Wipro Limited (WIT) Q1 2013 Earnings Report, Transcript and Summary

Ladies and gentlemen, good day, and welcome to the Wipro Limited Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Manoj Jaiswal. Thank you, and over to you, sir.

Thank you, Melissa. Good afternoon, everybody. Apologies for the slight delay in the start of the call. A very warm welcome to all of you to our quarter 1 earnings call of fiscal 2012 -- '13. My name is Manoj Jaiswal, and I head the Investor Relations for Wipro, along with Aravind in Bangalore and Sridhar in the U.S. We manage investor interface. We will begin with a short address by our Chairman, Mr. Azim Premji, followed by IT business highlights by Ms. T.K. Kurien, CEO of IT Business; and Mr. Suresh Senapaty, CFO, Wipro Limited, who will present financial highlights. And the operator will then open the bridge for question-and-answers with the management team. We have the entire senior management here to take question and answer from the analysts and the investors. Before Mr. Premji starts his address, let me draw your attention to the fact that during this call, we might make certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are associated with uncertainties and risks, which would cause actual results to differ materially from those expected. These uncertainties and risk factors have been explained in a detailed filing with the SEC of U.S.A. Wipro does not undertake any obligations to update forward-looking statements to reflect events or circumstances after the date of filing thereof. This conference call will be archived and a transcripts will be available at our website, www.wipro.com. Ladies and gentlemen, let me now hand over the call to our Chairman, Mr. Azim Premji.

Good day to all of you. I just want to very similarly cover 2 areas: One is trends in the macro environment and IT; and the second one is the Wipro strategy. Overall, macroeconomic environment continues to be volatile. There is a lot of uncertainty due to high levels of sovereign debt and unemployment levels. My plans are cautious, they are sitting on stronger balance sheets and better prepared to face the uncertain environment. Signs are driving towards a dual objective of growth and differentiation as they transform themselves. Technology is going to be the key enabler for this transformation. Wipro investments in key technology teams, coupled with our domain-specific solutions and global footprint positions us to be their trusted partners. I continue to be optimistic about the structure and growth story of the IT business. Within this, our Wipro strategy has been fueled by 3 directives: a focused business strategy, higher customer satisfaction and greater employee engagement. Our strategy of creating a higher degree of differentiation in the front-end and standardization in the back-end is critical for us to win. We see higher levels of customer satisfaction in fiscal year gone by with customers, as well as in quarter 1, with customers reacting positively to our efforts in building a simpler, nimbler and leaner Wipro. We continue to be significantly focused on employee engagement. We have seen the employees settle down into the new structure as reflected by a sharp drop in attrition rates and positive employee perceptions focus. We continue to drive our strategy by maintaining the highest levels of corporate governance, just to repeat to be recognized by the Ethisphere Institute, a leading business ethics think-tank, as one of 2012 World's Most Ethical Companies. We continue to be focused on sustainability. Our sustainability initiative has resulted in Wipro being among the only 2 Indian companies in the Dow Jones Sustainability Index for 2011. Thank you very much. I'll now hand the mic over to Suresh Senapaty.

Good day, ladies and gentlemen. Before I delve into our financials, please also note that for the convenience of readers, our IFRS financial statement has been translated into dollars at the noon buying rates in New York City on June 29, 2012, of cable transfers in Indian rupees as certified by the Federal Reserve Bank -- Federal Reserve Board of New York, which was $1 equal to INR 55.57. Accordingly, revenue for our IT Services segment that was $1.515 billion or in rupee terms, INR 83 billion, appears in our earnings release as INR 1,496 million based on the convenient translations. Moving onto the quarter performance, our IT Services revenue for the quarter ending June 30, 2012, was $1,540 million on constant currency, a sequential growth of 0.3% within our guidance range of $1,520 million to $1,550 million. From a vertical perspective, we continued to see strong growth in Energy & Utilities. Financial services were impacted by weakness in investment banking in the current quarter. From a service line perspective, we saw strong growth in analytics with 3.2% sequential growth. We've seen some stabilization in our BPO business, which saw sequential growth of 1.5%. We will move the needle further on our focus area of client engagement. The current quarter on a trailing 12 months, we have 8 accounts, which are more than $100 million in revenues, up from 4 last year. We saw growth in our top 10 accounts of 3.2%. We're happy with our progress, and we'll continue to make advancements in this area. From a revenue productivity perspective, offshore utilization dropped by 1%, and on-site utilization improved by 0.2% sequentially on a constant currency basis. We see pricing pressure in pockets, but we are driving realizations to productive improvement. Sequential volume growth in the quarter was 0.8%. Operating margin improved by 30 basis points to 21% with the impact of increased employee cost and investment in sales and marketing were offset by the benefit of rupee depreciation. As on June 30, 2012, our DSO, days of sales outstanding, was at 59 days, same as in the previous quarter. As we anticipated, our IT Products business was sluggish due to push out of division on capital spend and declined by 5% on a year-on-year basis. Profitability of that was due to volatile currency in the quarter. Consumer Care and Lighting business continue to see good momentum with revenue growth of 30% year-on-year and an EBIT growth of 27%. We acquired the Yardly business and rest of Europe, excluding Germany and Austria, along Woods of Windsor business, which is another heritage brand in the United Kingdom. On the exchange front, our realized rate for the quarter was INR 54.89 versus INR 49.43 realized for the last quarter. On a quarter-on-quarter basis, ForEx net currency impact gave us a positive impact of 310 basis points to operating margin. As of previous end, we had about $1.6 billion of ForEx contract. The effective tax rate for the quarter is 20.2%. We generated free cash flow of INR 9 billion in quarter 1, which was 57% of our net income. Operating cash flow was INR 12 million in quarter 1, which was 74% of our net income. Our net cash balances on the balance sheet was INR 75 billion, an increase of INR 6 billion sequentially. I'll now hand over to Kurien for an overview of the IT business.

