Wipro Limited (WIT) Q2 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, Melina. Good afternoon, everybody, and a warm welcome to you for our Q2 fiscal earnings call. Before I start, first of all, apologies for our delay because it was caused due to a small technical problem. My name is Manoj Jaiswal, and I head 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 Mr. T.K. Kurien, CEO of IT Business. And Suresh Senapaty, CFO of Wipro Limited, will give an overview of the financial highlights. The operator will then open the bridge for question and answers with the management team. We have the entire management of Wipro here to take question and answers 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 the recent filing with SEC of USA. Wipro does not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date of the filing thereof. This conference call will be archived and transcript 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.

Let me just speak a few words about our demerger. Over the last 60 years, Wipro has made the distinct businesses, such as the IT business, Consumer Care and Lighting business, infrastructure, engineering, medical diagnostic equipment, products and services, each a leader in its own industrial segment. This remarkable success was enabled by our entrepreneurial culture and strong leadership, which allowed these businesses to pursue their growth strategy in a flexible manner. The demerger approved by the board is a strategic move in addressing growth aspirations of all our businesses. And come to the demerger of the -- change will enhance value for our stakeholders and provide momentum for growth by giving each one of the businesses greater flexibility to meet their growth ambitions. Let me talk a little bit about quarter 2 of financial year '13 on Wipro Corporation. Wipro recorded revenues in quarter 2 financial '13 of INR 107 billion, a year-on-year growth of 17% in rupee terms. Net income for the quarter at INR 16 billion showed a year-on-year growth of 24%. IT Services business delivered sequential growth in line with our guidance. On IT business, T.K. will cover this in some depth. Wipro Consumer Care and Lighting. Wipro Consumer Care and Lighting had another quarter of robust growth. Santoor continues to be the #1 brand in the combined South plus West regions, the market share of 14%. [indiscernible] male toiletry brand had introduced a wide range of deodorants. Yardley U.K. business, according to our poll from 1st of August 2012 and overall, Yardley as a brand is doing well and is growing very well across the Indian markets, the Middle East market and the U.K. market. In institutional business, LED lighting continues to be our growth driver, supported by 2 LED brands of Wipro and [indiscernible] brand, which we acquired last year in the LED space. Office furniture business also grew with increased market share. In the international business, our growth was driven by Indonesia, Vietnam, China and the Middle East. Our brands in Santoor and Romano continue to lead the growth. Wipro Infrastructure Engineering and the other sector. Globally, Wipro Infrastructure Engineering space of revenue growth in year-on-year basis, despite softness in other geos and segments in quarter 2. In India, implementation of recently announced reforms will help facilitate gradual recovery, but so much depends on the ground action. In our key growth market of Brazil, it is poised for high growth helped by stimulus, increasing local content from current levels. We are [indiscernible] to gain significant traction with all our customers, and our team is a supplier of choice due to our competitiveness and global presence. I would now request T.K. to give a brief overview of our IT business followed by Suresh Senapaty to give financial highlights.

Good afternoon, everyone. Our apologies for starting a couple of minutes late. The financial and business results of our second quarter 2012 have been reviewed for some time. Bottom line, we have delivered in revenue in line with our guidance. I'm pleased with our execution of the progress that we have made in our stated strategy. I shared in the earlier meeting, our strategy is built around strengthening our account management capability, enhancing customer and employee engagement and building new intellectual-property-based technology solutions. I'll just give you an update of how we have performed in the last quarter on all these parameters. On enhancing account management capability, we now have 9 customer relation crossing INR 100 million revenue mark, 1 more than last quarter. We have 16 customer relationships over INR 75 million, 2 more than last quarter. Our [indiscernible] accounts contributed to our revenue growth, registering a growth of 8.2% quarter-on-quarter. Our investment in momentum vertical [indiscernible] was up. We see growth in energy, natural resources and retail banking, investment banking, telecom. The engineering part of telecom continues to be a drag. We also see growth in our infrastructure and our BPO business. If you look at customers and employees or really the sector of what we do, customer satisfaction is the key indicator of future business. Last quarter, we've increased our customer satisfaction scores and strategy [ph] count by 16%. On the employee front, we've been working to build a culture of winning, openness and engagement and process simplification. Employees expect to see commitments made and commitments kept. The impact of this on our initiative is evident. Our annualized quarterly voluntary attrition level held to 14.4%. On building new technology solutions, we believe the role of technology is shifting from being a support function to being a platform for business innovation. As we look at the stack that runs from process, that interface with the customer, back into hardware, we believe that the value is actually gravitating to the top end of the stack. In Wipro, we've recently created an Advanced Technologies service line especially to leverage this opportunity. The integrated cloud, mobility and analytics as a service would form part of this particular service line. Our analytics business continues getting momentum. We've added 35 new customer engagements in the last quarter. In cloud, we have 21 wins in the quarter, the cloud technology and process transformation team. We also integrated and upgraded our cloud command center, which represents the mass execution of managed services in the cloud. The cloud command center provides the ideal platform to revision, configure, monitor and manage, design IT infrastructure across multiple cloud environments. On mobility, we continue to see significant growth and have added 40 new wins in quarter 2. Over the last few quarters, the first we'd focused on building intellectual property solutions that significantly help customers build differentiation in the front and help them standardize their core business operations. Wipro Digital, for example, is a platform which deciphers [ph] the market to order processes. Some other intellectual property solutions include an omnichannel e-commerce solution and a digital distribution management solution. On the core, we have also built a tool-based app, an application management platform which integrates delivery across application and infrastructure landscape. Helix [ph] and Simplematics [ph] are some examples of intellectual property that we have built to manage this side of the business to eliminate human intervention and start increased productivity. The result of all these are evidenced in the pricing that we have demonstrated in the last quarter. I want to conclude by saying that we are prepared to take advantage of the environment in front of us and help our customers deleverage technology effectively. We'll remain focused on enabling our customers to do business then. [Technical Difficulty]

