Wipro Ltd (WIT) 2019 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Wipro Limited Q3 FY '19 Results Conference Call.

(Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Ms. Aparna Iyer, Vice President and Corporate Treasurer, Wipro Limited.

Thank you, and over to you, ma'am.

Thank you, Margaret.

Wish you all a very happy new year, and warm welcome to our quarter 3 FY '19 earnings call.

We will begin the call with business highlights and overview by Abid, our Chief Executive Officer and Executive Director, followed by financial overview by our CFO, Jatin Dalal.

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

Before Abid starts, let me draw your attention to the fact that during this call, we may make certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act 1995.

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

The uncertainties and risk factors are explained in our detailed filings with the SEC.

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

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

Over to you, Abid.

Thank you, Aparna, and good evening, good morning, ladies and gentlemen.

First of all, wish you all a very happy new year.

I'm joined on this call by my leadership team, and it is a pleasure for us to speak to you all.

It is yet another quarter of good execution by the team.

Our performance in both revenue and margins has been robust.

Let me quickly provide you an update on Q2 -- or Q3 and our view of the demand environment and the progress on the 6 strategic themes that I talk to you about every quarter.

In constant currency terms, our IT Services revenue grew by 2.4%, which is within the guidance range.

Amongst the verticals, our Banking and Financial Services vertical and Consumer vertical continued to do well and -- along with the Energy and Utilities vertical.

The 3 verticals have grown over 10% year-on-year in constant currency.

Technology has had a muted growth, which is normal in Q3 because of furloughs, but the outlook remains quite stable.

Communication has grown well at 2.1% in constant currency.

Health Care is likely to remain soft as we overcome the uncertainty around ACA.

The demand environment in the global markets is stable.

We do not see any immediate impact of the macro headwinds that some of the large economies have cautioned, but we continue to remain quite watchful.

The traction in U.S. and Asia Pacific and other emerging markets remains healthy, and the growth this quarter is across industry segments.

India will continue to remain a little volatile as we undergo the restructuring and transformation of our business.

We have expanded our margin significantly over the past 2 quarters, which has been driven by relentless focus on various operating levers, and especially automation, by our teams.

We see some of this uptick being reinvested into our people and our big bets and strategic themes that we have been talking about.

We remain committed to driving profitable growth and high quality of revenues.

Now let me quickly share the update on our strategic themes.

Our digital revenue continues to grow strongly and increased 6.4% sequentially and 35.4% year-on-year in Q3.

It now contributes 33.2% of our overall revenues.

Our clients are increasingly drawing on the power of Wipro Digital, combined with Wipro's traditional business, to deliver new products, services and experiences to their clients and employees.

All of this is enabled by the digitally trained workforce, which now is over 130,000 employees.

Just to give you an example of the kind of deals we are executing, a North America-based publishing company has awarded a multiyear process simplification and user experience transformation contract to Wipro.

Leveraging our expertise in cloud, Agile and Wipro Digital's design-centric approach through our Designit acquisition, we will optimize the client's global inventory and supply chain processes and enable an enhanced experience for clients and consumers.

I continue to remain quite satisfied by our efforts on customer mining, and the results have been quite robust across all buckets despite a quarter with furloughs, which primarily impacts our large customers.

In Q3, our top 10 clients grew 6.3% sequentially in constant currency terms and 14% year-on-year, and our top 5 clients grew 9.7% sequentially and 19.1% year-on-year.

We've added 1 client in the $100 million bucket, 2 in $50 million-plus bucket and 7 clients in the $20 million-plus bucket.

We continue to add various different service lines to our existing customers to drive this growth.

This quarter, we have won incremental business to an existing infrastructure customer and now are servicing them in the data analytics and artificial intelligence space.

This will see our existing footprint expand as the customer embarks on its 2020 focus to transformation journey.

On nonlinearity, we continued to invest in intellectual property.

And during Q3, we filed 60 new patents, taking our total patent applied count to 2,113, with about 492 granted patents within our portfolio.

And a large number of these patents are in futuristic technology areas around data analytics, artificial intelligence, wireless technologies and so on and so forth.

We continue to execute quite well on automation, or what we call as hyperautomation, essentially leveraging our IT, which is Wipro HOLMES platform, which is now in over 350 of our clients.

The measure that we use to quantify our automation, which is work done by bots, has improved in our fixed-price projects from about 3% work in Q2 to about 6.7% work in Q3.

And our fixed price mix has improved to about 59.8%.

