the portfolio is also going in the same direction?

And do you have any such visibility that no other client is also heading in the same direction?

That's question number one.

And question number two, I think sometime back, we were sharing a lot of optimism in Healthcare and Life Sciences saying it bottomed out and we lost a sizable revenue run rate, and we expected it to rebound.

However, the performance in this quarter is very muted.

And your commentary also seems to have changed from what it was sometime back.

So can you give more color on that?

I think the commentary on the Healthcare and Life Sciences vertical and then I'll let Jatin answer the earlier question.

So as you rightly said Healthcare and Life Sciences, we see in 2 parts.

Primarily, one is HLS core business that we had and which continues to grow well.

We've also had very good order booking in that area.

And the second part is the HPS business, which is the ACN which I explained in detail.

We were quite hopeful having spoken to our customers at the time when we had said that we see bottoming out because those customers have decided to stay through the open enrollment period.

The key decisions that customers make is around the open enrollment period, which starts from October, November and goes through January.

And at that time, we relayed back what we heard from those peers to stay in the market.

However, after -- in January when the legislative agenda for calendar year '18 was announced, there -- as you might already know, there was no specific focus on providing legislative clarity on ACN.

Based on that, certain customers decided to exit that market, and that has a direct impact because our customers are the peers in this industry.

And based on their exits, it has had a further impact on our revenues.

And that is why -- while my commentary on the strength of our health business, the competitiveness of our health business across payers and providers remains positive.

And as I mentioned, in spite of a significant impact, even on a quarterly revenue basis of HPS, that part of the business has overcome that and shown positive growth.

It does create significant headwinds on a quarter-on-quarter basis and then an overall headline number for our health business does look muted.

So, Sudheer, if you recall, we had large such instance in 2008, 2009, which is Lehman and Nortel.

So we have a fairly robust risk management process.

But sometimes, such accelerated event, the results that you created is not sufficient for that specific customer.

But we continue to fine tune this, and we hopefully will not see such recurrence.

I would think we are plain unlucky to have 2 such events on an accelerated basis in a span of less than 3 months.

Okay, sir.

And one more question from my side.

So FY '18, you are expecting to exit at industry matching date.

However it -- I think, however, it did not happen.

And regarding FY '19, do you have any such internal targets or benchmarks that you can share with us?

So right now, as you can see, of course, we're a little disappointed in how we are entering FY '19 Q1.

And since impact of these 2 revenues is quite large, we need to refill that.

While we have a strong order book, it will take us at least a quarter for being able to ramp up and then deliver revenues.

So from Q2 onwards, we do see a positive trajectory on growth.

But I would reserve my comment right now on a headline industry matching growth.

The good news that I see internally as we dissect our business.

And if we look at the part of our business, which we would call as our core business, that is showing a very healthy growth, although it gets muted by some of these impacts that we have.

The next question is from the line of Nitin Padmanabhan from Investec.

The BFS revenues that we have done for the quarter and for the year, it looks like the incremental revenue additions are pretty robust.

Actually, not very different from even the largest peer.

Any color you could throw up in terms of how BFS looks to you going forward?

And basically, anything specific in terms of deals, and how you see it broadly?

So as I have stated that our BFS strategy has worked well where we lead through digital transformations for our customers.

We have a robust presence in the Tier 2 market in the U.S. and global banks in Europe and other parts of the world, all of where a lot of the digital transformation is happening.

And we are very proud of what our teams have done and being able to capture those opportunities and deliver transformation to customers and getting this repeat business within those customers.

So overall, I continue to feel good about our BFSI business.

And obviously, the business consists of various parts.

The Run part where we are modernizing the core and the digital transformation.

The Run part does have a year-on-year productivity that we need to deliver, which seasonally happens for Wipro in Q1.

And there is some softness of that, that we expect coming into the digital business.

A lot -- a part of the digital business is being a strategic partner to our customer.

A part of it is book and bill business, and that we'll have to see through the quarter.

But I continue to feel very good about our BFSI strategy and our execution of that strategy and growth coming from BFSI.

Sure.

Just one more, if I may.

The data center business which we have basically sold to Ensono, what it -- could you quantify the kind of impact we could expect from a revenue perspective as and when that completely exits our system?

And possibly margins as well?

So we would -- that business is about $50 million a quarter.

