Wipro Limited (WIT) Q3 2014 Earnings Report, Transcript and Summary

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

Thank you, Imba. Good evening, and good morning to all of you. Wish you all a very happy and prosperous new year. A warm welcome to all of you to our quarterly earnings call. We will begin the call with business highlights and overview by T. K. Kurien, Executive Director and CEO, followed by the financial overview by our Executive Director and CFO, Suresh Senapaty. Post that, the operator will open the bridge for questions and answers with the management team. We have the senior management team of Wipro present here to answer all your questions. Before Mr. Kurien starts, let me draw your attention to the fact that during this call, we may 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 the 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. The 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.

Happy new year to all of you. Good evening to all the folks in India, and good morning to all the folks who are calling in from North America. It's a pleasure to talk to you. I'm happy to announce our results for the third quarter of fiscal '14. We have achieved a sequential revenue growth of 2.9% in reported currency and 2.3% in constant currency. We continue to see a healthy pipeline of customers, especially in the U.S, who were previously bidding in challenged sectors, are more amenable to making discretionary investments. While clients are still in the process of finalizing their 2014 technology budgets, we expect budgets to remain stable or to increase, marginally. Within the technology spend, we see increase in the change-the-business budgets and pressure on the run-the-business budgets. Account management continues to be a key area of focus. Our top 5 customers grew 4.7% and the top 10 grew 3.8%, sequentially. We saw good growth in Healthcare and Life Sciences, 7.6%; Financial Services, 3.1%; and Energy & Utilities, 4.8%. From a geography perspective, we also saw strong growth from developed markets, with U.S. growing at a rate of 3.2% and Europe growing at the rate of 5.4%. We see continued momentum in our Global Infrastructure business, which grew 5.6%, sequentially. Given the quality of the pipeline and the order book, we expect the Global Infrastructure business to grow faster than company average. This quarter, our BPO business also turned substantially positive, and we grew 4.1% sequentially. Overall, all the service lines, including Product Engineering Services, 3%, fired fairly well for us. Along with this business growth, our customer satisfaction also has been improving. Last quarter, we have improved our customer satisfaction index by 4% compared to the same period last year. As of this quarter, I'm happy with the progress, and we continue to make investments to position ourselves for the future. I'll talk a little bit about the key themes we'll be focusing on in the enterprise level. An evolved digital strategy to deliver consistent user interaction has become increasingly critical for both acquiring and managing end-to-end customers. We are making investments in consulting platforms and intellectual property to better leverage our increasing capability in accounting customer experience, analytics and mobility. This holistic approach has delivered design outcomes with 4 new accounts this quarter. On the back end, we see customer demands for process simplification, standardization and automation. Our proprietary ServiceNXT platform addresses application management, infrastructure management, cloud and security operations in an integrated fashion. This is through a combination of machine learning and hyper automation. Last quarter, 2 customers signed up for this, and they're seeing savings up to 40% beyond the labor arbitrage savings. As we drive these fundamental changes, our employees remain engaged. The latest employee survey conducted last month indicated that the employee satisfaction had improved almost across the board compared to our 2011 survey. Thank you very much for your time, and I'll now hand it over to Senapaty. Thank you.

Good day, ladies and gentlemen. Before I delve into our financials, please note that for the convenience of readers, our IFRS financial statements have been translated into dollars at the noon buying rate in New York City on December 31, 2013, for cable transfers in Indian rupees as certified by the Federal Reserve Board of New York, which was $1 equal to INR 61.92. Accordingly, revenues of our IT Services segment that was $1,678 million or INR 103.27 billion appears in our earnings release as $1,668 million based on the convenience translation. Total revenues for the quarter were INR 113.3 billion, an increase of 18% year-on-year. Total net income for the quarter was INR 20.15 billion, an increase of 27% year-on-year. Excluding the impact of nonrecurring expenses related to cessation of Wipro-branded IT products, net income grew 28% year-on-year. In IT Services, our revenue for the quarter 31st December 2013, was $1,678 million; sequential growth of 2.9% on a reported basis. We had strong growth in Healthcare, Life Sciences and Services business unit. The revenues in the business units grew by 7.6%, sequentially. Operating margins for the IT Services segment continued the strong improvement. Our efforts towards increasing operational efficiencies in the business yielded a margin improvement of 54 basis points. We see a stable pricing environment. Our newer deal are competitive. Coupon rates are not an obsession, but the customers are seeking more value for money. On the exchange front, our realized rate for the quarter was INR 61.52, versus a rate of INR 61.73 realized last quarter. As of period end, we had about $1.5 billion of outstanding foreign exchange contracts. Our IT product business grew by 2% on a year-on-year basis. IT products revenue and margins were impacted by the cessation of manufacturing of Wipro-branded desktops, laptops and servers. The effective tax rate for the quarter was 23%, as against 22.9% in the previous quarter. For the quarter, we generated operating cash flow of INR 14 billion, which was 70% of our net income. We generated free cash flow of INR 12.5 billion, which was 62% of our net income. We'll be glad to take questions from here.

