Wipro Ltd (WIT) 2016 Q2 法說會逐字稿

Ladies and gentlemen, good day and welcome to the Wipro Limited Earnings Conference Call.

As a reminder, all participant lines will be in the listen-only mode.

There will be an opportunity for you to ask questions after the presentation concludes.

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

I now hand over the conference over to Mr. Aravind Viswanathan.

Thank you, and over to you, sir.

Thank you, Inba.

A warm welcome to our quarter two earnings call.

We will begin the call with business highlights and overview by T. K. Kurien, Member of the Board and CEO; followed by financial overview by our CFO, Jatin Dalal.

Afterwards the operator will open the bridge for question-and-answers with our management team.

The senior management team of Wipro is here to answer your questions.

Before Mr. Kurien starts, let me draw your attention to the fact that during this call we may make certain forward-looking statements with the meaning of 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 being explained in detailed filing with the SEC.

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

The conference call will be archived and the transcript will be available on our website wipro.com.

Ladies and gentlemen, let me now hand it over to Mr. Kurien.

Good morning and good evening to everyone across the world.

Let me begin by talking about our performance and I'll share some perspective around demand environment and the strategic focus areas that we have at Wipro.

In quarter two, our IT Services revenue grew 3.1% sequentially in constant currency, ahead of the midpoint of our guidance.

It's been a quarter of all around growth.

The Retail, Consumer, Transportation and Government business, and the Manufacturing and Hi-Tech business showed momentum with growth rates of 3.5% and 3.6%.

Healthcare and Life Sciences recovered in quarter two with a 4.2% growth and we expect the momentum to continue in the path of strong billings.

Global Media and Telecom showed sequential growth of 4.4%.

However, we expect weakness to continue in the OEM space, while service providers will see momentum.

The Energy, Natural Resources and Utility business was impacted by the steep fall in commodity prices.

It delivered flat results in cost currency, with customer increasingly focusing on cost take-outs and consolidations.

We're building on our market leadership in this segment.

In Banking and Financial Services business unit, we saw a pick-up in quarter two.

We've seen growth in securities and capital markets.

Banking has been focused on significant cost take-outs and Insurance continues to be the investment mode for us.

Among services lines the Business Process Services business has done well, with a sequential growth of 7.1%, while Analytics grew by 3.3%.

Product Engineering has shown consistent growth in the last few quarters.

Global Infrastructure continues to be a very exciting market for us and we're seeing a healthy pipeline and strong traction.

As we look forward, we're seeing a stable demand environment.

We continue to see strong competition around large deals and there is clearly pressure on pricing with respect to new deals.

The deal sizes are getting smaller and the number of multi $100 million deals has clearly reduced in the market place.

Our investment in HOLMES, our cognitive intelligence platform and the next-gen delivery program will give us a competitive edge in competing for large deals.

In the Digital space we believe that partners who can provide end-to-end design and engineering services will have an edge in winning digital deals and we're investing heavily in that direction.

Overall, our guidance for quarter three is impacted by higher furloughs, lower working days and a slower ramp up on the deals that we've closed.

However, we aspire to achieve the second half that is better than the first half.

Let me talk a little more in detail around our areas of focus.

Our Digital business showed strong traction with seven deal wins this quarter.

Designit integrated in the current quarter and we have had two wins by taking an integrated proposition of Wipro Digital in Designit.

Our industry-leading combination of design build capability, along with experience is unique and offers clients a new and more effective way of working.

For example, Chelsea Football Club and a Tier 1 bank will leverage combined capability if Designit deliver remarkable experience for their fans and customers.

While our Digital business offer clients a differentiated service, we expect the Downstream business multiplier to be in range of 5X to 10X, leveraging the traditional technologies, as well as [macro], based upon the stage in which we get engaged.

We've launched a focus program to trade around 10,000 employees in digital technologies during the year.

As Wipro Digital gains traction, it'll drive greater impact to reshaping the performance scale of our customer engagement.

Our cognitive intelligence platform HOMES has enabled us to offer a new fleet of customers with solution -- or solutions to our customers.

We are working on 12 engagements on the business-critical areas like fraud detection, compliance and knowledge virtualization with marquee clients including leading Wall Street bank and a large manufacturing company.

And for productivity improvements, we've made significant strikes through our next-gen delivery program through the deployment of HOLMES.

A year back, we had launched the next-gen delivery to achieve a depth jump in delivery and productivity by relooking at traditional delivery models.

By deployment of next-gen in 55 large accounts and leveraging hyper-automation, we've been able to drive significant productivity gains and also customers with shorter cycle times.

This has resulted in releasing over 3,000 employees for maintenance projects over the past six months, who are now being trained and redeployed into Digital Technology.