On localization, we continue to drive localization in all of our major markets, and especially in U.S., we have crossed 62.6%, up from 60.3% in Q2 last year.

Our relationships with various universities, our brand presence in the U.S. market has helped us satisfy our demand through the cadre building and recruitment that we have been doing over the last 3 years as part of our localization initiative.

In Q3, we completed a new investment in Moogsoft and a follow-on financing in Demisto as part of our innovation ecosystem.

Moogsoft provides the platform to automate IT operations using artificial intelligence, and Demisto, as you might remember, offers an automation -- automated incident response platform in our cybersecurity practice that combines security orchestration, incident management and interactive investigation.

Both these companies are leaders in their respective segments and enables us to provide platform-based services to our customers.

The total number of investments through Wipro Ventures now stands at 18.

We incubated 3 new themes through our Horizon program during the quarter, again in the area of intelligent networks, customer life cycle management and service management.

We continue to see strong traction on crowdsourcing on our Topcoder platform.

A leading multinational product and technology company has awarded a strategic crowdsource testing services contract to Wipro on our Topcoder platform.

The contract will leverage Topcoder's quality as a service offering and Wipro's expertise in quality assurance to help the client not only speed up test cycles, but also strengthen the quality assurance process through a more diverse participation through crowdsourcing.

What we're seeing on an ongoing basis is, while we started on crowdsourcing in some specific areas, each one of our service lines is now being able to find intersections, where we are able to leverage crowdsourcing to provide faster turnaround times and more differentiated solutions to our customers.

Our internal crowdsourcing platform, Top Gear, has now onboarded 29,600-plus employees on the platform, taking the total number of employees registered on the platform to over 90,000.

This quarter, 2,186 project challenges were executed successfully, taking the total to about 5,000-plus projects in this financial year.

We continue to gain recognition with industry analysts, and, out of over 300 reports in which Wipro gets a mention, we are in the leaders quadrant in 200 reports.

To conclude, we remain quite focused on execution on both revenue and margin, as we build on our momentum on the back of strong customer relationships, deep investments in digital and other big bets and consistently improving on our operating metrics and innovating the next-generation delivery model, while we remain watchful of the macro environment.

Now I'll request you, Jatin, to talk about the financials.

Thank you, Abid.

So, ladies and gentlemen, as you know, we had guided for 1% to 3% constant currency sequential growth.

We have come at 2.4%, well within our guidance range.

Our operating margins expanded roughly 1.2%, and we delivered 19.8% OM for quarter 3. If you see our ETR, ETR improved slightly from 22% in quarter 2 to 21.6% in quarter 3 -- 21.5% in quarter 3.

Our Y-o-Y growth of net income was very healthy at approximately 30% year-on-year.

Our EPS expanded year-on-year at 38%.

We improved our days sales outstanding by approximately 6 days on a sequential basis and 7 days on year-on-year basis.

Resultant, our operating cash flow was 142% of our net income.

We have a gross cash of roughly $5.1 billion, which is $600 million higher than previous quarter-end, and net cash of $3.6 billion, versus $2.9 billion as at the end of quarter 2. We realized on ForEx INR 71.66 for every dollar in quarter 3, compared to INR 70.36 in quarter 2. We received a gain on ForEx of 60 basis points sequentially on account of ForEx.

As we always maintain, our payout ratio continues to be between 45% to 50% of our net income, seen over a block of years.

We always look at, in April meeting, the overall payout ratio, and currently the board, in January meeting, has suggested a dividend of INR 1 per share.

Subject to shareholder approval, we have also -- the board has also recommended a bonus share, 1 bonus share for every 3 shares held.

Our outlook for quarter 4 is 0 to 2% sequential growth in the constant currency of quarter 3, which is mentioned in our press release.

We'll be very happy to take your questions from here on.

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

So Abid, I have just 2 questions.

First of all, I just wanted to know, now you have spoken that digital now is 33% of our business, and it is growing at 35%.

So almost we are talking about 10% year-over-year growth from digital alone for the overall company.

I would like to know how much deterioration in the balance of the business has already happened -- or what I would like to understand is, will the balance of the business continue to decline or remain stable, which will lead to digital becoming 50%, 60% of the overall business going forward?

Or do you think that large part of pain in the non-digital side has already been behind, and going forward, it will at least be stable to some low single-digit growth?

That is question number one.

Question number two, on digital, again, generally, we have seen in the last 20, 25 years of history that a particular business line or segment when it becomes 30%, 35%, then we start getting a lot of margin benefit and also, the growth numbers start coming down a little bit.