[Operator Instructions] Our first question is from Joseph Foresi of Janney Montgomery Scott.

I was wondering if you could talk a little bit about client behavior over the last couple of weeks. I mean, any thoughts on IT budgets and spending for 2014 versus '13?

Overall, what we're seeing is the -- this is Joseph. What we're seeing is that broadly steady to, I would say, marginally positive is what we are seeing right now. Again, we don't have all the data points because we are still collecting them. We expect to have a clearer picture by the end of January. But if you look at our customer base and about -- we have covered about 35% to 40% of our customer base, that's what we're hearing from them.

And does that translate into a better potential outlook for this year versus last year, as some of your competitors have put out there?

Absolutely, no question about it. Because if I look at the demand environment, the demand environment is clearly better. There is going to be pressure in terms of pricing and value clearly on the commoditized services. You're going to see more and more of that as you go forward. But discretionary budgets have started coming in. The only problem with discretionary budgets are they're typically for 2 quarters. We don't see any of those long-term projects that we used to see in the old days coming back. So to that extent, we just have to remain kind of agile. Our bench strategy has to be a little different, especially for on-site, so that we can kind of be flexible when customers need it. But other than that, I'm not seeing any other change in the market. But clearly, the demand environment is up from last year.

Are you seeing any shift from the traditional AD&M work to SaaS, and how is that impacting your models as people make that transition? And because I know the recovery or the potential recovery this year is going to be different than in the past. But I'm wondering how that fits into the full mix.

So for us, it's extremely critical that the application management business that we have, we haven't yet seen a secular decline in that business because of the cloud. We haven't yet started seeing big impact of that. We are seeing it on the edges. We're seeing it in HR. We're seeing it a little bit on CRM, but we are not seeing a secular trend. But what we are clearly seeing is we are seeing opportunities, which are coming up where people want to variablize their cost with or without the cloud. And that's a fairly big trend. So to that extent, I would assume that from our perspective, the challenge that it poses for companies like us is that our risk compliance changes quite a bit. But if that's the way the market is growing, we have no choice, but to kind of embrace that.

Got it. Okay, and then the last one for me. Maybe you could just give us an update on how you feel like you're progressing towards returning to industry growth rates at this point? I know you've put some targets out there before, but -- or maybe you could just give us an update on sort of your movement in that direction.

So we are fairly positive about our movement. If you look at the past couple of quarters, we have been performing above average as far as the industry is concerned. To that extent, we are kind of -- we're pretty happy about what we have done over the past couple of quarters. Our quarter 4 guidance also is with. So to that extent, you can see where they're going to all end up. Going forward, our ambition would be to make sure that whether it's changed demand environment, better act -- a better execution and a share gain. We expect that next year would certainly be better.

Our next question is from Sandip Agarwal of Edelweiss.

Yes, I have a couple of questions, some query and then probably, one question for Senapaty. First question is about what is the different plane, which you are seeing in the IMS space? We have always been very strong in this space, but are probably have a focus on emerging markets. And Africa has not lit up lot of benefit in past 3 quarters, but I think that is catching up now. So what is differently happening there? And secondly, if you can please throw some more light on the digital space. I understand you're saying that interaction -- customer interaction is becoming critical. But I am a little worried on the side that already, the current architecture, which you have there in place, there's a pool that support the big data moving forward, again, with the decline, if mentally prepared to spend that kind of money again. So that is a problem. And probably if you can say again, pitch one more, is privacy still a big concern? Because when we are eating a lot of technology, of course, there is still mention about privacy advocates being very aggressive. So if you can answer these 3 questions.

Okay. In the 3 questions, the way I understood it, one is on the infrastructures space, what's different. Second question was in privacy. And the third was in digital. Am I right?

Yes, yes.

So G. K. Prasanna, who has taken over the leadership of this particular business, is right here with us. And since he's apprized of the infrastructure space, he can give you a sense of what's changed over the past couple of years.

Okay. Thanks, T. K. Firstly, it's a very large space. Infrastructure services globally is a very large space and continues to be very large. And it's been fairly secular for us in terms of various sectors where it is growing. But particular to this quarter, we really had good growth in Healthcare, Life Sciences as a vertical, and Europe is strong now. And so we see quite of lot of traction in Europe. What has changed and apart from the usual, especially on cost, the -- all the transitions that we have now are all transformation-led. So there's a very strong transformation company term and process transformation technology transformation, a lot of consolidation and integrated delivery right now, including private and public cloud and on to my segment. So there's a fairly strong company of transformation that is -- that we're seeing in most of the contracts that we do now. My plan is healthy and is growing. We are confident of the space we are in, and the results are showing that at this moment. Back to you, T. K.

