Wipro Limited (WIT) Q1 2014 Earnings Report, Transcript and Summary

Manoj Jaiswal T. K. Kurien - Chief Executive Officer, Chief Executive Officer of Information Technology Business, Executive Director and Member of Administrative/Shareholders & Investors Grievance Committee Suresh C. Senapaty - Chief Financial Officer, Executive Director and Member of Administrative/Shareholders & Investors Grievance Committee Sangita Singh - SBU Head Anand Padmanabhan - Vice President of Legal Anand Sankaran - Senior Vice President of Wipro Infotech & Global Infrastructure Services Jatin Pravinchandra Dalal - Chief Financial Officer of The IT Business Soumitro Ghosh - Senior Vice - President Saurabh Govil - Senior Vice President of Human Resources Ayan Mukerji - Head of Product Engineering Services Business Globally and Senior Vice President and Head - Global Media & Telecom N. S. Bala - Senior Vice President of Manufacturing & Hi-Tech B. M. Bhanumurthy - Chief Business Operations Officer

Ankur Rudra - Ambit Capital Pvt. Ltd., Research Division Joseph D. Foresi - Janney Montgomery Scott LLC, Research Division Sandeep Shah - CIMB Research Manish Hemrajani - Oppenheimer & Co. Inc., Research Division Edward S. Caso - Wells Fargo Securities, LLC, Research Division Viju K. George - JP Morgan Chase & Co, Research Division Nitin Padmanabhan - Espirito Santo Investment Bank, Research Division Avishai Kantor - Cowen and Company, LLC, Research Division Sandip Agarwal - Edelweiss Securities Ltd., Research Division Pinku Pappan - Nomura Securities Co. Ltd., Research Division Keith F. Bachman - BMO Capital Markets Canada Diviya Nagarajan - UBS Investment Bank, Research Division Ashwin Mehta - Nomura Securities Co. Ltd., Research Division Pankaj Kapoor - Standard Chartered PLC, Research Division Sandeep Muthangi - IIFL Research

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 now hand the conference over to Mr. Manoj Jaiswal. Thank you, and over to you, Mr. Jaiswal.

Thank you. A very warm welcome to all of you to our quarterly earnings call. My name is Manoj Jaiswal, and I manage Investor Relations along with Aravind Viswanathan in India and hither in the U.S. We will begin with this -- we will begin with -- the call with business highlights, an overview by Mr. T. K. Kurien, Executive Director and CEO; followed by the Chief Financial Officer, Mr. Suresh Senapaty. After that, the operator will open the bridge for question-and-answers with the management team. We have the senior management of Wipro here to answer all your questions. Before Mr. Kurien starts, we will -- 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, 1995. These statements are based on management's current expectations and are associated with uncertainties and risks, which may cause actual results to differ materially from those expected. These uncertainties and risk factors have been explained in detailed filings with SEC of U.S.A. We further do not undertake any obligations to update forward-looking statements to reflect events and circumstances after the date of filing thereof. This conference call will be archived, and the transcript will be available on our website, www.wipro.com. Ladies and gentlemen, let me now hand over the call to Mr. T. K. Kurien.

Good evening, and good morning to everyone across the world. I'm pleased to announce the results for the first quarter of the fiscal year '14. We have delivered a dollar revenue sequential growth of 1.2% in constant currency for the quarter towards the higher end of our guidance. Let me start by giving an overview of the demand environment. I had mentioned at the quarterly earnings call that we saw quarter 1 to be soft due to delays in discretionary spending and seasonal weaknesses in India and Middle East. We do see the demand environment picking up towards quarter 1. This is playing out in line with our expectations. We have seen positive traction in the demand environment with discretionary spend returning in expensive [ph] pockets. The U.S. economy could show signs of stronger macroeconomic recovery. More importantly, we have seen a pickup in deal closures in quarter 1, and we are hopeful that the momentum would continue in the coming quarters. On the customer front, our focus on the cost management has borne results, with top 10 accounts growing at 2.8% sequentially. We had indicated in the previous quarter about beefing our focus on the top 125 strategic accounts. We have delivered 1.5% sequentially. We continue to enhance our quality of customer engagement through this process. Overall customer satisfaction scores got neutralized [ph] and increased 1% from the previous quarter and 11% year-on-year. From an industry vertical perspective, we saw strong traction in retail banking, Energy & Utilities and the international business of Healthcare and Life Sciences. We continue to see softness in investment banking and the R&D business in Telecom and in Hi-Tech. From a service line perspective, infrastructure services continue to see the strongest momentum. We have seen some large deal closures here. Notable wins include a leading global bank where we'll rationalize the infrastructure landscape globally on a managed services model and the significant win was with a leading market research firm where we will manage critical data centers across U.S. and Europe on a cloud-based model. We're seeing increasing disruptive technologies transforming the traditional landscape. We are working closely with our customers, leverage the ability then for optimizing on the current investment. So after this, we are seeing increasing traction and the need to engage with business stakeholders directly, in additional marketing space our solutions have been deployed to a leading retail firm to enhance customer experience. Promax [ph] continues to drive traction in pay performance plan. We won a large transformation initiative to optimize promotional spend for one of the top beverage companies globally, leveraging our SaaS-based model. In the big data analytics space, Wipro has won a large contract with a leading telecom service provider, to drive business transformation by reducing churn and enhancing the speaking capabilities. Likewise, we've established a joint innovation council with 2 leading financial services firms and have delivered enhanced fraud prevention capabilities to reduce fraud by almost 60%. Overall, we are bullish about our analytics business, which grew sequentially by 6.5%. Our Advanced Technology group, which consists of cloud and mobility-based solutions, continued to be a major disruptive force. Sequentially, we have grown 9% in this particular space. We recently launched virtual desks, a workplace confirmation solution that focused on the new-age workplace that enables collaboration and mobility for the workforce. This has delivered excellent results in the initial implementation at one of Asia's leading banks. The first Cloud Command Center recently entered the managed services agreement with a large U.S. food chain, enabling our customers to deliver enhanced user experience. Our mobility center of excellence continues to build traction with solutions deployed for market channel retail enablement and banking and in a whole group of other industries. On the execution front, we continue to be focused on delinking revenue growth from headcount via nonlinear growth. This is driven primarily by leveraging processes and tools, most of them with the object of [ph] propriety and of course, to raise productivity, quality and agility. On the people front, we continue to be focused on aligning our culture to results and delayering the organization. Our voluntary attrition at a trailing 12-month basis has come down by 50 basis points. We have also concluded our annual appraisal cycle and our salary increases effective June this year. I wish to conclude by saying that we look forward to continuing to drive progress on the strategy that we laid out. Open to Senapaty for his overview.