Sorry for this technical problem, ladies and gentlemen. Before I go into our financials, please note that for the convenience of readers, our IFRS financial statement has been translated into dollars at the noon buying rate in New York City on September 28, 2012, for cable transfers in Indian rupees, as certified by the Federal Reserve Board of New York, which was $1 equal to INR 52.92. Regarding the revenue of our IT Services segment that was $1,541 million, or in rupee terms, INR 84 billion, appeared in our earnings release as $1,582 million based on the convenience translation. Moving into -- moving on to the quarter performance. Our IT Services revenue for the quarter ending 30th September, 2012, was $1,525 million on constant currency, a sequential growth of 1.3% within our guidance range of $1,520 million to $1,530 million. On a vertical perspective, we continued to see strong growth in energy and utilities at 8.4%. We had strong performance in BFSI on the back of growth in retail banking. From a service line perspective, we saw growth coming back in infrastructure services at 3.6% and BPO business, which saw a sequential growth of 5.7%. From a revenue productivity perspective, there was a marked improvement in realization. Also, realizations increased by 1.5%, and on-site realizations improved by 1.9% sequentially on a reported currency basis. This was driven through productivity improvement. Sequential volume growth in the quarter was 0.2%. A lot of the realization improvement we have achieved during the quarter is due to driving revenue productivity and fixed-rate content. We still have a negative impact on volume. Despite the impact of additional 2 months of salary increase, healthier investment marketing, utilization dropped and product impact, market impact was limited to 30 basis points, so a significant improvement in revenue productivity and other operational parameters. As we anticipated, our IT Products business was sluggish due to push out of divisions and capital spend and declined by 10% on a year-on-year basis, largely arising out of Indian regulatory operations. Profitability improved sequentially. Consumer Care and Lighting business continued to see good momentum, with revenue growth of 26% year-on-year and EBIT growth of 29%. On the foreign exchange front, our realized rates for the quarter was INR 54.35 versus the rate of INR 54.89 realized for the last quarter. On a quarter-on-quarter basis, ForEx net of cross-currency impact, there was a negative impact of 70 basis points through operating margin. As of period end, we had about $1.7 billion of ForEx contracts. The effective tax rate for the quarter was 23.9%. This trended higher this quarter because we had higher other income in the form of capital gain and lesser dividend income and the change in the proportion of IT Services provided out of [indiscernible]. We generated free cash flow of INR 16 billion in quarter 2, which was 102% of net income. Operating cash flow was INR 19 billion in quarter 2, which was 117% of the net income. The cash flow was benefited by improvement in [indiscernible] days of our IT business, excluding India and Middle East business, by 3 days. Our net cash balance on the balance sheet was INR 84 billion, an increase of INR 9 billion, sequentially. We will be glad to take questions from here.

[Operator Instructions] The first question is from Diviya Nagarajan from UBS.

Just a couple of questions on demerger. Could you explain the rationale for deciding to make Wipro Enterprises Limited an unlisted entity? And did the board also consider the prospect of listing WEL?