So on the digital space, I give you a quick view of what's going on in the digital space. Fundamentally, we see the opportunity as -- if you look at 3 phases of customer acquisition and retention being building a pipeline, executing and converting the pipeline and posting their experience. Ultimately, what we see is that we see both the physical channel and the business channel kind of merging and data from one being used in the others. That's really the big play that we see in this particular segment. Fundamentally, what we are doing is building intellectual property around this and offering this as a service. Now the top line from that segment is not going to kind of move the Wipro meter very significantly over the next couple of years. But we clearly see there is an opportunity, whereby we address that completely new class of buyers, and that's important for us. So after you address a new class of buyers and the new class of buyers starts investing more and more in technology, we believe we are in a poll position to really exploit that segment. So that's the play there. Is privacy going to be an issue? Absolutely, yes. But before we have privacy issues, there are many other companies who play on the net who are far bigger -- who have far bigger issues than we do. So to that extent, I think what's going to happen is there are going to be rules that are going to come out as far as privacy is concerned. It's not going to be immediate. There's too much investor interest in that one. But over a period of time, clearly, privacy will become an issue, and that will challenge some of the standard models that we see today.

And the last question was on the architecture side. Do you think that kind of spend -- because most of the systems and applications that you see, which support, I think, particularly on the architecture side there, may not support the big data, which is coming in. So are client ready for that kind of spend?

So I'll ask K. R. Sanjiv to kind of answer that question. Sanjiv is an expert in the analytic space, and he can kind of take a view on that.

Yes. So you are right, the architectures which are currently in place in most of the organizations, will undergo a change. Primarily because of the kind of data volumes and the kind of realtime nature, which is creeping into the application space. So you will definitely see a much more multi-tiered architecture, replacing the existing single-tier architecture, which exists in the -- typically in the data space. And this multi-tier will be consisting of the conventional tiered standard historical data layer. It will also consist of a lot of appliances, which will speed up the data processing, which is required in a real-time environment. And then thirdly, it would be, obviously, the unstructured data, the data which is in a large volume, which needs to be stored and analyzed. You will see a migration of this current architecture into this kind of a multi-tiered architecture to handle all these digital and the data volumes, which are creeping in.

And since, Sanjiv, you're already there, so I will give a quick question -- one more question, I'm sorry for that. But do you see artificial intelligence also spreading beyond robotics deviate what pre-Lehman time, but the higher exposed Lehman, actually, it all went away, particularly the financials, there was this time. So do you see artificial intelligence becoming more and more relevant other than robotics, or it is still mainly robotics?

From these kinds, can we do one thing? At the end, if there are -- if other people have asked a question at this time, we can always answer that question if you don't mind.

Yes, yes, sure. Go ahead. Sorry.

Thank you.

Our next question is from Moshe Katri of Cowen.

This is a question for Suresh. Margins were up sequentially in IT Services. Can you talk about some of the pluses and minuses that kind of drove a change in a sequential basis? And then in that respect, can you give us any sort of kind of big picture statement about the outlook for margins for the next 6 to 12 months?

Moshe, that's quite simple, so far as last quarter is concerned, because the big data we had on the currency all showed -- well, vary 10 basis points here and there. But largely, all of it has been basically productivity improvement. When you talk to the more standardization at the core, and putting in a lot of productivity tools to be able to make sure that the deployment, it does not have to be as much as it has -- it was in the past. We have been able all automation. I've put automation as this call. I think all this has led to this kind of margin improvement. It has been a journey for quite some time and still much more to be accomplished. So as you go forward, our expectation is while in the shorter term, there can be some kind of plus and minuses, but on the medium to longer term, we would expect that to have a positive bias on an organic basis.

Okay, great. And then can you talk about some of the large deals, or maybe quantify the number of large deals that you won during the quarter? How does that compare to the last quarter or 2? And then maybe talk about where -- which verticals where you're seeing the most success in terms of winning some of these large deals? And then in that context, comment on your proposal or deal pipeline for the next 6 to 12 months.

Yes. Moshe, if you look at the kind of deals, we haven't shared the number of deals or the order book, et cetera, et cetera. But it has been as decent as it was in the past few quarters, and it is looking good as we go forward. I think the pipeline is also good. And most of the drivers that you have seen as coming from Life Sciences, Healthcare. It has come from Global Infrastructure Services. It has come from Financial Services and also in E&U vertical. So these are the verticals, which has given us a lot of pickers. And as you go forward, there will -- some of these particular verticals will continue to be the growth drivers. So we have already seen traction on the GIS piece of the business this quarter. We also got good growth from the BPO. We saw America coming back because we had some kind of a mutedness in the growth, and we have got some positiveness in U.S. We are investing clearly in the Continental Europe, where, as you know, that we have a leadership established, some local leadership. And from that point of view, we are investing for the future in all new geographies where we are under-penetrated today. And therefore, we think as you go forward, the optimism continues to hold good.