Given the speed of innovation in what is the new business model, market leadership requires us to work closely with the broader ecosystem of customers, partners and start-ups.

On the customer side, we're partnering with a Tier 1 automotive company in the development of the Connected Car technology.

We have also increased focus on deepening partnership with other leading technology players.

Wipro was recognized as the premium consulting partner third time in a row and also a strategic partner under the Think Big category at the AWS re:Invent 2015.

In addition to this Wipro recently became a member of the elite audited group AWS Managed Service Partners globally, with a perfect scoring.

The other initiative that we have is Wipro Ventures, our $100 billion venture fund arm that's engaging closely with startups in emerging technology areas.

Our customers have responded positively to our strategic initiatives.

Our customer satisfaction scores improved by 110 basis points compared to the previous quarter.

Across the organization we're investing in building the work place of the future is driving targeted training programs around spotting next-gen technologies and building a mindset around continuous learning, collaboration and innovation.

Our employees remain highly engaged, our attrition levels remain in a narrow range.

I would now request Jatin to walk through the financial in more detail.

Thank you very much.

Thank you, T. K. Good day ladies and gentlemen.

It is a pleasure to speak to you all again.

Before I speak on the finances performance of the quarter, kindly note that for the convenience of our readers, our IFRS financial statements released today have been transferred into dollars at noon buying rates in New York City on September 30, 2015 for the cable transfers in Indian rupees as certified by the Federal Reserve Board of New York.

This was $1 equal to INR65.50.

Accordingly, our Q2 revenues of our IT Services segment, that was $1,831.9 million or in rupees of INR120.4 billion, appears in our earnings release as $1,838.6 million based on this convenience translation.

At Wipro Limited level, gross revenues for the quarter ended September 30, 2015 grew by 7% YoY surpassing INR125 billion.

Net income for the quarter was INR22.4 billion, an increase of 7% YoY.

The revenues in IT Services segment grew by 3.1% in constant currency, which was in the top quartile of the guided range.

The revenues in dollar terms for the quarter was $1,831.9 million, a sequential growth of 2.1% on a reported basis.

Margins in IT Services segment was 20.7%, 25 basis points lower than the margins in Q1.

The headwinds were primarily due to impact of salary increases for two additional months in quarter two and slightly lower utilization.

This was significantly offset by the productivity gains, driven by internal initiatives.

The impact of cross currency volatility on operating margin was cleared off or offset by the gains that we received from rupee depreciation.

In Q2, the IT Products segment delivered revenues of INR5.4 billion, a de-growth of 41% year-on-year.

The lower revenue was on account of extended holidays in the Middle East due to Ramzan and Hajj and delay in completion of milestone in certain customer projects.

Let me talk about Forex and effective tax rate.

On the Forex front, our realized rate for quarter two was INR65.74 versus a rate of INR64.53, which was realized for quarter one of this fiscal.

As at the period-end we had approximately $2.2 billion of Forex derivative contracts as hedges, excluding capital hedges.

The effective tax rate for the quarter two was marginally higher at 22.4%, as against 21.2% in quarter one of this fiscal.

We expect the effective tax rate to be plus or minus 100 basis points as we go forward.

Let me talk about the cash flows.

We generated operating cash flow of INR15.8 billion for the quarter, which was 71% of net income and free cash flow of INR11.7 billion, which was 52% of net income.

If we look at the first half of the current fiscal year, the operating cash flow was 85% of net income.

This is comparable to the first half of the previous fiscal year.

During quarter two, we paid out the final dividend for the fiscal 2014-2015.

Net cash available at September 30, 2015 was INR184 billion or $2.8 billion.

We will be happy to take questions from here.

Operator, you may open the lines now.

Thank you very much sir.

Ladies and gentlemen, we will now begin the question-and-answer session.

(Operator Instructions)

Sandeep Muthangi, IIFL.

Hi, thanks for taking my question.

I have a question on the guidance for 3Q, you've mentioned furloughs and slower ramp-ups being the key additional headwinds.

Can you give us some more color on that.

Especially, what's leading to the slower ramp-ups.

And are you seeing these furloughs being across your clients in a vertical or are these limited to specific clients?

Sandeep this is T. K. Let me answer that in two parts if I can.

First is, if I look at slower ramp-ups, we have won quite a few consolidation deals, which we are right now in the process of the transitioning.

So our own sense is that the revenue that we expect to see from that, it may not be this quarter, we'd probably see it in the quarters to come.

That's the first one.

The second one is on furloughs itself.

If I look at it last -- every year when October comes along, we do a call with our customers to get a sense of what the furloughs would look like as they move towards the end of the quarter.