I understand that digital is not a segment or a vertical and that it is across, so obviously it -- maybe our whole business becomes digital in the next 5 years, that is a possibility.

So what is your sense?

Are we close to that number where probably this 35%, 40% growth rate will cool off, and the margins will also start improving significantly?

Sandip, thanks for your question.

I think, as you rightly pointed out, we've been quite proactive with all of our top 100 customers to take propositions which, in some sense, provide digital transformation and IT modernization alternatives to the legacy work that we may be doing with them.

That, as you see, results in significant growth in the existing strategic customers for us, but at the same time, as you rightly pointed out, it does result into cannibalization of the legacy business.

At the same time, a lot of the run part of the business that we currently have has productivity benefits that, historically, in our industry used to be 3% to 5%, are seeing a higher amount of productivity being delivered through platforms like HOLMES, leveraging artificial intelligence and machine learning kind of technologies.

So I think your observation is right.

Personally, my view is that in the next 5 years, almost all the work that we do would become part of what we define as digital today.

So there is no new nondigital work that is coming.

We are transforming the existing nondigital or legacy work into digital, based on the appetite of change at the customers, based on how some of the assets are written in their books, especially in the IT infrastructure space, for example, migrating to cloud rather than reinvesting in a technology refresh cycle and so on and so forth.

So we're quite proactive with our customers in being able to do that.

We do see -- while from a margin profile perspective and pricing, we do see a slight premium in our digital business or the new business that we are doing, but at the same time right now, a lot of these margins get reinvested back into the business because we are still in the investment mode because, as you rightly said, digital is not a stand-alone business, but it is a combination of various technologies and ways of working, and some of these, while are getting matured like the migration to the cloud or some of the customer experience and design areas, there are still a lot of investment areas across artificial intelligence, machine learning, Big Data, et cetera.

So it's kind of a portfolio, which still continues to require investments in spite of we being able to command a slight pricing premium as well as higher margins in this part of the business.

So I think one question, Abid, you probably missed, which I wanted to know.

So do you think that, as you said, that next 4, 5 years, everything will be digital.

So then does that mean also that this 35%, 40% rates are not sustainable, because some portion of, as you mentioned, cloud migration and other things would be in the mature phase, while others like artificial intelligence, automation, IoT may be at initial stage.

So what is -- if you can clarify a little bit on that.

Yes, of course, as the volume grows, the pace will slow down, but right now, also, remember the market size is increasing, because technology is becoming part of every industry.

Unlike 20, 25 years back, when technology was only used for back-office processing, now technology is becoming the product.

So some of the areas, especially in our engineering services business, our mobile and digital experience piece of the digital business is finding new stakeholders, new areas of application in traditional industries, which creates a much bigger market size.

So while you're right that the growth rates, as the pie increases, because of the base effect, the growth rates will slow down, but there is more market also that is getting created.

I think we'll get a fair share of our pie in the market.

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

The first one is, if you look at the way our hedges are and we take it on the revenue line, do you think, going into next year, just the hedges alone will be a good -- will provide a good tailwind for margins for the whole year?

The second question is, if you look at the fixed-price projects, which is closer to 60% now, and in the context of rising on-site costs with the supply tightness there, do you think that our ability to sort of absorb that with the fixed price kind of situation, do you see that sort of impacting margins, when we think from a slightly longer-term perspective, considering that the supply side may remain tight?

Yes, so, Nitin, we will -- the ForEx has been very volatile, so I don't want to speculate how it will flow next year, certainly.

But I can talk about this year, and this year, we have seen benefit in ForEx both from quarter 1 to quarter 2 and quarter 2 to quarter 3, and they are indeed a part of the operating margin that we have expanded.

We internally, of course, work with a tight regiment of fixed outcome on ForEx that business can work with and build their cost structures around it, and we leave the volatility of the ForEx to be managed in the good hands of our treasury.

So overall, it has -- I will say it has played out well so far this year, and we will continue to see how it plans out.

On second question on increased impact of the localization as a cost, I would put couple of points and I will request Saurabh to talk about the cost of localization and our endeavors there, but very principally, fixed-price project means that our delivery team owns the outcome and therefore, they have higher maneuverability around the type of automation they can put in, type of resources they can engage with.

So to that extent, in fact, it is less of an impact on fixed-price projects.

And on T&M side, you are able to price yourself as you go.