So Moshe, it's pretty clear. I know, if you look at the segment that have performed last quarter, Healthcare, we had an outstanding quarter. Banking and Financial Services done well. If you look at our hunting pipeline, our hunting pipelines and our hunting wins in this quarter compared to last year, has doubled. It absolutely doubled in terms of new logos. And if you remember the approach we laid out a couple of years ago when we started, this was that we only go after accounts that we want, which are going to give us a runway for growth. To that extent, it's being harder than we planned it out to be. But clearly, the ambition is clearly there, and the hope is there that it will probably be more successful. So that's broadly the kind of strategy that we are following here.

And then just last question on Financial Services. I know this is a vertical that Wipro has been trying to expand into. Can you talk about the progress from that strategy in your view? And then how much of that success down the road is going to be attributed to your success in terms of penetrating some of the European -- some of the countries in Europe, especially in Western Europe?

So I'll hand it over to Shaji Farooq, who will take that question.

Hi, Moshe. This is Shaji. It really goes back to T. K.'s comment earlier that one of the secular trends we are seeing is the shift of spending from run-the-business into change-the-business part in our projects. And what we have done is several things. One is we have renewed focus on driving capabilities and knowledge -- domain knowledge and creation of artifacts around about 10 or 12 different themes, which we think are extremely germane in the current context. Examples are things like risk in compliance, simplification, resilience, payments, of course, wealth management. So these are areas that we intend to invest in and drive our competency in, and we believe this will support our growth. We are also looking at how we should realign our delivery engine to be -- to deliver as very successfully and repeatedly as we move into the -- increasingly towards the change-of-business kind of projects.

The next question is from Sandeep Muthangi of IIFL.

I was wondering if you could give us a similar color that you have already given on the BFSI on the other verticals, and cover some multi challenges and the demand trends that you're seeing in these verticals and probably summarize it up with the verticals where you have most project you won and where you are a bit more cautious.

So what I'd do is that I'm going to ask Sangita to talk a little bit about Healthcare and Life Sciences. And then while [indiscernible] kind of repeating it. Then, we have also -- I'll go to Ayan Mukerji of Telecom. And if you're kind of happy with those 2 -- then you want more, we can all just add further on the line. But I'd refer the question first Sangita and Ayan.

Hi, Sandeep. Happy new year, and a very good evening. So in the Healthcare and the Life Sciences, in line with the growth strategy, we're continuing to see momentum around mining of our large accounts. The second big growth momentum has really come from our differentiated domain solutions that are largely around 4 themes: one, which is patient-centric consumerization; second, which is digitization, building digital marketing platforms for our customers; third, which is compliance; and fourth, which is innovation around R&D. We believe our twin strategy around mining our existing accounts, as well as our differentiated domain solutions that provide relevance to our customers, would be the basis for our growth.

Ayan? From Sangita.

As far as Global Media and Telecom is concerned, I will give you the color across the 3 segments that we operate in. If you look at the communication service providers, we continue to show a strong order book and strong revenue growth, and our deals are essentially in the areas of transformation, which is almost 50% of our deals, and the balance across cost savings and customer experience. We are also seeing a lot of convergence between IT and networks. As far as media is concerned, we continue to show a strong growth, too, across the sectors of media, cable and satellite. And our focus continues to be on digital marketing, online education, media analytics and studios. And last and not least, as far as our Telecom equipment vendors are concerned, that industry is stressed at the moment. We are seeing considerable stress as far as R&D is concerned. But on a holistic basis, we continue to see, as far as Global Media and Telecom is concerned, we continue to be optimistic and stay with similar run rates with the rest of the company.

Bala, can you go ahead?

Yes. Happy new year to you, Sandeep. From a Manufacturing perspective, the tech sector, which has been traditionally a problem for us, has bottomed out. I would say that what we're now seeing is improved at WAM mining. We have had increased market share in some of our tough accounts. We have at least 1 account in the $100 million segment now, and we have accounts that are more than $75 million for us. So the WAM mining strategy has paid off quite significantly for us. Where we see the opportunities going forward is in terms of our device customers wanting to move to the cloud as part of their variablization journey. There's a significant push towards manufacturing companies wanting to be more agile in the current environment, and we see that as an opportunity. And that is being reflected in the pipeline. We have a fairly robust pipeline. And this time around in the U.S. as well. The U.S. has been traditionally not strong for us in the last 8 quarters or so, but we see a recovery in that space as well. So overall, it is looking better than it was in the past. We still have some ground to cover in terms of catching up with industry growth rates. But with the tech sector returning to at least a flat to marginally positive growth, we are a little bit more optimistic about the coming quarters.

Okay. Just one question on the kind of demand commentary that you mentioned. We've seen quite a few companies talking very positive about the demand conditions for the next year, including discretionary spending in the digital stuff. Just one quick question on that. Do you think we will see the usual demand pattern where the first half is much better than the second half, in the sense that we'll see a front-ended kind of a year for FY '15? Or what do you think the initial indications are?