Well, when there was a reason for everybody thinking about and talking about [indiscernible] today, given the fact that we have a large presence in the IT business and multiple other businesses. So it remains and diversified more. The conclusion that the board will be -- or the discussions with the bankers and advisers is that they should make the IT business a pure play IT business because that has become more compatible with other big peers either in India or globally. So therefore, that needed to add the other businesses so they had leadership position into a separate demerged entity. In regards to that will be listed or not, it was a matter of multiple businesses that will be contained, which is Consumer Care India, lighting, furniture, fixture, then it has consumer overseas and then it has Wipro Infrastructure Engineering India and global and multiple other businesses, including our joint venture in the health care and medical diagnostic business. So considering the fact there were multiple businesses in that diversified entity, which is Wipro Enterprises Limited, it would trend suboptimal if we were to bring it to any kind of listing of category entity because it has rich profiles, very different. The growth profile is very different and they are at various stages of their levels of maturity. And considering all that, the board decided that it should be where it stays, an unlisted company. However, considering that there is a minority of shareholders in this particular company, multiple choices have been offered for people having different objectives of their investment either to encash, to stay with that particular company, or exchange it with the promoter with a Wipro Limited share, which is -- which will be a pure play IT company because that has been the major reason why many of them have put in their money into investment in Wipro Limited shares.

T.K., just a couple of questions from the client side. Your non-top-10 clients have not been growing for the last few quarters. Even this quarter, it's like flattish despite negative growth last quarter. You've, of course, put in a lot of restructuring in the business. When can we expect to see this momentum reverse for your non-top-10 clients?

Diviya, I guess what has happened, if you look at our mix, fundamentally, what will the most be first invested in our -- in certified accounts that we call the CAM [ph] accounts. That is the first stage of investment. We extended that at the beginning of this year and -- which really, by the time the impact happened at the end of quarter 1 to extend and increase that -- the full 134 [ph]. So fundamentally, what we expect to see is that number one, and something that we did good last year, we had a whole bunch of telecoms, we had 87 telecoms. We're attracting the customers who have not been looking at a strategic picture. And what we did was that we actually took out a significant -- a large number of the customers have actually gone down. That number from 87 has gone down to 45. If you look at this quarter alone, the impact is roughly about 8 million in top line on that segment itself, just the tail [ph] account. So if you look at it itself, it's what we're doing is getting our portfolio moving from the stock to the middle and then into the bottom to make the whole thing effective. Now if I tell you what time frame that'll happen, I'd be really giving away in some sense guidance for the future. So I would rather not answer that question, that specific question, but I will give you a sense of how it's going to work for us.

Okay. So do you expect this 87 number to eventually come down to 0?

Absolutely.

Okay. So we're roughly halfway along this journey. All right. And just one last question on the other incomes, could you give us a split of how other income has come in this quarter, please?

There was a little bit of peak in terms of the yield on the investment. Like I said, part of it was yield improvement and part of it is because a lot of prepays in the form of a capital gain. And therefore, you saw the company gain impact in terms of the capital going up marginally. And the second thing is that we have an external commercial borrowing of -- and that has a mark-to-market accounting because of the rupee appreciation of about 5 percentage points between, so far, in March -- beginning of the quarter to the end of the quarter.

And lastly, any plans to increase your dividend payout this year?

We will share that with you if and when we will make that decision. But at this point in time, there is no such decision with regard to that.

The next question is from Srivathsan Ramachandran from Spark Capital. Srivathsan Ramachandran - Spark Capital Advisors(India) Private Limited, Research Division: I just wanted to get your thoughts on Diviya's comment there that the deal at the end of Q2 showed somewhat. I just wanted to understand the nature of the deal and where these typically deals we are pushing for a long time and now it's kind of fortified. And if that's so, what is it -- is it more nonlinear kind of deals or is it more [indiscernible] thinking of these?

So fundamentally, what we have done is that if you look at our deals into the end of the quarter, if it's -- to mention and kind of give you a sense of what the deals are because they have not been announced. They're probably going to announce in quarter 3 because they are right now in the contracting phase. But fundamentally, what we have seen is traditional outsourcing to one area where we're seeing opportunity. And the second area that we've seen opportunity is around some of the newer service lines. And this will include business service lines like analytics, cloud, those kind of areas. We've seen some opportunity there. So those are the 2 areas where we've seen an uptick, but really, if you look at the size of that deals and the quantum of the deals, they are primarily outsourcing deals. Srivathsan Ramachandran - Spark Capital Advisors(India) Private Limited, Research Division: Okay. Just a couple of questions on the demerger. It would be actually helpful if you can just share what kind of cash entity we need to have these entities, especially the IT business.