So to that extent, you are also not impacted there too, but overall, localization as a theme is a very important theme for our competitiveness in future.

I request Saurabh to talk about it.

Yes, Nitin, on localization, it's a journey which we started 3 years back.

It's not that we have started today.

I think we saw it coming early.

We have doubled our localization in the key markets over the last 3 years in a very planned fashion.

We have first started hiring locally and now we have made a good network from local colleges, building teams, training people, creating development centers across -- and I'll take a big market of North America -- and doing it.

So it's not a sudden reaction to managing demand there because we anticipated it, planned it, and we're moving ahead.

There is a crunch of STEM talent in the U.S., but that's true, and we are trying to -- we feel that we're in a much better position, given that we have done it in a much planned fashion.

Sure.

Just one last question, if I may.

I think, almost the entire -- or bulk of the growth has entirely come from digital operations and platforms, which we earlier used to call BPO.

So in that context, do you see the rest of the practices sort of pulling up going forward and how do you -- what's the thought there?

And second is, in the context of the D-Ops sort of growth, and it's pretty broad-based, just your thoughts on how that's sort of worked your way.

This is Bhanu here.

I'll take the question.

Nitin, if you look at all the practices that we have, if you look at the year-on-year constant currency terms, right, you would see both digital operations and the platforms as well as our data analytics and AI activities doing extremely well.

And this is the 2 places where we have done -- where we have done good investments.

And like you said -- like you mentioned very well, earlier, we used to call them BPO, but now we do call them digital operations and platforms, because that's the kind of investments that we're making to transform the existing customers' processes as well, right?

So that's the 2 practices you can see them growing in double digits and the 2 other practices, right, both the Modern Application Services as well as the Industrial and Engineering Services, they're also growing around 6% like Wipro itself overall.

Again, these 2 practices, we do believe that there is a great momentum in these practices: one, because of the kind of investments we have made; second, the marketplace itself, in terms of the capabilities that are there for both application services in terms of modernization.

The last one I want to talk to you about is on the cloud infrastructure services; that practice is going extremely well for us.

Again, the investments that we have made in -- making the cloud investments that we have made helping customers transform their applications infrastructure and data to cloud with the help of our cloud migration studios, right?

That proposition is clicking extremely well.

That service line, you would see a little lower number primarily because of certain geographical restructuring that we're looking at.

But overall, all the propositions are becoming very relevant for the market, and it's also validated by the external analyst reports that we see, where we're being rated as leaders in about 200 of the reports that we have participated of the 300 that we work with.

The next question is from the line of Ravi Menon from Elara Capital.

First is a bookkeeping question.

So you used to provide the cost of revenue, sales and marketing and G&A for IT Services and IT Products separately.

Can you just help us evaluate the IT Services margins?

Could you give that, please?

Yes, Ravi, this is Jatin.

The Investor Relations team will circulate it and publish it shortly after the call.

Okay.

And secondly, on Q4 guidance, it seems slightly muted.

Any headwinds that you anticipate, especially in the Health Care or something else that you want to call out?

Yes, as I mentioned in my opening remarks, Ravi, the guidance that we give is based on what we currently see, and while we don't see any change in the demand environment at this point in time, but we do see at a macro level, certain -- both in our 2 largest markets, U.S., in some of the results that we've seen right now, and in the U.K. due to Brexit that we all know, and our guidance incorporates some of those uncertainties.

Also, as we see a robust demand, we continue to see a very high level of pressure on talent and our ability to fulfill talent, and some of that risk is also built into our guidance.

As we execute through the quarter, we've executed well in Q3, and we hope to execute well in Q4 as well.

But the guidance incorporates some of the risks that we see at this point in time.

The Wipro-specific issues don't change.

As I have said, HPS will take a little more time.

The guidance does incorporate some of that.

Just to give you a sense, the open enrollment season is over for most markets, it will get over in January for all markets.

We've seen about a 10% lower enrollment compared to our base last year.

And if you remember last year, in our Q4, which is the January, February, March quarter, a couple of customers decided to discontinue being in the market.

So right now, we don't see any such indication, but the 10% lower enrollment, this is a price per member kind of business, so it will result into a lower revenue, and that has been incorporated in our guidance as well.

Otherwise, I've talked about the transformation of our India business, which will continue to be a little volatile next couple of quarters, and that has been incorporated, and the fundamental transformation of our manufacturing business, which may take another couple of quarters, that has been incorporated as well.

Otherwise, mostly, we see demand in line with what we have been seeing in the past few quarters.