Is that all it's going to be, Sandeep? It's for T.K.

Sandeep, I think that question is a little too early to call right now. So that, again, I'd definitely wait. We are -- we have just finished the half of the first month transaction. It's a little too early to call in this type of call. In the April timeframe, or the half this [ph] call, I think we'll have a fair idea of which we are heading.

Our next question is from Manish Hemrajani of Oppenheimer. Manish Hemrajani - Oppenheimer & Co. Inc., Research Division: In your guidance, how much contribution have you baked in from Opus acquisition, and what contribution do you expect from Opus in 2014?

So last year, Opus topline was roughly in the region of about $40 million.

$43 million.

$43 million to be precise. And we have -- therefore, we estimate that we're going to do it in the full year. For the quarter, we don't expect any guidance for what we have baked in. But that's what we did last year, you would use your own estimate to figure out how much is included by that time. Manish Hemrajani - Oppenheimer & Co. Inc., Research Division: Got it. BPO showed good growth this quarter in working recent trend. But ADM challenges seemed to be continuing. Can you dig a little bit deeper into ADM on the discretionary side and maintenance side? And how do you see those piece of business playing out over the next year or so, especially as we see it shift to SaaS models?

So we see ADM business long-term going back to the company growth rates. We don't see that kind of drag in the company growth rates, like too much. So to that extent, I guess, we would see that turn around in the next couple of quarters. And again, if you look at the ADM growth, it's ran by company -- over company average by about 1 percentage point. Manish Hemrajani - Oppenheimer & Co. Inc., Research Division: Got it. Your headcount levels were down sequentially this quarter. We haven't seen this in the last 8 quarters or so. What would you attribute that to, and can you throw some light on your hiring plans for the March quarter and maybe for the rest of the calendar year? Also in the past, you've talked about an attrition range of 13% to 15% that you have been comfortable with. But this quarter was above that. How are you looking to address that?

Well, as far as attrition is concerned, let me answer the 3 questions: Number one, in terms of headcount, given the levels of utilization that we have, we are fairly comfortable that we could currently meet future demand. Our hiring for last year continues on plan. We haven't changed a single number as far as hiring is concerned. We are definitely hiring, we continue to hire exactly as we planned. This year, too, we don't expect to see any changes on hiring factors. Our belief is that long-term secular hiring is far more important than short-term is. So we will continue to hire at the same levels that we hired last year. We don't expect a big change there, and we have communicated the date to all at high terms, and we expect it to have remained at those days. As far as the absolute headcount is concerned, the key is that for us it's important that as we drive productivity, the mix of the workforce has changed. We need more people in front of the customer, more architectural skills, more people with more integrated ability. And to that extent, the number of people that we have acquired in the back who regular coding is not going at the same level as we have seen in the past. So there is a shift in workforce. So the traditional pyramid that we see, especially with change in the business product, is moving at to some kind of a -- it's more like an hourglass kind of thing. It's more heavier at the top.

Our next question is from Edward Caso of Wells Fargo.

Was just on the discretionary demand. I think you talked about the U.S. being relatively strong, but didn't mention anything on Europe. What are you seeing particularly in Europe on the discretionary side?

So on the discretionary side, Ed, what we're seeing is 2 things. If you look at the demand environment, U.S. is, like I said, strong. And U.K. kind of tends to lag U.S. by roughly about 3 to 6 months. That's simply the way it works. Contrary to Europe, we have seen bits and pieces of activity driven preferably by industry segments. So there are some industries, some part of manufacturing which remains challenged, but discretionary spend is still very, very tight. Yet others which are kind of opening up with [indiscernible].

Great. And the next one, just on BPO. I was wondering if you could talk a little bit more about the success, particularly in the BPO area that you've had this quarter, where you've seen the strength and what's been driving it?

I think there are a couple of areas where we've seen clearly here. Back office, roughly, we are clearly seeing a significant level of strength there. But again, having said that, Ed, we'd really like to kind of growth BPO at an extraordinary rate. We think it's a little too early to kind of declare success there. We had 1 quarter performance. Going forward, we expect to see the performance strengthening, but I'd rather watch it before excess of -- as far as BPO is concerned.

Fair enough. Then just on M&A, can you remind us what your strategy is there, particularly after you did your first transaction, I think, in a little while? So -- and what are you looking to get out of your M&A program?

It's pretty simple, Ed. Fundamentally, what we're looking at as far as -- our M&A program is pretty clear. There are 3 areas that we are looking at: One, is new capabilities; number two is new geographies; and number three would be new vertical areas. When 2 of out 3 can come together, then it makes sense for us to do it. If 2 out of 3 don't come together, it just doesn't make sense. So if you look at Opus, the acquisitions that we've made recently, we continue that only this month. That extended last quarter's revenue does not Opus. Fundamentally, what happened was an extension of our world market's portfolio. Sangita can give you a little bit of color on strategy behind that, but that's fundamentally what we're trying to do.