We're seeing some guidance on some of our Manufacturing customers, some of our Banking and Financial Services customers and also some of our Retail customers that they may have a furlough in December.

It's right now tentative, but in cases where we've got T&M contracts, it's very difficult for us to go out there and collect revenue, especially when they are in holiday.

So that's what we've build into our guidance.

Actually right now, from our perspective, the way we see it is that there is an opportunity out there depending upon how when the quarter progresses, to see how we can kind of work on this number.

But right now we've given you a top-end and a bottom-end and that's the range in which we expect our final results to kind of fall.

Right.

Fair enough.

Just a quick question on the vendor consolidation a bit.

Usually in these situations, I understand that your wallet share would have increased significantly, but have you seen any erosion of your pricing or the margins in these deals?

So with pricing be under pressure, absolutely, yes.

On margins, we think we have enough levers to make sure that we are able to defend our margins.

Okay thanks T. K. All the best for the year ahead.

Thank you.

Diviya Nagarajan, UBS.

Hi, thanks for taking my question.

Two questions for you Mr. Kurien.

First is on the furloughs.

Typically, when we see customers coming back to us and talking about potential incremental furloughs rolling above normal seasonality.

How should we read this?

Is this the sign that there is increased cost pressure at their end and that could potentially impact budgeting season going forward?

That's question number one.

Number two.

Like you pointed out, BPO has done very well this quarter.

Could you just run us through what's contributed to the growth of segments in detail that's contributed growth?

Thanks.

So, Diviya, it's pretty simple.

The way it works is that typically what happens is, we look at our client base and typically we, at the beginning of October, adjust budgets that are available to complete whatever projects that they may have as they go towards the end of the year.

So what we see right now is that across some of the segments that I talked about, there is clearly pressure on the run side of the business, not necessarily in the change side of the business.

But again, if they have a furlough, right now it's a little uncertain to ask as to whether the furlough is going to extend to the change side of the business, which is basically programs driven by business or whether it's going to be only restricted to IT.

And I think that's where the little bit of uncertainty is coming in.

As we change our business mix from selling purely to IT, to selling also the business, frankly that's an area that we've not typically been used to in the past.

And today we're guessing on what that might look like as we go into the quarter.

So to that extent, it's not a reflection of what's going to happen next year, but it's really a question of a reflection of our lack of knowledge remain to some extent.

And my question on what's driving BPO growth this quarter and could you also run us through how your BPO offering is evolving, which might be contributing to this growth?

So on the BPO side, let me hand it over to Abid.

Abid, as you know, is our Group President, our Chief Operating Officer and he can take the question on BPO and give you a sense of our broad strategy in this area and what we're doing to make sure that we get growth there.

Abid?

Thank you, T. K. So on BPO, let me talk a little bit about how we're executing on our strategy, which is around increasing our penetration in, what we call as, the domain-based Business Process Services.

We are increasing the level of robotic automation that we do.

We've already touched over 20 clients in doing that.

And then we are investing in platform or business process as a service.

And all of these elements of our strategy are delivering results.

Primarily in Q2, we've also been able to drive higher volumes and a lot of our business is moving to a transaction based and widget based pricing and there we're seeing a certain level of uptick in the volumes, which have delivered higher revenue growth in Q2.

So overall, from a strategy perspective, we've been able to see results, at the same time the current quarter's uptick is on higher volumes that we've seen from the transaction-based pricing engagement that we have.

Trip Chowdhry, Global Equities Research.

A question I had was regarding consolidation deals.

I was wondering, we talked about vendor consolidation.

Are these deals when transferred and transformed, would they have a technology consolidation piece rate also?

Having said, it's pretty clear that what happens is whenever people go through vendor consolidation, it's not just a rate consolidation and the consolidation of vendors' skillset.

I think clearly what happens is that there is a significant level of technology upgradation that happens, because with more and more Agile and dev-ops coming in, the environmental infrastructure on how you run your developing products those that aren't changed.

So, clearly we see a technology refresh also coming in, more in the infrastructure level, as well as in the platforms for application development.

Perfect.

I had a question on cloud also, like, if we read the popular press, we're getting an impression that the whole world is probably going to run -- at least some of their workloads on AWS or others, do you think that is an accurate picture of really what's happening at the customer level, or it could be something that is conceptual at this stage?

I think it's very real.

Across our customer base, we're seeing hybrid clouds coming in a fairly large rate.

We're seeing VMs -- or more and more workloads moving on to VMs and the clouds and the [puppet] cloud.

But I think more than that, what we're now seeing which is very interesting is, we're also seeing a significant level of open source actually coming in into the in-premise infrastructure there.

So, for example, for the first time some of our larger customers, we're seeing KVMs coming in to go out there and just add -- as that being used as a tool of virtualizations rather than VMware.