Good day, ladies and gentlemen. Before I delve into our financials, please note that for the convenience of readers, amounts on our financial statements have been translated into dollars at the noon buying rate in New York City on June 28, 2013, for cable transfers in Indian rupee, as certified by the Federal Reserve Board of New York, which was $1 equal to INR 59.52. Accordingly, revenue of our IT Services segment, that was $1,588,000,000 or in rupee terms, INR 89 billion, appears in our earnings release as $1,501,000,000 based on the convenience translation. Total revenues for the quarter were INR 97.35 billion, an increase of 5% year-on-year. Total net income for the quarter was INR 16.23 billion, an increase of 11% year-on-year and 3% sequential, quarter 4 being INR 15.76 billion from continued operations, which is comparable to the [indiscernible] company. In IT Services, our revenues for the quarter ending 30th June 2013, was $1,588,000,000, sequential growth of 0.2% and -- on a reported basis and 1.2% on a constant currency. Operating margins in narrow range, the impact of salary increases, investments in sales and marketing and decrease in offshore mix has been partially mitigated through current benefits, resulting in margin decline of 20 basis points. On the pricing environment, we are responsible for the outcomes. We do not see pricing pressure. Our -- whether the pricing is ticket-based, it is -- wherever pricing is ticket-based, it's competitive. We do not see [indiscernible] based pressure, but newer deals are competitive. On the currency front, our realized rate for the quarter was INR 56.26, versus a rate of INR 53.96 realized for the last quarter. As of period end, we had about $1.9 billion of ForEx contracts. Our IT Products business declined by 14% on a year-on-year basis, due to lower CapEx expense by the Indian contracts. And we fell largely, I think, further in the emerging [ph] markets. Margins have also been impacted due to rupee depreciation, making inputs costlier, want people to invest, and therefore, the neutered spends on the IT products in India. The effective tax rate for the quarter is 20.7% as against 20.1% in the previous quarter. Our normalized effective tax rate will be around 23%. For the quarter, we generated operating cash flow of INR 12 billion, which was 74% of the net income. We generated free cash flow of INR 10 billion, which was 58% of the net income. We'll be glad to take questions from here.

[Operator Instructions] Our first question is from Ankur Rudra of Ambit Capital.

Interesting guidance there. I just want to dig a bit deeper into that. We see in the current quarter, your European business has grown a bit stronger than U.S. However, your guidance and your outlook seems to reflect a bit stronger growth from the U.S. instead of Europe. I'm just trying to understand what's happening there in terms of mix.

So I think fundamentally -- this is T.K. Just to kind of give you a sense in terms of guidance, fundamentally, the way we guide is that we look at visibility that we have in terms of deals closed and we also build in a certain amount of deals that we expect to close in the coming -- in the quarter, in which we're operating. Based upon that, what we see is that Europe, in patches, continues to be kind of strong. But given the demand environment in the U.S., we see more revival there and a larger pipeline coming in from the U.S. than we see in Europe comparatively. It could be due to the fact that U.S. was traditionally weak for us. But we see that changing in quarter 1, and we see that change continuing into quarter 2.

Okay. And from a demand perspective, looks like demand conditions are improving in general. Maybe you can add some more color from a vertical perspective. Are you seeing a bit more promise in your U.S. geography? And also, if you could sort of add a layer of what you're seeing on the strategic projects and if these are coming primarily from emerging technology areas, which is analytics, cloud, mobility or also around legacy, ERP platform and [indiscernible].

So I think I'll give you the answer to that. It's pretty simple, and what I'll do is I'll ask who [indiscernible], who heads our around the table [ph]; Sangita Singh, who runs our Healthcare business; and Anand Padmanabhan, who runs our Energy & Utilities business, to talk through in terms of what they see in terms of the demand environment, including discretionary expense. Sangita, you may start.

Thank you, T.K. Good evening and good morning, everybody. So in the Healthcare and the Life Sciences, which is the work that we do across pharma, biotech, payer and provider, medical devices, we are seeing strong deal wins that are giving the confidence on growth. The momentum is largely across being able to provide commercial effectiveness for analytics, for compliance and around cloud-based opportunities to help drive patients' intensity for our clients. We're also able to provide cloud-based Medicare and Medicaid solutions for opportunities in the payers segment. Outside of that, our bread-and-butter business, which is infrastructure and business process outsourcing, continue to be presenting a sizable opportunity for us. Ankur, was that okay?