Great.

And Abid, one last question about the Health Services Unit, there you said that open enrollment will actually see 10% lower enrollment.

In this quarter, you have posted pretty good growth in the Health Care division.

So any large deals there that have helped the positive growth?

Yes, Ravi, is your question -- since your voice was not very clear, is your question why the health has seen a growth in quarter 3 when the open enrollments actually fell, as per Abid's commentary?

That's right.

Sorry, I have a very bad cold.

Yes, so Ravi, that is because our open enrollment does have some onetime increase, when we actually complete that annual activity in quarter 3, and that has flown into the revenue stream for quarter 3. But on a secular basis, there will be a decline that will be visible from quarter 4 onwards.

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

Just 2 from my side.

One is, Jatin, if you could just elaborate a bit on the lowered G&A expense that we saw in this quarter.

The absolute number has come down significantly from the last quarter and is probably the lowest in the last 5, 6 quarters.

So any specific one-off there, or -- and what could probably be the recurring run rate that we could expect in that number?

And secondly, as you mentioned on the other disciplines, just fully elaborate on a bit on the Energy Utilities vertical.

I mean, we've seen decent growth in that vertical in this quarter.

Even for the last couple of quarters, I think we were, while it was being negative.

So what is the outlook right now on this sector, because for long, this has been our weak link, and now, with whatever prices that the crude is at being highly volatile, how -- what is the outlook that you see for this segment?

Yes.

So, Vibhor, we did have a good recovery in some of our provisions for doubtful debt in quarter 3. And if you see overall both -- all the counts of order to cash cycle, which is -- be it unbilled revenue, probably it’s historically lowest.

Our DSO has been the best in many quarters, and I would potentially say last few years and also is reflected in a very good provision for doubtful debt recovery in quarter 3, and that is reflected in terms of lower G&A expenses for the quarter.

Bala is on the call and -- N.S. Bala, who is our President for the Energy and Utilities business, will give you color on that business, which has been transformed quite well from our perspective.

Sure.

First of all, happy new year to you, Vipul (sic) [Vibhor].

This is N. S. Bala.

Your question on the volatility of the crude, we don't see that to be impacting the energy sector as much.

As a matter of fact, our Energy segment has continued to see positive momentum, and that's based on the continued spend that we are making on data and cloud transformation.

But more importantly, on your question on the past and what's happening now, if you recall, in the previous commentary we've talked about challenges we've had in our Utility segment.

But in the past few quarters, we've actually brought about some stability to the segment.

And in addition, we're focused on aligning our investments to the digital transformation that utility customers are undertaking, especially as they modernize their application landscape.

So that's what has started yielding the positive results, and we hope to continue to build on the momentum that we've been able to create.

So Bala, if I could just probe a bit further on that.

So basically is the transformation solely driven by our initiative of aligning our investments to their requirements?

Or are we also seeing an increased demand or, let's say, a momentum from their side in terms of deal flow size and which could probably give us some more visibility about the future quarters?

There's a little bit of both in that, Vipul (sic) [Vibhor].

I would say that the customers are continuing to spend a little bit more aggressively in application modernization, but the bigger impact has actually been the alignment of our investments to the modernization that customers are doing, as well as on the digital work that they're doing in the data analytics space and, like I said, the cloud transformation.

So that's actually yielding the results, like I said.

Sure.

So would it be safe to assume that, barring any macro shocks or any unforeseen events, our revival in the segment should probably continue, maybe, I mean, at a higher or lower pace than what it was this quarter -- not to do with the number --, but directionally, do you believe it is -- it should continue in the positive direction that it has been over the last few quarters?

Yes, we believe that we've kind of stabilized the major issues that were impacting us in the past.

So I would say that there is a reasonable degree of positivity about the next few quarters.

I won't comment on how much that could be, but in general, directionally, like you said, we seem to be headed in the right direction.

Sure.

Jatin, just let's -- the last thing on the G&A expense that you mentioned, you mentioned that -- as you mentioned, the reason that this year -- this quarter, we saw a good recovery in provisions.

So, considering that -- considering this as an exception, I mean, this kind of a recovery in this quarter, do you believe that G&A expense to probably revert to the earlier quarterly run rates that we had before, not necessarily just the last quarter, but let's say, if I were to take the average of the last 6 or 7 quarters, that could generally be the forward-looking G&A expense?

That is right, Vibhor.

You look at -- I think right way that you've explained is, we should look at our trend over a few quarters because there have been ups and downs, if you see the G&A trend over the last 6 quarters.