And there will also be a residual piece of that business that stays with us where we have direct contract with our customer, and Ensono will continue to provide services through us to end customer.

So we will be able to share a little more detail when we conclude the transaction, as we've mentioned in our press release, Nitin.

Sure.

And were the margins for this business below the Wipro average or...

That is right, Nitin.

Below Wipro average, so fair enough.

The next question is from the line of Vibhor Singhal from PhillipCapital.

So my question was a bit on the margins front.

So as you mentioned that, basically, in this -- for the last 2 quarters, we've been hit because of client insolvencies, which had exceptional impact and adjusted for that, our margins for the full year will be around 16.5%.

So just wanted to understand 2 things on that front.

One is, if the total impact of both these insolvencies completely factor into our numbers right now?

And we won't see any of those impact going forward?

And if yes or no, either of the 2, what could be the margin trajectory look like to us over the next few quarters given that we would also have salary hikes coming in for us -- for this year?

So, Vibhor, the number adjusted for this onetimers is 16.8%.

And you're right, the entire impact has been of this bankruptcy, so far as our receivables are concerned or any exposure is concerned is already factored in the profit and loss account of -- ended March 31.

So there is no long -- no more profitability-related impact.

But as Abid spoke about, it will certainly have an impact on our revenue in coming quarters.

And that has been factored in our guidance for quarter 1.

Okay.

So I mean -- so given that -- what is -- again, the part of the question was that what is the kind of salary hike that we have decided which quarter?

And what could be the margin impact that we could expect on that going forward?

Yes.

So I will request Saurabh to talk about salary increase.

But before that on margins, our commentary is that our focus is to improve the margins through the year.

And for first quarter, we'll have the impact of the revenue headwinds, and merit salary increase we'll give from June 1. For which, I will request Saurabh to share his comments.

Vibhor, as Jatin called out increases are effective 1st June, so 1-month impact.

They'll be in line with the industry.

Very clearly trying to make sure that all the critical skills, digital skills are expensed.

We haven't called out the exact numbers.

We still have some time.

And at appropriate time, we will share that later.

Fair enough.

Thanks a lot for that.

My second question is, actually, a bit on the growth front, relatively communications business.

So, Abid, if you could just throw some light.

I know in E&D, of course, we've been hit by the insolvency of one of our clients and the Healthcare business has been -- because impacted by the HPS.

The communications business has been continuously declining for the past, I would say, like 7 quarters if I can see that.

So I know the telecom spaces is going under consolidation phase.

But are there any client-specific issues because of the kind of decline that we're seeing is kind of a little more than what we're seeing for the peers.

So any specific issues that we're seeing in that?

And what could we see in that domain over the next few quarters maybe?

Yes, so our communications business has had 2 issues broadly.

One issue is customer specific in the markets that we are quite dominant, India, Middle East and Africa.

The second issue is, also, as you rightly mentioned that whole industry is undergoing a transformation.

And our ability to service that industry in the digital transformation and 5G and other areas.

We -- I feel quite good about what we put in place now.

We have a new leader running that business.

And we have a strategy that I'm quite excited about.

I think it'll take a couple of more quarters to be able to play out.

We had a good deal win in Q4.

It will take a quarter-or-so to reflect in the margins.

As you would imagine, what you see from the Aircel bankruptcy also reflects in the communication portfolio.

So in a couple of quarters, we should have a good sense of the progress being made in the communications vertical.

Fair enough.

Just one last question on HPS.

You mentioned that the revenue for that is probably down to around $30 million run rate.

Do you think it would have bottomed out?

I mean, is it safe to call out that it might have bottomed right now?

Or could we see more weakness in that business?

Vibhor, right now, on the HPS piece, I would -- if anybody's guess would be as good as my guess because a couple of times we felt that the customers that we have now there will remain in the market.

We have a very good product and offering, only thing is that if customers choose to exit that market, we can do very little, except just provide those transition services.

So I continue to feel very positive if there is legislative clarity the product that we have is very strong.

And we can gain market share rather all of the customers who have left us are very happy customers.

They'll be happy to come back and work with us.

But I wouldn't be able to guess unless there is any legislative clarity on how ACA will span out in its next avatar.

The next question is from the line of Shashi Bhusan with Axis Capital.

Sir, we have gone through tough time over the last 2 quarters due to clients' bankruptcy, which I understand is not in your control.

But what I want to understand is how is our risk assessment team approach to these events?