Good afternoon, everyone. Against the backdrop of mixed macro economic trends, our business in the first quarter played out largely as we expected. While the external environment seems to be volatile, I believe we are well-positioned as we constantly strive to drive innovation. And we focus our vision to address a shift in consumer [indiscernible] Technology. Our investments are showing results, and here's an update on our key parameter. Our top 10 accounts contributed to our revenue growth. We now have 8 of this relationship dropping $100 million revenue mark compared to 4 the same quarter last year. Our top 5 accounts [indiscernible] 5% of constant currency. Our customer satisfaction on a number of our accounts means they have improved quarter-on-quarter, overall for this quarter improved by 3 percentage points. In our business, building great talent in this company in absolutely critical for long-term sustained value creation. Employees like the pleasure of winning of an engagement and simplicity of process. This is exactly what we are driving within. This is reflected in some way in the stabilization of our attrition rate. More importantly, for us in the long -- this really can be expected in the long-term horizon. We need to come up [ph] with logos that are going to be insulated from the economic vagaries that may hit our economies across the world. We've kept [indiscernible] hunting team, which creates [indiscernible] over 130 professionals to handle this particular activity. We're also walking closely with our clients to enable their transmission journey. We signed a large multi-year contract with Philips Electronics as a Global Prime Partner with their transformational program. This will enable Philips to manage their twin objectives of enhanced business growth and profitability. Wipro as a prime partner will help transform and standardize 6 business platforms such as Idea to Market and Market to Order. And as an example, for a leading top silicon company that was providing a solution, leveraging analytics and want to replenish the mobile technologies with reviews of 360 degree view of this solution over a mobile device. This solution will enable 5,000 clients [indiscernible] to have accurate view of medical relations on the mobile make partners. Technology [indiscernible] proceeded early at investor [indiscernible] area. We've [indiscernible] investing [indiscernible] vertical. We could sniff [ph] the strong back cash in Energy & Utilities. We saw it grow in quarter 1, and we saw a constant year-over-year growth, 34.5%. E&U, [indiscernible] growth segments for us. As discussed earlier, technology is the core to our business, and we believe that the next technology disruption will be at intersection of cloud, analytics and mobility. On the analytics side, analytics business continue its winning momentum with a 3.3% sequential growth and added 21 customers. [indiscernible] chart by reading -- the leading retail in North America, whereas analytics [indiscernible] activities. We've also been engaged by a leading bank [indiscernible] given the finance function and more importantly, [indiscernible] global -- local risk and regulation. We acquired Promax Applications Group, a leading provider of trade promotion planning, management and optimization solution to strengthen our capabilities at trade promotion, management and optimization space. On the cloud, the first cloud business continues to see significant growth in the last quarter. Wipro had 51 wins in quarter 1 across IT and cloud transmission team. We are also seeing strong momentum in the areas of cloud ERP and parent cloud. On mobility, the impact [ph] frequency in solution engagement, mobile payment with a leading global bank, and a mobile confirmation via -- with a leading insurance company in North America. This quarter, we launched the m-eXecute solution on mobile platform. This solution would enable manufacturing companies to already sign the [indiscernible] real dynamics to the quality data and improve [indiscernible]. I wish to conclude by saying that Wipro has laid a foundation to be a new generation IT Services company. We hope to take advantage of [indiscernible] for business and the technology coming from across the world and help our customers leverage technology to do business better. Thank you.