(Operator Instructions) The next question is from the line of Viju George from JPMorgan.

I had a question on the analyst mentions that you cited.

You said that you are regarded as a leader in 200 of the 300 reports.

If you look at some of the common areas where you have leadership -- because this, I think, also looks at some of your peers as well -- what could be those areas where you think you've got leadership with respect to peers as identified by these analyst reports?

So typically, when you look at these reports, as you rightly said, 2 or 3 of our peers would also be participating there, but in some reports, especially in the new age areas of digital, AI, some of the stuff that we talked about, business transformation in the areas of data analytics, I think we're creating a differentiated capability and that gets reflected in these reports.

Sure.

And these are -- what do I say, these are all technologies and capabilities that are being integrated into larger projects as we speak as well, I presume?

That is correct.

On margin improvement, yes, I think, it's G&A driven.

What will be a target or a comfort margin operating range?

Because at some level, we could say that you might still have some room to move up, given where peer margins are, but on the other hand, some guys might say that the peer margins might have to move down.

So from Wipro's perspective, for the growth it wants to achieve, is there a target, not a guidance, but kind of a target margin range where you feel comfortable?

So, Viju, in -- let me first start with the point that there are newer set of opportunities, and those are defined as big bets of Wipro, where we want to remain invested in and go, in fact, disproportionately after investments.

So there is clearly an ambition to do that.

And as we do that, we will continue to look at automation, G&A, other expenses, where we can get better productivity out of our existing cost base, with a view to deliver a certain margin profile as we generate and increase the growth from these new big bets.

We have delivered a trajectory in quarter 2. We have delivered a further uptick in that trajectory in quarter 3. We remain comfortable in this band, and -- where there will always be quarterly variation.

For example, in the current quarter, we have given salary increases to some of our people which will impact our margins in quarter 4. And we will continue to, as I said, remain invested and make incremental investments even in quarter 4 on our big bets, so that would be an additional step.

So overall, Viju, the answer is that, yes, we feel comfortable in the trajectory which we've demonstrated in quarter 2, quarter 3, but the goal will be to create -- to do investments, create differentiation and create growth.

Sure.

And, Abid, 2 specific questions, if I may.

Obviously, the growth, if we take over the slightly longer time frame of the last 4 to 6 quarters, has been driven substantially by BFSI.

But now some of the other verticals are also beginning to participate as well.

Do you think that this is very sustainable hereon, where you can have broad-based growth from many more verticals beyond BFSI, and therefore make it much easier for Wipro to close the revenue gap relative to larger peers, if you have all-round participation?

Do you think we're beginning to tick those boxes as we speak?

That is right, Viju.

You rightly observed.

If you look at the constant currency Q-on-Q growth across our verticals, except technology, which also, as you know, is because the furlough impact is maximum in the technology vertical.

I'm very pleased with the very secular growth across various verticals that we have seen.

A couple of them may have a couple of more volatile quarters, like manufacturing or health, but at least 3 of the 6 business units have delivered double-digit year-on-year growth for us.

So that does feel quite comfortable to me.

And you feel that this is the start of something that can endure?

I'm sorry, can you repeat?

No, you feel that this can sustain going forward, that you won't have -- I mean, because...

All of the ones that I'm talking about are sustainable because, as I said, a couple of them, which will take a little longer time, I pointed out the volatility.

So the ones that I did not point out the volatility, I feel quite comfortable that it is sustainable.

We've got good customer acquisitions.

We've got a good deal flow.

We've got a good demand pipeline, and we've got capabilities and offerings that we've invested in and we've customized for those domains where we see good customer traction.

Sure.

And lastly -- I'm sorry for taking too much time -- Abid, all of your incremental growth comes in digital.

And typically, there is a view that digital is important for clients' competitive advantage.

So do you think that when you look at the nature of development work that's coming, for you and maybe for the industry, it becomes -- since it's strategic, since it's competitive advantage-driven, it becomes less susceptible to macro shifts?

Or do you think if the clients want to cut back, they will cut back regardless of whether it's digital or not?

Are we more resilient today than 7, 8 years back, looking at the nature of developmental spending that's coming out?

So the answer is yes, because a lot of the investment is happening in revenue-generating space for customers.

So, while the spend is discretionary, and if there is macroeconomic uncertainty, a discretionary spend does come under pressure, but compared to a back-office transformation project, which typically the IT services industry has seen in the past, where discretionary spend would have got cut down as one of the first items to save cost, now a lot of the investment is in revenue-generating activities and I would believe that the impact would not be as high.

