Wipro Limited (WIT) Q4 2008 Earnings Report, Transcript and Summary

Ladies and gentlemen thank you for standing by and welcome to the Wipro Earnings Call for the period ending March 31st, 2008. All participants are in a listen-only mode. Later we'll conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions]. As a reminder today's conference call will be recorded. I would now like to turn the conference over to your host Sridhar Ramasubbu. Please go ahead sir.

Thank you very much Steve. Rajendra we are starting, is it okay.

Yes go ahead.

Yes thanks Steve. Good morning ladies and gentlemen and good evening to the participants across the globe, Rajendra, Lalit, Aravind joining me from Bangalore, and extending a warm welcome to all the participants to report fourth quarter results and the earnings call for the period ended May 31st, 2008. We have with us today Mr. Azim Premji, Chairman and Managing Director; Mr. Suresh Senapaty, CFO, who will comment on the U.S. GAAP results for the period ended March 31st, 2008. They are joined by Girish, Suresh Vaswani and other senior members of the Wipro management team who'll be happy to answer questions. During the call we might make certain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act 1995. These statements are based on management's current expectation, and are associated with uncertainties and risks, which could cause the actual results to differ materially from those expected. These uncertainties and risk factors have been explained in detail in our filings with Securities Exchange Commission in the USA. Wipro does not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date of filing thereof. The call is scheduled for one hour. The presentation for the fourth quarter results will be followed by a question-and-answer session. The operator will walk you through the procedure for asking questions. The entire earnings call proceedings are being archived and transcript will be made available at www.wipro.com. I am available on email and through mobile as well to take any questions and similar to the Wipro management team. In case, you are unable to ask questions for any technical reason. Ladies and gentlemen, over to Mr. Azim Premji, Chairman and Managing Director, Wipro.

Good morning to all of you all. I am sure you would have seen our results posted on our website. I'd like to spend some time reflecting on the management changes and our performance for the quarter and the year ended March 31, 2008. Following that Suresh Senapaty, our CFO will share financial highlights before we begin the Q&A session. Our journey over the last few years has been one of fast paced growth in all its dimensions. We have expanded our global reach, added an impressive list of value added customers and built a strong Wipro team, which we are extremely proud of. I am pleased to announce the appointment of Suresh Vaswani and Girish Paranjpe, as joint Chief Executive Officers of the IT business. We believe Wipro has tremendous potential to grow aggressively and further strengthen its leadership position in the IT space. A joint CEO structure is the best way forward to leverage the depth of our leadership and maximize the opportunities ahead of us. Girish and Suresh have worked closely over the last 10 years in spearheading the growth of Wipro's IT business and will work together to jointly shape and drive the vision, strategy and results of the newly structured IT business. I am equally pleased to welcome Suresh Senapaty, Suresh Vaswani and Girish Paranjpe to the Wipro Limited Board as Executive Directors. Their inclusion will add significant richness and breadth to the Board. Now let me share my thoughts on performance. Results for the year 2007-2008, have been satisfying on several fronts. Wipro Limited recorded revenue growth of 32% year-on-year, and net profit growth of 11% year-on-year. Our combined IT revenue for the year was $4.1 billion, with 38% year-on-year growth. In Rupee terms the growth was 27% year-on-year. During the year, we made a strategic acquisition and invested in sales footprint, MEGA/GAMA account strategy of 360 degrees engagement model and large programs team. We also started local delivery centers in Atlanta in the U.S. Troy, Michigan in the U.S. Monterey in Mexico; Sebu in the Philippines; and Wroclaw in Poland. Our acquisition of Infocrossing has positioned us strongly in total outsourcing deal. All these initiatives yield industry-leading growth rate for our global IT business at 38% year-on-year growth in dollar terms. Telecom service providers, financial services, manufacturing and energy and utilities business grew ahead of organic company average. Our differentiated service lines that is, technology infrastructure services, testing services, BPO and package implementation services also grew ahead of organic company average. We won several large deals in TIS space and also a few deals with integrated ADM, TIS operators. We have restructured our consultancy business and brought various consultancy practices that were embedded in each of our service lines and competency groups under one umbrella of Wipro Consulting Services. The objective of Wipro Consulting Services will include upstream business transformation consulting, building IT strategy for customers and helping clients build business solutions that leverage IT. The single consulting phase will have about a 1,000 consultants spread across Americas, EMEA, India and A-Pac. Our India, Middle East and Asia-Pac IT business delivered strong revenue growth of 45% year-on-year, and profits growth of 34% year-on-year. Exiting the year with a revenue run rate of around $1 billion. These growth numbers were on the back of strategic investments made in the last two years in total outsourcing. We won five large deals during the year, and are well positioned to capitalize on our experience to further momentum in this unique specialized service line of total outsourcing. India, Middle East and Asia-Pac IT business had leveraged the domain and solution capability of global IT business in several of the large deals. We are seeing huge potential in India and Middle East market with considerably investments being planned by our customers. Our global IT business has built excellent domain and transformational capabilities, while India, Middle East and Asia Pac business have deep-rooted relationship with customers at very high brand recall. We believe it is now appropriate to present our IT business on a combined basis as the business has reached critical phase... stage. We would report the combined business going forward split into services and products. For the fiscal year, Wipro Consumer Care and Lighting business, at industry leading growth rates. Our India revenues have crossed the milestone of Rupees 10 billion. Santoor our flagship brand is now among the top three toilet soap brands in India by value. Our acquisition of Unza in August '07 is showing good growth in Malaysia, Indonesia and Middle East markets. Enchanteur, an Unza flagship premium brand is now launched in India. We look at fiscal to 2009 with cautious optimism, market situation is changing rapidly, which has a bearing on our immediate business dynamics. However, we remain resolute and confident of our prospects. Considering this, we have drawn upon an aggressive plan to capitalize on the likely back ended positive momentum or profitable volume growth. We are bullish on India and the Middle East geographies, to deliver turbo charge growth writing on investments in these markets which we have made. I will now request Suresh Senapaty, our CFO, to comment on financial results, before we take questions.