Now do we have any early warning system wherein we systematically cut our exposure to some of these clients gradually?

Like if this Indian teleco, this was eventuality waiting to happen.

Why we didn't started cutting our exposure gradually over the last 4, 5 quarters to soften the impact?

Yes.

So, Shashi, there are a couple of points I'd like to highlight.

I think both customer bankruptcies that took place were the contracts which were long-term in nature.

So effectively when we had entered -- those contracts were entered about 10 years back or 5 or 6 years back.

And when we had entered them, we were in good shape.

We also have had situations that some of our global or local customers have gone through such situations, but we have been able to successfully reduce our exposure or completely cover our exposure.

We have at least 2 or 3 other cases.

I don't want to name those customers.

I can't name those customers.

Last incident we had was 10 years back.

It is unfortunate it has happened, but we'll manage this actively, and we'll continue to fine tune and manage that into future as well.

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

Abid, just in the last conference call, you said that most of the transformation and restructuring is over.

And you feel excited for the growth in FY '19 on a Q-on-Q trajectory to first improve and then the Y-o-Y.

But the guidance for the 1Q does not indicate, which I agree you have given some explanations.

But if you look at the telecom as a impact, which you're counting as more than $50 million impact.

So if I do divide by 4 quarters, then the impact on the 1Q guidance would be 70 basis point versus your lower end of the guidance is 2.3%.

So still if you look at the impact of 1.5% is coming outside the bankruptcy client.

So what explains that?

And why still we call it out as a seasonality because I failed to understand if you look at the concentration of your business in terms of services mix, seasonality should not impact you much now going forward in the 1Q, which generally a strong quarter for the industry.

So, Sandeep, apart from the client bankruptcies the softness in revenues continues to be from the HPS business where we've factored in our guidance for the drop.

And from our India and Middle East business, which -- while we put all the, I would say, the basics of our restructuring in place with a new leadership team and a strategy in terms of what we want to go after, there is a significant install base of our business, which is running out.

And it is a timing issue in terms of the new digital transformative business in the area of cloud applications and design and digital that we're acquiring versus engagements getting over in terms of some of the IT infrastructure service maintenance contracts and product-based services that we've traditionally had in the Wipro Infotech business, which is now moving to the cloud or because of our strategic shift, we are not acquiring new deals in some of those areas.

Okay.

But, Abid, do we believe that then the order book momentum has to further improve because such things may continue for you as well as for the other vendors.

But other vendors are able to manage, while our order book momentum which we keep saying that it's strong, but it's not helping in terms of fighting with these kind of headwinds.

Yes.

So I agree, Sandeep, that one is the order book momentum.

Second is the time to revenue conversion from order book.

Both become factors in the correlation that you have with order book versus the revenue momentum as well as some of these unanticipated impacts become a little difficult to immediately recover from -- but in the medium term, we are very hopeful of recovering it.

I'm seeing larger deals and seeing digital deals coming up.

So you should be able to see growth returning from Q2 onwards.

Q1 has been a disappointment for us.

And we've learned and we'll -- we've put in place mitigation plans.

Okay.

And if I understood correctly, what we're seeing is the revenue impact of the 2 bankrupt account, especially on the telecom, would be felt in the 1Q and it would be largely over?

And 2Q onwards, those impacts may not be there?

Or if it's there, it may be immaterial.

So what has led to a 8% decline in our telecom in this quarter?

Is this a client outside the bankruptcy account?

Yes.

So, Sandeep, I will request Milan who runs our communications business to respond.

Yes.

Hi, this is Milan.

Sandeep, so there are 2 aspects to this, Sandeep.

One is, of course, the bankruptcy that we -- that Abid alluded to.

The second is that there has been a continuous shift in the underlying business of telecom companies across.

So what we're actually trying to do is to put together a plan.

And we've already put together the strategy, which will look at this underlying business for the 3 key changes there.

The first one is that there is readiness for 5G networks, which is happening.

And there is a continuous shift in the priorities of the telecom companies to move from 4G to 5G.

Second is that there are underlying businesses, which are using telecom as a pipe.

And the new businesses require an amalgamation of network and IT happening together.

So that's the second part.

And the third part is that the consumers, obviously, have more and more clarity, so there are over the top players, et cetera.

So it's very important for the customers to be able to look at how to predict where the customers are going.