We'll have Jatin Dalal answer that.

Yes. So the events that we were talking about as far as the demerger entity is concerned is about INR 200 crores as of the 1st of March 2012, and the cash which is in line with the total asset split of the 2 entities in line with that. Srivathsan Ramachandran - Spark Capital Advisors(India) Private Limited, Research Division: So the cash and the [indiscernible] will be INR 2,500 crores?

We have not basically talked about a number because once it's been decided, the numbers will be known, but we are not far off. Srivathsan Ramachandran - Spark Capital Advisors(India) Private Limited, Research Division: Okay. And any guidance could you -- and what kind of taxes you can look at for the IT indicated for '14?

We don't give a specific guidance to the tax rate for the full year, but we have said that on a normalized rate basis, they will be within an average of -- but the number is 1%.

The next question is from Navatha Parath [ph] from IDBI Mutual Fund.

My first question would be, looking at the client metrics, one can see a marked improvement in it. I mean, from just 100 million client some 6 quarters back, we currently have around 9. Even in other brackets, there has been good improvement. However, this increase in big clients has not been reflected in our revenue growth, which has been quite tepid in the last few quarters. So would Mr. Kurien like to explain the reasons behind it?

Navatha [ph], no problem. I can explain it based simply -- I think I kind of explained that in the earlier question that Diviya had raised, but maybe I'll do it again. And Jatin Dalal is here, who can also kind of add to that. So if you look at our portfolio, our portfolio consists of 4 categories: Okay, these breakup of portfolio at key accounts. There is [indiscernible] account, what we call key growth accounts, what we call key natural accounts, which is kind of plays out over a 2- to 3-year period. And then what we have is we have something called tiers. When we made our investment in the beginning, if you look at it, our sales and marketing expenses have gone up by 1 percentage point over last year to this year. And most of that has been rested into 2 segments, one is in farming in a [indiscernible] account, and the second piece in hunting. Because we believe that with the number of outsourcing contracts, the job [indiscernible], if we did not have a dedicated hunting team, we'd be -- we'd lose out on that. So in some case, what we did was we insured our future, but it is important for us to manage our current. So in managing the current, we focused on really initially the 55 accounts that we've identified. Out of them, the top 10 have started signing. The next 10, we expect that they'll start filing in the next couple of quarters. But then as we go down, if you look at our growth rate, the lower growth rate, it is very quite effective. It is in what we call the key nature. That segment is a segment that is now kind of growing the slowest for us. And we expect that, like we said, the time frame of that segment is 2 to 3 years. Apart from that, if you look at it, I think there are industries where growth has been affected. For example, investment banking has been very badly affected for us. Telecom has been badly affected. And those are 2 segments where we have had existing customers but not shown very great growth. In fact, short tepid growth at best, difficult negative growth. On the other hand, there are other segments where we believe we are underpenetrated in, and that's being covered by our hunting portfolio. So that's broadly what happened [indiscernible] the growth. From a service line perspective, there are 2 service lines if you look at it, which really need to kick in. One is our old global infrastructure business, which last quarter had begun showing growth. And when you look at deals then that looks a little -- looks -- we are cautiously optimistic there. The other one is BPO. BPO, we believe, will take at least another couple of quarters to really kick in and provide the growth that we'd like to see. But that's broadly what we see from a service line perspective.

Secondly, your health care division has shown 2 consecutive quarters of decline, which is in contrast to your peers, especially an aggressive one, which has shown double-digit growth in the same vertical. Can you please explain the reason behind the same?

Yes. Azim Premji here. So our health care SBU is -- relating to our rates of the SBUs, our new SBU and to -- in size term is also a smaller SBU. So we are in an investment mode there. And on a smaller base, whenever there are large projects completing, which are not getting replenished, you would see some variation of our everyday [indiscernible] growth. But we remain optimistic of our future. We have had some good dealings there, and we expect that you will see a positive trend there in Q3 and Q4.

Okay. So there has been no instances of business [indiscernible] division being taken over by an aggressive peer?

No, not really. No.

Okay. Lastly, on the utilization upfront, would you like to take an update, give us some kind of level that we used to have earlier, or would you like to maintain it at current levels of 77%?