So we're seeing some significant movements in terms of technology, where it'll finally end up, who knows.

But I think in the next couple of years we'll go through a level of experimentation and --

Last question -- this was very helpful.

Last question I had was regarding the applications.

Have you seen in, say, some category of application or some new application that customer is demanding, say, now versus, say, something that was never heard about, say, about a year or two year back?

I'm not sure what the question is all about.

Can you --

. The question is, are you seeing the customer asking Wipro to create or develop a custom app that is completely in a new category, that never existed before?

Again, it is very difficult for me to answer that question.

But all I can tell you is that, the focus on digital is becoming big enough, because fundamentally what's happening is that that really means for us as for large companies like us, which has got a very large attrition base.

What really needs is, re-feeding the whole bunch of people, because now for development of Digital Technologies in the front-end, basically what you need is, being seasonal to come hit.

The number one need is, basic language skills, you need more database and other skills.

And you also require authentic skills.

If this combination that has been really present in individuals for new development to take place.

But, I mean to answering your question, I think the next big change is going to happen on the application in terms of development is, where you have context and locations being integrated into applications, into apps.

And that we are not speaking yet, at least in the enterprise customers.

Mukul Garg, Societe Generale.

Thanks for the opportunity.

T. K. just wanted to ask some follow-up question on this furlough impact.

Can you help us understand, given that we have not heard similar commentary from any of your larger peers.

Why is this becoming such a big issue this year, have you seen something similar in previous years also or is this the case that your change side of business has become so significant that it's actually impacting your visibility?

I think, there are two reasons behind it.

I think the change side of business really has become significant.

And that to some extent is impacting visibility.

The second is that, the furloughs, is one component.

The second big component is that -- I think, I mentioned it pretty clearly that we have won quite a few consolidation levers, which we are right now in the process of consolidating the big out of the existing [rider] that's in that particular business.

That transition -- during the transition period, we are not going to get credentials.

So if you are asking the reasons for the lower revenues here this quarter?

I think it's kind of evenly split between the two.

So we may have a slightly higher impact of furloughs, but I don't want to take away the whole conversation only furloughs -- it's not only furloughs.

.

Okay, thanks for that.

And if I can, maybe like if I can probe you something longer term, maybe next year and I'm not asking for a guidance, because you don't provide one, but given that, even if you do a good Q4, you will still come out with less than 5% YoY growth.

And this has been the trend for last few years.

So how do you see next year panning out?

What are the steps which you are taking to improve the growth rate and may be get into double-digit growth?

So I think if you look at the track that we've had over the past one year, primarily been contributed by our Energy and Utilities business, that's really contributed to our drag -- a big drag for us.

This is a big drag for the past 18 months after many years of actually having significantly higher double-digit growth.

We've specifically been in [teams adverse].

So, we expect that customers, especially in that segment, will go through cycles and as they go through cycles, we will have a reduction.

However, the good news is that as we go through consolidation deals, we have many more pressure of foundation deals.

So to that extent, we are pretty confident when that market comes up, which we expect it to do so next year, we will do very well in that segment.

Healthcare overall carries a fairly decent back log in terms of order book and we expect our performance to continue in next year too.

As far as Manufacturing is concerned, we see an uptick.

I think the one area which continues to be for us a little bit of a problem, which we need to solve is really the Insurance business that we've had, because that business has grown very well for all our competitors; for us it's remained more or less steady, and that's something that we need to work on as we go into the next few years.

So Mukul, T. K. answered that question at a strategic level, but really primarily it boils down to executing well during every quarter and you'll see now performance in quarter two, where we have come towards the higher end of our guidance.

I think our annuity is that to get every quarter right and not worry too much about what it translates into the full year numbers for next year and fiscal 2018, if we get the quarter rates that's feasible.

Okay, thanks for the clarification.

Sandip Agarwal, Edelweiss.

Yes, congrats on a decent quarter and thanks for the opportunity.

Part of my question was the previous question, which Mukul asked and T. K. answered.

Another question which I have T. K, from you is that, if you see our client category, again it is a quarterly phenomena, I understand.

But if you see our customer side distribution part of the data sheet which have been provided, we are not seeing big traction in the $100 million, $75 million, even $50 million, $20 million category.

In fact, we are seeing some traction probably in the $3 million that fit on the client side.

Other than that the whole distribution size of the customer remains quite muted.

So, what is causing this and also -- although, we have added six to seven new customers in the quarter, we are not possibly seeing any kind of significant traction on any of the areas where it has been reported.

So I just understand -- I understand the part that you will not be able to get revenue in one quarter or two quarters from the clients.

But we are not seeing the traction in revenues in spite of adding good numbers even in the past.

