Wipro Limited (WIT) Q2 2014 Earnings Report, Transcript and Summary

Manoj K. Jaiswal - Vice President and Corporate Treasurer 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 Jatin Pravinchandra Dalal - Chief Financial Officer of The IT Business Ayan Mukerji - Head of Product Engineering Services Business Globally and Senior Vice President and Head - Global Media & Telecom B. M. Bhanumurthy - Chief Business Operations Officer Sangita Singh - SBU Head Saurabh Govil - Senior Vice President of Human Resources Soumitro Ghosh - Senior Vice President

Moshe Katri - Cowen and Company, LLC, Research Division Edward S. Caso - Wells Fargo Securities, LLC, Research Division Ravi Menon - Centrum Broking Private Limited, Research Division Joseph D. Foresi - Janney Montgomery Scott LLC, Research Division Sandeep Shah - CIMB Research Yash Mehta - Equirus Securities Private Limited, Research Division Diviya Nagarajan - UBS Investment Bank, Research Division Trip Chowdhry - Global Equities Research, LLC Viju K. George - JP Morgan Chase & Co, Research Division Ashwin Mehta - Nomura Securities Co. Ltd., Research Division Sandeep Muthangi - IIFL Research Nitin Padmanabhan - Espirito Santo Investment Bank, Research Division Pankaj Kapoor - Standard Chartered PLC, Research Division Sandip Agarwal - Edelweiss Securities Ltd., Research Division

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, sir.

Thank you, Inba. Good evening and good morning to all of you. A very warm welcome to all of you to our quarterly earnings call. We will begin the call with business highlight and overview by Mr. T.K. Kurien, Executive Director and CEO, followed by financial overview by our Executive Director and Chief Financial Officer, Mr. Suresh Senapaty. Post that, the operator will open the bridge for question-and-answers with the management team. We have the senior management of the group present here to answer all your questions. Before Mr. Kurien starts, let me draw your attention to the fact that during this call, we might make certain forward-looking statements within the meaning of Private Securities Litigation Reform Act 1995. These statements are based on management's current expectations and are associated with uncertainties and risks, which may cause actual results to differ materially from those expected. The uncertainties and risk factors have been explained in detailed filing with SEC of U.S.A. Wipro does 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 it over to Mr. Kurien.

Good morning, everyone. I'm happy to announce the results for the second quarter of fiscal '14. We have had a dollar revenue sequential growth of 3.2% in constant currency for the quarter. Last quarter, I have mentioned that we are seeing improvement in spending and momentum in deal closures. Over the quarter, we have seen the discretionary spend continue to show a steady pickup, and our deal conversion rates have gone up. We see broad-based revenue growth across verticals. We have had the highest revenue growth over the last 7 quarters. All our verticals has grown sequentially in quarter 2. We have likewise seen broad-based growth across customers. Top 10 grew 4.1% sequentially and top 125 grew 3.6% sequentially to account across the $200 million run rate in the last quarter. Account management continues to be the key area of focus. Our strategy of deepening focus in the top 125 strategic account started delivering results, with growth rates higher than the broader organization. Overall, customer satisfaction scores continue to improve, up 4.1% compared to previous quarter. We see 3 priorities to the organizational level. At the customer front-end, [indiscernible] translation is a key priority for ensuring a consistent user experience through a variety of channels. We've achieved our capabilities [ph] from consulting applications analytics to enable our end users identify sell-in service through a collected experience across multiple touch points. We have delivered solutions leveraging this approach for 3 critical engagements. The other area where we see increasing focus is in leveraging open source platforms, which are going increasingly mainstream. We are bringing together open source innovations and our deep understanding of enterprise business needs to help our customers innovate and transform. In the execution space, we've been investing in multiple initiatives over the last few quarters to drive productivity through process, units and tools. We have formalized this in the proprietary platform that we call ServiceNXT, which uses machine-learning algorithms and hyper automation to drive much higher levels of transparency in operation and cost savings. The response has been good. We have seen 2 significant wins using ServiceNXT in the last quarter. On the people front, we are driving a casual shift towards putting customer value at the forefront and, accordingly, ensuring greater empowerment and quicker decision-making. If you look at our verticals, 2 verticals have done outstandingly well over the past quarter. Healthcare has led with a constant growth of 6.4%, and Media and Telecom has led with a growth of 5.6%. I want to conclude by saying that our strategy has started delivering growth in the front-end and in execution, and we remain focused in driving further on our strategy. Thank you.