Yes. The focus really is to provide a holistic set of services. And if you look at the kinds of acquisitions we have made in the market space, initially, it was focused on building certain product capabilities, and that's a story that has evolved very well for us and continues to evolve well. Opus extends our capabilities when it comes to providing BPO services for mortgages. And in fact, raises the bar, as well, because it takes us into the space where the services are higher -- of a higher value, focusing on risk management. So I think that's a classic example. Also something to keep in mind is that this is also the kind of business that can benefit from what Wipro brings to the table. So we can automate things, we can do things differently and more efficiently. And so the combination tends to be a winning combination, and that's why it made a lot of sense to do this particular deal.

Great. And then just the last one is a clarification question on the IT products business. What should we be looking for from this segment? Is this going to be wound down or are you going to keep a component of maybe the IT products and hardware that you deliver in systems integration-type deals reported in that segment?

So as far as IT products are concerned I'll give it to Soumitro, who can handle that, to answer that question. Because most of the market, as far as IT products, is really India, and to a large extent, the system integration deals that we do. So Soumitro, who runs our India and Middle East markets, can talk to you.

This is Soumitro here. Our positioning and value proposition in India is very, very different from what it is globally. So here, we are providing global customers a complete package of products, which is hardware products and software products, as well as software services, and we are classically a system integrator. So typically, any hardware will get sold where we're services-led. Classic examples are what we do for, say, banks in, say, our core banking segments, especially in the public sector unit, where the customer is really looking at a turnkey solution, right? So there, typically, what we are providing is a core banking platform, the infrastructure and all the other software products which go around it. So our positioning is very clear, that is to say, our site positioning, a. And b, on products, it will always be services-led product.

So you will still be reporting some revenue in IT products business moving forward, even without you manufacturing the Wipro-branded hardware?

Absolutely. Absolutely. What we have done is that we have exited the PC business, but we continue to report some revenue in the IT product side as we do some integration deals.

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

In your comments this morning, you suggested that your growth rate will improve this calendar year versus last calendar year, and I just want to confirm if that is true. But as part of that, you're suggesting that ADM growth, you think, will pick up. I'm not sure why it will pick up, because the forces that you have identified, including SaaS business models, I don't think that changes. So if you could just talk about the growth rate, why you think growth rates picked up this year? And in particular, why do you think ADM improves? That's my first question.

Well, Keith, it's pretty simple. As far as ADM is concerned, we are really playing a share gain there. And as the bottom end of the pyramid gets commoditized, what happens is we believe that both from a product perspective -- we've talked about service mix. We believe we have a unique proposition where we can really provide differentiated products at a completely new price point. And we think because of that, we've been winning share. The second component of what you ask about the cloud. While clouds -- and the cloud is coming and clearly eating up a lot of the applications on the edges, but fundamentally, today, it's restricted to 2 areas: one is on the sales force side; and the other one is on the HR side. This is where you're seeing big implementations going on. In both these cases, even though the pool unit implementation for us, the ticket size is not as big as the old deals that we used to get, we still see plenty of work happening on the front end in terms of integration. So that's an area of opportunity for us. So really, what's happened is the pool has moved from one end, which is typical application deployment of the past into more consulting on the front end when it comes to these 2 services. So to that extent, we don't see overall, the application management bucket actually coming down.

Okay. And you've talked about growth rates improving this year versus last year. Would you anticipate being at market growth rates this year?

It's a little too early to comment on that because, number one, we don't give annual guidance. Number two, all I can tell you is, sitting where I am right now, we are clearly more comfortable now than we were last year at the same time.

Okay. Well, let me ask a margin question. Because you've said you anticipate some of the automation factor is helping margins. But I want to press on 2 areas. Number one, you've said, and clients are looking for more value from engagements. It would seem that, that translates into better pricing per unit of work. And then secondarily, you've also suggested that -- in terms of the hourglass analogy, that, in fact, there needs to be more on-site work, I think, is the translation. So why wouldn't those impact margins in a negative way?

We didn't say it would impact margins in a negative way. I think what Saurabh Govil basically said was that it will be a narrow range with an upward bias in the long term.

Yes. Sorry, but I didn't suggest you had indicated it would. I'm asking why it wouldn't indicate it if you have to put more on-site feet on the street and then clients are basically asking for pricing pressure, in the near term, why wouldn't that translate into some margin pressure?

So I happen to have a couple of reasons behind it. Number one, is if you look at our fixed price percentage, they remain pretty high. So to that extent, whatever money we make out of automation and everything else, we keep the games. That's one reason. Second is on dealing in projects, again, our belief, really, is that ultimately what the customers look for is end-to-end, the cost of the value that they get on an end-to-end project. So for example, if I'm doing areas and working areas which are cutting edge, the pricing that I get in that area is significantly higher than what I'd get at my average ticket size. So overall, we are pretty confident that we have enough headspace right now to make that comment.