So I will answer that question. But really, what we do is we effect our utilization rate on a quarter-to-quarter basis based upon 2 things: based upon provincial demand that we see coming down the site, our 4 on-site and offshore; and number two, the need to kind of manage the -- balance the portfolio, both in terms of district and claim. So we have marked managed to kind of come back on the slope and trading, because we believe that's the life blood of the future. So what about commitments we have made to the engineering qualities and the days that we have given? We don't like to go back on any of them and keep it -- just stick to that. So that the important thing here. Banu can get those [indiscernible]. Banu?

Yes. So on the utilization front, one of the things that we're definitely doing is to invest for the future. So there are a certain setup, specific technologies, where we are investing and getting ready for the budget execution that we need to do. The second one, more importantly, is also in terms of how we create a talent pipeline for the future of the organization. So we continue to stay invested with our commitment to the campuses and what we are doing in terms of onboarding those people as well. And the third one is the more important focus has been on the productivity and how we deliver so that we can get better productivity out of our existing project executions. So that's where our focus has been in terms of the utilization.

So if it's supposed -- so I think the new, I mean, new officials are joining, so the utilization, there's a chance that utilization might go down in the coming quarters, is that all what you're saying?

Never. So we have a pattern of getting pressures into our organization, which is an ongoing continuous process, so that it's not -- that is not a specific quarter activity. That happens every quarter for us. And the internal plan, we're sticking to that plan. I'm not going to give an example of the last quarter, recruited mostly net additions of over 2,000 people, right? And in spite of that, utilization dip was minimum.

In the utilization, or on the [indiscernible] training basis of our plan.

Yes. All right. So going ahead, can we expect the utilization to remain at these levels or -- I mean, if you can just [indiscernible].

Narrow range.

Pardon?

Narrow range. [indiscernible] I mean, significant improvement there.

The next question is from Sandeep Muthangi from IIFL.

My question is on the realization improvements. As you highlighted, productivity benefits seem to be one of the key deals. I was wondering if you could help me understand these a bit better. Are these due to any of these technology initiatives like [indiscernible] or toolkit? And also, do you expect to see sustained improvement on this front?

Well, I'll pass the call onto Banu, who's our head of delivery, and he can answer that question.

Sandeep, this quarter as you said, we did get a good amount of improvement with respect to productivity, right? One activity that we have done and we continue to do well is how to do better automation with respect to delivery. So that's one important element that we continue. Second one, much more vigor in the execution of how we'll execute the project, especially the fixed price, fixed outcome projects that we have, right, in terms of both the deliverables that we need to template. So we have done a great execution on that is well. The third one is, we are continuously building early warning systems within our projects so that we can get to understand the projects much ahead of time. So all these things are leading to contributing to the productivity increases that you saw. Like I just said, the price productivity that you have seen in terms of price realization, of about 1.9%, 1.5%, right, that we have seen. The next focus area for us will be in terms of how we will institutionalize this and capture this case continuously. That is through building intellectual properties, both in where we deliver and what we deliver. So 2 kinds of intellectual properties we are trying to build. One is the tools, accelerators required to manage the process of delivery, and the second one is, what active services we deliver. How we can -- what kind of intellectual property we're building there. So we're investing in both the areas right now. On the delivery front, there are some intellectual properties that we have based on the underutilizing tax. On the services front also, we are building bits of IT. T.K. talked about in his comments about one IP. The recruiters [ph] don't like that there are other IPs that we have built in different services as well.

Just one question on this itself. So in the medium term, do you think that these levers are -- these investments that you're doing in the delivery will continue to aid in these productivity improvements? Or were there any specific areas where the productivity improvements are expected and they've already happened? And any of the improvements will be -- we should really expect over the next couple of years, and not in the next couple of quarters?

Yes. So Sandeep, while it is very apparent in current quarter numbers that the on second option and moved from significantly 1.9% and 1.5%. We do see really the y-on-y trend. We are good on-site, realization of like 4.2%, and offshore realization of like 3.2%. And basically the headwinds of cross currency, because we report our realizations in dollar terms. If I grow that up, over last 2 quarters, the on-site realization has gone up by roughly 5.5% and offshore has gone up by 4.5%. So the current quarter, while you're seeing an uptick, it is not, first, size improvement, but it is something that you are steadily seeing and keep doing. To that extent, what I would like to comment is while there is always the fluctuation and realization with number of days impact flowing in every quarter. But some of these gains will stay, as they have over last 2 quarters, and some of the new technology and new investment will go in to go for a little bit where we are today. So to that extent, I think some of the gains are -- I mean, most of the results enable us as ready, as which you have seen, would be specific to the quarter given by number of days and some specific project wins.