Good day, ladies and gentlemen. Before I delve into the 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 September 30, 2013, for cable transfers in Indian rupees, as certified by the Federal Reserve Board of New York, which was $1 equal to INR 62.58. Accordingly, revenue of our IT Services segment, that was $1,631 million or in rupee terms, INR 100.68 billion, appears in our earnings release as $1,609 million based on the convenience translation. Total revenue for the quarter was INR 109 billion, an increase of 19% year-on-year. Total net income for the quarter was INR 19.3 billion, an increase of 28% year-on-year. In IT Services, our revenues for the quarter was -- revenue for the quarter, 30th of September 2013, was $1,631 million, sequential growth of 2.7% on a reported basis and 3.2% on constant currency. IT Services operating margin have shown strong growth. Our sustained execution towards increasing operational efficiencies in the business, coupled with currency benefits, helped offset the impact of wage hikes resulting in margin expanse improvement of 250 basis points. Pricing environment is stable [indiscernible]. Customers are seeking cost savings and not coupon rate discounts. On the exchange front, our realized rate for the quarter was INR 61.73 versus a rate of INR 56.26 realized for the last quarter. As of period end, we had about $1.7 billion of outstanding ForEx contract. Our IT Products business grew by 15% on a year-on-year basis. Reported business growth can be lumpy, and margins were impacted due to the rupee depreciation, making imports more expensive. The effective tax rate for the quarter was 22.9% as against 20.7% in the previous quarter. This is a more normalized ETR compared to the previous quarter. For the quarter, we generated operating cash flow of INR 17 billion, which was 89% of the net income. We generated a free cash flow of INR 15 billion, which was 80% of the net income. We will be glad to take questions from here.

[Operator Instructions] Our first question is from Moshe Katri of Cowen.

Can we start by talking about the different factors that benefited or impacted margins during the quarter, the FX benefits, the impact from compensation increases, et cetera?

So Moshe, this is T.K. I'll take a shot at it and hand it over to Jatin if you have any further questions. Fundamentally, what's happened is that 2 -- there was 1 headwind that we had going into the quarter, which was the wage increase. So we typically give our wage increase on the 1st of June. So last quarter, we absorbed 1 month of that. And the quarter this just finished, we absorbed 2 months of that impact. We've negated the entire impact through operational improvements, and we had a foreign exchange positive. That's really what kind of resulted in the operating margin going up.

And can you quantify the positive from FX?

Yes. So, Moshe, it's really ForEx gave a benefit of 2.5%, and operationally, we mitigated out the impact of salary increases.

Okay, understood. And then in terms of somewhat different segments, I've noticed that Europe underperformed some of the other regions at least in terms of constant currency sequential growth. Can we talk a bit about that? Was it a specific geography that kind of underperformed? And can we expect an improvement there? And then the same thing on looking at the BPO part of the business.

So as far as Europe is concerned, I wouldn't call it as a concern, I would just say that it's a quarter aberration. Overall, as far as Europe is concerned, we see demand coming out of U.K., pretty strong demand. Continental demand is mostly around -- it's very, very specific to a couple of areas. A lot of work happening around infrastructure and on application management. Those are the 2 areas. So anything which got a cost focus, it seems like kind of Europe business is still doing well in that particular area, wherever the cost focus is a little high. But I wouldn't read too much into it because if you look at the year-on-year growth, it's running at 8.3% in Europe.

Okay. That's fair. And then out of the 45 new clients, can you quantify how many were European-based?

Yes. So Moshe, we had roughly 1/5 of those new clients came from Europe.

Okay. Great. And then final question. Attrition spiked a bit higher during the quarter. Can you talk about that?

So attrition, from a quarter standpoint has gone up by about 2 percentage points [indiscernible] 15% [indiscernible] by 2 reasons. One is, I think, it's driven by people going on leave or studies, and the second one is on people kind of [indiscernible] in the last quarter the differential we created some people moved on that. But overcall we are comfortable with this range of attrition.

Our next question is from Edward Caso of Wells Fargo.

I was wondering if you could give us a sense for Wipro's approach to the infrastructure management space, how you differentiate. Are you seeing any change in the competitive posture out there?

Ed, this is T.K. I'll take that question. So there are a couple of things that we have seen very, very clearly on the infrastructure space. Number one is that if you look at the competitiveness, it's getting very, very competitive. The price is becoming a big game there. The second thing that we are noticing is that in nearly every element of infrastructure itself, cloud, in some form or shape, is a very, very key component. So to that extent, what we did not see maybe 2 years ago was the -- was cloud-based services being part of an overall solution. We are seeing that more and more. In fact, we are seeing it in every case. We are also seeing a considerable demand coming in from the data center side of the business. End user computing, we are seeing a very, very different play out there, especially driven by virtualization. So it's a mix. But today, when people go and outsource, they fundamentally look at the whole thing, right from end user, back into networks, and then server.

Are you taking on the hard assets or are you mostly working the services side of the equation?

It's mostly the services side of the equation.

There are some aspect of that, that we do in the India market, more often than not, we sort of partner with a bank, where banks take off those hardware other than we carrying on our books. But there would be some selectively where we could be carrying on.

Yes. One of those strategies, we'd like to remain light.

Immigration has gotten quiet in the U.S. The debate here may be revived here shortly. But what steps has the company taken, if any, to reposition themselves for any increased headwinds on immigration rules?