A very good morning to all of you ladies and gentleman in U.S. and good evening to all of them in Europe and Asia. I will touch upon areas in our performance and financials that would be of interest to you all. Global IT Services revenue for the quarter of $959.9 million included a $80.5 million from the field services, and $63.5 from acquisitions, this is a sequential growth of 5.5%. The sequential growth was enabled by energy and utilities, financial services and retail growing by 19%, 7.7%, and 5%... 5.8% respectively. Infrastructure Services grew 30%, Testing with 6.5%, and BPO with 5.3%, led the sequential service line growth. Europe surged ahead with 9.2% sequential growth in the current quarter. On the foreign exchange front our realized rate for the quarter was Rupees 39.87, purchase rate of Rupees 39.71 realized for the quarter ended December 31st, 2007. As at period end, after assigning to the assets on balance sheet, we had about $2.97 billion of contract at rates between Rupees 39.50 to Rupees 43. During the quarter, we added 29 new customers two of which were Fortune 1000, Global 500 customers. The number of clients more than 50 million has increased to 14 in quarter four, 12 in quarter three, and 8 in quarter four of last year. During the quarter, we won three large deals. Our year-on-year price realization in the IT Services business went up by 0.7% at onsite and 1.5% at offshore. We are seeing good traction in Infocrossing and have won deals of global contract value worth $38 million during the quarter. Enjoying the go-to-market as a robust deal pipeline, we expanded Infocrossing margins by 760 basis points in the current quarter. During the quarter, we had an adverse impact of 100 basis points on margins due to onsite salary increase, effective first of 1st of January 2008. This was significantly mitigated through improvements in utilization, acquisition margin and other operational parameters. In the India, Middle East and Asia-Pac IT business that have reached critical scale and more integrated with the global IT business. We have now integrated the global IT businesses and will report data on a combined basis in line with the industry practice. The combined IT business will be reported as services and products. As for our long-term talent retention plans, we gave approximately 8 million RSU on 1st of April to our employees. For the quarter ending June 2008, we expect volumes led growth with stable pricing. We will have impact on margins due to the Visa costs and fresh RSU grants. We'll now be glad to take questions.

So Steve, we could have the Q&A, starting now. Steve, hello Steve? Question And Answer

Ladies and gentlemen we now begin the question-and-answer session of our conference. [Operator Instructions]. Our first question comes from the line of Joseph Foresi of Janney Montgomery. Please go ahead.

Hi, gentlemen. It appears that you guys remain confident in growth in the back-half of the year. I was wondering what gives you confidence in things rebounding?

Hi, Girish here. At this point of time it's a assessment based on how our clients are reacting because we had a chance to talk to many of our senior clients and what's happening to their IT budgets. And in most cases we have the sense that the budgets have not been significantly cut. But there is spend... there is a spend caution and our feeling is that as the market settles down it will get back to business as usual, and hopefully the spending will come back.

So, is your assumption based on the economy recovering or is it based on see what your clients are going to do?

It's based on two things. One is that a lot of the freeze on budgets is because of two reasons. One is because there is so much turmoil in the financial markets. It's also based on the fact that there has been lot of change in the management teams, especially in the financial services world. So, as that new team settle in and the kind of turmoil in the financial markets subsides, we are hoping that will be back to business as usual in the second half.

Okay.

Also Joe, if I can supplement, if you look at the guidance that we are giving about $1,060 million as $1,032 million of quarter four, on a combined IT services point of view. It was off to sequential of about 3%, same what we gave year before, exactly one year before for quarter one of 2007-08. And that is about 34% year-on-year. Although, if you adjust for the acquisition, it still works out to be 26% year-on-year.

Okay, it looks like the models are also sort of naturally adjusting to what's been going on in the economy. Are you guys seeing the cooling in the labor market and also, I know you said that you did expect pricing to be stable. But is the magnitude of the upside on the pricing cut down?

I think there are two questions and Pratik is going to answer, the first question on the cooling down on the labor market or any possibility on that. I'll take the question on the pricing side.

Hi, this is Pratik here. So, there are two ways of looking at that question on the labor market. One on the supply side, are we seeing things easing and our answer would be yes, because we do experience that in the segments where we are wanting to hire, whether in India or globally, our ability to do that with relative ease, definitely has gone up over the last... about a quarter or so. Towards... just on the wage salary cost and what's our own view, looking ahead for this particular year. There too, it's our own belief and I think we are not alone in this, rest of the industry players are of similar view. But we would see moderation ticking in during this fiscal. And while for us it's still about couple of months away before the offshore salary that is the India salary kicks-in, we believe compared to previous year which was in the range of about 12% to 13%. We anticipate this year it's more likely to be in the region of about 8% to 10%. Girish?