So can you please elaborate on that part?

So there are two or three factors that play, Sandip.

Jatin here.

I think one thing which you must recognize is that these are dollar numbers and as you are aware, there is at least a drag this year versus last year of anywhere between 4% to 5% on constant currency growth versus the dollar growth.

And these buckets are really strong in dollar buckets, so there is some amount of what you would have crossed the buckets and move up has not happened because you continue to measure that [you already set one].

Number two, there is a movement which is both up and down.

And we have shared some challenges that we had seen in previous quarters on Energy business, where we held off revenues and that has also impacted some customer -- a couple of customers there.

So there is movement down as well as movement up, but once you go in, you should see stable or improve.

And finally, I would want to draw your attention to current quarter performance, except [new], which also we had shared that is bottoming out in a material way vis-a-vis previous quarter.

All the other [pilots] we used in constant currency term have grown between 3% and 4% and some more than 4%.

So effectively you are seeing the growth coming back and sooner or later that will reflect in buckets that is sold.

So, also one more follow-up question, if you see, I want to understand that this top five customers contribution is down because of the top customer issue and is the same reason for even the top ten or there is something else is in the top five and top ten?

No, no.

If you look at it, if you take off the top two, the first customer we've had a decline and I think we have mentioned that clearly that we expect to see a recovery in the beginning of the New Year, that's number one.

As far as the second customer is concerned, we have won a fairly significant consolidation.

And we expect to see that revenue results coming back strongly.

As far as the rest of the customer are concerned, if you look at in reported terms, our growth rate is running the two to ten customers, a growth -- three to ten customers, our growth rate is running at 2.85% compared to a reported 2.1% in dollar terms.

So overall, if you look at it, those top ten customers, eight out of the ten customers are doing better than average.

It's two which are being affected, which is dragging that overall number down.

Aishwarya K, Spark Capital.

Hi, Srivathsan here.

Just wanted to get your comments on Europe.

For almost now three quarters in a row we've been on YoY constant currency growth of 1% or 2%, I mean, the last three quarters in a row.

So just wanted to understand is that some client specific issues or you're just not been able to win a fair share of deal.

What's driving -- in a market which is at a very broader and pretty buoyant?

Pretty much, if you look at our growth in our ENU segment and if you compare that with the dropped Europe growth, you'll find a fairly good correlation.

So while our Energy business has dropped significantly, that number reflects itself in also the ENU growth.

Because now the super majors that sit out of Europe in some ways contributes to the total number.

Sure.

Also wanted to get your thoughts on the Healthcare.

I think, it was a good growth in June.

We've seen quite a few [mandates] on the health insurance market.

Wanted to get your thoughts in terms of -- are you seeing any signs of some of the discretionary spend put in abeyance because of the corporate actions that you've seen, wanted your thoughts on the same.

So before that I just wanted to add one more point.

I think it's kind of interesting which I don't think I have been communicated very well.

This decline that we've had in the Energy segment has been made up by the growth that we have in Manufacturing, especially in Europe.

So in spite of that we're seeing probably, I would say, tepid growth across Europe for the past couple of quarters.

And that just gives you a sense of the hit that we've taken on the Energy business.

And with that let me hand it over to Sangita to talk about the Healthcare business.

Srivathsan, good evening.

So your question was about the industry and I would add to that the reason behind the momentum that you see.

So clearly, Healthcare & Life Sciences industry is continuing to see significant traction, largely led by the Affordable Care Act, also enabled through the whole digitization that's taking place.

We've been able to leverage that momentum really to the execution of our three-pronged strategy that I had mentioned before many times.

One is our ability to get more relevant with our customers to be able to address the here and now bread and butter business by giving them the price, as well as the cost and operational efficiencies that they would need.

A lot of that is enabled through our investments that we've made in artificial intelligence, our ability to deliver cognitive computing into the platforms that they would have as that adds something around infrastructure solutions.

The second trough that we're seeing is really our ability to open new marky logos and we've had a considerably good quarter with our ability to open five new logos.

Both of these two have been enabled through the investments that we've made over the last four years around differentiated domain solution, three of them being very key, one is patient centricity, second is around compliance, and third is around product development.

All of them lend itself very well to the new big digital focus that we're seeing with our clients, both around process digitization, as well as user experience.

So those are some of the things that have really helped us and needless to add a fantastic team that has been working to make this possible.

Sure.

Thank you, Sangita.

Thank you.

Sandeep Shah, CIMB.

Yes, thanks for the opportunity.

Just T. K. your explanation about the growth within the top ten for this quarter is quite fair, but if I just look at the last eight to nine quarters and absolute revenue base of top client, top two to five and top six to ten, either it has on a quarterly run rate basis remains same or it has declined.