And therefore, the strategy for us has been around network modernization is something that we are clearly looking at.

We're looking at how to make sure that network and IT work closely together.

Specifically, we're looking at the digital BFS space.

And the third part is in analytics.

So I think all of these are strategies that we have put together.

And we are able to, therefore, look at how things are going to go forward.

In the quarter for specifically to answer your question, there has been a few of these elements that have taken place, which has not been -- which has not worked out for us.

So there has been an issue of IP taking away some of our numbers.

We have got a couple of projects, which have gotten completed, which we are in the process of ramping up.

So that ramp up will happen in a quarter or so.

And the third one is on the bankruptcy.

So there is an element of the 3 things, which I talked about, which has caused the decline.

But we have identified that, and we have an ability to look forward, which we feel confident about gaining back from.

But just a clarity, if a bankruptcy account has impacted you in the Q4 and the client has declared the bankruptcy, then why the revenue should fall down in the Q1?

Because in that scenario, it should have gone to 0 in Q4 itself.

So, Sandeep, there are 2 impacts due to the bankruptcy.

One is the margin that we had to take a write-off, which has been taken in Q4.

A very small part of the ramp down has happened in Q4 because, as you know, we announced the bankruptcy for the communications side only in the last week of the quarter.

So the ramp down happened for a week or so once it became clear to us.

The major impact on revenue is happening in Q1.

The major impact has been completely taken on margins in Q4.

So there is impact in 2 different quarters.

One is for the write-off.

The second one is for revenues.

Okay.

Okay.

And just on the margins, Jatin, if I look into the metrics, utilization has improved materially.

Fixed price has improved materially.

Offshoring has also improved.

But despite that on an adjusted basis, your margins have declined by 120 basis point, of which I understand 50 basis point is through currency.

But what is the balance 70 bps?

And why despite all these tailwinds has not able to defend that 70 basis point decline?

Because I think Middle East business is not that big enough that will give you a 70 basis point impact on a consolidated basis.

Yes.

So, Sandeep, we spoke about it.

I think the fundamentally about 50 basis point in ForEx and 50 basis point is in India and Middle East business.

But overall, as we spoke about it, I think we are -- we have 2 positions.

One position is that we are improving farming, we are improving offshoring, we are improving fixed-price project, we are improving productivity.

And overall, that is puts -- that puts us in a good building block from margin standpoint.

Other is some of this impacts, which have come in, which were onetime in nature, but there's also volatility in some parts, which is India, Middle East and HPS, which has caused the impact in quarter 4 and which has flown through that remaining business points that you spoke about.

And that makes up the walk off 120 basis points or so.

We'll move to next question, which is from the line of Dipesh Mehta from SBICAP Securities.

Just want to get your comments on outlook for 2 service lines, specifically about business processing and the product engineering.

Because Wipro used to be having very strong product and engineering tactics.

But if I look last couple of years, the revenue growth momentum doesn't show good traction kind of thing.

If you can help us understand what is playing out there?

Dipesh, I'll request Bhanu, our Chief Operating Officer, to talk about it.

Yes.

Dipesh, first of all -- yes, that's the business process services part of it.

We have looked at -- if you look at the BPS services that we offered, there are services that we offered, which are core services for the organizations as well as the platform services that we offer for some of our health care customers.

HPS is part of that platform services.

So the BPS performance should be looked at in the context of the decline in revenues that we saw in HPS.

Again, just to reiterate what we have mentioned earlier, because of the uncertainty in the administrative environment, the customers have left the markets.

There have been satisfied customers on our platform, but they have left the market itself in terms of servicing.

And that has caused the decline in the HPS revenues.

So BPS revenue decline is -- should be viewed in the context of the HPS decline.

However, we will see good growth momentum for our core BPS services.

On the engineering services, now we have -- we continue to be a very strong player in the engineering services.

It has been our traditional strength area as well.

And if you look at the current quarter, you see the momentum picking up on the engineering services right now.

And there are certain adjustments that we have made in terms of our service portfolio for the product engineering services that triggers -- that suits the market right now.

We are seeing a significant momentum in managing the IT for third parties, which is significant momentum in some of the consumer electronics space and the health space.

And we do need to pick up momentum on some of the automotive spaces right now.

But we do see -- you look at the current quarter on the product engineering services, you can see the momentum picking up right now.