What I was trying to get a sense of, Sangita, was -- to an extent the discretionary spending you're seeing in your vertical? It seems to me that it's a lot more driven by analytics or cloud-based solutions as opposed to legacy definitions of discretionary spending in terms of either implementing a big SaaS solution or Oracle solution. Is that correct?

That is correct. And I would add to it that we still continue to be extremely strong on our bread-and-butter business, which is infrastructure, business process outsourcing, with a more domain flavor, as well as enterprise applications with the lead around equity.

So, Ankur, if I could just add on, and I'll ask A.P. to kind of talk to a little bit of our initiatives [indiscernible]. More than that, if you look at the bulk of our top line growth, it has really come from bread-and-butter businesses. Percentage-wise, the other businesses have been really good. But the traditional businesses still see a build on a daily basis.

Appreciate that.

Yes. This is Anand here. So from a unit perspective, I think we are seeing a lot of continuous -- continued momentum in the oil and gas based on upstream and specifically, the emerging markets [indiscernible], emerging hasn't -- we're seeing a lot of spend in Latin America. We're seeing a lot of spend in the Africa market. And most of them are in the upstream space in terms of exploration and production for the oil and gas segment and obviously, in the shale gas exploration. So we're seeing a lot of momentum and a lot of spend in that space. And we've, as you know, we have built a lot of capability in the -- by the execution of incentives. We're seeing a momentum in terms of our revenue growth in those spaces. As far as utility is concerned, we are seeing again specific investments by utilities in certain markets, so markets where there is a significant deregulation and market where there is significant deregulation that is likely to happen as we speak, right? So we're seeing growth or potential growth in Turkey, we are seeing potential growth in Latin America, and we're seeing potential growth, again, the Eastern European market and Australia. So these are the segments where we are seeing a lot of growth. As far as natural resources industry is concerned, we probably will see a slow down in terms of spend because fundamentally, the prices variation in their natural resources have pushed the companies to slow down on discretionary spend as we speak. So that is sort of the outlook for units.

Our next question is from Joseph Foresi of Janney Montgomery.

I wonder if you could just kind of drill a little bit further down on the pipeline and the improvement in the second half of the year. What is -- I know you talked about what areas are kind of working for you, but what is fundamentally happening there that's driving that increase in pipeline? Are your clients feeling better about their own businesses? We've seen a number of different quarters where spending has been weak. So I'm wondering what -- what's changed at the end market and how sustainable is it.

So just to give you a sense of what's happening with the customers, it's that number one, I think what we're seeing in terms of pipeline, I'd say the pipeline continues to be pretty much strong. There is a -- I mean, we don't see a significant variation or up or down. What we have seen during the quarter is our win rates improve. And I think that's primarily the reason why the quarter 2 guidance is a little better than quarter 1. Now going into the quarter, we have deals on the table. Our ability to close those deals effectively will determine how we are going to do in quarter 3 and quarter 4. But as of now, we -- where we sit today, as far as quarter 2 is concerned, we are pretty confident that as far as customers are concerned, both in terms of their traditional businesses as well as in nontraditional areas, we continue to see spending.

Okay. So there hasn't been a -- there's been a moderation in spending upwards? Or it sounds like it's more company-specific and that you're -- you're more confident because of your win rates, not necessarily any change in demand.

No, there are 2 reasons. On the traditional business, we have seen win rates improve. On the discretionary spend, we have seen discretionary spends actually going up. It's too early to call as to whether this is a secular trend as far as the discretionary spends are concerned. But as of now, we feel a little more confident than we did about a year ago, sitting where we are.

Okay. And then just on the margin side of things, the rupee kind of moved in your favor, but it seems like you still lost a little ground on the margin side because of the salaries. What can we -- how should we think about the margin profile particularly for the IT services business going forward with the currency movement?

So as we are concerned, our ambition has always been to make sure that we increase sales and defend margin. That's been primarily the game. So to that extent, do we see huge pressure in margins because of pricing, is that the question? The answer is we don't -- we see pricing fairly stable. So overall, in terms of -- while there are ups and downs in terms of margin, in terms of impacts in and out, we're fairly confident that in a narrow range, we'll be able to kind of maintain margins.

Okay. And last quick one for me, on the immigration side, have you seen any change in customer behavior because of the pending leaseover form?

No change as of now. In fact, frankly, what we have seen is that while customers are concerned, they are not worried as of today. The thing is, it's too early for both the customers as well as us to actually decide on which way the immigration bill would go. And I don't think customers are actually cutting back at spending, looking at the immigration bill.

Our next question is from Sandeep Shah of CIMB.

Yes. If you could, just one question. Your comments are saying that we are seeing a pickup in the large deal closure. So can you give us some more color? Is it being skewed to 1 or 2 large deals? Or do you nest [ph] the same across most of your larger portfolio as well as your handling investments? What I meant is, is it a one-off kind of a large deal closure? Or do you believe that this is like a broad base and things may improve hereon?

Sandeep, what we are seeing is that largely, pipeline has clearly improved over the past years. There is no question about it. And the number of deals that we are competing for are significantly higher than where they were last year. Is this a secular trend across industries? The answer is in most industries, there are 1 or 2 industries where we still don't have -- we don't see that trend coming in. But in most industries primarily driven by 2 areas, technology infrastructure and to some extent, application management, we are seeing deals coming in -- coming in. So to that extent, like I said earlier, we are a little more bullish than we were last year.

Okay. And in terms of the -- in the industrial management side, you -- and in the traditional outsourcing business, you believe that the deal-win ratio has gone up. So any particular reason here? Is it more specific to the clients on the Wipro spending? Or has it more to do with our proactive approach leading to this kind of a deal-win ratio improvement?

So I'll ask Anand Sankaran, who runs our global infrastructure business, to comment then.