Well, clearly, I think the representation that we've been doing to USIBC, directly through our government advocacy office and to the government of India and other industry association, including some of our customer organizations being very supportive on this, matters have been taken up. I think there is a decent progress that is happening in terms of the house bill being -- becoming more acceptable, while there are some other corporates sort of where [indiscernible] senate bill have become more supportive of the house bill. There are a few position in that, which is also -- need a moderation, so to that extent, I think varieties of ways we are trying to bring into attention, including meeting varieties of people who have influence on that. But at this point in time, all we can say is, definitely, we're closely monitoring it, trying to see what are the improvements that can happen on that and be also working with our client organizations to see if and when, if some of those provisions stay, how do you mitigate that in terms of a revised working arrangement.

Our next question is from Ravi Menon of Centrum Broking.

Just looking at your legacy portfolio, how you've changed that one both in terms of verticals and services, I'd like to get an idea. How do you like this shaping up over the next 2, 3 years, both in terms of the verticals, as well as services?

Ravi, I'm very sorry, I lost you in the beginning. Can you just repeat that once again? This is T.K.

Yes. I saw you on TV talking about how the network -- the equipment manufacturer side, you've gotten down the reliance on revenue on that part. So I was wondering how you want to shape up your customer portfolio both -- and your services portfolio in the next 2, 3 years. So would you be looking at, say, more in ADM or in infrastructure, BPO in the services side or -- and in terms of verticals? I mean, are there any specific verticals? Would you expect to be more dominant in, say, 2, 3 years from now?

Here's what we have done, Ravi. When we kind of laid out our strategy a couple of years ago, one of the big things that we said is that certain verticals, where we absolutely want to get market, we want to be really known in the market. So if you look at our portfolio today and if you look at Banking and Financial Services as an example, our banking, we were always very underweight on Europe. Today, we believe that most of the customers, even the big customers in Europe, are customers of ours. And that's been a big shift over the past couple of years. They've really gone up their customers in a particular segment, in a particular geography, and made sure they all form part of our portfolio. Along with that, there are 2 areas that we believe are critical. And I'm just talking about banking. And this will give you some sense of -- I will give you a flavor of what we are doing in other verticals. If you look at banking, there are 5 areas where investments are going to happen in banking. One of them is going to be digital. The second one is going to be around payment systems. The third is going to be around analytics. The fourth is going to be around infrastructure. And the fifth is going to be around compliance. Fundamentally for us, we have to kind of make sure that given the fact that we were late starters in this game, I think the biggest opportunity that we have is to go out to these segments with differentiated offerings. And that's exactly what we have done. So will ADM go up? Will AM go up? Frankly, that's fairly [indiscernible]. To me, it's not a very important question. I think there's enough play in infrastructure and banking. There's enough play in bringing all the different service lines together for a unified digital experience, especially in a bank. There's enough work that we've done in bringing domain and analytics together for risk management. So each of these will not be the traditional ways we have looked at this in terms of service lines. It will be more holistic and integrated solutions. That's the way we are going. And once we sell a solution, the AM revenue, in most cases, naturally follows. So our capture rate on solutions that we create and sell, that is on AM revenue, can be as high as 70% to 80%.

Sorry, I lost you on the last one. What did you mean by the capture rate?

Once we sell a platform, we design a platform and deploy it. The application management revenue on that is 70% to 80%, if we capture the application management revenue that follows.

Okay. All right. Great. That sounds good. And anything specific on Europe? I mean, is that going to be -- year-on-year, you said that was 8% growth. I mean, is Europe going to be a more significant driver of growth going forward, do you think, or is U.S. going to be the major trend?

Look, hear us again. If you don't win in the U.S., we fundamentally lose the volume. That's as simple as that. There's nothing complex about it. So we have to absolutely win in the U.S. Europe will continue to be important for us. We will continue to push for growth there. But I think the fundamental strategy of the company calls for growth in developed markets. Developing markets, what we found over the past few years is that it is fairly transitory when you get into developing markets. You may have a great year in 1 geography and a crazy year in some other geography. So net debt and balance, while they show growth, it's not necessarily the kind of growth that you would like to have over a long term because of volatility.

Our next question is from Joseph Foresi of Janney Montgomery Scott.

My first question is what's driving the return of the discretionary spending and how sustainable do you see that?

There are a couple of things that we're seeing, by industry, I'll kind of break it out. I think if you look at our segments, there are some segments where capital spending continues to be more secular. So what happens is that whether you like it or not, people will continue to spend money, primarily because the investment cycles last between anywhere between 0 to 7 years. If you look at oil and gas, it's a classic example of a business that investment cycles last for a long period of time. The second thing that we see especially in the U.S. is, we've seen U.S. discretionary spending surprisingly coming back. Now it's a little early to say whether the fiscal cliff issues have had any impact on discretionary spending and will that impact year end budget but overall right now, we don't see too much of an impact. So from our own perspective, we see discretionary spending continuing in the U.S. And this is quite broad, if you may, it's not just 1 particular industry. And if you look at it, clearly, it's mostly around the digital side. Our work with analytics 2 years ago has now kind of quietly morphed into digital. To that extent, we see that happening on a fairly regular basis. On the run side of the business, we see infrastructure continue to be a big play. If you look at constant currency, our infrastructure business has grown 5% sequentially over the past quarter. The trouble spots for us where we have to kind of get our growth engine moving continue to be BPO, where we have to do something very different out there to get growth back there. But as far as infrastructure is concerned, as far as application management is concerned, and our what we call business application services, which is our entire application suite, our performance in the last quarter's been pretty decent.