[Operator Instructions] We have the first question from the line of Ankur Rudra from Ambit Capital.

Could you maybe begin with characterizing how you're seeing the demand environment now? Because from the guidance for the second quarter, it looks like it has possibly worsened because we see -- struggle to see strong growth for the full year FY '13.

I'm Kurien. What we're seeing strategically -- and let me just, Ankur, give you a quick, a little bit of color on that one. Because what we're seeing today is that the -- today, growth have to come from existing segments that we have, and the customers response to growth is driven partly by the industry segment that they are in, and their own competitive position in the industry. That, I think, is the primary lever to growth. With this growth of our estimate for quarter 2, fundamentally, what happened was if we looked across customers, geographies, we saw declines. One thing was pretty clear to us that as far as India was concerned, in quarter 1, we had a decline in the reported country roughly about 9.9% and in the same constant currency of about 1.6%. We don't see that attrition changing in a hurry in quarter 2 apparently because capital expense are not going to be there. We don't see that capital spending there coming back in quarter 2. As most of our India business is highly [indiscernible], which fundamentally means that we depend upon the capital budget to give us [indiscernible]. And they're not seeing that. In all quarters in the past, typically, what happened is 0.8% to 1% of our sequential growth has come from India. And that is the same this quarter. That, to some extent, gives you some color on the guidance. If you look at verticals, E&U continues to be strong. We have decide, we will get growth back. If you'll ask me, we should get growth back. And to fight [ph] back retail and telecom, retail is stressed in this quarter, telecom will be stressed primarily because of client issue, and the fact that we are overrated on our [indiscernible], but the fact that, I guess, we are not manufacturing what is sure growth again this quarter. So overall, our growth estimates are based upon what we see at numbers today, we don't know how to change the vertical there, close through [ph], sorry.

From a service line perspective, I noticed infrastructure was relatively disappointing, was it primarily India, or was it otherwise also?

I don't know the infrastructure side. I know we are the biggest out of India in infrastructure, right? From our own perspective, I think that's the segment where there are large deals. And fundamentally, I think [indiscernible] should be going forward if you see how can go out in large deal market. In the past couple of quarters, we haven't gone out to too many live deals.

Okay, just finally on the margins. I think this is probably a question that might come up since -- later also. But the margin expansions seemed a little bit light given that you only had 1 month of wage hikes, rise in utilizations and falling subcontracting costs. Maybe you can help us understand what happened?

I'll pass it on to Azim, but fundamentally, the approach that we have taken is this, because as far as we are concerned, if I'm going to kind of hold back what we believe are long-term investments, the long-term investments that we believe we have to make today are in the areas of sales and marketing. And we also gave a wage hike. Azim could take you through the margin walk.

Yes. So according to the [indiscernible], approximately 300 basis point from USD, INR foreign currency benefit in the P&L and [indiscernible] funded by 30 basis points. So approximately 270 basis point is what we have invested in the current quarter. And this is where it has broadly been allocated. We give the MS the salary increase in the current quarter, effective 12 June, and that has impacted our margin by approximately 120 basis points. If you see our [indiscernible] spend has gone up for this last quarter by 70 basis points, so that takes a little 190 basis points. We did have then adverse impact on offshore rates in constant currency jumps in the current quarter, and that has impacted margin by 320 basis point. So that takes us to 210 basis point and remaining nearly add to operational areas where we held in May certain operational investment. And that takes us to 270 basis point. We also have certain market challenges in our India business predominantly because of a revenue outflow. And that has also impacted India, all those categories that I just mentioned.

Was there any upfront nature of investments, particularly on the sales and marketing side because the increase seemed quite high?

Absolutely, Ankur. what we have done is that we have ramped up our hunting team, our dedicated hunting team. And that's been one big investment. Second big investment that we've made is in terms of -- in all our large accounts, we have bigger structure on large accounts which includes -- our contracting partners are -- client engagement partners all working together in a solution group in a particular account. We believe the nature of investments will help us move the calling out of the [indiscernible] area, and we hope to see this paying off in the next couple of quarters. But the answer is yes, we have been upfront in this. And by the way, we consider to make more.

The next question is from the line of Omkar Hadkar from Edelweiss Securities.

This is Sandip from Edelweiss. The first question is on the client concentration part. If you see the client concentration number, the 100 million client have gone up by, why, 1 in the quarter-by-quarter, but the 75 million has gone down too by 2. So -- and we are not seeing a corresponding increase in the 50 million. So can you tell us one of the client is known to us probably, but the other MS, we are not getting because we have seen in the media that 1 new client has been added [indiscernible]. So is it a shift from 75 million to 100 million, or what it is?