Exactly. Azim here. Just to kind of give you a sense of the quarter happenings is that, right now we self-support delivery levers. The next set of levers that we're looking at is on the -- in front of the customer. Because our view with that adds value. If you look at the technology industry itself, values captured in different components of stacks. You have the hardware stack, you have the OS stack, you have the database stack, the applications stack, the process stack. For us, the value move is going to move right now, has the highest value going to be captured at the integrated stack. So some people call it platform, or they call it a stack. For us, in that area, that's the area where we set up a new group called the Advanced Technology group, run by Shaji Farooq to actually go and capture value with that side of the business. So that's how this -- both the levers are going to come together at a certain point of time in the future.

The next question is from Viju George from JPMorgan. Viju K. George - JP Morgan Chase & Co, Research Division: T.K., I have one question on the demand environment. I think you mentioned that you have signed a few good deals towards the end of the quarter. My question to you is, if that's something that's been in the pipeline for long, and these are just deals that have delayed, that have got signed up, or you sense the environment to be softening, to be better towards the end, latter part of the quarter. Second question is, how soon will these deals also ramp up to start reflecting revenues? Because clearly, that doesn't seem to be in there in your December quarter guidance.

Maybe I can answer both the questions together, and let you know, give you a sense of what's happening. So if you look at the way our pipeline typically grows, if it's a proactive bid, the time that it remains in our pipeline can be anywhere between the minimum that we've seen at 11 months and the maximum that we've seen at 18 months. In 18 months, if it doesn't close, we automatically knock it out of our pipeline because it doesn't make sense. Because if a customer hasn't closed in 18 months, it's not likely he's going to close in 19th month and 20th month [indiscernible]. So that's the way we manage our pipeline. So our pipeline gets flushed every 18 months, both proactively. If you look at reactive deals at a RFP base, typically what happens is that the time from the time it enters into our funnels and the time it closes, the maximum is 8 months, the minimum that we see is 6 months. Both these deals have been in the pipeline for about a year. And that's what we see, the ones that -- and there are quite a few others that also, that we've seen some closure on, which we hope to sign -- hopefully sign off this quarter, but all those are clearly deals that have been -- one of the deals, the proactive deal, has been there for about 11 months. I have a couple of deals that have been there for between 9 and 12 months. That's broadly the kind of the basket that we see. Now when is it going to be reflected in the top line? That's a good question. We're expecting to see some impact of this in quarter 4 and a [indiscernible] of steady, most significant impact of this in quarter 1.

The next question is from Franna Tenilgar [ph] from Canara Robeco.

I have 2 questions. First is, can you just elaborate how is pipeline looking in BFSI, telecom and manufacturing?

Well, I have Mr. Ghosh who runs our BFSI business on the line. And Soumitro, maybe you can kind of explain on how the bank -- BFSI pipeline looks.

Yes, T.K. Before jumping on the pipeline, I just wanted to give a fair perspective of how the 3 segments of financial services are looking like, and then I'll specifically address the question on the pipeline. Well, T.K. mentioned, right, the investment banking segment of financial services is -- has been challenged for the last 2 quarters, and that remains to be the case. Retail banking has been pretty strong and continue to be strong, and it is strong globally, whether we look at our retail bank customers in U.S. or U.K. or Europe or going right up to Australia. Insurance has been a little bit mixed, all the P&C segment or general insurance segment, right? The first [ph] one very strong, right? The Life Insurance segment has been relatively challenged, and one can understand that, because it's specifically linked to the market conditions. Coming to the funnel, per se, as I've correlated to that, we have seen fairly strong funnel in terms of the retail banking segment, right? And specifically, we see within the U.K. market, the retail banking, this funnel is pretty strong. Australia, the retail banking funnel is pretty strong. In terms of insurance, the general insurance of P&C, a segment in U.S. is pretty strong. We have been working on quite a few deals over the last 6 to 9 months. Some of them are still that hopefully, we will be able to close in the near future. As T.K. had mentioned in the earlier quarter, that the important thing is, not just the pipeline, but the closure of the pipeline. So some of the deals have taken much longer than what they should have been. But overall, one is fairly bullish in terms of the retail banking summit, followed by insurance, followed by capital market.

And about manufacturing and telecom?