Okay. My second question is I think you've seen a pick up in Media and Telecom. They performed well but we've had, I guess, we've seen some structural issues with Telecom in the past. How are those challenges taking place? How are they playing out? Should we expect more out of Media and Telecom going forward? Are you still facing those structural challenges in Telecom?

Ayan Mukerji who runs our Telecom business is there, and he can talk to, specifically, on what he's seeing in the market.

Joseph, this is Ayan here. We continue to see the market being challenged. I don't think there is any fundamental change as far as service providers or equipment providers on media business is concerned, that's one. But if you remember our strategy for the last 2 quarters, obviously, we're seeing the impact, revenue impact, this quarter for deals won over the last couple of quarters. Our intent as a team has been to improve our deal rate ratio and improve market share. So our focus has been on making sure we win account-wise our share of the market. And as T.K. mentioned earlier on, we did not have much of discretionary spend, nor were there very many transformational spends. So again our focus has been and continues to be deal well and account base and we hope to continue seeing this kind of momentum apart from the fact that we have holidays coming up in quarter 3 and not accounting for all of that, we continue to see growth in this business.

Last question from me. I know you guys are eventually targeting probably to move back to industry growth rates at some point. Have you seen a shift in the market share that you're taking at specific client accounts and maybe you can remind us of what the timeframe is of getting sort of back to those industry market rates.

So what we did when we articulated our strategy was there are 125 accounts that we went after. Now broadly in the 125 accounts, we have seen market share gains, a very clear market share gain. Overall, in terms of growth, when do we get back to -- I think the question was when do we get back to kind of an industry growth? I think the answer would be towards the back end of the year, and our year ends on the 31st of March. Going into next year, our own sense is that we should see growth back to where we'll be comfortable with.

Our next question is from Sandeep Shah of CIMB.

In terms of the deals that have been won in this quarter, can you throw some light in terms of the TCV, deal momentum on a Q-on-Q basis, Y-o-Y basis? And also in terms of the number of deal wins, has it been stable on a Q-on-Q? Because last quarter, we had good wins.

Overall, we don't break out number of deals, but let me just give you a sense of where we are, Sandeep, on overall as far as deal is concerned. Last quarter, what we've seen is we've seen our win rates improve and we've seen a number of deal closures improve. To that extent, quarter 2 has been better than quarter 1.

Okay, okay. So you mean to say both in terms of TCV as well as number of deal wins?

Absolutely.

Okay, okay. And secondly, if I look at, I think, this quarter, with the realized rate being lower than the average quarter rate for the peers, there could be a hedge losses, which would be sitting around the EBIT line, so that the actual margin on the EBIT level could be even higher than 22.5%. So can you throw some light, how much negative impact which was there in the hedging loss on the margins this quarter?

When we do the computation of the margin, it does take into account mark-to-market profit and losses. So when we do the EBIT line usually whatever is reflected in the other income line, we consolidate and put it into our segment report. So therefore, it does take into account the entirety of the exchange impact it had on the profit and loss accounting.

Okay, okay. But is it fair to say that if we do the accounting on a spot basis, the margin could have been higher than 22.5%?

No. I won't say so because other income is a gain and therefore, that is also being factored into when we talk about EBIT to be 22.5%.

And going into the coming quarters, the hedge rates are improving on a Q-on-Q basis?

I'm sorry?

Going into the coming quarters, the hedge rates are improving on a Q-on-Q basis?

Well, you saw our OCI at about INR 450 crores.

Okay, okay. And just last question, T.K., I think there are some announcements in terms of the reorganization changes in some of the verticals as well as in the service lines, so do you believe there could be some amount of impact in terms of marginal deals or in terms of a transition?

Not at all. In fact, what we have done is pretty simple, if you go back and see what we have done. The first big focus has been that wherever we have business units, we believe that people who run our business units should sit in the geographies. And to that extent, if you would look at BFSI, our biggest area of opportunity today is North America and we have [indiscernible]. And our biggest area of opportunity right here for us is in our backyard in India and Middle East, and some of those sits right there in Bangalore [indiscernible]. So really, what we have done is realignment started to happen primarily to make sure that we align our people with the opportunities. If you look at our GIS business, [indiscernible] used to run that for many years, who many years started that business, is running that business now. To that extent, there is no noise in the system as far as Wipro's changes are concerned. These were guys who run this business in the past, they know their customers well, and to that extent, we only see opportunity, we don't see a downside.

We'll take our next question from Yash Mehta of Equirus Securities.

For the 40 years [ph] this quarter that you mentioned, could you give us an idea of how many of these would be for existing customers and how many of these would be for new?

Could you repeat your question? We couldn't hear you properly.

For the 40 years [ph] that you mentioned, how many of these would be for existing customers and how many of these would be for new customers?