Again, we've not seen a cycle of slowdown post the digital transformation era.

So this is still something which needs to be tested out, but I would agree with you on the basic hypothesis.

(Operator Instructions) The next question is from the line of Sumeet Jain from Goldman Sachs.

So firstly, I wanted to understand on your margin front, I mean, we've seen a pretty good sharp improvement, and you highlighted G&A as one of the reasons, but if I probe about the other margin levers, can you comment a bit on your on-site effort and the utilization, how much more room do you have?

Because, particularly on the on-site effort, you guys are at 22%, which is one of the lowest compared to your peers.

And given that more -- the new digital projects have more on-site-centric nature, can you believe that you can still further increase the offshoring out there?

So Sumeet, I will let Jatin answer the specifics with the numbers on this one, but I want to kind of just paint a more high-level strategic picture on how we're driving margin improvement, because some of the traditional levers that we've seen in our industry are fundamentally changing.

So the operational levers that you talked about, whether it is utilization, offshoring and so on, will continue.

And in some sense, in a stable pricing environment, stable ForEx environment, it becomes almost like running on the treadmill because also annually, while we continue to do that, there is annual salary and wage inflation that needs to be taken into account, but the way we're looking at this is driving long-term sustainable margin improvement, which is through hyper-automation and crowdsourcing and pricing of premium services that we talked about, which we talk -- which internally we call as the next-generation delivery model.

And that is why in my updates, I always talk about the percentage of work done by bots, which, as I mentioned, has gone up by almost 3% this quarter from Q2 to Q3, based on our Wipro HOLMES platform.

And as we increase the fixed-price percentage of our work, our ability to retain the value that gets created from this automation is [withheld].

Similarly on development side of the house, the internal crowdsourcing that we do, which I update on the Top Gear team is what delivers savings.

And a lot of the improvement that we'll see in margin comes from those operational levers.

So those are the futuristic operations levers and I wouldn't limit our conversation only to utilization and offshoring and those kind of levers, which we continue to work on nonetheless.

I'll let Jatin kind of give a more specific split of the numbers.

Yes.

So Sumeet, thanks for the question, and in some form, I think Viju also mentioned that, and I want to clarify that.

It is optically looking like that there are lower G&A expenses, but there are 2 opposite impacts there.

Our cost of delivery has certainly improved due to the factors just that Abid spoke about -- automation, better execution of fixed-price projects, crowdsourcing, and so on and so forth.

We do have a slightly higher expense line on depreciation and amortization in quarter 3, which is impacting that overall line, and we have an offset of that in some form in the form of superior execution on PDD.

So overall improvement is seeming like optically from the G&A line, but the way we look at it as the management is really superior execution on -- of delivery that we have done.

That's helpful.

My second question is around, I mean, you guys have seen a very high -- achieving a very high localization in U.S., almost to 63% kind of levels now.

So can you just comment what kind of utilization and attrition levels are you seeing in U.S. for yourself?

Are they higher or lower than your company average typically?

So Sumeet, as I said, our utilization -- our localization journey has been for the last 3 years.

We are seeing heightened demand across -- a lot of our peer groups are also hiring there.

So the attrition is lower than the company average.

Utilizations are high because we're conscious about the bench and costs sitting in the U.S., but it's something which needs to be looked at very carefully because we are seeing a situation where this can -- the attrition can go up there, given the crunch of the STEM talent in the country.

Right.

And maybe lastly, on your capital allocation policy, I mean, any thoughts around the share buyback will we see in this financial year?

And let's say, in case it gets pushed out to the next financial year, how are you planning to maintain your capital allocation policy of around 45% to 50% of net income being paid out?

Yes, so Sumeet, we have shared this before, we are dependent on completion of our -- merger of our subsidiaries, and it is taking procedurally a longer time than what we initially envisaged.

So we will play it by the ear.

As I've mentioned that we have always -- as we've mentioned, we've always looked at payout policy over a block of years.

So one would -- as and when one is deciding the next dividend payout or next payout decision, one would be able to calibrate in what point in time we are and, therefore, what should the right decision around it.

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

Just, Abid, question is, in terms of the guidance, so if I look at last year's fourth quarter, we still had a slightly higher portfolio-related issues, and the contributions from those, including India, was higher, which might have declined over the 4 quarters.

At that time, we have given -- guided 1% to 3% kind of a growth rate.