Sandeep, this is Anand here. I think, the reason why we are seeing a few good wins in the industrial space, it is because of the pool of investments that we've been making and the cutting higher capabilities in this area for the last 6 months. So we've got the early build strong capabilities around our solution architecting skill. We've built strong capabilities onshore to be able to effectively position our solutions to the customer. We've also built great capabilities around tools and automation, which is also yielding great results in terms of productivity improvements. So this is something that we have spoken about, I think, for the last 1 year. And we're able to drive significantly higher levels of nonlinearity and productivity as a consequence of implementing the automation of systems and tools that we have developed, too, with the last 12 months. So I think what's happened is that all these capabilities are now being brought to bear in front of the customer. Our pipeline has gone up significantly, we've had 2 good wins in quarter 1, and we hope to sustain this momentum in the infrastructure services space going ahead.

Just follow-up to this, is this leading to the new wallet share from existing vendor? Or is it leading to -- your proactive approach leading to a new spend coming to you?

So it's a mix of both [indiscernible]. So it is an increase in wallet share in some of our large accounts. We've proactively invested in solution architects in some of our large accounts, and that's yielding results, wherein we are going in and improving our share of wallet and existing accounts. In some account, really looking at cross-selling, infrastructure services where we're doing ADM or AD work, and also in new accounts where we're actively pursuing deal renewals that are coming down the pipe. So we're going after large deals that are coming up for renewals. And if you look at our pipeline today, close to 50% of the deals would be deals that are coming up for renewals in the next 12 months. So it's a mix of both, Sandeep. It's a mix of going after our existing accounts and upselling and cross-selling in them as well as going after new ones, either directly or through advisers and going after deal renewals in both of them.

Just last question. [indiscernible] revenues have gone up significantly on a q-on-q. What is the reason for this? And then the fixed price has actually gone down 50 basis point?

Jatin Dalal, who's the CFO, will kind of answer questions. Jatin?

Yes. Sandeep, actually, if you see, this is predominantly on account of the exigent movement. Our days sales outstanding has been flattish between last quarter and this quarter. So we do not see any, including unbilled. So there is no material business volume, in fact, there. But it is on account of cancellation of those data. Now at a much higher exchange rate, which was prevailing as of 31st -- 30th of June compared to 31st of March.

Yes. But, Jatin, is it 19% to 20% increase with a flattish to a dollar revenue, so...

There was a little bit of a regrouping that was -- happened. But otherwise, from an actual personal point of view, there wasn't any significant change.

[Operator Instructions] We'll take our next question from Manish Hemrajani of Oppenheimer. Manish Hemrajani - Oppenheimer & Co. Inc., Research Division: Can you talk about the discretionary spend environments, especially in investment banking where you have some exposure? And also geographically, if could comment on the environment in the U.K.?

So on investment banking, what I'll do, Manish, is that I'll pass it over to Soumitro Ghosh, who runs our Banking and Financial Services. And as far as he's concerned, I'll talk about it a little bit after Soumitro finishes.

Yes, Soumitro here. So specific to investment banking, discretionary spend has definitely been under pressure for the last 2, 3 quarters, and it continues to be so. However, the opportunities in that particular segment is really around 2 areas. One obviously is cost takeout part and cost variabilization part, and the second is in the area of regulatory compliance and changes. So specific to the cost takeout part, we are seeing 2 initiatives. One is there is a clear trend in the market towards utilities, right? So this is all around platforms for securities, processing, reconciliation, reference data, et cetera. And around the vendor consolidation piece, that is one other initiative which is there in play. On the regulatory and compliance, really it is all about addressing the Basel III requirements and FTCA. U.K., you want to do it?

So I'll answer the question, Manish, on the U.K. Fundamentally, what happens, so if you look at our exposure in the U.K., it's primarily driven by 3 components. One is Retail, the other one is Banking and Financial Services, and the third is really the Energy and Utilities segment. On the Energy and Utilities segment, we continue to see our discretionary spend continuing. We don't see any particular drop. In natural resources, we see some drop. But in all the other segments, we see continued investment. And more importantly, we see more investment going into Europe as markets kind of deregulate. In the banking side, retail banking continues to be very, very strong. Investment banking, discretionary spend is a little weak. On Retail, it's been kind of flat. There hasn't been -- and it's mostly client-specific, and its specific to the customer base that we serve in the U.K., where spending isn't really happening. That's potentially what we see across U.K. in the segment that we serve.

Our next question is from Edward Caso of Wells Fargo.

T.K., I was curious if your attitude towards local hiring has changed with the sort of rise in protectionism in the U.S., Canada, Australia, United Kingdom. So it's more than just the U.S. But is your -- are you rethinking and are you moving forward with any plans to sort of reposition where your workforce is located?

So, if I had to kind of break up the workforce into 2, if I had to break them into sales, solutioning, troubleshooting kind of roles, for us, we've been very, very clear that those roles necessarily have to sit in front of the customer. So we believe that the business capture and the value creation role has to be close to the customer, and that will be always driven by recruitment from the local geography. When it comes to the factory that we run, which is today primarily in India and to some extent, in Philippines and in Latin America, nothing has changed as far as our recruitment is concerned. But clearly, given the nature of the business that we are in today, with more and more development work starting on site, it's important for us to kind of change our mix to more on-site resources. It's not being driven by protectionism as of now.

Any pressure from your clients to switch your mix at all? Or is it, as you've said earlier, still too early?

It's still too early. But we're seeing some requests, even though I must admit they're spotty, from some industries. And it's primarily coming not necessarily driven by protectionism but driven by regulation.