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

The first question actually is on your India business. We are [indiscernible] I guess we have seen a good growth this quarter. This is slightly contrary to what you and some of your peers have done in the quarter and now had given the EBIT in year in the country. So I'm just trying to understand what growth would be good for us in the India business? And how sustainable do you see that in the next 2, 3 quarters?

So Pankaj, I must clarify before I hand it over to Soumitro that the way we classify India business, India and Middle East business. So with that color, let me hand it over to Soumitro.

Thanks, T.K. So from a geography aspect, as T.K. explained, one looks after India as well as Middle East. Now from a growth perspective, this quarter, both Middle East as well as India have done pretty well. And really, the growth has come from -- if I look at Middle East, the growth has principally come from 2 verticals, so 2 segments. So one is the oil and gas segment, the other is the engineering and construction segment, where there is a lot of investment which is happening in the geography. As far as India is concerned, financial services has been a growth driver. And even in government, we will have a couple of decisions happening our way. In terms of the type of work, infrastructure services had been very strong. Traditionally, in India, we had been very, very strong in infrastructure management services, which continues. But the good news is that there is a lot of opportunity on the application side as well. And we are seeing some good traction, especially in the financial services space around data warehousing and analytics. As well as some of the applications which we have seen in the segment, which is around production, planning and control. So broadly speaking, both India and Middle East have fired this quarter.

So for in terms of the sustainability, do you think that the India business may -- its productivity there is because of the election year in the near term? Or do you think that because of our product mix, we will -- it will be turn out to be more of a normal-year quarter?

No. I guess, especially in the government sector, things will slow down. It has slowed down. So decisions are going to be a challenge to sustain till the elections are over. And -- but I don't see that impacting so much in terms of the financial services segment, which has been our growth driver.

Okay, fair enough. And my second question is on the overall outlook. I mean, we have been doing quite well in a 2.5%, 3% kind of sequential growth for the last 2, 3 quarters. I was wondering like which metrics should we be looking at? Are you internally going to be focusing on your view of all the sustainability of this growth, or a possibility cut over the next few quarters? If you can help me with that.

Actually, it's very simple: Watch our guidance. That will give you a sense of revenues going on a quarter basis.

So that is unfortunate for you to give it next quarter. But like, if were to look at a longer-term picture, any -- because our headcount, as you know, I mean, as you also mentioned, it's really not the leading indicator anymore, and I take your point on that. If you can share some other advice that you might be clearing internally which can be of some comfort or some color to us in terms of where we are in terms of our movement.

That is a tough one. I tell you why, because whatever data we share publicly, it's very difficult based upon that to figure out our long term where we are going. At best, you can kind of read out, read in to our commentary. And you can read -- you can pick up from competition. And there, we are winning. That's pretty much all that I can tell you.

And [indiscernible]. Even in the past, I think, while hiring had been one leading indicator for everybody. But there's also [indiscernible] at best as we look at correlation, because the people used to adjust the utilization level for demand versus supply. So it's -- I mean, it is like based on a story of intention. So from that same point, I don't think we are giving any less or more data point than what we were giving in the past. As T.K. mentioned, our commentary can be a good indicator vis-a-vis the confidence into a longer-term growth.

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

I have 3 very quick questions for you. First, we talked about in the conference call a little bit about mix shift of your employees. I was wondering if I look at your business, I can categorize the employees into 3 very broad areas: functional skills; porting skills; and maybe architectural skills. Can you give us a trend about where there is more demand, and what kind of skills between these 3 categories? Or if you want to put some more categories, that's fine. Then I have 2 more quick questions for you.

First, on the skill matrix that we have within the company is Saurabh Govil. So I'll pass it onto him.

So Trip, if I could get you right, you mentioned about functional skills, architectural skills and according skills. I think as we see more and more demand coming from the architect sort of people, people who are more customer facing. So I would also look at domain, it has a very clear of skills required. And based on the pyramid recording skills, I think, there, it's more and more of automation coming, and that's becoming less. So that's the shift which is happening. Function would remain the same it is. The accent is more on customer-facing people and skills.

[indiscernible] that the number of people on recording side...

The second question I had was regarding the deals in the commentary, in the conference call. You were saying that large deal size are pretty much gone. I was thinking, can you give us some sense about the duration of a deal? The time duration.

Trip, the large deals are not gone. I don't think we've made that comment. But I think I will go back to it. I think, just to kind of give you a sense, the deal cycle is typically still are sitting in 3- to 5-year timeframes.

Okay. Last question...

Commoditized work.