So I would say there is a good balance there. We have not broken that out.

Okay. And anything you could give us on the annual run rate or TCV or anything?

Sorry?

Could you sum up the financial side of these deals?

So we do not disclose our financial details about the deal but they are good deals with U.S., a good, steady state of revenue as we get into the next quarter and quarters after.

Our next question is from Diviya Nagarajan of UBS Finance.

Just a follow-up to your earlier question about improving deal flows and revenue run rate, so is it fair to assume that from here on, you expect to be on an improving year-over-year growth trajectory in terms of revenue?

So Diviya, overall, we've given the guidance for quarter 3, and I don't want to kind of even get us to what the full year's going to look like, but just to kind of give you a sense, there was a strategy that we have put in place and, fundamentally, what we are doing is executing into it. So don't read this quarter as a big surprise. It is executing to our strategy and fundamentally, we know when that's going to happen, or we have a sense of when that's going to kind of -- when we're going to catch up with industry growth and to that extent, I think we are pretty much focused the team could execute into that.

Okay. But we have seen in this quarter and you have also guided for an improved -- a fairly decent growth momentum next quarter. I'm trying to reconcile that with your hiring numbers. You seem to have seen a pick up in attrition, a pick up in utilization and you have a kind of flattish headcount number at the end of the quarter. Is that a function of the fact that you expect to choose out utilization and bench a little more from here on, or do you expect to see this pick up? I'm trying to understand is there enough capacity in the system to target better-than-expected growth if the market should pick up the next year.

So let me pass the call on to Bhanu and he can give you a sense of what's happening both in terms of growth, as well as in terms of the opportunity or the headspace that we see in terms of utilization.

Yes, so Diviya, this is Bhanu. One of the things you don't notice is that constantly, every quarter, we have been talking about how we will do analytics-based productivity improvements for our major services and that continues to be the focus for us. And again, this quarter, we have done a good improvement with respect to the productivity-based services for our major services. And obviously, that brings us capacity for future growth for our people. The second area that we are focused on heavily is in terms of ensuring that the skill sets for our teams are current and what are the skill sets required for the future deals that we are participating. So most of the savings that we are doing for our deals, that itself is again giving us supply for our deals. So between these 2, we would continue to see our focus on productivity and we'll continue to upgrade the team's skill sets for the future deals that we are seeing.

Our next question is from Trip Chowdhry of Global Equities Research.

A couple of questions, T.K., you did mention that you are seeing customers and implementations more on open-source platforms. I was wondering, can you highlight a few platforms? Because we always heard one is Linux, but probably it could be more than that. And also on the same thought, are you having the same pricing structure for open-source platform say, versus SAP or Oracle implementations?

So there are -- I guess, Bhanu and Sangit, discuss through a little bit in terms of what we are doing on open-source. And on the pricing front, surprisingly what we're finding is that our realization on open source is probably higher than what we get in our other server platforms. So Sangit, Bhanu?

Yes, so one of the key areas where we see open source gaining traction is in the data space. So we see a lot of our customers interested and starting initiative in deploying platforms like Hadoop, Cassandra and a lot of Hadoop family-based solutions within that IT space. We see a lot of finance today. We also see a potential of these open-source technology platforms to kind of scale up and really be a large initiative within the data space going forward. We also see a lot of integration tools playing in the space. So a lot of product vendors have come up which have started and started replacing and providing value in terms of bringing together various data systems and tool systems to destination systems. And we see a lot of products like [indiscernible], et cetera, playing in that space. We also see some very critical, very influential open-source products like System R, which are making inroads into the analytical space, they're called statistical modeling space and we see a lot of customers interested and a lot of projects getting kicked off in that space. These are some areas where we see potential for open source and fair adoption happening today.

I was just wondering like, if you look at Hadoop, there are various companies who have commercialized it, like Cloudera, Hortonworks, Mapper. Do you think it makes sense for IT services company like Wipro to also probably take the raw bits from Apache foundation and then certify it as Wipro Hadoop. Will it make business sense or probably not?

So what we're doing is basically looking at some of the players who are actually doing that in the marketplace, people like Hortonworks and Cloudera. We think they are in the best position to kind of take that role. What we are doing as an organization is to build on top of that. So these releases, the proprietary releases or the customized or the specialized releases from these vendors. How do we harden it to make it more enterprise-level data warehouse kind of platform, that's what we are focusing on. And I believe that's where we would bring in value, not doing the core, only in the releases.

Trip, the macro of the money that you make is when customers wants you to customize software. You make more money in that side of the business rather than working on the core.

Our next question is from Viju George of JPMorgan. Viju K. George - JP Morgan Chase & Co, Research Division: Two questions. Your sales and marketing expenses have increased for a bit now, yet your sales and support staff has declined in count for the past couple of quarters sequentially. I guess, it goes back probably to the profile of the people you're hiring, but if I could just understand why the sales count, the sales and supports headcount has declined in the past couple of quarters?

Jatin, can you answer that question?