Sandip, it's very simple. One customer migrated from 75 million category to 100 million. Unfortunately, with the euro going down, what has happened is that 1 particular customer has slipped from 75 million to 73.88 million, okay? That's the ability to change. And similarly, at the 50 million category, you also have, in part, 1 slipping back into the 50 million category. So the euro billing for customers has impacted a little bit of change across the categories.

And the second follow-on question on that, we have seen the least number of active customer in this quarter, in last 4 quarters, 5 quarters time frame. So can you draw some light on that part?

So what -- we haven't break down to a number. But fundamentally, what we've gotten, in our entire portfolio, we've segmented in our portfolio into broadly 4 categories. The last category is what we call theater. These are accounts where are fundamentally we'll be doing work, but never scaled. And when you look at the efforts at the time and the resources behind them, you'll find that the cost in doing business is far, far more than the payoff. So fundamentally, what have done is we've gone to all these customers ask them ask them if we were strategic about [indiscernible]. If we were not, we'd disengage. And the total number [indiscernible] given the exact numbers in terms of how much we can take this. So that is how this figure [indiscernible] 36 customer not in the current quarter, but over last few quarters. Given each [indiscernible] that we have been moving away from a very small global customers which we categorized as game [ph] customers, there is also an impact this quarter because of translation of the great product, [indiscernible] Customers where we held particular threshold at an absolute number for which we consider their customer an IT customer. Now if somebody had a rupee revenue of X, and that number would be divided by 49 last quarter, and you will have classified an active customer the same rupee number today as divided by the 54 or 55, and somehow, we did fall in below the threshold of IT customer. So I don't think you should look at [indiscernible] 20, movement of 22 customers. This is more on conversion translation. And some of our efforts of going away from the small customers in the global market [ph].

And [indiscernible] question, if I can. What -- where -- why you are still seeing softness in the telecom vertical? Because if remember correctly the last quarter's commentary, I heard that service providers will be able to compensate for a majority of declines. So I'm not seeing that this quarter also and also if you can throw some light on the financial solution part.

Sure. So I will first comment to clarify the numbers on telecom service on the telecom segment. And then maybe I could request T.K. to talk about it. [indiscernible] currency number in the current quarter actually if you'll be -- would will see that global media and telecom has grown by 2%. So the negative growth that you are seeing is below [indiscernible] because of impact of foreign currency and they have a large exclusion to Europe. So in the current quarter, actually, there is a positive movement. And with that, I'll request T.K. To talk about order demand scenario in the current quarter.

[indiscernible] Who runs our commutations, our global media telecom business is on the phone. Maybe you can answer the question [indiscernible]?

Sure, thanks, T.K. we continue to see demand which is fairly broad-based. It is across transformation, it is across BPO, and it across our recruitment vendors. As Azim explained that we have large exposure to our euro billing, hence, our reported numbers were lower. Also, we have a lot of our -- our work based on large transformation projects. As and when these projects come to an end, there is a certain amount of burst of relatively good and lumpiness of revenues. But overall, we continue to see a lot of optimism as far as telecom vertical is concerned.

[indiscernible]

Yes.

So in terms of the FSI, as we have talked about in the earlier quarter, the investment banking segment of the market was challenged and it continues to be challenged. On an overall basis, if we look at our performance for the quarter, we had a very strong quarter from the retail banking and financial services side. It grew to the extent of almost 6%, 7% sequential growth. So it is really the IDP, which really pulled the overall FSI fortune down. Now that is understandable because if you see across all the investment banks, all for the banks, all of them are posted for this. On the IB side, which is directly linked to the trading revenue residue, and that has impacted the growth, as well as it has impacted the bottom line, so that is one. But on our overall perspective, I see 3, 4 trends. One is the -- and this is across via [indiscernible]. There is a fair amount of demand in terms of cost takeout and cost takeout I will clearly bifurcate into on the outside it is driven more now by a lot of activities on the shared services side and on a [indiscernible]. On the TIS side, which is infrastructure and on the BPO side, we are seeing a fair amount of traction, right. So that's overall in terms of cost takeout. Second is our regulatory and compliance, we are seeing a whole lot of initiatives being taken on this still. Regulatory is more in Europe than in U.S, but compliance is all across. And we are seeing some very good wins in that particular area. On the development side, in insurance, we are seeing a fair amount of activity in terms of modernization of policy admin systems, and on the retail bank side, we are seeing a lot of investment happening in areas like payment systems and channel. Last deals, we work fairly focused on, all right. And you see in the current environment, the deal cycle times, have become challenging. But the good news is that we've progressed in quite a few of the large deals, in terms of moving ahead in terms of down selection. So really in terms of the future, it is really going to be dependent on how those deals close.