So whether this quarter is a indication of growth returning?

Or because if I look full year as well as last couple of years, growth rate was very muted kind of thing.

So if you can help us what went wrong and what we did?

Because I'm not very clear about what exactly played out over the last couple of quarters.

Yes.

So on the engineering services, you do see a change of the nature of services that are being offered right now.

Right?

There is a change in terms of what you look at a semiconductor services and storage areas.

There's a change in the product design capabilities that are required for Healthcare and Life Sciences products, right?

And that is the change, that's the transformation that we are continuing to make for the offerings that we're doing in the product engineering space right now.

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

Firstly, just a clarity on the guidance.

So Abid, were you also alluding to maybe part of the 1Q guidance also embedding some kind of productivity benefits that have a seasonal kicking in during the first quarter within BFSI, Run segments?

Yes.

It is part of our ongoing if you noticed, Q1 has historically been soft for Wipro.

And that is based on some of the rhythm that we have of our contracts within our annuity, productivity discounts committed to customers in some of the large deals that we have.

Okay.

Okay.

And the second question was on the margins.

So, Jatin, you did mention that the focus is on probably improving it quarter-on-quarter from here on.

But just wanted to understand a little bit more granularity as to how do we look at it?

Because, I guess, in the first quarter, this weaker revenue traction because of the headwinds you discussed, the BFSI impact and probably also the India and Middle East segment, which will have that seasonal weakness and the 1-month of wage hikes.

I think all of these are adding up as headwinds and probably some more wage hikes than in the second quarter.

So I just wanted to understand that -- I mean, there has been a lot of levers that play already in the numbers with metrics such as fixed-price and utilization.

So going forward, do we expect that probably this quarterly expansion of the margins may be slightly more back ended as compared to right from the beginning of the year considering the way they had been shape up?

So, as you said, quarter 1, certainly, will have headwinds on revenue and MSI impact that will impact -- that will be something that we'll have to work through.

And going forward, the revenue momentum itself as well as some of the good work that we have done on automation and productivity, would be in my view, a key margin expansion on levers for large part of our business.

Other things are that the external noise or the volatility that we have on India, Middle East business, some of that stabilizes itself would be additional lever.

And lastly, we are all growing our digital business, which comes with a superior pricing.

So that would be a medium-term lever as well.

And that's how we see our margin as we look at next few quarters.

Okay.

And just lastly from my side.

On the consumer vertical, what would be the outlook over the near term?

Do we expect this softness to continue for a bit?

Or should we expect it to turnaround?

Srini is on the call and let him respond.

Sure, Abid.

No, if you look at retail of an industry, I think it's kind of stabilizing with pockets of strength that came up through the holiday season.

Now what we see is a brick-and-mortar retailers, I think, they are kind of perfecting the omni-channel model and that's also helping them compete against online retailer.

Now the opportunity for us is on the digital, where we are helping our retailers in their customer experience and also helping in the efficiency through hyper automations.

To me one is on the front-end the retailers, especially the brick-and-mortar are kind of evolving and also there is a lot of focus on inventory level through supply chain initiative, which is also kind of an opportunity that is presenting to us.

Net-net I would say that retail as an industry is kind of stabilizing and also investing into both on the front-end and the supply chain side, which I would see as an opportunity for us to move forward.

We'll move to our next question which is from the line of Nitin Jain from Crédit Suisse.

This is Anantha, actually.

Abid, I just had one question for you.

So -- and you rightly pointed out during your opening remarks, you've done some pretty good job with mining your top 5 clients, but then clients beyond the top 5 have done fairly bad, poorly this year.

FY '17 is (inaudible) where the top 5 clients did not do well and the others did well.

And if you actually go back a few years and this has actually been the case for most of the years, where one or the other does well and the other does not.

So my question to you is, do you think about those and there is any reason for those?

Or is it just a luck of the draw?

Can you repeat the last part of your question, what exactly is the question, Ananth?

No, the question, Abid, is, why does -- why is it an either or situation where your top clients do well and the others don't, or the other way round.

And this has been the case for the last many years and especially, stock in FY '18 and in FY '17?

So Anantha I can't speak of last many years, but I can talk about the last 8 quarters.

And over the last 8 quarters, as we put in certain best practices around client mining, I talked about integrated services.