On the pricing side, some other contracts which came up for renewal earlier this year have gone through with decent price increases, and at least at this point there is no indication that we have any pressure on that.

Okay, and just one final question. It look like if I'm reading it correctly that may be working your top client pulled back a little bit this quarter. I was just wondering in what vertical that client is if you like to not identify him. And why did this happen? Is this associated with the economy at all? Thank you.

Well, we have seen very few and sporadic cases of that nature. It is not a case where it is some kind of a trend. Yes in certain let's say in retail kind of a thing we are seeing one or two projects which has got cut or that has been a shelving of the decisions with respect to some of the projects that were ripping off.

And was the first client in retail or the top client in retail? Suresh Vaswani - President, IT Practices - Wipro Technologies; President, Wipro Infotech: I think you are... this is Suresh Vaswani here. You are talking about the top client, I don't think we are in a position to talk specifically on the client name, but very broadly to address, the question if you really look at our Top 10 clients, I think we've shown a better than industry... better than our average growth in so far [ph] the Top 10 clients... Top 10 clients are concerned. Sudip Nandy - Chief Executive, Telecom & Product Engineering Solutions: This is Sudip Nandy. The top clients, we can't name the industry but it's a composite customer. We didn't have a pullback, we had a program end and if you see a full quarter trend its growth year-on-year of more than 30% with the fourth quarter then aberration remaining almost flat or slightly lower than in the last quarter.

Okay, thank you.

Thank you sir. Our next question comes from the line of Moshe Khatri of Cowen and Company. Please go ahead. Moshe Khatri - Cowen & Company: Okay thanks. I know you don't provide guidance typically for the fiscal year, but is there anything you can comment in terms of revenue growth may be at some sort of a comment related to at least revenue growth expectation for fiscal '09? And then what should we expect for EBIT margins? Thanks.

Moshe, actually like... I was trying to answer the previous questions that we said that, based on the guidance that we have given for quarter one, which is almost similar to what we had given last year for quarter one. The growth is about 26% year-on-year, and it is our expectation that the growth will be back ended, which means we would expect better growth rates going forward. And so we as you know we don't give specific guidance, only sort of we'll go quarter-by-quarter and communicate to you if there is any kind of a change in our thinking or how it is... how the assessment was good. And so far as the margin is concerned I think we have done pretty well so far as '07-'08 is concerned, despite the fact that we got the biggest hit in terms of foreign exchange and also the investment that we did in the form of an acquisition. This proves together we did unusual hit... unusual dip for the margin by about 4.2%. But our overall margin, we were able to retain within 2.7 percentage level. So from that perspective we have been able to do lot of recovery and in the year 2008 to 2009 our objective would be... our endeavor would be to make sure that we are able to hold the margin of '07, '08 and improve further. Moshe Khatri - Cowen & Company: Okay. And then regarding growth expectations, so should we kind of assume some sort of a benchmark level of about 20% roughly is that kind of a good number to start with?

Well I said that quarter one being what it is, the year-on-year growth itself without the acquisition is about 26%, because we had an acquisition done which was for the second half, first half was not there otherwise really $1,060 is about 34% year-on-year for quarter one itself. Moshe Khatri - Cowen & Company: And then Suresh it seems that the pricing is coming a bit better, better than what we expected in terms. I am talking about new clients, and can you kind of elaborate on that? Suresh Vaswani - President, IT Practices - Wipro Technologies; President, Wipro Infotech: See in terms of this... Suresh Vaswani here, in terms of pricing and I think Girish already alluded to this earlier. New contracts are coming in at between 4% to 5% higher pricing than what our current pricing is, and contract renewals, when they come up for contract renewals. We are able to get between 3% to 5% as well there. So we are able to drive pricing up. I just wanted to comment also on your earlier question related to the market, now this independent industry sources and I am really talking about Nascon estimates also talk about the market still holding up, at between 25% to 30% growth rates. So I am not talking about Wipro's guidance, I am talking about the market expectations in terms of an independent body. Moshe Khatri - Cowen & Company: Thank you.

Our next question comes from the line of Trip Chowdhry of Global Equities Research. Please go ahead.

Thank you and good execution. Two questions, first it seems like Wipro has a very diversified businesses, I was wondering if Premji could comment if he is thinking of getting into some alternate fuels since already under vegetable oil business, or anything to do with clean tech or green tech any thoughts on that?

What we are doing is we have a very good base in understanding process equipment and discrete engineering. Our water acquisition in Wipro Infrastructure Engineering was basically to make equipment, which will address water purification because we see it as a huge emerging opportunity in India and in the surrounding markets. We hope to get into any non-connected diversification where we have to build technology or expertise or markets from scratch.