The next question is from the line of Nitin Mohta from Macquarie.

T.K., earlier in your previous comments you talked about how the last decade practice of same service offerings being packaged differently is changing. Just wanted you to elaborate a little more on that comment, which service offerings would you think can feel the pressure than the industries going through this transition?

[indiscernible] can you just repeat that question once again?

Sure. In a television commentary, you said the last decade practice of all you and your peers offerings, similar service offerings packaged differently, is undergoing a transition right now. And that is what you're preparing the business for, from a longer-term perspective, so I wanted to understand. And then tremendous transition is happening, what service offerings or which verticals you think can have a little bit of a trouble in between?

So very simply put this is what happens. If you look at the industry kind of word [ph]. The initial state is what happened early on was a lot of word, which really meant that when you had offshore development you client gave you works, because they could get work done in Inida at lower cost and better. When they moved to customers giving you control of roughly like for example, your technology helping you run their data center, helping you run their networks. But the second step is when the entire responsibility for managing something as leading down to work. I think now what you're seeing is that if you add a value scale, and if you had an X which is your volume and a Y which is value [indiscernible] is a portfolio have to draw line between value and volume and figure out for each company what is the mix but you have to gravitate to its value because value is fundamentally what you do the ability to work with business solution. So what could our ability if that if you look at analytics, mobility in cloud, these 3 things are going to come together in terms of technology [indiscernible] in front of a customer. And the ability to fundamentally use to solve the [indiscernible] differentiator long-terms, this is on the value side. On the scale side, we believe more and more on the scale side, but until you have big [indiscernible] which are driven by technology, long-term profitability in that segment will get ahead. So one idea is around how you do work. The other one you have to build around selection of property around customer's businesses and understanding what technology you can have. And then really put together the creative solution. I think those are the things we're looking at.

Thanks, that's very clear. Just in terms of follow-up, what I was trying to understand, was does that mean that services like ADM as trying to feel pricing pressures from a medium-term perspective. Because if that's what the industry is changing towards, can we actually see that kind of a pressure come through?

It's difficult to say, how the market will play out. Frankly, I think the first sense that we get market the trend that you see on a market that, the first thing that you see in any commercialization word. The second you see after the decline. And the third, you see [indiscernible] is coming in. The price fundamentally comes down. So perhaps it's difficult to see a trend that will happen. But certain -- some of the services that we have get technology. For example, if we look at technology [indiscernible] services, if you break it out into end use computing, if you break it out as a network server storage, we believe that end use computing components will get significantly with intermediate verticals. So [indiscernible] what is needed for your business.

The next question is from the line of Viju George from JPMorgan. Viju K. George - JP Morgan Chase & Co, Research Division: I'm just trying to get a sense of where you're claim [indiscernible] in terms of recovery and for the last 2 or 3 quarters, your revenues have been virtually stagnant, and your guidance also suggests that things are not really moving. Now it's been now well over 17, 18 months, I guess, and since a new management has taken over, the question really is that when you think that, A, you'll be able to get back in line with industry growth because that seems to be -- there seems to be a gap there, and B, when you can catch up with peers because it seems that you have slipping behind targets? Particular in the light of, I think the statement in all that might have made earlier that we intend to get back on track by the fourth quarter of fiscal '12. So clearly, you've done well for a couple of quarters and you've fallen back again perhaps in that respect.

If you look at what we are trying to do with our business, fundamentally there are 3 stages in business [indiscernible] that is playing out. The first stage would be standard then, let's focus on interesting customers and mind the customers [indiscernible] give us a short term revenue -- that will give us sustainable revenue. Then we set as the next stage let's see what we can do to make investments and to broaden our base of customers we want and see what we can do there, that's the second stage. The third stage is what we said is let's see what we can do in terms of looking at our real estate and see how we can change the real estate, so that we are not caught by the vagaries of being in customers who are [indiscernible]. Those are the 3 shifts that we wanted to make. Fundamentally, in the first shift, which is on [indiscernible] I think we have shown progress. Progress may not have been as great as we expected, but we have shown progress. On the second phase, we expect the progress will probably be about 3 to 12 months for us to kind of [indiscernible]. On [indiscernible] that's broadly what we believe to figure it out. Now will it be faster? My own sense is naturally, yes it's going to be. But frankly, we work very hard and this is the bank trend that we see.

The next question is from the line of [indiscernible].

I just wanted to get a sense in terms of the offshore [indiscernible] available. I believe that is 8%. What would be the same in terms of on site if it has been given yet.