While in the last several quarters each quarter we see that the client satisfaction scores are being moving up.

But the same is not being percolating in terms of the revenue growth.

So we do agree that Energy would be one of the culprit, but apart from that, what are the issues according of you, either is it more a work in progress regarding sales, where cross-selling, upselling needs to be picked up or it's more regarding in terms of delivery issues?

So Sandeep this Jatin.

And we shared the details of how we see the current quarter performance and I think you will have to see in the light of some earlier comment that have been made in terms of the impact that we had taken during the course of earlier quarters.

As we see forward and I think that's what matters the most, we are putting -- we continue to invest in terms of our mining efforts with an additional layer of service delivery which integrates all service lines.

We have taken certain other internal measures which we think will help mining.

And therefore we remain quite optimistic that as we go forward, you would see that overall mining in the Company will improve from where we are today and that will sooner than later should reflect in the client bucket, as well as top ten client bucket.

Okay, fair enough.

And just the second question in terms of order book in this quarter.

Is it -- it has picked up versus -- because across most large-cap peers as well as mid-cap peers, we have been hearing that the order book is one of the best in the last several quarters.

Even Wipro has witnessed the same?

Yes, our quarter two order booking has been better than quarter one order bookings, Sandeep, certainly.

And we continue to the good traction in the market.

Okay, thanks.

Nitin Padmanabhan, Investec.

Yes, hi, thanks for taking my question.

T. K. this was with reference to two specific comments on the guide and our aspiration of H2 being better than H1.

And you also mentioned that transition revenues should come later.

So I was just wondering whether, is it that transition revenues shifting to Q4 that gives comfort of the aspiration of H2 being better than H1?

So, Nitin, Jatin here.

So, let me start with where we made the first comment last quarter and that we see momentum improving and in that context, we would say that we see H2 better than H1.

If you see our quarter two performance, we'll account at that -- towards the higher end of our guidance and that was in a way what we were thinking or what we're seeing has actually resulted in an outcome in terms of the numbers that you've seen.

Now quarter three is what we have guided and that range is also visible to you.

And we cannot guide for quarter four, we do not guide for quarter four.

So beyond the point, we are not guiding for H2, but we maintain that our estimation would be to do better in terms of the sequential growth that we have achieved, but it is a guidance.

I understand that.

I was just trying to get a qualitative filler in terms of, is that comfort coming from those transition revenues which are possibly will not be there next quarter, which is impacting next quarter possibly coming through Q4, is that qualitatively something that should drive confidence or -- ?

Yes, it is -- there are two aspects there, of course, the transition revenue for the larger deals, but more critically what we have spoken about is that we have won consolidation deals, but the ramp up in those deals is taking time and typically end of the year is not good time, especially in December, to see this ramp up and we do expect that some of the consolidation gains will reflect in our numbers in quarter four and that of course is something that we need today.

Sure.

The other thing was from a margin perspective.

So with these transitions sort of going on, is that sort of a headwind for margins in the near term in the next quarter or so, or should that be perceived as a headwind on margins?

No.

So, the way you look at is that we have already taken the full impact of salary increases for the year, we already took the impact of additions that we gave on first as far as -- of this year in quarter one.

And therefore all the planned addition to cost is behind for the year.

From here on we need to execute well and we have shared that there are many levers that remain under explored and we will focus on that and execute better to be able to keep margins stable and that we are doing.

So it's fair enough.

Thank you, Jatin.

All the best.

Raj Kantawala, Equirus Securities.

Yes, thank you for the opportunity.

Just following up from what you said earlier that we are facing some challenges in Insurance segment since the past 12 to 18 months.

So what are these challenges and what steps are we taking to handle the challenges?

And the answer is pretty simple.

I didn't say these were challenges.

I said that we're not a big (inaudible) and that's not consistently going on for the past 12 to 18 months, it's been going for the past five years to seven years.

So we really need to make a big push there in terms of growing the Insurance market.

Okay, understood.

And sir, and a just question on the wage hikes.

What is the wage hikes that we have given this year and what is it last year?

And so what -- are these increasing number of start-ups in our sector, investing -- added investing or wage hikes?

Let me ask Saurabh Govil to answer this question.

So, hi Raj, Saurabh here.

Our wage hikes are effective 1st of June this year and it was average 7% increase and 2% on-sites, the similar range we have given last year as there was impact of start-ups, yes, in some pockets we are seeing people, but that's not impacted, because we have a profile of people who are wanting to pursue that.

And it looks right now for us -- people going for start-ups is in single digits.

So from that perspective, we don't see a immediate concern around that.

Okay.