The second question I have is regarding the deal flow. Are you seeing any changes in the deal sizes like are there more small sized deals coming into play versus the large sized or the mix of the deal, the same this year versus last year? Suresh Vaswani - President, IT Practices - Wipro Technologies; President, Wipro Infotech: This is Suresh Vaswani here again. Speaking about deals, I think we see a healthy funneling so far as deals are concerned. We are also focusing now much more strongly in terms of creating proactively large size deals. And as you are familiar, we've also launched the total outsourcing practice, which is built around infrastructure, which are again reasonably large size deals. So, we are seeing a fairly healthy funnel. It's not that and as Mr. Senapaty also spoke about it earlier, it's not that that deals are going to necessarily close in a hurry, but we certainly have a healthy pipeline of deals both in the infrastructure side on the application and BPO side. And which is one of the reasons why we are saying that we would expect our growths to improve as we go on into Quarter 2, Quarter 3, and Quarter 4.

Thank you very much.

Our next question comes from the line of Kanchana Vydianathan of Pacific Crest Securities. Please go ahead.

Thank you. I guess my question is with regards to your guidance for the June quarter $1.06 billion. I was wondering if you can help us understand what have you taken into account. I mean are you taking into account that this is a conservative guidance if things would deteriorate a little more? If you were to start seeing, cancellations of deals, have all of that being taking into account. Is this a conservative guidance or this is realistic at this point?

As you have seen before Wipro always comes out with realistic as to what we see at that point in time, with an expectation for the quarter. You haven't seen significant difference between what we guide versus what we deliver.

I guess just... if you look at the economy right now is it possible that you could run into certain cancellations and projects or project delays. That could put your guidance at risk?

At this point in time, we have seen we have looked at what our current run rate is what the customers are looking for and we have reasonable estimate with a very high probability factor for June ending 2008. We will be able to communicate as to what we expect. So at this point in time we feel very comfortable in terms of what we have given the guidance number and that is a realistic number.

Okay. One question with regards to your technology businesses, I was wondering if you could talk little bit about what's happening in the technology business. Because it looks like the growth in that business is still below the company average growth rate. Can you help us understand is that where you are seeing the slowdown and is that where you are expecting a pickup in the second half? Sudip Nandy - Chief Executive, Telecom & Product Engineering Solutions: Will this is Sudip Nandy, from the TPE, Telecom and Product Engineering business. So the three distinctive parts to the business one is the Telecom Service Provider business which has grown more then 50% year-on-year. So that has been a very healthy growth, it's a growth leader in the company. The second part is the Telecom OEM business, lot of the Telecom OEM big companies globally, they have... they are well almost 18 to 24 months over past their mergers. And their product rationalization and joint strategies all have been evolved. So we have actually moved from the eight quarters before we were seeing single digit growth in the Telecom OEM sector. We've actually reported double digits mid-teens growth in the last year in Telecom OEM sector, but that is the weight of that sector is fairly heavy for our technology business. The third leg of the technology business is the embedded and computing business. In that we've had a growth, which is very high very good 50% plus in Industrial Automation, in Medical Electronics and also in Avionics as a sector. So all-in-all because of the way the weightages are, we have reported lower than average growth but its growth is better than last year in the Telecom OEM sector. So we are seeing slight recovery in the Telecom OEM sector, and as the weight of the Telecom Service Provider business increases in our mix, we expect it to be even better next year.

Okay, and one final question. I guess if would have look at your... at your percentage of revenue from fixed price contract, that has significantly improved over the course of the year. Can you help us understand, what are you doing differently in order to drive this revenue increase? Thank you.

This is Girish Paranjpe here, what we are doing to increase share of fixed price project is two initiatives. One is to bid for more developmental projects which can be more easily structured as fixed price products, and some of the increases happened because of that. And the other is where we are in application maintenance or restructure maintenance kind of contracts to run them more as managed services contracts and those are the two ways we've been able to increase the percentage of fixed price. Suresh Vaswani - President, IT Practices - Wipro Technologies; President, Wipro Infotech: Yes, just to elaborate further, this is Suresh Vaswani here. Some of our service lines which are driving growth, lends itself to fixed price contracts. And like Girish mentioned infrastructure services is largely fixed price managed services type of contracts and that's a service line that's been growing... has grown 50% on year-on-year basis this year. Like wise our package implementation practices, package implementation and support practice also tends to be largely fixed price.

Okay, it's helpful. Thank you very much.

Thank you ma'am. Our next question comes from the line of Anthony Miller of Arete Research. Please go ahead sir.

Yes, hello again gentleman. A couple of questions, firstly one which kind of led-on from the discussion this morning when a question was asked about package implementation growth which went backwards a little, and I think the comment was made that you saw a couple of project cancellations. I wondered if you could expand on that little please and tell us what sort of projects were cancelled? What sort of vertical and then why the projects were cancelled? Suresh Vaswani - President, IT Practices - Wipro Technologies; President, Wipro Infotech: Frankly that was just one project cancellation. One significant project cancellation, which set back the revenues in so far as Q4 was concerned. But there was also certain delays in terms of projects ramping-up, so project start-up delays were there and therefore that also sort of led to a muted quarter four. Going forward the way we see it... I think the funnel on the package implementation side looks good. Some of the major deals that we won in quarter four are revolving around package implementation and package support and that really was the basis of our... more stronger outlook, so far as the package is concerned in the current year. So quarter four we clearly see as a lit combination of one significant project cancellation, and second was, because of... some of the projects that we had won have taken time to get off the ground in terms of the customer's saying that they want to start next quarter.