Our next question is from Viju George of JPMorgan. Viju K. George - JP Morgan Chase & Co, Research Division: Yes, and a good costing guidance. I think my question really relates to the kind of growth we've seen in this quarter, T.K., looks to me that it's a bit lopsided when you're, like, in geography, when you look at vertical, when you look at practice. For instance, on the vertical side, it's energy and resources that has driven growth. From a Q-on-Q perspective, as it is from Y-on-Y perspective in geography, it seems to me that APAC has come into force in this quarter. So my question is, what are you doing to sort of bridge your growth and get it to other areas as well? Also, a little bit curious as to why America didn't fire [ph] given that we brought in a missile for U.S. [indiscernible] your peers, has started growing this geography once again.

So, Viju, very good question, and I'll answer the U.S. geography first and then get on to the vertical question. So if you look at the U.S., it's primarily been driven to a large extent by some of our U.S.-based customers looking to inviting some countries other than the U.S. That's really been the reason behind that. Because the way we segregate revenue is based upon where the invoice [ph] tend to. And that's why you see this change. Frankly, all of the U.S. revenue hasn't really changed too much as a percentage of total revenue. As far as industries are concerned, you're right. Last quarter was all about energy and utilities. We expect growth to be more broad-based, and we expect that out of the 6 verticals that we have, a substantial portion of them should be firing going forward. But it has been lopsided in the last quarter. And remember one more thing, in the results that we give, we give consolidated results along with India. So specifically, what happens is that the India business always kind of is poor in quarter 1 and then picks up in quarter 2 and quarter 3. To that extent, we've been hit by that, too, in the verticals. But overall, we expect to see more broad-based growth going forward.

For example, Viju, if you look at the HLS that we talked about, we see zeroing a decline in terms of sequential. If we take the India out, it's actually 3.8% up. So the EBITDA for a mix on that, and particularly because quarter 1 is a weak quarter so far as India is concerned. And this is the combined revenue. Viju K. George - JP Morgan Chase & Co, Research Division: Sure. I have one follow-up question as well. I would just look at your client matrix and look at the YOY progression, and I find that the -- there's been a fairly noticeable decline in a number of $3 million to $5 million clients on an annual business. This count has come down by 26%. And I would have been happy to see if this decline had been translated into increase -- in higher banks. But instead, I find that the number of $1 million to $3 million has gone up by 35%, suggesting to me that a lot of these clients and these banks have migrated downwards instead of upwards. Just curious if you've thought about it.

But, Viju, yet again, it's a translation issue because you saw a subdepreciation of rupee -- dollar. And therefore, some of the -- and causes. And therefore, some of the Indian clients, et cetera, when we convert them into the -- will rise to [indiscernible] rupees, you have that particular -- and that is why the movement. But otherwise, it is not a significant change.

So overall, the way we see it, there was no significant change, and there should probably be more change, which I agree with. But I think fundamentally, what you're seeing there is that the translation difference has impacted us, especially for customers who were sitting at the margins, and the rupee impact has also changed, impacted some of the Indian customers. Viju K. George - JP Morgan Chase & Co, Research Division: Sure. One last question from my side. Involuntary attrition is up quite a bit this time. It's inching up. One would have thought that some of the changes you'd want to effect would have been effected now with due to your [indiscernible]. So I'm just curious to understand why that's trending upward as well.

So I'll ask Saurabh Govil, who runs -- who's our Head of HR, to kind of answer that question.

Viju, Saurabh here. We do have involuntary attrition as a consequence of conclusion of our performance management cycle as of 31st March, and we see these exits on performance happening in Q1 and Q2. And if you see the trend, it's been around this number. So it's not that it's gone up something, and we need to worry about it. It's in line with what is expected post a -- upon segment cycling. Viju K. George - JP Morgan Chase & Co, Research Division: It doesn't seem to match up with similar trends in Q1. So in any case, I'll probably take it offline.

We'll take our next question from Nitin Padmanabhan of Espirito Santo.

Yes. If you look at the investment banking space, the telecom space and [indiscernible], which have been weak for some time, I think last quarter, we alluded to -- that sort of at least bottomed out. How do you see that going forward? And that will be my first question. And the second one would be how would you look at taking currency benefit onto margins and the investment -- what is the investment?

So I'll answer the second question first, and then I'll hand it over to Mr. Ayan Mukerji, who runs our Telecom business, because the largest exposure in terms of R&D sits right in the Telecom business, and followed by Bala, who runs our Manufacturing business because he runs our Hi-Tech business, which is part of Manufacturing. So broadly, the way we see it is that if you look at it, we believe that on the operations side, there is headspace to actually reduce costs significantly. And on the sales and marketing and the front that sits in front, and that clearly creates value. It's what we call the value accretion there. We clearly see more investment going into that particular layer. So that's the cost side equation. On the revenue side, especially on billing, we have not seen any significant pressure in terms of pricing that we cannot manage through efficiently. And I think that's the kind of leverage that we're trying to kind of maximize on. With that, let me hand it over to Ayan and Bala to answer the other 2 -- kind of first question. Ayan, you're first.

Thanks, T.K. So, Nitin, I'll have 2 parts to your question. First is on the R&D side, and then second part is you asked that -- whether the Telecom business had bottomed out last quarter. So we are fairly broad-based and are present in most of the large telecom equipment vendors. As you noted, the market is quite stretched. We still continue to see major consolidation and R&D cost optimization in all of these players. I'm hopeful that our win and loss in our R&D market share would compensate each other. And from an R&D perspective, I hope that this year, we stay neutral. Now to answer the second part of your question, I do agree that the Telecom spend has bottomed out. We are seeing much more number of deals that we are contesting at. And T.K. also mentioned a few minutes ago that our growth is expected to be a little more broad-based. And I'm hoping that over the next few quarters, we have our own share of growth in the Telecom business. We continue to see our own share of wins. We are seeing more number of wins right across both telecom as well as the media segments. I'll hand it over to Bala for his manufacturing comments.