So manufacturing -- Banu, are you on the call? Okay. So maybe, I'll speak on the manufacturing question and the telecom question. On telecom, there are a couple of things that we need to verify based on the market and the service provider and into the engineering business that we have, which is around OEMs. The engineering business is severely challenged. I think it will be fair to say that the word severe is a strong word, but I think it will be fair to say that quarter-on-quarter, we've been seeing declining levels. This communication service provider business has been doing reasonably well, and not as well as we would like to do, but reasonably well. But the gains that we are getting in the communication service provider business is not enough to offset the downside that we are getting on the engineering business. So that's the trend that we see. Frankly on that particular segment, we expect to see the communication service provider business kind of kick in a little later during the year or maybe early part of next year. But until then, we don't see much of a change in that particular vertical. As far as manufacturing is concerned, we see opportunities, both on the process side as well as on the high-tech side. And our view is that we would kind of continue to kind of show growth there, but the biggest area of opportunity for us there would be on the profit side, and that's where the big investments are going in.

Okay, okay. Just a -- in telecom vertical, if I just split roughly, how much of the revenue will be coming from service and engineering? A very ballpark figure.

We have not broken that out, so not able to share it. But there's [indiscernible].

Okay, okay. I have just one other question. We have seen, I think, amazing improvement in the client area, especially top 10, our top pipeline, you can see. You see any early fruits to the hunting part that you concentrated on -- you diverted your SG&A [ph] on? Because we are not, and yet, it has not been reflected in your IT revenue. And just one more question related to same is that, if your client, top 10 client, have been upgraded from a lower category, say, from something like 5 million [ph] to 10 million, so it is out of 9 top, about 100 million clients, all our mined clients, right? And then none of those accounts is a new account, say for last 4 quarters?

No. None of them are new accounts in the last 4 quarters. And going back to your question in terms of hunting, there are 2 parts of hunting: one is size of the deals and the other one is number of deals, number of logos. Number of logos, to some extent, you're already seeing the benefit of that in the number of client additions that have come up in this quarter. And hopefully, you'll see that going up, you'll hopefully see a little more of that going forward. But for us, it's not just a question of number, it's also size. And of that, I think you'll have to wait for a couple of those quarters to see impact of that.

Okay, okay. And if I may squeeze a last question, have you seen any increase in the large deals pipeline, say, in the last 1, 2 quarters? Or are you seeing any trend? And how are you focusing your strategy to address the size of the deal if you're observing any trend?

So we are seeing a trend that both in terms of -- because we measure largely in 2 ways: one is, a number of large deals that fits in our pipeline, total value of the large deals funds; the quantities -- that's the total size that we are trying to achieve and availability of the deal itself. These are the 4 parameters that we see, I guess, we track. So the fourth question and the only question I can actually answer there is, yes, we have seen an increase in size of the fund.

[Operator Instructions] The next question is from Ankur Rudra from Ambit Capital.

First one, a very quick one, on the demerged business, could you break up the cash flow from operations and FCF of that business for FY '11 and '12, please?

So we have talked about the revenue share and the profit share and the net income share of these 2 entities based on the FY '12 number which you have, which is about 14% of the revenue coming from -- putting into the flow and to back [indiscernible] and similarly, about 6% of operating profit and about 8% of net income.

The question was on cash flow, if that's possible to share. Cash flows from operations of the demerged entity.

Yes, so we'll not share that, but this is where you find sort of your document with this call [ph]. I think that will find the [indiscernible] to be [indiscernible] share [indiscernible] more general data.

Okay, fair enough. So just moving on to the IT part of the business, could you maybe elaborate a bit more on the reason for manufacturing and retail both being relatively light over the last 2, 3 quarters, light given this is 1, a few verticals there, most of it, we have seen a lot more growth?

Yes. In fact, what I do is that I'll have Srini results of retail business and talk to you about that.

Ankur, Srini here. Good question here on the retail side. I manage the retail and consumer goods. If you look at the last 2 quarters and if you look at the pipeline that we currently have, I think the pipeline has been mostly around cost optimization as well as revenue maximization to our customers. In the last quarter, we have had good progress on that, and you would see some kind of the growth coming into next 2 quarters. Having said that, in the last 2 quarters also, we had couple of projects with our customers coming to an end, and we're kind of doing additional ramp-up, getting into this quarter for the next phases. And that'll also reflect in terms of the growth in the next 2 quarters.

So basically, should I understand that by saying that your pipeline is strong, it's just a matter of timing that's worked against you the last couple of quarters compared to your peers?

That's right, Ankur.

Okay, so you're not seeing any different sort of trend? I mean, you are seeing enough opportunities out there?

Yes.

The next question is from Ashwin Mehta from Nomura.