Can you say you why that project was cancelled? Suresh Vaswani - President, IT Practices - Wipro Technologies; President, Wipro Infotech: Well, it's for exactly the same reasons that you all have been raising in terms of the sort of recession and therefore it was a discretionary project. It was a project related to a new application that we were implementing for the customer and the customer just felt that it was discretionary and therefore pull back on it.

Okay, and was that in banking sector in BFSI? Suresh Vaswani - President, IT Practices - Wipro Technologies; President, Wipro Infotech: Sorry?

Was that in BFSI? Suresh Vaswani - President, IT Practices - Wipro Technologies; President, Wipro Infotech: It was not in BFSI, it was not in BFSI.

Okay, and just another quick one on Infocrossing. Can you give us a flavor for how much of the growth that you're seeing in Infocrossing has come from customers who are already there prior to the acquisition and therefore how much is actually new business won under Wipro's control?

Hi, this is Zach Lonstein. I'm the CEO of Infocrossing, and the $38 million of total contract value that we announced for the fourth quarter of this year is all from new customers. We got a few [ph] renewals and announcements of total contract value. And in fact we're seeing ramp-up in our signings in the first quarter, it's of 18 days old. We already have $34 million in the new total contract value. So we are seeing the acceleration of momentum in our growth.

And in that new business of this been signed both last quarter and the couple of weeks of this quarter. How much of that actually includes some element of either offshore service or some element of Wipro service beyond what you supply onsite with Infocrossing?

This is our traditional Infocrossing infrastructure outsourcing business, our business as usual.

Okay. So there is no crossselling that is happening yet for other Wipro services?

Well actually, we are working together with TIS to provide synergistic services. We have a significant pipeline of larger accounts. We have proposed... we closed one joint deal to this client. And we have a number of much... but not extremely large or we have number of very large deals in the pipeline. And the outlook looks very strong.

Anthony the $48 million deal that, $48 million of PCV that whacked-up about is from some of the customers of Wipro. Wipro's original customers, while these may not have an integrated deals of what Infocrossing does and what Wipro does, but there is an amount of cross-selling synergy which is already started kicking-in.

Okay thanks very much.

Thank you and our next question in queue comes from Ashish Thadani of Gilford Securities. Please go ahead.

Yes, good evening very nice quarter. Couple of questions; your SG&A trended up as a percentage of revenue quite noticeably. Can you explain why and how much of this will continue into future periods?

I think there is Ashish, we have increased some headcount in the sales team and also what... there is a compensation increase that happened from 1st of January, 2008. So, that gets reflected. And the third thing is that we are also trying to build is this global program, which is being led by one of the senior persons under Kurien. And there has been some headcount increase there and we continue to invest in that space. So, from that perspective our sales and marketing investments will not stop. We'll continue with it.

Okay and then moving to the financial services vertical. That was up very nicely quarter-on-quarter. Can you explain what helped Wipro buck the trend here was it Europe, was it some specific new client or something else?

Girish here. I think we have the advantage of some of our European clients kind of continue to do well and not as badly effected by the downturn in the United States. Also the type of business that we are doing in United with some of our clients was less vulnerable to a sudden kind of ramp down and I think that did help us in pulling through and doing quite respectably in this quarter.

Okay. And then one final question on margins both in the Asia-Pac business as well as the consumer care business those jumped up quite nicely. Is that sustainable? Is there anything unusual in this quarter in the profitability in those businesses?

I think Ashish so far as Infotech is concerned, quarter four is always the best quarter for them and consequently when you have the similar SG&A and the quarter 4 revenue, you would have seen on a YOY basis. It wouldn't have made a big difference, but a QOQ point of view would make a difference. But on a yearly basis I think they hold a margin which is about 9% to 10%. You got regular [ph] between products and services together. Like we have stated we will now start reporting IT Services separately between the two businesses as well as IT Products separately as opposed to Wipro Infotech and Wipro Technology kind of a concept. And so far as Wipro Consumer is concerned I would request Vineet Agarwal our President Wipro Consumer to respond to that question.

Well on the operating margin, our operating margin is broadly the same. If you are referring to the number which is included 12 to 13 is really on the decimal number it's moved really from 12.4 to 12.7. However, if you are referring to gross margin, improvement which has happened from last year to this year is really because of Unza acquisition, where Unza has a lot of premium products. So the gross margin tends to be higher. The cost of sales is also higher in those premium products and therefore the operating margin is broadly in line with Wipro Consumer Care and IT users. There is no major change from what you have seen of it.

Just to clarify cost of goods is [ph] promotion. It is below the gross margin line.

All right great, thank you very much, very helpful.

Our next question in queue comes from the line of Abhi Gami of Bank of America. Please go ahead.

Okay, thank you. With growth a little bit slower early in the year, do you have a luxury of spreading out the pace of your hiring through the year a little bit more efficiently or do you need to build a bench earlier in the year as you typically may do?

Abhi was the question on hiring?

Yes, right. I am looking for some thoughts around timing of your hiring during the year. Can you wait a little bit longer to bring people on and stretch your bench a bit more, or will you maintain historical rates around your basic?