Nitin, this is Bala. I handle the Manufacturing and the Hi-Tech segment. on your comment on R&D, it has been challenged over the last few quarters primarily because of our exposure to discretionary spending in the semiconductor segment. But we've been putting a lot of our effort into going after more annuity-based engagements of our project lines, particularly helping them out of this struggle their own -- through their own transmission. So the propositions that we have on with some of our larger customers in the segment are now a lot more sticky and a lot more enhancing to their business. So we've changed the phase of what we've been selling in the R&D space, so that helps stabilize the decline that we have seen in the past. So to the second, what Ayan just said, we expect the R&D piece to have more or less bottomed out, and we expect it to remain stable going forward.

Great. Just one last question if I may. T.K., in the past, you had talked about rationalization of clients, which you felt wasn't strategic or a longer period relatively smaller clients. And it did have some impact last year. Is there any impact that you saw during the quarter? And how much of that is net going forward?

Not substantial during the quarter.

Our next question is from Avishai Kantor of Cowen and Company.

Yes. Can you please talk a little bit -- from a longer-term perspective in the pipeline, can you please talk a little bit about those areas with potential large contracts that you mentioned that could be opened up for recompete?

Well, if you look at -- I'm sure if you look at where we sit and the verticals that we are strong on, we see clearly -- I don't see in utilities being a segment that we clearly see large deals in that part of the pipeline. We see large deals in Banking and Financial Services, we see it in Healthcare, and we also see it in Telecom, even though the kind of deals that we see are more specific to integration and not traditional outsourcing [indiscernible]. In Manufacturing, the size of the deals are not large, but we see plenty of million [ph] -type deals coming in there. And in Retail too, we see large deals, especially on the infrastructure side. So if I have to kind of break up the segment and if I could get one vertical to kind of talk a little of what we do, maybe I should just hand it over to Bala to talk about what's happening on manufacturing, and then over to Sangita. [indiscernible]

[indiscernible]

Yes. Avishai, the trend in the manufacturing segment has largely been around significant focus on productivity and cost of reposition on multiple fronts. So we see deals emerging where there's a lot of focus on the cloud transformation, both on the infrastructure and the application space. So you would see that there's been a significant amount of activity with respect to transforming the application landscape into the cloud. So you would see focus on sales force or comp of the -- and a similar transformation. Likewise, we also see a fair amount of activity in transforming the infrastructure space into the cloud. So that's one segment of activity. And a lot of this is also coming from renewals of existing contracts that have been traditional outsourced contracts, with a 10-year contract of the traditional players. So that's been one of the shifts that have been happening. Secondly, the opportunities that we are seeing is business-led transformational segments and therefore to T.K.'s point, these are not the traditional $150 million, $200 million deals that you will see in infrastructure and so on. But they are medium-sized, business-led deals that are being driven by the business and not from the CIOs necessarily. So that's the other area of opportunity we were seeing in manufacturing. I can elaborate later offline if it's of interest. Over to Sangita.

Bala. So with respect to large deals, I'll talked about 2 segments to get -- give you a flavor. One, let's start with the provider vertical. So if I look at the provider vertical, my clients are really squeezed with respect to top line as well as bottom line, implementing the Healthcare reforms. That jump leads to us helping them in building a more accountable care organization, which implies that we would be participating in large deals that are around cloud, mobility and analytics, also, our bread-and-butter business, which is infrastructure and business process outsourcing. We've also seen a strong pipeline, which is led by our domain. All of that has largely been because of the investments that we've made in the industry solutions group. This is largely in the pharma vertical. In my pharma vertical, my clients are looking at revenue improvement, cost efficiency, quality and compliance management and transformation and innovation. That essentially puts us, again, in those 2 buckets where we would see ourselves participating in some of the newer emerging areas, which is a combination of cloud, mobility and analytics, to revitalize their innovation for sales and marketing as well as R&D productivity and participating in driving better operational excellence, which is through infrastructure outsourcing and business process outsourcing. So that's really where we are seeing our large deal pipeline.

Next question is from Sandip Agarwal of Edelweiss.

My -- one first question is for T.K. T.K, I just want to understand from you. I understand from you, you commented [indiscernible] that there is definitely some trend, although may not be secular, to a little -- assuming a secular trend. But I believe there is definitely some uptick in the business -- main part of the business. But if you can also throw some light, but I -- again, I understand that [indiscernible] has been a little okay this quarter, but if you can throw some light how the analytics side is picking up there. And also some more little point, if you can share on the Healthcare side because we saw some positive numbers for our competition in that vertical, but we are not seeing similar trend here.

On the -- what I'll do is I'll ask Sangita to talk about the Healthcare side on analytics, on what she see -- on the Healthcare top line, on what she sees going forward. And...

Oil and gas.

Oil and gas, I'll ask Anand Padmanabhan to kind of respond to that.

Sangita?

Okay. So coming to the provider vertical again, and I'll just give a background of the external factors that are influencing some of the strategic competitors of our clients. As I mentioned before, they're looking at revenue improvement largely because of the change in demographics, largely because of the rise of consumerization that you're seeing and the expansion of the health coverage access. They really need analytics to help expand their footprint to outpatient access points, for example, to be able to attract higher patient volumes, improve their revenue cycle management by plugging the leakages. We've made an investment with Opera Solutions in the last quarter, and they have the ability to provide very high-end analytics for revenue cycle management, staff optimization, so on and so forth for some of our provider clients in -- as far as analytics is concerned. When it comes to pharma, most of it is largely targeted towards commercial effectiveness, which is, how do we help our customers drive better launch and better pricing excellence, emerging and new markets? Over to you, Anand.