Our offshore hikes had been around 8%, and on-site is around 3%.

Both are effective in June?

Both are effective for June.

The next question is from the line of Pankaj Kapoor from Standard Chartered Security.

I just want to refer to the comment that you made in the opening statement about seeing pricing pressure in pockets. If you can give some more color on that. Is it more of a client driven or is it something that when the confirmation which is catching up?

Yes. So Pankaj, I think that basically it's in select set of customers in an industry where there is a significant pressure on cost base. And we also see that the new builds in the market remains completely driven given the volatile environment that we are in. So I would put it to -- I don't think it's broad based across all industries and existing customers, but in existing customers, basically it is select customers in an industry. And new deals, yes, it continues to be competitive in that side.

Just a couple of follow-ups. Are we passing on the -- or are we seeing the other windows passing on the rupee depreciation impact given the pricing renegotiations in verticals or across that you or in new deals?

Well, we are seeing that in terms of the [indiscernible] dollar currency basis have dropped about 1% on the on-site -- offshore -- on on-site it has gone up by 200%. So in addition that, at the end of the day, there has been pressures on the commodity side. And productive improvements to match it.

Correct, sir. Of course, this will probably have reflect in the numbers only with a lag as these newer deals or any such gains which have been transferred start reflecting it, so we may not see it immediately, but I just want to get some color on that. And one final follow-up. How are we approaching the scenario? Are we part of selectively in these kind of discussions?

So the actual engagement [indiscernible] outcome base, you need to work on productivity to keep the organization on track. And also provide savings to the customer to make out [indiscernible]. That is a constant that we will continue to have and the movement [indiscernible] don't make the business we don't get that business. We make the business is productivity drives internally [indiscernible].

The next question is from the line of Nitin Padmanabhan from Espirito Santo.

Three questions basically. One was, with regard to the rundowns on the IB side of BFSI, how do we see it going forward? How much of that is already done? Is there visibility into growth coming back there, that was one. And the second was with regard to retail because we're seeing quite a drop there. So I just wanted to understand the declines, is it broad-based, is there any [indiscernible] there? And then finally, T.K., I just want to understand considering that the second quarter is relatively weaker than it started, how should one maybe even some in the industry perspective, does it look like the seasonality may not necessarily play out or does it look like incrementally things are getting tougher?

So maybe I'll answer the last question first, and then [indiscernible] for [indiscernible] for banking. So here's what we're seeing, basically what we're seeing is, number one, more on, from a year perspective, that we don't give year guidance. But from a market perspective, here is what we're seeing. If I look at our pipeline, our pipeline [indiscernible] quite robust. The level of proactive view [ph] to the line in the pipeline are significantly higher than they were a year ago. Behind to closure is clearly on the up, it's not something that people are really positioned [ph] very quickly. And even if people [indiscernible] sufficient, sometimes what happens is that we [indiscernible]. It maybe the fall [ph] position for that [indiscernible] what happens is [indiscernible] out of the game. So that's what is concerned [ph]. If we want to be -- it's really dependent upon the customers that you're playing. If the customers growing and you've got growth on its mind or you've got an idea that you need to reduce cost significantly, then there's opportunity for this gift [ph]. If the customer don't want to do anything [indiscernible] concern, because for them, long-term, if we don't do something, they will be out of business or they will be [indiscernible] seeing there [indiscernible], and that's really the issue that we're kind of containing right now.

But we've seen this seasonality upward that we've talked about. Given the kind of changes that you're seeing, I don't think you can compare it with the seasonality that you saw 2 years ago. The new kind of that [ph] is going to set up. So from that point of view, all that we can forecast what it is going to be. But if you're going through these quarters, you're going to see what are the new trends. It is one of [indiscernible] or the new one [indiscernible].

So in terms of banks, reserve [ph] banks, really 2, 3 things. One is the -- on the discretionary side, there is a fair bit of challenge and it is reflecting in 2 ways: One is existing projects that are being down; second, which I think is more important is that new projects, right, which we had anticipated is going to come, that has not come. Now my view is it will really depend on the investment bank to investment bank, how they are doing in terms of investing new projects. If I look at the U.S. banks versus the European banks, especially the Swiss investment banks, we find that the Swiss investment banks are, for us, relatively a larger challenged compared to the U.S. banks. But [indiscernible] on the discretionary side, while there is a challenge, there are a lot of cost takeout initiatives all these companies are taking, right? And if you would have seen last 4, 5 days, the quarter of unions [ph] articles in terms of some of the European banks in terms of cost takeout. So that should be a lot of initiatives in terms of cost takeout. Regulatory is one space where the spend will continue. So a little bit of a mixed bag from there, there are ramp downs and canning [ph] of existing projects and some of it is new projects really not picking [ph] out.