So just following up on that, hiring that we are doing, so is it that most of that is of fresh talent or it's a mixed talent?

For this year, if you see this quarter, the performance plus had families and other percentage of people are freshers we have hired and the intent of hiring these freshers have been as we look into digital framing, ready -- we get called about 10,000 people who get ready for digital by the end of this fiscal.

And with that intent we've hired these people.

And basically, it was a three kind of training, digits side, engineering side, coding, I got -- and these three would be there.

So that's the investment we are making on the freshers right now.

Okay, got it.

And sir, if we just look back most of our peers are also into digital space and most of our larger peers are investing heavily into digital space.

So how are we differentiating in the digital space and how do we see the percentage of digital revenues going forward in the next two years or three years?

If I -- that's a long question to answer.

Let me just give you a one minute color to it.

The way we see this that whatever -- what we do on this context, integrating, engineering and designing, which is really what designing acquisition stand for us.

That be a revenue which we get -- we used to get at least 2X revenue on the backend, in terms of global; in some cases it could even be 5X.

So to that extent what happens is that we see significant follow through revenue coming and that's the opportunity.

So the opportunity really comes in, and it's not just doing the front-end growth, but doing the backend growth, the things with heavy lifting.

And the ability for companies like us, scale is important.

And our objective would be to get scale whenever we can.

Okay, got it.

Thank you so much and all the best.

(Operator Instructions) [Javier Gonzalez], Berenberg.

Yes, hi, thanks for taking the question.

Two questions from me.

And the first one with three parts, I guess.

It's around your product engineering service line.

Can you perhaps give us some color of the sort of type of offerings and projects that you are offering in the product engineering.

And what is driving the question essentially is that different that -- is basically categorize different types of projects under product engineering.

Just to make sure that we're having a like-for-like comparison.

Okay [Jorge], maybe I should just kind of give you a quick update of what we do in the product engineering space.

So I think the first thing is that, our product engineering business, surpasses everything from product, design to actually building products and intellectual property that's around specific products.

That's one component of it.

The second component of it is around specific software products that we build for third-party.

Those are broadly these two areas that we focus on.

Got you.

Clear.

And essentially which geographies are you mainly targeting?

Primarily US and Europe, and we've talked about, for example, in our press release, we've talked about how we're working with a very large car company in building a connected car for them.

That's typically an example of what we'll do in the product engineering side.

Got you.

And, whom do you typically compete against in this space?

So it's a mix of internal engineering teams, it's a mix of people who've got specific IPs and some components, one or two Indian players, but that's pretty much where it is.

There aren't too many players in this space.

Okay clear.

The next question I had is around the Application Development & Maintenance the ADM service line, if I'm not mistaken, a while back you sort of consolidated that with the BAS services, which at the time, you indicated that it was a bit of a divergent type of underlying performance, either BAS growing and ADM having dynamic growth rates.

Was hoping if you could just give us a bit of color around that essentially how is the ADM versus BAS business essentially evolving from a growth rate perspective?

I think clearly the BAS business is growing far ahead of the ADM business.

There's no question about that.

And typically what we've seen is, we've seen in the BAS segment -- in old BAS segment, we've seen growth rate above the Company average.

Clear.

So and in your view what's driving essentially is structural -- if it's structural or cyclical, I'm not -- essentially, what's your thinking around the ADM, essentially losing ground versus the BAS?

I think it's pretty simple.

When -- if you look at the ADM business, the ADM business is still -- it's a fairly routine business which slowly is getting dis-intermediated by [using] and more and more after deploying HOMES and other platforms which are our AI platform, the revenue that we'll get out of that traditional segment is going away.

That's -- essential you are saying that as applications gets moved to cloud infrastructure, essentially there is less type of maintenance work going on the back of that.

That's a part of happens, but more than that, if you look at it, the way we classify application support on the SAP platform, it would be under BAS, it could not be under ADM.

ADM really refers to mainframe platforms, mid-range platforms, application platforms that run in that segment.

So it is really legacy -- our systems that are classified under ADM, but under the old ADM.

But the reason why we put both these together was favor to make sure that we've removed any kind of noise in the system, otherwise in most cases, what has happened was, you really have to see these segments together, you can't see them as distinct.

Understood, clear.

And the final quick one for me.

In terms of the Digital and this is sort of, popular type of question, in terms of people who are essentially asking what proportion of Digital exposure IT vendors have as we are gaining momentum with digital demand from corporates.

Is this essentially your revenue split in digital number and you feel comfortable sharing?

We will not share that number this year, but towards the latter half of this year as we close our books we may think about readjusting the numbers for next year.

Right now, we are not planning to do it because we'd like --

Clear.

Okay, thank you very much.

That's all for me.