Viju, Jatin here. So our sales and marketing spend has remained flattish at about 7.1% between Q1 and Q2. What we are seeing here is a reduction in G&A expenses because G&A is mostly rupee-based and since the realizations have gone up because of the higher rupee conversion, it is giving the major operating leverage of the G&A expenses. Now to your question on sales and support headcount, if you see over the last 3 quarters, we have remained fairly in a very narrow range and any variation there are driven more by quarterly attrition versus hiring numbers as against our focused, anticipated move. And that number as you see is a total number and not really the -- only the sales number. Sales component of that number is much lower as you would appreciate.

And more or less flat. Viju K. George - JP Morgan Chase & Co, Research Division: Sure. One more question, if I may. If I look at where your growth has been driven in the past couple of quarters, my sense is it's come more from India and emerging markets, particularly on a Y-o-Y basis, I'm looking on a Y-o-Y basis. It seems to me that the U.S. as a portfolio is pretty much struggling still on a Y-o-Y basis. So clearly, while you've driven market share gains and growth in the emerging markets, including India, the U.S. is the largest market, is something where Wipro seems to be needing to do a lot of work from a geography perspective.

Viju, there is no doubt about the fact that we need to do much more work in the U.S., okay? I don't think we can doubt that. That's a reality and we have to have -- we have a strategy in place to do something about that. As far as India and Asia Pac is concerned, on why the numbers are looking much better, it's to, some extent, the billing that we do for our global customers. When we bill to -- for a global customer who sits in New York, if you bill to Singapore, it counts as Singapore as Asia Pacific revenue for us. It doesn't count as U.S. revenue.

And some of that has impacted when you look at y-o-y numbers on U.S. versus Asia Pac. And having stated, I think we have had a good revenue growth in Australia, as well as in rest of the Asia Pac, so that is not to -- any dilute that.

Our next question is from Ashwin Mehta of Nomura.

I wanted to get a sense in terms of how sustainable do you think the current margin levels in IT Services are. What our headwinds or tailwinds that you see to the margins near-term? And my second question was on cash flows. If you look at the cash flow from operations for the first half, that's down on a Y-o-Y basis. What exactly is depressing that? And are we seeing a trajectory shift in terms of unbilled receivables and other assets or PPL [ph] expenses?

Yes, so let me answer, Ashwin, your both questions. So let me answer the second question first. So there is the last year numbers, which is in rupee terms, INR 30,617 million. That includes the erstwhile businesses which were demerged from Wipro Limited. And if adjust for that, that number will be lower by roughly INR 336 crores or INR 3,360 million. And to that extent, you will see that there's actually a Y-o-Y increase on that number by a 1/4 of 10%. And I think -- can you come back on your first question, Ashwin.

The first one was in terms of how sustainable do you think the margins are at these levels in IT Services space and what are the headwinds or tailwinds that you see on the same?

So, Ashwin, if you recall, we have maintained that the organization focus is on getting the growth trajectory back. And in our business, growth itself use many operating margins levers favorably, such as utilization, such as, I believe, to deploy the younger staff at the bottom of the pyramid and so on and so forth. So our focus remains growth. We have maintained that we will focus on execution as we stated in Q1 and as we stated in Q2, and some of the benefits we are already seeing in Q2 results. And we will continue to remain focused on execution, but that execution will be led through growth.

Okay, okay. Fair enough. And just one last one. What are the tax rate expectations for this year and the next?

So usually, it will be plus or minus 2%, Ashwin.

Our next question is from Sandeep Muthangi of IIFL.

This quarter is fairly -- it's very broad based when I look at the service mix also. But still, these 2 services, ADM and BPO, continue to have a fairly weak performance. T.K., you've touched upon BPO being a problem spot. Can you highlight what's happening over there in terms of your strategy of improving the growth? Because even the past, we had a few false starts with the BPO. Also, in the ADM part, you said that discretionary spending is improving and you sounded more positive on the maintenance fees over there. Should we see growth rates improving in the ADM piece going forward?

So Yes, so Sandeep, Jatin here. Even if you really see the growth in ADM has been in a similar trajectory for several quarters, we see some of the growth coming back in the ADM space. And to that extent, yes, we feel a little more positive and confident about some of the prospects we'll do on Applications space. But one has to realize that that's the oldest service line and the growth is really led through the service lines like infrastructure, BPO and in newer service offerings such as A&IM and mobility. So you will be seeing that context but there are deals in the marketplace and where we are winning and therefore, it's not a space that we are letting go in any space as an industry, not just at Wipro. But there are inherently lower number of deals there and therefore, you will see that part of your portfolio will not grow as fast as the rest of the portfolio.

Right. And what your comments on revenue for the BPO going forward?

So BPO, there are a couple of things. If you look at the way we are -- we think about BPO. Our view is ultimately the biggest growth in BPO were to come through managing a stack end-to-end. When I say managing a stack end-to-end, what I really mean is, ultimately, what is happening at applications and BPO would both go together. We will see Utility as a separate service. Is that the right -- or BFSI that's the real focus for us. Doing more and more BPO, which is basically back-office work or any other work where you're using labor, while it may give us a big bump up on the top line, it doesn't give a sustainable margin and that's why. Because labor by itself can get quantified very, very quickly. Now in terms of growth in the next couple of quarters, at least we don't see hyper-growth coming back as far as BPO is concerned. We see that happening probably next year and towards the latter half of next year.