[indiscernible]

On [indiscernible]. My guess is this will come at least for 1 to 2 quarters.

[indiscernible]

So on the retail bank side, as I've said, we had a very good quarter last quarter, and the coming quarter also should be positive, right? And the insurance borrowing from discretionary projects is very much under control. So it's really the IT part.

Right. What else [ph] from a different perspective does it look like it's -- we're going to see a similar trend as in this part of at least 2 quarters? Is that what you're saying?

Difficult for me to view it futuristic this one, but I shared with you the trend, so it is really dependent on how you can do a better job on the retail side and the insurance side compared to the IT one.

[indiscernible] our expectation will be it will go better than what we have experienced [indiscernible].

Sure. Sir, and one last was the retail, yes.

You had question with different retail has not been answered [indiscernible].

Nitin, this is [indiscernible], I head the Retail, CPG and Transportation Industry vertical. Going back to your question on the slowdown in the retail, we've been talking about slower decision-making and also deal pickups in the retail for the last 2 quarters. However, I guess, that quarter 1 is the first quarter where we have seen the impact of the slowness of the decision making compared to the last 2 quarters, where we saw the significant growth. Having said that, I think what we are seeing in terms of the retail aspects strictly or while we are focusing on cost optimization, also they're also trying to spend on some of the discretionary spend especially around omni channel or multi-channel trying to bring in consistent customer experience. Analytics, I think we've talked about [indiscernible] other about [indiscernible] there. I think they're doing very, very different kind of activities at the store level for the consumer at the merchandise level, and also in terms of improving store operations and store energy management. So these are areas we're seeing traction going forward and in addition to what I talked about the cost optimization. So we are cautiously optimistic. And as the strategy and sort of existing accounts, we're looking at these areas that I talked about, and we're also investing or hunting where we really want to go after and get those energy business [indiscernible].

The next question is from the line of Priya Rohira from Enam Securities.

My first question relates to the follow on in terms of sales and marketing investments, do you think you're adequately staffed non-hunting and you require more investments in farming or is we [ph] culmination of both? And secondly, apart from incenting your sales team, what are the other areas of S&M which you would be investing? And third is if you could just give us an update on your [indiscernible] revenues?

So on the [indiscernible]. But on the first one, so if you look at sales by itself, we are pleased [indiscernible]. One is the scale [indiscernible] itself; the second is distribution architect [ph]; the third [indiscernible] the program management. [indiscernible] all [indiscernible]. [indiscernible] the experience [indiscernible] itself [indiscernible], you have to have unit [ph] from customer experience. If you have restrictions [ph] on [indiscernible] as part of that, then we have a problem. Does that answer [indiscernible]?

Yes. So basically you're saying that it's going to be more even on sales process [indiscernible] side apart from strengthening the team?

Absolutely. [indiscernible], and expected [indiscernible] I think investment is complete, if the investment [indiscernible]. I think investment is complete, the answer is [indiscernible].

Okay. So and -- also if you could just update me on the [indiscernible], and if I could take just one follow-on question in addition to these 2 is on the European market side, if you could just give what declined [ph] behavior more on the Continental Europe side where your presence in France, Germany is quite strong?

[indiscernible] On France, we see labor marketing protection kind of being a big hindrance to our outsourcing of [indiscernible]. If you do outsourcing, it normally comes with people who currently do the job. And [indiscernible] people that still establish significant cost savings. In Germany, I think it's driven by a very different market and I think that's [indiscernible] German in the market. Because fundamentally, German [indiscernible] are competitive and they will remain [indiscernible] more competitive. So from that perspective Germany is an area of opportunity. We don't see much opportunity in Southern Europe, and we see the Belarus and the Nordic still being pretty strong.

The next question is from the line of Amar Mourya from IndiaNivesh Securities.

Sir, all my questions are answered. Only one question. Sir, I wanted to know about this -- if I understood rightly, about the guidance. It is low because of the cross currency impact from the India business?

It's cross-currency impact. If [indiscernible] cross-currency we have guided based upon cross currency that we have seen in quarter 1, right? That's the first thing. In quarter 1, we have added $25 million impact [indiscernible] in our P&L. So our top line has been reduced by $25 million. So if we have remained at constant currency as of the end of what we said at the end of quarter 4, our top line revenues will be $40 million. Based on that, [indiscernible], sorry, [indiscernible], and that's one. The second is that if you look at the India market itself, quarter 2, due to the pollution [ph] problem, pretty good for us [ph] in terms of revenue. Quarter 2, if you look at it, we have typically grown about between 10% to 12% in India in quarter 2. This quarter, we've not seen the growth.