Just on the hiring front we addressed that question in the morning call as well. The bulk of our hiring would be focused on the pressure hiring, these are the engineering graduates and we would be hiring from campuses across and also a sizable section which would be comprising of non-engineers these are basically Bachelor of Science. In terms of numbers, we have made close to 14,000 offers with respect to engineering graduates. And we would be bringing on board, another 3,500 would be Bachelor of Science graduates. So this is... just in terms of looking ahead where we are locked in with our hiring numbers with respect to pressure as well the laterals are concerned. We would be tying in lateral hiring more closer to our demand requirements in specific requirement needs as demand builds up. On our utilization, we think we have had a good year this year, our net utilization is running almost up 74%. If you exclude trainees it's running at about 78%. We still think we have headspace to pull it off further by about another couple of points. So we would be doing both, we will be very selective in where we hire, and will continue to press the peddle on utilization front and hopefully we should be able to pull up there too.

Okay thank you. Also another question, also with the things slowing a little bit this year, do you have room to slow your capital expenditures from the pace of fiscal '08 or should we expect to see that growth in line with the growth of the business?

When you talk about capital expenditure primarily three things, A is the land, B is the building and C is typically the machinery that you've deployed. So typically what happens is when you pick-up a site to build-up you buy the land ahead of time and because you create the facility for future too. And you can never loose money on that and similarly when you build a building, again it at least accounts for the cost escalation that we are seeing. So, we don't see much of an issue there, but typically it tends to be spend and utilization may happen much later. But so far as the other more expensive equipments deployment are concerned, it will be clearly with 60 days to 90 days time lag that the investment happen. And therefore, clearly it is pretty linear to the deployment of people that happens.

Okay, thank you.

[Operator Instructions]. And we got a question in queue from the line of Mark Marostica from Piper Jaffray.

Good evening, it's actually Mark Skitowich [ph] from Marostica. I just have a couple of separate questions. First, just a follow-up to an earlier question on package implementations. You mentioned in a couple of large wins. I am just curious if you can comment on the verticals where you saw those wins? And then secondly, which sector did you see the cancellation?

Not be too specific but both the wins and the cancellations so to speak most of the wins were from the enterprise sector. So not from BFSI, but in the enterprise sector.

Okay, and I'm sorry and the cancellation.

We have spoken about a few large wins this quarter, and those large wins are from the enterprise sector in package implementation and so forth. And the cancellation that we alluded to earlier also was from the enterprise sector.

Okay, great. And then separately on fixed price side of the equation. I'm curious, first of all, can you remind me what the revenue concentration was there in FY07?

Can you repeat the question?

Yes, fixed price contracts as the percent of revenue in FY07.

42%:

Quarter goes about 29%.

About 22%.

I think for the year... 29 for quarter four.

Okay. And then can you comment on incremental margins that you saw in '08 relative to TNM and then what... where do you expect to see the level as the concentration of revenues in FY09?

You are talking about the profitability in fixed price as compared to the revenue is that your question?

That's correct.

Well, I think we can do much better than what we have been doing. And our endeavor will be to seek improvement in that area because while 60% to 70% of the projects do well and we get much better than what we would have planned for there are few spoil sports in that as a result of net-net. We don't get the full leverage of it and our constant endeavor is to make sure that we have all the quality processes in place, including the customer expectation management, the credit request management etcetera, etcetera to be able to get better at that space. So from that perspective, we are constantly at it. We have done better in the 2007-08 and compared to 2006-07 and our expectation is eight to nine, we would do even better.

Okay. And as a percent of revenues in '09, where do you expect to see fixed price?

On an average it was about 22%. So far with our '07 rate is concern and would expect it to go up towards 35% is what, we should be willing to go for.

Okay, great. Thank you.

Our next question in queue comes from the line of Julio Quinteros of Goldman Sachs. Please go ahead.

Real quickly, Suresh can you just give us what the annual RSU impact is supposed to be for the model?

See the RSU impact for quarter one would be about 50 basis points. I can't give you for the whole year because that also means I have to give you the revenue and earnings.

I am sorry. I am just trying to understand the RSU impact is not just the one quarter issue but rather it would keep flowing through for the rest of the fiscal year.

That is correct. But the thing that we do at straight line accounting so typically what did we take in the first quarter will more or less remain the same. But the percentage will drop as the revenue growth happens.

Okay, so it's not just one time, it actually would... something we have to account for the whole year as we think about it?

Correct, that is correct.

Okay, got it.

Except that, that we will get some of the earlier ones reduced and this one [ph].

Of course, Okay. And then secondly your utilization levels are nearly at 80% when you exclude the trainees, but it sounds like you are saying that you guys would like to run at even higher. It seems like anywhere above 80% that, that needle would be running pretty high and is it... is that the right strategy to be taking the utilization up and so... it sounds like probably above 80% for you guys?

Hi, Girish here. We have... it's an aspiration number and it is because we've been able to implement some processes which really allow us to make lot of people fungible. So, in a traditional model, I agree with you that it would be almost dangerous to run in such high utilization levels, but because we see the advantages of fungability and because of the improvement we've had this year and the scope we see a further improvement, we believe that there is some more room there.

Can you just explain what you mean by the advantages of fungability?

The advantages of fundability are really around being able use people across business units, across service lines much more instead of allowing them to be silo within individual business units.

Understood. And then secondly on the hiring pace for the last two quarters I know you had a big hiring quarter about three quarters ago, but are you guys building enough bench for the expected acceleration into the back half of the year at this point?