This time, with more confidence on the demand as well as the deal closures, which are happening, we're guiding for 0 to 2%.

So you are saying you're factoring macro issues, but in your initial remarks, you also said there is no immediate impact of the macro.

So can you give us some color on why this is -- if you can clear some confusion on this.

So Sandeep, as I said, we look at what we see at the time that we guide and then we incorporate the risks that we see, as I elaborately explained the risks that we see.

One is specific to us around our Health Care business, specifically HPS and the lower enrollment.

The 2 others are around both macroeconomic situation, which we are very watchful of, primarily both in our large markets, in the U.S. as well as in the U.K. And as we keep seeing renewals, as you know, this is an end-of-the-year time frame where a lot of our contracts get renewed, which are annual contracts or quarterly contracts, and as we see the pace of those renewals, our confidence continues to go up.

Right now, we have guided based on the current state that we see.

As I said, over -- our order booking has been really robust over the last 2 quarters, and some of that gets reflected in the guidance as we ramp up those deals in the January, February, March quarter and Q1 of next financial year.

Okay.

Just, Jatin, a question on the margins, so based on the replies which you have given, you mean to say that 19.8% is a maintainable margin with a narrow band.

Is it the way we should look for?

I think you should look at the improvement that we have done in quarter 2 and quarter 3. I think there will be quarterly volatilities in every quarter, including some of the investments that we continue to make, as I mentioned.

And I think we -- our endeavor would be to remain in this trajectory.

So you mean to say 18.6% to 19.8% is the trajectory which you're looking, which is Q2, Q3 margins?

Yes, but you must, -- yes, but -- that is right, but there is ForEx included there, et cetera.

So I'm, therefore, not quantifying a number or a band which can be deemed as a guidance.

I'm saying this is the operational flexibility -- operational execution that we're comfortable around.

There will be puts and takes.

There'll be ForEx volatility, but this trajectory is what we're comfortable.

Okay.

Got it.

Just one clarification.

If I look at the line item lifetime expected credit loss and the provision for deferred contract costs, on a Q-on-Q, there is almost like a positive swing of INR 170 crores, which is 112 basis point to the consolidated revenue.

At the same time, you also mentioned depreciation has some impairment, which is some 835, which is INR 84 crores.

So roughly, puts and takes, if you look at, the positive impact is still higher by close to around INR 70 crores, INR 80 crores.

So how should we look at it?

So it will reverse going forward?

Yes, so as I responded to one of the questions, I think you should look at as a trend over a few quarters and see it as a normalized spend.

There are 2 or 3 impacts that has flown into that line this quarter and therefore, you're seeing a number which is lower than what we have demonstrated in past by our margin.

Okay.

So for the negative number, is it largely the earlier bad debts being recovered or there is something else also in terms of bad debt lifetime?

No, this is -- when we execute projects and they're dependent on certain outcome that we're able to demonstrate, or sometimes is just the delay on customer side to process payment, especially if it is linked with any bureaucratic sort of organization.

So we have been -- we provide based on our policy of time base, which we provided, and then when we did recovery, it came as a positive.

The next question is from the line of Surendra Goyal from Citigroup.

Abid, are you being able to retain the gains that you achieved due to such sharp increase in automation levels?

Or is this in line with what was already promised to the customer?

And a follow-up on that same question, Jatin, so this kind of benefits which come because of any margin improvement should be visible at a gross margin level.

Is that understanding right?

So Surendra, right now, both the automation gains and the ForEx gains, if you see, we have been able to retain and pass it through, reflecting in our operating margins.

Over time, as you know very well, when deals come up for renewals and productivity milestones hit, some of these things need to be shared with customers, which is the normal rhythm of our business.

Surendra, yes, this gain will come in cost of goods line and that has what has come this quarter also.

It's just that we have an additional cost in that line and a slightly lower cost in G&A, the net impact is being visible optically in G&A for quarter 3. But operationally, all those gains flow through our cost of goods sold line.

Sorry, could you just clarify, what is the additional cost in cost of goods line?

Yes, so this is the -- in some form, the amortization line, which is -- and couple of other expenses -- which is higher, and G&A, where we had a large PDD reversal, is sitting as a gain, and therefore, you're seeing it as a gain.

So you're not seeing the benefit of operational improvement in the cost of goods sold line.

Ladies and gentlemen, that was the last question.

I now hand the conference over to Aparna Iyer for closing comments.

Thank you all for joining the call.

In case we could not take your 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.