Ravi Menon, Elara Securities.

Thank you for the opportunity.

I have a question on Energy first and I may have a follow-up on Healthcare.

The question on Energy is that, you had, T.K., spoken in the fourth quarter that you have two deals that you had won in Energy.

Despite this Energy stream badly growing.

So did these wins ramp up or have these been deferred by the clients due to issues in the sector.

And secondly, like on this Energy, have you started seeing large outsourcing deals to the RFP states now or is that still some quarters away?

So as far as the consolidation deals that we had in Energy business, there were two of them and frankly we have won both.

So Anand Padmanabhan, who runs our Energy and Utilities segment is here and he can talk through it, but fundamentally the result of that's been positive.

So as T. K. mentioned, we have done well in the recent deals, which we've won some of the large deals and fundamentally because of the lead we have and presence that we had in Energy segment, it's easier for larger customers to consolidated with us, so that's one.

Now having said that, in terms of revenues, it will take, once these -- these are large consolidations.

I mean, you are consolidating across multiple vendors to have fewer number of vendors.

So this will take anywhere between three to six months for transition.

So that's the time one used to take in terms of getting the real revenue to reflect in our outcome.

So we're really looking at anywhere between a quarter to two quarter to start slowing those revenues in others.

Great, thanks.

And about the RFPs.

I mean have you started seeing last RFPs come out in Energy for outsourcing?

Yes, absolutely.

I'm saying, just fundamentally the industry has been going through a huge amount of challenges that one would imagine, because of the prices, volatility of the prices et cetera, et cetera.

So the industry is fundamentally looking at a lot of transformation, both in their own industry in terms of production, as well as in terms in IT.

So we're seeing some amount of RFPs coming in.

We would think it will take around three months to six months for them to decide on those RFPs and that we would see a lot more traction in that transaction.

But we're seeing a lot of RFPs as we see.

I mean we're also seeing RFPs from oil companies, which have never come across to do any sort of outsourcing before.

Great.

That's good.

Thank.

I appreciate the color.

And secondly I have a question Healthcare, this is an area that most companies, most of your peers have actually been doing really well and it's a vertical where you have done well too before.

But looking at the year-on-year growth rate, it seems to have underperformed your peer groups growth quite significantly.

Most of them have grown by at least 20% or more in dollar terms.

So are you focused on a different sub segment compared to your peers in Healthcare or is there something that I'm missing here?

I think I'll ask Sangita to answer this question.

If you can repeat your question once again.

Most of your peer group have done really well in Healthcare, growing at least 20% in dollar terms.

So are you in a different sub segment compared to your peers or what's really hampered you, you've done well in this segment in the past.

So if you recollect, our last quarter was a decline.

And that has put pressure on the year-on-year numbers this quarter.

And as you heard from T. K. and as you heard from Jatin and me before, I think the strong momentum that we've been able to build through the deal win in the last quarters that bought us the sequential growth this quarter should help us continue the momentum.

We are operating in the same playing field as our competition and we're seeing good traction come up in Life Sciences, a lot of that enabled through our customers wanting to move beyond that -- into service that is something that we can leverage through the investments that we've made in Designit and Wipro Digital.

I see a lot of momentum that we can build through our bread and butter business around being able to drive operational efficiencies for both our Healthcare and our Life Sciences and Medical Devices customers.

So overall, I'd say positive, we see confident of the momentum that we could and I hope the blip that we had in the last quarter, we should be able to cover some ground.

I hope that helps, Ravi.

That's great.

And if I could ask a follow-up there.

I mean is there any sub segment you think that you're not really well covered in Healthcare, where you see potential, but you don't really have a strong portfolio of credentials right now.

There used to be one, which is the peers segment, but Ravi, what happens and what is happening today to the Affordable Care Act is that there are new emerging opportunities that are coming up largely because of the trends in the market.

Once that particular one is the whole individual mandate that has been enabled by the ObamaCare that allow us to participate in a whole set of new engagement that is a level playing field with others.

So I would not be too worried about the fact that we weren't present earlier.

I still think there is huge area for us to participate and do well.

Great thanks for your explanation, I appreciate it, best of luck.

And last year posed 18% year-on-year, which was close and among the higher end of what we saw from the industry.

Thank you, Ravi.

Thank you.

Thank you, ladies and gentlemen, that was the last question.

I would now like to hand the floor back to Mr. Aravind Viswanathan for closing comments.

Yes, thanks and thank you all for joining the call.

In case, we could take any questions due to time constraint, please feel free to reach out to us.

Have a good day and wish you all of you a happy Dussehra.

Thank you.

Ladies and gentlemen, on behalf of Wipro that concludes this conference.

Thank you for joining and you may now disconnect your lines.