I'll take the question -- it's T.K. on the discretionary spend. Right now, we've seen discretionary spend coming back this quarter. To whether to kind of call it out as secular trend or not, I think it's too early to comment either way. So I guess we'll wait for the quarter to progress. And in the next quarter's guidance call, we should be able to give you a sense of where it is that we see discretionary spend happening in the quarters to come.

Also, one more question which I would like to ask is one, with utilization, we were like hopeful that now utilization will pick up some kind of volume uptick, which can -- which will happen. That was our expectation. So I don't see that kind of number this quarter again. And secondly, we have seen quite a good growth on the on site compared to the offshore. So if you can throw some light, is it strategic more something or similar to that? Or is there something else which we're not able to understand?

So what I'll do is I'll hand it over to Bhanu, who runs our Global Delivery, to kind of respond to that.

Sandip, this is Bhanu here. The -- on the utilization front, Sandip, I don't -- we are definitely getting the supply chains ready for the growth that we need to have. It must have necessarily been efficient supply chain. And also, you understand that during the course of the quarters, there is the certain level of pressure intake that we do on a regular basis, right? So I don't see the utilization decrease that you are seeing as a secular trend right now. There's definitely an opportunity to improve, but we're just getting ready to -- getting the supply chain ready for another growth.

And I think the other piece is the on-site component primarily is kind of geared up for the close -- the close that we expect in the quarter to come. And I think you had other question on discretionary spend. I think it's important for us to realize that we've been talking to our customers. Right now, customers are holding to the discretionary spend that they expect to see in the quarters to come.

[Operator Instructions] We'll take our next question from Pinku Pappan of Nomura.

T.K., traditionally, your third quarter has been stronger or equally as good as the second quarter. Just wanted to get your thoughts on how the seasonality is likely to play out this year.

You know what, the minute I talk about seasonality, I'm commenting on full year guidance. So it's 3 quarters I've done that the fourth is just terrific and kind of exciting [ph]. So I'll not comment on quarter 3. I just like to go back to the answer I gave earlier, which is talking to our customers today, we are quite confident that discretionary component of the spend would continue. Now obviously, quarter 3 is really far away, and we'd be able to give you a better idea of quarter 3 as we get into the quarter 2 guidance call.

Okay. And just a quick follow-up, can you just give us a sense of your pipeline, how it is -- document the close, farming versus hunting?

I'm sorry. I didn't get the question, Pinku. Can you repeat that question once again?

I just was asking about your pipeline, hunting versus farming. Usually, you give us a split. How have been the farming initiatives? And can you tell us how it has improved over the quarter?

So our farming initiatives can be pretty much seen in terms of how our accounts have grown. Top 10 accounts have grown 2.8% sequentially. And we have 10 accounts today that have over $100 million. In fact, our top 125 accounts grew 1.8% sequentially, ahead of company average. So I think it's working. I guess on the hunting side, we have made investments. Hunting has been fairly positive. In fact, the revenue component of hunting has almost doubled over the past year as a percentage of our total revenue. So to that extent, the hunting component is working. We don't break out hunting pipeline and farming pipeline separately nor do we break out top line by way of hunting and farming.

Our next question is from Keith Bachman of Bank of Montréal.

Could you talk a little bit about the Financial Services vertical, the strong sequential growth quarter. How do you see it unfolding as the next 4 quarters, where are the risk and opportunities as you look at the pipeline for both yourself as well as for the industry?

I'll hand it over to Soumitro Ghosh, who runs our business in the Financial Services area, and he can talk through in terms of what he sees in that particular space.

This is Soumitro here. So broadly across the landscape, if I look at insurance, retail banking and capital market, so discretionary spend in capital market is challenged. So there, the initiatives really in terms of cost takeout and regulatory. In retail banking, there is a fair amount of money being spent on the discretionary initiatives, like channel, like analytics, et cetera. And in insurance, there is a combination of cost takeout as well as spend -- or some incremental spend on the discretionary side. And that is more in terms of the core insurance areas, like the claims or the policy admin side. But overall, the trends, which one sees, is that in the -- from a geography aspect, retail bank is fairly strong in U.K, right? And overall, the opportunities seem to be in 3 or 4 areas. One is -- I'm talking across now. One is in the Infrastructure Services side, second is in the Utilities site, more across IT and BPO, and the third is around vendor consolidation. So these will be the 3 typical trends one is seeing in the market. In terms of the deal traction and funnel, there is a fair bit of traction, which we are seeing in the market, and a fair bit of that is in the large deals side.

And if I can just add, I think the U.S. market and Pacific, we're seeing kind of renewed spending coming back as far as Banking and Financial Services is concerned.

Our next question is from Diviya Nagarajan of UBS Finance.

T.K., this has been the third year we've been putting in the tunnel on strategy. Good to see some results coming in. What I'm trying to understand is that how much of your recovery that you're seeing, this particular quarter at least, has come from your initiatives and in looking at new segments, new markets and larger deal sizes versus the recovery in the quarter market itself?