Okay, great. Just one quick question on the whole attrition angle. I think a few of my -- a few questions have already been asked on that. But if I look at the involuntary attrition, it's been spiking up for quite some time now. It's inched up from, say, 1.5% to 2% two years ago to nearly 5% this quarter. How should we be interpreting this number?

Sandeep, it's Saurabh here. Sandeep, we do our annual appraisal cycle in the beginning of the year. And we had anticipated that we'll take those measures of excess of people and performance around Q1 and Q2. So we are anticipating somewhat as you go to the -- to future quarters, you'll see a dip in this number. That's what we are looking at.

Our next question is from a Nitin Padmanabhan of Espirito Santo.

Two questions actually. One was with regard to margin. I think for almost the last 8 quarters, you've done a lot a work in terms of improving productivity. Your SAP percentage has gone up quite a bit as well. So I just -- and when we look at the last year, it looks like you have reinvested some of that into S&M. I just wanted your thoughts about how one should look at this going forward. Do you think that the benefits from [indiscernible] levels simply will be more visible in margins? Or would you reinvest them?

I doubt is that -- I don't know if you can answer that. But I think Jatin alluded this. Really for us to improve our margins, while we can do a lot of workaround operations, the benefit of that will be incremental. The real big bump up we would get is only when top line starts moving significantly. Having said that, I think we can hand over to Ayan [ph] to kind of get into a little more detail.

Yes, with respect to the productivity improvement, that we continue on the journey that you were seeing, as we said, last 4 quarters, you'll have seen the kind of momentum on the productivity improvement. The investments improves to the revenue, we need [indiscernible] and cooperations that we have done for individual services T.K. reported back in the [indiscernible] service mix platform that we have done. We'll continue to roll that platform through all our existing engagements as a improvement on future engagements for [indiscernible] building, right levels of productivity. So the cost of delivering on business continues to be focus on managing the possibility [ph] for us. And that, in itself, gives us capability for -- it can bring our people to hire, given the kinds of our interest as well.

Sure, great. Just one more question, if I may. The R&D business seems to have done extremely well. Just wanted to understand the underlying trends there. Does it look like a secular trend? Anything that you're seeing qualitatively in the marketplace that's driving this?

So I can ask Jatin. Jatin, if you can help answer that, that will be...

So the R&D business comprised of 2 elements for us: the work that we do in our service engineering segment. And if you see service engineering segment after a few quarters, has been in turnaround and it's among the fastest-growing service lines growing ahead of company growth rate in the current quarter. So that has helped the R&D business. And also the fact that some of the worst, I think, are more in the nature of R&D. It's part of our GMP as we move. There, also, we have had an uptick, led a couple brand assignments, and that has helped out the R&D business, the more important thing to look at R&D will be to look at EPS and GMP growth.

Sorry, but do you see trends within peers that suggests that spending is improving there, and this looks like, at least, sustainable for some time on the peer's side.

There are a couple of things that we see, as far as engineering is concerned. So as far as [indiscernible] peer, if you look at our peer's portfolio, we are very much all weighted to the electronic segment. What we need to do is balance our portfolio a little bit better and get on to the mechanical side. And that's what we are pushing towards. Because growth today -- electronics is very bumpy in terms of revenue. There are some quarters where you have fabulous revenue, and some quarters where you are sitting in the dump. To balance that portfolio out, you need to have more mechanical engineering, electrical engineering kind of base level development, which will really help us, and that's the end of it. Right now, we're not seeing [indiscernible] kind of slowing down based [indiscernible]. We see growth continuing, but we have developed our portfolio long-term for us to get sustainable growth.

Sure, great. I have just one last one, T.K. I think you had mentioned that you have already done a lot of work, but there's a lot more that needs to be done. Just wondering if we can get a sense what are the key priorities where you think really needs significant improvement and what period do you think you could be there.

I'm sorry, can you just return please, the key priorities of the -- the first question on key priorities for the business?

No, you had earlier mentioned that in terms of the work that's been done over the last 2 years, a lot of it has been done, but there's still seems to be a lot of that needs to be done. I just wanted to get a sense in terms of your priorities, in terms of what needs to be done in the immediate future, and how you think that would benefit the overall organization in terms of revenues and margin.

I think most of the work that we have to do today is on the market side. And I think what we've done over the past couple of quarters is that we have managed to improve our account management. Our accounting cycle, it's still not where it should be. It improved significantly, but still not where it should be. So to that extent, I mean, if you look at our percentage of revenues that we get from hunting [ph] every year, that rate would be about between 1/2 to 1/3 the context. And that's the gap that we need to kind of cover.

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

Jatin, can you just help understand how we have this -- got this ForEx gains above the operating line, despite the fact that there would have been some hedge losses in the top line?