Yes this is Pratik here. So we do think that our hiring engineers geared to be able to bring people on board. Especially the experience side in a reasonably short period of time. As far as the pressures are concerned they go through 12 weeks of orientation and we keep bringing them in batches. And therefore we can time it well, when they should be coming out of the training programs and when they get deployed onto projects. So that we do not anticipate that to be an issue, certainly not in this respect.

And can you just remind us what your current mix is of new hires laterals versus campus?

The coming year we would be looking at mix of 70:30 of which is an improvement from this year's 50:50.

So 70% freshers.

Freshers.

Got it from 50-50 this year. Okay and then just lastly on the Infocrossing margin left you guys are now running at round I think it was around 9% or so on margins. Where do you expect that to go from here in the next quarter or two and then what's the risk of margin downside assuming that things slow down in other words how much fixed cost risk is there in this business at this point?

This is Zach Lonstein CEO of Infocrossing, just a last comment I've been in involved in a number of acquisitions in the process of integration invariably leads to a temporary reduction in margins. As the integration process is carried out. However, also inevitably the margins returned to their previous levels and begin to exceed their previous levels and we are now seeing that happen. So for the year we are expecting gross margins to significantly increase to around 32%, and for the fourth quarter in fact will of course reach its highest point and the same is true for the EBIT margins. We expect them to significantly increase reach its highest levels in the fourth quarter. And since we are recurring revenue business that gives you good insight into what should be going forward with the following year. So we don't see a lot of risk in the margin and we believe expect an upside.

And the EBIT margin that you are targeting to I am sorry what was that number?

We are expecting an overall EBIT margin for the year at around 13%, but for the fourth quarter it's still a higher number.

Got it. Okay and then... okay I am sorry... Suresh what was the reversal on the R&D about it looks like the R&D for the quarter was a negative item as opposed to usually been an expense?

I am glad you asked that question, because in the morning I never answered that. And I forgot to sort of pop it back. In Wipro new logic that we have, we have R&D work that we do as part of in that entity, it will interact. The first result R&D activity there are certain incentives we get from the government. Typically in the fourth quarter that incentive accrues. And it is back particularly even if fourth quarter of last year also we would have got it. Other quarters [ph] '08 also would be there.

Okay, so typically you get the accrual in the fourth quarter, but as we go through into the next fiscal year, it would go back to its normal expense as an expense item?

That's right I mean... at least about 70% of that write back was leaping to grant that we've got from the government.

Okay, got it. Okay great thanks.

Our next question comes from the line of Ed Caso of Wachovia. Please go ahead.

Alright, thank you Ed Caso, Wachovia. My question is around the hiring and retention. Are you trying to get a sense for what's a little deeper and what's going on in the market? Are you seeing the multinationals like Accenture and IBM and are you seeing the captive sort of slowing their aggressiveness in the market? That would be my first question.

Hi Girish here. There is no unusual activity that we see from any of our competitors on the recruitment market. So we will have to wait and see another couple of quarters. But, as of now there doesn't seem to be anything unusual.

And what about competition since India is growing 8%. Are you starting to be challenged by professionals wanting to go and work in other industries either directly or having sort of an upward pull on wages?

Not yet because I think there is sufficient talent tool which is still directed towards IT industry and there are opportunities which IT industry offers which other industry which are more domestically oriented, don't offer. So while there are sporadic cases of people going to domestic industry this is not as yet a trend.

It would have been fair to assume that the rest of India Inc. would put more pressure on your BPO business as opposed to your IT business?

You are right. So Kurien, can add to that, whether the BPO business is more vulnerable to us in a competition from domestic IT businesses.

I think the answer is clearly yes. And but what we have seen is that, we have seen two trends happening. While there has been a movement over I would say six months ago into domestic industry. That has slowed down last quarter. And given the fact that the industry is locally is also cooling down little bit. We don't see that being a trend going forward, that is people moving into other industries. But we still expect to see about 10% of... 10% to 20% of the population that moves out of our business, who are trained [ph] out of our business moving into local domestic business.

Great. And turnover any sense... is there any sense that the turnover maybe coming down a little bit because people see sort of less opportunity and I know all the Tier 1s have been trying to be more cynical about hiring laterals who have resumes where they move every few months.

Well Girish here, yes. So we continue to see some clean-up that needs to be done of incorrectness in the resumes that specially on lateral hiring. We thought we had completely cleaned-out but it seems to be that it's a more endemic thing. So we continue to see 2% or 3% of the attrition really attributable to that kind of problem. But other than that I think the attrition rate continues to be in the range. There is a hypothesis that as the year progresses, the attrition rate should fall and may be it will happen, but we've not yet seen anything like that.

Thank you.

Our next question comes from the line of Devang Kothari of JPMorgan Securities. Please go ahead... or JMP Securities. Please go ahead.

Yes Devang Kothari from JMP Securities. Just a quick question on your campus hiring strategy. Given the change in mix that you're looking from a fresher's perspective, how do you accomplish that, are you going to more Tier 2 schools or how can you have such an increase in the freshers coming in?

Yes, Girish here. Actually, what happens in India is that you have to make this campus offers almost a year in advance. So the people who are joining us now have actually been identified and offered to 12 months ago. And when we did that exercise 12 months ago, we did went... go to fairly large number of campuses, and award and kind of we got more aggressive in recruiting candidates. So based on our activity done last year, we have fairly strong pipeline, almost 14,000 people to whom we have made offers for joining this year. And we'll wait and see how many of them do join our organization. But there is no reason to believe that a significant majority will not accept our offers.