Diviya, I think this is a combination of both. I wish I could kind of cut it down into a lot of work that we have done, and the market as still being buoyant. Frankly, it's a combination of both. We see U.S. recovery. We see some changes in our clients, which makes them bullish in terms of opening up their wallets for discretionary expense. And to that extent, we have been a beneficiary of the market revival, if you may. Apart from that, I think in certain segments, we continue to kind of pushed hard to get growth, especially around infrastructure and large application maintenance. Because fundamentally, if you look at the mix that we have, our mix of businesses is very, very much based on discretionary spend. We need to change that and get more annuity, but [indiscernible]. And that's been the endeavor the past couple of quarters.

Okay. So if I read your answer correct, that endeavor will continue regardless of how the market picks up or doesn't really expect to see greater deal wins in those spaces in terms of in -- especially in infra and applications maintenance, if that is what...

Diviya, it's like this, I don't think we can stand to make it stop and say, "Look, there's enough discretionary spend for us to kind of be happy about." We have to [indiscernible] We have to play the aggressor in this game, especially when it comes to annuity deals. It's absolutely vital for us. Otherwise, the amount of variability that we end -- that we kind of bring into our top line is [indiscernible] And we'll kind of [indiscernible]

Okay. And any timeframe that you're willing to look at in terms of coming back to -- coming back closer to the market growth rates?

We can't comment on that. We've given guidance for the quarter. We don't give full year guidance in any case, as you know. So I'd rather not make any comments there, kind of we'll -- and by which I'll end up giving a full year guidance.

Our next question is from Ashwin Mehta of Nomura Securities.

Just had one question on our sales and marketing expenses. They seem to have gone up sharply in this quarter. So what was driving that? And secondly, is there a change in our view on S&M spend given that we had been indicating earlier that most of the investments are done and we should start to see some leverage playing out on S&M going forward?

So I think if I look at the overall S&M spend on about 0.5%, it's been driven by a couple of factors. It's been driven by more investment, especially in resources that create -- what, we have broken out the business really into 2. One is what we call the value creation layer, and the other one is what we call the value delivery layer. The value creation layer are really architects and [indiscernible] to that will go into customers, that there -- we'll just give a [indiscernible] and create deals for customers, working with the customers. I think that -- in that particular area our message [ph] has gone up. Overall, we don't see investment bumping up significantly. We see it almost flat. We'll probably have a 0.5% up or down, depending upon quarters.

Our next question is from Pankaj Kapoor of Standard Chartered Securities.

Mr. Senapaty, I was just wondering that, since we are now trying to align our reported metrics with the changing profile of the business, if you could give some sense of the quarter the TCV of the deal wins that we had in this quarter.

Look, Pankaj, we haven't started sharing that as yet. So hopefully, we'll build [indiscernible]. From now on, we should be able to maybe share it next year. But at this point in time that we don't share the TCV, one. But a number of deals, we'll talk about.

Okay. And if you could -- I mean, if I can go just throughout -- or from the next 3- to 4-quarter perspective, do you think that the growth will be more concentrated or driven by the events that we had in this quarter or what we may have any convergence in the next few quarters? Or do you see that there's a pickup in the momentum in the existing or non-large deal business as well?

It's a combination, Pankaj. I wish I could say I could point one particular thing out and say, "This is what is going to drive growth." I think it's more or less a combination of everything. It's partly what the market does and partly what we do to the market.

Okay. So given that the wins that we had in this quarter and as we ramp up, do you think that the growth in the subsequent quarter will be on a up trending trajectory from here on?

Again, I hate to tell you this, that I don't give guidance. And I wish on the following quarters, I'd just like to stick to what I have given for this particular quarter, that is for quarter 2, and not go beyond that.

Our next question is from Sandeep Muthangi of IIFL.

I wanted to get some more insights on the margins. If I look at your levers, to me, there are a lot of delivery levers. Your utilization is at a 5-year low. Currency [indiscernible] has depreciated. You invested in automation and tools also. So what's the right way to look at the margins in the medium term? Are you going to plow back all the benefits you can get from improving some obvious levers into the front end?

Well, strategically, I think what we have done is -- that our belief is that at the front end, there may be marginal ups and downs in terms of investment. But from a secular trend, we don't see big blips in terms of an increase in tangency there. Our -- we'd really like to drive far more efficiency. And as we drive efficiency, there will be quarters in which there will be reduction in terms of utilization, There will be some quarters that we'll improve utilization. So really shouldn't read too much into all those numbers.

No, I wanted to get the medium-term sense, anyway.

Yes. But, Sandeep, there will be possibility if the -- in the quarter-to-quarter basis. For example, the 2-month impact of salary will come in, in Q2. Of course, there will be -- of course, there would be levers in front of improved utilizations, there could be levers in terms of ForEx interchange. But -- so there will be volatility, but I'll begin coming back. Medium term [indiscernible]

Yes. Just one last question. Clearly, you've highlighted a lot of areas that aren't showing improvement. But are there still any areas -- except maybe some pockets in Europe, that are still in the back of your mind that could turn negative on the margin, maybe Telecom or any of the other areas?

So as of now, we don't see any big blips on the negative side. So to that extent, our guidance kind of factors that. But as far as Europe is concerned -- overall, as far as margin is concerned, we don't see too much change there, with what positive levers. We have some negative lever headwinds in terms of salary. So overall, I don't see much of a change.

[indiscernible] quarter term there could be volatility. But medium to long term, we never look with that positive bias [ph].

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

Yes. Thank you, [indiscernible]. Thank you, ladies and gentlemen, for joining the call today. I wish you a good day ahead and a good listening ahead. If you have any questions that we could not take due to constraint of time, please feel free to write us, and we'll be happy to answer them. Thank you.

Thank you very much. Ladies and gentlemen, on behalf of Wipro Ltd., that concludes this conference. Thank you for joining us, and you may now disconnect your lines.