Yes, there is a way to look at it, is that you would have the gains and the losses, which you did see in separate lines of -- across the P&L. And the way we look at it, that you look at it, our single revenue realization as part of our segment report and if you see that number this quarter was 61.73 and that reflects the 2.5% operating margin benefit that we spoke about sometimes in the previous quarter. So my request is not to look at one individual line in the P&L and try and infer ForEx. Look at the what are a realization rates that we are seeing in the segment report and look at -- compare it with the previous quarter and see the margin benefit that has shown in the current quarter.

Okay, okay. So this ForEx losses that you have reported as in the -- above the operating line, that is excluding any hedged losses that you would have had? Or that is inclusive of the hedge losses?

No, that is excluding the hedge losses. Some of the hedge losses are part of the revenue stream. So therefore, what you are seeing, the negative number in cost which is actually a gain, and there is a corresponding loss, which is coming as part of the revenue line. And if you net out both in the segment report, you will see our total revenue that is after taking into impact, in fact, both the impact.

Our next question is from Sandip Agarwal of Edelweiss.

T.K., just one question from your side. Can you throw some light on why we are still witnessing a muted growth on Energy & Utilities, Retail and also not so great numbers in the Manufacturing and High-Tech side. That is part one of my question. Second, we have been hearing about the recovery in the exercise [ph] space. So what is your take on that? Although I see our numbers are not really exciting still. And finally, what is our strategy going forward to handle the BPO growth? Because I think that is something which is expanding and I know you have briefed a bit on it. And what are we doing particularly in the consulting side of the business?

So let me throw some color on what has worked well and what has not worked well. And that will give you a sense of the direction which we're taking. So -- and I'll -- I think Sangita is on the line. I'll get her in and she can talk to a little bit about what happened in Healthcare. And then I'll go to areas that we haven't done that well, where we have kind of have space to improve. Sangita?

Thank you, T.K. Good evening and good morning to you. So with respect to Healthcare and Life Sciences, which is both across care, provider, medical devices, pharma and biotech, we've really seen the following work well, which is execute under the first strategy. We've had very strong, large deals in this quarter. We continue to execute on the programmatic mining of our large accounts portfolio, largely around our core strength areas of infrastructure enterprise app and also BPO. And the third thing that we see is really demand creation through our core domain-centric team that are -- is relevant for our customers, largely around patient centricity, largely around compliance and largely around commercial effective for our customers. So those 3 pillars have really helped drive the growth, and that's in line with the Wipro strategy.

Thank you, Sangita. Maybe I'll add to it on, since one question was -- the second was in BSFI, I'll ask Soumitro Ghosh, who's sitting here, to answer that question. By the way, if you have any questions in India and Middle East also, you can also ask him.

Soumitro here. So a very quick perspective from a segment perspective. Overall in the banking and capital market space, we've seen some robust growth, right? And bear in mind, the retail banking specifically, we've seen a fair amount of traction, both on the cost takeout, as well as on the invest side. The typical demand, which is coming, if I have to break it up in terms of the cost takeout, we are seeing some interesting observations in terms of simplification, resiliency, utility, et cetera, besides simple cost takeout and labor arbitrage, right? There is -- on the invest side, there are initiatives, which are in terms of modernization of the basic bank infrastructure or insurance company infrastructure, for example, payment systems or the digital channel, and in the insurance case, the policy admin systems or claim systems. So a fair bit of spending is happening in that particular area. Geography wise, I see that, that the traction is pretty good both in U.S., as well as in Europe. Some of the stuff, which has gone off well, I think it as Sangita spoke, for example, similar focus in terms of large deals. So we really succeeded in terms of: a, creation of large deals; and b, conversion of those deals. So from an overall perspective, I think we have a fairly good, robust demand, right? And from a segment perspective, we are really seeing some good growth in terms of the banking and capital market segment.

So T.K., are we still -- I still have to get the in term of Energy & Utility side and fair bit of, right on the Manufacturing and High-Tech side.

Okay. So I'll give you a sense of what's happening on Energy & Utilities. If you look at Energy & Utilities and if you look at the growth over the past couple of quarters, the year-on-year growth is running at 14.1%. So while they've had a muted quarter this quarter, one shouldn't read that as a secular trend. In Manufacturing, I think that's one area where, for the past couple of quarters, we have not been doing very well. And I think we have a recovery plan in place and you should see that ticking in this quarter to come.

And last bit on the consulting side, if you can throw some light in what we are doing differently on the BPO side? Because I think that is a pain area.

What I can do, Sandip is, if you don't mind, I can stay -- we can take that question offline. Because there are 2 more people who want to ask questions.

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

Yes, thank you. Ladies and gentlemen, thank you for joining the call today. Just to inform you, I'm moving into a different role within the Wipro Limited. And Aravind Viswanathan will take over as Head of Treasury and Investor Relations, and he will coordinate this going forward. Wish you all the very best for the future.

If you have any question that we could not take due to time constraints, please feel free to write to us, and we'll be happy to answer them. Thank you.

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