I had a question on your attrition. If I look at your voluntary attrition, that's been stable for the last 4 quarters, but your involuntary attrition has been showing an increasing trend for the last 5 quarters, from 1.3% to 3.5%. How should we read this? What is exactly causing this involuntary attrition to pick up?

So Saurabh Govil, who is our head of HR, can give you some color on that one.

Ashwin, Saurabh here. Actually on the involuntary attrition, if you see it'll [indiscernible] and reverses the performance cycle. You have these things coming. You really take action nonperformance, that is what you are seeing that's been happening here. And a little bit in the previous quarter, but otherwise, now the trend that you're seeing us flat. It's not going to continue changing or it's something which you need to look at differently.

So Ashwin, very, very [indiscernible]. We are not expecting to see an uptick on that amount for that number. The number will probably remain stable at least for the next couple of quarters.

Okay, okay. The second question is on, do you have a significant number of rebate deals coming up over the next few quarters? How do you see your participation in these deals? And do we see our IMS service line actually accelerating on the back of these deals?

So I've got Anand Sankaran who runs our Infrastructure and IT Services [indiscernible].

So Ashwin, over the last 6 months, we've seen our funnel for Infrastructure Services being quite robust, and we see that continuing for the next 6 months. We are also looking at deals that are coming down the pipe, which will be up for renewals. So we are also looking at targeting some of those deals that are coming down the pipe for annuals.

And is our winability [ph] or the win rates in these deals showing an upward trend, or there's no trend as of now to read?

No -- yes, yes. We are seeing an upward trend of the availability of these deals.

The next question is from Sandeep Shah from CIMB.

T.K., just one question. The peers have been announcing large deals or a transformation deals...

This is Azim. I'm sorry; we can't hear you very well [indiscernible].

Yes, my question is in terms of the large deal closes, like the peers are announcing closer to around 8 to 12 large deals every quarter, which is a combination of large deals and a transformation of deals. While for Wipro, we have not seen this for the last 2 quarters. So do you believe is it more a client-specific issue which we are targeting where IT spending is not picking up? Or is it more aggressive competition where our win ratios are difficult to improve?

So it's a -- I'm not quite sure that I've got the question. But broadly, what we have been doing is that we have been kind of doing 2 things: one is going after the large deals in our existing base, and there is a question of integrated deals; and the other one is going after absolutely new deals that are coming out in the marketplace. Both those are areas where we are kind of focused around. So why haven't we announced any large deals, many large deals over the past quarters? The reason is that we haven't won too many of them, but hopefully the trend will change as we go forward.

So is it our set of clients which could be top 25 or top 55 [indiscernible] account? The IT spending is slower than -- relatively than the other set of clients?

Not necessarily. I think it's a question of what you -- it's number one, is the question of the client base that you play, number two is, it's the kind of positioning versus the client base that you have, both are important.

Okay, okay. And T.K., any initial views about the CY '12 IT budgets -- CY '13 IT budgets, sorry.

Very, very early to kind of comment on that. We'll have a little more color towards the end of November.

Next question is from Atul Soni [ph] from Macquarie.

Just a bookkeeping question from my side, just wanted to get your average hedge rate for the next quarter.

[indiscernible] the average, but we have an average -- we have a hedged book of about $1.6 billion.

$1.6 billion.

$1.7 billion.

Sorry, is it $1.6 billion or $1.7 billion?

$1.7 billion.

The next question is from Mitali Ghosh from Bank of America.

Just one quick question. T.K., you mentioned the selling and marketing expenses in the IT business has moved up in the last 1 year by more than 1%, where are we on that scale now? I mean, is it mostly done, or do you expect that to move up further as a percentage to sales?

So basically, if you look at the levers that we carry, the levers that we carry are on certain markets unlikely that will bring it down. It's also unlikely that it will go up substantially. So I think we are pretty comfortable at the level at which we are. I think we have some other levers in terms of standard delivery costs that we can kind of optimize. But a large part of what we optimize, we reinvested back into the business, in some of the newest service lines that we have [indiscernible] invested. So if you look at G&A and S&M together, I think it'll give you a fair indication of the view ahead.

Ladies and gentlemen, due to time constraints, that was the last question. I now hand the conference over to the management for closing comments.

Thank you, Melina. We thank you, all, for participating in this call. Should you have any other question that we could not answer due to time constraint, please feel free to get in touch with Aravind or me, we shall be happy to answer them for you. Thanks a lot, and have a good day ahead. Thank you.

Thank you, gentlemen of the management. On behalf of Wipro, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines. Thank you.