Perfect. Last question I had was in the far -- in the context of industrial structure. I think in the month of September, October timeframe, IBM offloaded their BPO unit, Dutch, to some other company. I was wondering, where -- what did IBM get it wrong? Because it's done well. BPOs could be a fairly good differentiation and it could be a fairly good weapon to de-commoditize something which is a commodity. Any thoughts on that, where did IBM go wrong?

Trip, I have no idea. And frankly, I think that's a good question to ask on the IBM call because, frankly, I have no idea.

It would be more like a call center as opposed to the BPOs that you talked about, more associated with IT companies. I have largely, in terms of end-to-end projects, which had pieces of voice, but largely non-voice, back office and much more value-adding stuff that they do.

Our next question is from Sandeep Shah of CIMB.

So just, T.K., as you have said that in the discretionary side, the demand trends are actually moving from the earlier trends of third-party software implementation, which were the large-size projects, to more a digital, which are smaller in terms of duration. So it looks like that for us in terms of a growth recovery in FY 2015. It would be largely dependent in terms of all traction in the large outsourcing deals. So can you throw some color? What is the positioning of Wipro as of today in terms of those large outsourcing deals, and that gives you a confidence that we can now move to an industry-level growth?

Sandeep, I think there are 2 questions. 2 questions, if I understood. One is about digital. See, digital ultimately what happens is they're going to be providing the accounts for digital. Long term, we are not going to succeed in that game. It's really as a service that's of value. So I think what we really are trying to do is build a component to create a service around these 2. That's the first part of the question. Because, really, for us, we understand annuity revenue well. For us, it becomes very difficult as an organization. Our D&A is not going to handling short-term ramp up from short-term ramp downs hired skills. That's the first part of it. The second part of it is if you look at the deal sizes, our pipeline clearly reveals that our deal sizes are done well. Are what -- from we see of large deals, we have seen a significant improvement. When I say significant, it's a couple of excess in terms of our pipeline in that particular segment. What we really have to improve, and that's something that we're working on right now, is our win rate in that particular segment. If we improve our win rate at that segment, my own sense is that we are off on a trajectory which is going to be very, very different.

So do you -- because it looks like that the growth has started coming, as what Pankaj was saying, in the last 2 to 3 quarters. We are now going out to 3%. So what is -- because the renewable rebate pipeline is also increasing, so what is the status? How do you see this as a growth trigger going forward? And do you still not believe that with the organization largely behind the win rate should have improved now?

So here's what it is. If you look at different segments that we have, infrastructure, I think, is now performing at market, if not a little ahead of market, in terms of wins. We have to catch up at the same win rate at BPO.

Okay, okay, okay. And just in terms of the sales and support staff, as we look at for the last 3 quarters, it has been going down. So at the same time, we also mentioned that we are investing at the front end. So can you reconcile this?

I think we're really going down, Sandeep. It's last quarter has gone up by 0.2%, that's a -- it's a numerical kind of a number. So sales estimate really hasn't gone down. So fourth, yes, it's clearly going down. But that's part of driving efficiency of the organization, but not sales and marketing. We will not cut our sales and marketing, we're very clear about that.

As Sandeep, you can see with that number, it is largely around average number of the last few quarters. So to that extent, there's no material difference there, it's only quarterly [indiscernible].

Okay, okay. Just the last clarity in terms of we said the productivity gains has led to a margin increase. So just in terms of utilization, if you look at the last 2 quarters, we have a net decline with that. We also had a robust growth of 2.5% to 3% Q-on-Q. So utilization has not improved in this quarter. I do agree a leave in this quarter is higher, which could be one of the factor for the same. But is it fair to say that we are stressing more in terms of productivity gains than the utilization has a headroom to move up in the immediate quarter with the guidance of 2% to 4%?

Yes, absolutely. Sandeep, you are absolutely correct. It is more, with that, I think, simultaneously. Number one, we are using automation to reduce the human component of the process. And on second, the utilization, while on our headline number looks blank, but I just think our yield is actually definitely improving. So it is both retail plain growth in terms of order contribution to operating profit.

Okay. So just to conclude...

Excuse me. Adjusting of our headline number, out of 0.5% improvement that we had in operating margin, 0.1% came from exchange.

And this was obviously...

Rental operations.

So just to conclude, these productivity gains journey may continue going forward, and there is a likelihood that the employee addition on a net basis even may not be very high in FY 15.

Well, we don't guide on either hiring or closing headcount, if you are well aware, Sandeep. Fundamentally, you can look at the utilization number, which is in a very, very comfortable territory for us to meet our demand growth. And we will continue to hire as well our need in the market and as well a commitment to this emphasis. And that's all I can say.

Ladies and gentlemen, due to time constraints, that was the last question. I now hand the floor back to Mr. Aravind Viswanathan for closing comments.

Ladies and gentlemen, thank you for joining the call. If you have any questions 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. On behalf of Wipro Limited, that concludes this conference. Thank you for joining us. And you may now disconnect your lines.