Hey great, thank you very much.

Andyour hypothesis question --

I think we will close the question-and-answer session. Is there any question on the line?

We have two questions left and they are both follow-ups.

Suresh, do you want to take your question or we'll take it offline.

Yes, no let us take the two questions.

Yes, okay. Let's take the two questions and then close the Q&A after that.

Okay. The next question is a follow-up from Moshe Khatri of Cowen and Company. Please go ahead. Moshe Khatri - Cowen & Company: Okay thanks. Thanks for the follow-up. Some of your competitors indicated that the nature of the work that's required by their clients in this environment is changing. Can you kind of comment on that is... are you seeing the same thing? And then there is also lot to talk about the fact that corporations with captive centers are actually in the process of looking to sell some of these properties out of India and may be you can talk about that as well. Thanks.

Yes Moshe, Girish here. So on the second question, clearly there are some captives which are on the block. Some of it is genuine reasons of some disenchantment about the overhead of running a captive. The other is their own reasons to monetize what they think they have created value in the form of the captive. So there are couple of things in the block and I think some of... as the year ago may be there will be some more.

And our last question. Moshe Khatri - Cowen & Company: And then also comment on the changing or the changes in the nature of the work?

I mean especially in large relationships the nature of work does move away from more traditional technical type of work to be more complex involving more business analysts, more architects, more large complex value type of work. So as our relationship kind of matures with clients, nature of people will need to is give contracts changes, there is no doubt about it. Moshe Khatri - Cowen & Company: Thanks.

And the last question in queue at this time is the follow up from the line Julio Quinteros of Goldman Sachs. Please go ahead.

Thanks guys, last question is just a really a semantics question, when you guys talk about cancellations, can you just define on what you mean by that and how a cancellation is different than say potentially a deferral, a delay or a push out? Suresh Vaswani - President, IT Practices - Wipro Technologies; President, Wipro Infotech: This is Suresh Vaswani here, very simple project cancellation is project, let's say which is about to start or which has made some headway and then the customer decides to say that he does not want to continue with the project. So typically when such a thing happens, of course we can also claim for some amount of damages based on the sort of contract that we've signed from the customers. So that's a project cancellation completely stopping the project. But the project deferral is the customer just requesting that instead starting the project, in Q1 we will start the project in Q2.

Okay. Suresh Vaswani - President, IT Practices - Wipro Technologies; President, Wipro Infotech: The project is still live and will continue eventually.

Got it, and so if we... as we look at the business right now it sounds pretty clear that on the cancellations front you guys are not... there is a couple of anecdotal evidence kind of comments that you made that there were few. But what about on the deferrals delays and push ups, how pervasive is that through the enterprise right now? Suresh Vaswani - President, IT Practices - Wipro Technologies; President, Wipro Infotech: Cancellations were very, very few so.

Correct. Suresh Vaswani - President, IT Practices - Wipro Technologies; President, Wipro Infotech: Irrespective of economy I don't think there'll be too many sort of cancellations that we've had.

Understood. Suresh Vaswani - President, IT Practices - Wipro Technologies; President, Wipro Infotech: There have been some... there have been more than one so to speak project deferrals and that is what's sort of is a worrying trend in context of and that's the impact of the slowdown in the economy.

And that is the reason we talk about being trying to be cautions despite the fact that we have given guidance which is [inaudible]

Okay great. Suresh Vaswani - President, IT Practices - Wipro Technologies; President, Wipro Infotech: One last comment I would like to make is there is a lot of talk on economy slowdown et cetera. It is also an opportunity for players like us who do certainly have a transformation advantage and the cost transformation advantage for customers. So, while yes, there would be some project cancellations and some project deferrals. I think we would also be able to convert some of the slowdown so to speak into an opportunity in terms of writing innovative solutions which are cost transformational for our customers.

I agree. I think all of our research suggests that that would be the case that over some period of time, the risk I think really is from the time that stuff gets cut, delayed, or pushed out until the time that that actually begins to ramp up is that a one quarter phenomena, a two quarter phenomena, that's the part that I think we are trying to understand is how much risk is there from the time that sometime something actually goes down until the time that something actually comes back on line? Suresh Vaswani - President, IT Practices - Wipro Technologies; President, Wipro Infotech: We certainly believe and that's what we are speaking about. The more back-ended growth this year, so we are expecting some upswings.

Got it, great thank you guys. Suresh Vaswani - President, IT Practices - Wipro Technologies; President, Wipro Infotech: Thank you.

Thank you very much everybody for your participation. The IR team is available for any offline queries or clarification. Thank you very much and see if we can give the final digitized numbers.

Thank you sir. Today's conference call will be replayed from today at 11:15 Eastern Time until April 25th, 2008 midnight of that day. You may access that conference by dialing 1-800-475-6701 and entering the access code 918610. If you happen to be dialing from an international location please use the number 320-365-3844 and the access code 918610. Those dialing numbers once again for the replay are 1-800-475-6701 and 320-365-3844 and the access code for both dial in numbers is 918610. That does conclude our conference call. I would like to thank you on behalf of today's panel and thank you for using AT&T. Have a good day and a wonderful weekend. And you may now disconnect.