Single access that we approach customers with across all of our service lines and driving the strategy, which is primarily modernizing their core proactively bringing offers to them in terms of how hyper-automation can deliver cost leadership and productivity and better customer service to them.

And then enabling their future by bringing design-led digital services and innovation, which is primarily around not only the IP that we internally create, but also our Wipro Ventures and other IP.

I think all of that has resulted in excellent feedback from our customers.

Our customer satisfaction over the last 24 months has improved by over -- the NPS figures have improved by over 18%.

Our revenues -- and of course, we ask a lot of questions in our surveys to our customers in terms of their intent to spend and it has just shown positive trend.

And the actual results have shown a positive trend.

Now there may be a case of a customer or 2 because of their own strategic reasons, they might be facing headwinds, and hence, they might reduce spend and a customer or 2 may go up or down.

But as a portfolio, I feel quite comfortable that our set of large customers have grown significantly higher than the overall company average.

And most of these large customers, as you would imagine, is part of our overseas core business, whereas some of the headwinds that we faced, which have been impacting us, whether it is some of our acquired entities or the India and Middle East business, that is not where some of these customers sit.

The only area, which I can think of, of prior to the 24 months where large customer impact had happened on us, was in our ENU segment where we had significant large customers in the energy space, which had ramped down due to the oil prices at that time.

We have seen some of those customers also come back and increase our spend -- their spend with us, including we helping them in cloud transformation, including we helping them with some of their digital transformation in their upstream, their downstream and retail side of the business.

So I kind of feel good about our ability to approach customers proactively and consultatively provide proactive propositions to create demand over there.

If you look at the growth of our consulting business, our digital business, which has grown very well, is on the back of what we have been able to do with our large customers.

So while there are issues that we are addressing in some parts of our portfolio, the core part of our business, which has a significant proportion of our revenues coming from our large customers, makes me feel quite comfortable, overall.

Thanks for that Abid.

And just one final clarification from Jatin.

Jatin, did you mention that your payout strategy is going to be 45% of your net income?

Yes.

We are.

I mentioned 45% to 50% of our net income, and that we should see over a block of years, as we always spoken about.

The next question is from the line of Anantha Narayan from Crédit Suisse.

Margaret, Anantha has just spoken.

Can you move to the next caller, please?

We'll move to our next question, which is from the line of Sandeep Shah from CIMB.

Sir, just one question on this data center business, which we are hiving off, is it EPS neutral or positive?

Because looking at the payout and the margins, which is lower than the company average, my sense is, it could be at least EPS neutral or marginally positive.

Sandeep, it would be positive to EPS.

(Operator Instructions) The next question is from the line of Rahul Jain from Emkay Global.

My question is pertaining to the hive off of the business that we did to Ensono and we did one such transaction last year as well.

So just wanted to understand is the whole idea behind this divestment is it to make company more leaner and with a thought process that to construct a structure, which will be more relevant from a future perspective and would be a high-growth business engine going forward?

If that is the thought, then what are more pieces left in the existing revenue base, which may see that kind of a action going forward?

Yes, so just to talk broadly about the strategy, we've had very large portfolio, which has made us very successful in the past.

But there are certain parts of the portfolio where we see the need to make a strategic shift.

For example, in the data center business, if we look at what our customers want, they want to be cloud-enabled for them.

And hence, in the long run, we're having -- and data center business is a scale business.

So as more and more cloud-enablement happens, even those customers who want to be on a private cloud or a on-premise data center are better off served by a data center provider who is having a lot of scale, who can provide the price competitiveness to us in order to be able to be competitive and efficient for our customers.

So as part of that strategy, we thought it is best that we simplify our portfolio, make ourselves future ready to be able to provide cloud transformation services to our clients and have the option through this strategic alliance with Ensono to be able to provide private cloud or on-premise services through the partnership.

And that is the objective.

If you remember, we are also cutting out a large amount of tail business in our India and Middle East, which we call as the product-LED services business to small and medium customers.

So there are various parts of our business where we have done a strategic review.

And we feel that it makes our business simpler, as you rightly said, it makes our portfolio much better tuned to the future driving growth and focusing on our core customers, which could be sizable and deliver better margins and growth to us.

So it's a part of an overall thought out strategy that we are executing on.

Thank you.

Ladies and gentlemen, that was the last question.

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

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.

On behalf of Wipro Limited, that concludes this conference.

Thank you for joining us.

And you may now disconnect your lines.