So what is the reason for that?

Capital expenditure has slowed down. We were very much all related [ph] to telecom as you remember, [indiscernible], the telecoms sector is not doing very well. But having said that, we've been very active in the market in terms of making sure that we're able to go out there and get this. We think we'll be back in the last second half of the year as far as Inida is concerned.

If you look at India, [indiscernible] infrastructure, telecom financial services [indiscernible] typically will drive the biggest growth. And we think also capital being as high as the capital market not being [indiscernible] interest rates are high. And therefore, capital investments [indiscernible]. And that is where we saw the weak quarter 1, and that continues to quarter 2, otherwise quarter 2 should have been about [ph]. What we didn't [ph] explain is about 0.8 to 1 percentage sequential because of the higher growth that we get [indiscernible], which is not happening this time. So [indiscernible] India free [ph] to do [indiscernible] all growth that is being talked about between 0.3 to 2.3 is largely non India, or [indiscernible].

So one more though, like the mutual growth which we are seeing in India is, one, because of the demand environment, or it is also because of the delays primarily because the rupee is weak as compared to the global currency?

Absolutely, the second one is right . I think there are other [indiscernible] around. We will [indiscernible] out there, but the inflation is not taking place because of the high cost of [indiscernible]. And currently, [indiscernible].

Next question is the line of word from that Dipesh Mehta from SBICAP Securities.

I just wanted to understand about demand outlook, whether you're seeing [indiscernible] from, let's say, in the beginning of your [indiscernible] suggested, or do you expect some kind of demand [indiscernible] next couple of quarters, so whether you have seen any kind of deterioration or improvement? Your comment would will be able fully understand how demand funnel [ph]. Secondly about just to get [indiscernible] related revenue, whether you're seeing any organic revenue growth in this quarter, and whether any Q2 guidance built [ph] any kind of revenue contribution from [indiscernible]? And third, just to understand our domestic business, what component would come in from government and what will be telecom-related revenues for domestic?

Okay. Maybe what I will do -- on the -- the question is on the demand environment. [indiscernible]. Demand environment, the way we see it is that there are 2 buckets of demand environment: One is, the secular demand environment we're looking at, which is the market [indiscernible]. I guess the question earlier are up [ph] it's not [indiscernible] demand environment with regard to the economy that matters. It's how comfortable where we are playing the respond to that environment, of the economic environment out there. Second [indiscernible], [indiscernible] contribution and [indiscernible]. We've seen [indiscernible] in terms of [indiscernible]. As far as [indiscernible] is concerned, in this quarter, it directly negligible. In the next quarter, I would like to [indiscernible] also we do not estimate [indiscernible] revenue is very, very achievable [ph]. [indiscernible] going forward, the near-term give you a sense of what the opportunity is.

So on [indiscernible], there are 2 streams [ph] of opportunities: One is that the uplift [ph] license product [indiscernible] better than existing [indiscernible], and also we'll be looking at solutions which are a complete comprehensive solution for the [indiscernible]. So fairly decent pipeline which we have.

Okay just a question about demand side. Relatively because demand delayed [ph] closer and I think that this closure we all seen on last quarter is this, so whether you've seen any changing dollar [ph] deal closer cycle, or it will -- we're continuing to be where it is or it was.

So this is Azim. We continue to see that in all the sectors that decisions until close, especially where we are actively bidding a proposal, it takes a longer cycle time to get the deals [indiscernible]. That in turn continues to be a delay in decision making. You will know the pipeline demand has [indiscernible] opportunities are there in the market.

Okay. And last about domestic, if you can provide government and telecom kind of rate?

[indiscernible] change, I think [indiscernible] quarter 2 today. Nothing has changed. But there is definitely a sentiment and parallel [ph] of change in the next 3 to 6 months. So from that point of view, we are also in the [indiscernible], which is [indiscernible].

The last question was about domestic, can you [indiscernible] for [ph] India business between government and telecom?

[indiscernible] that detail.

Ladies and gentlemen, that is our last question. I would now like to hand the floor back to the management for closing comments. Please go ahead, sir.

Thank you, Melissa. We thank you all for participating in this call. Should you have any other questions that we could not answer due to time constraints, please feel free to get in touch with me or Aravind. We shall be happy to answer them for you. This -- the transcript of this call will be archived in our website as soon as possible. Thanks a lot, and have a good day. Thank you.

Thank you, gentlemen. Ladies and gentlemen, on behalf of the floor, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.