Wipro Limited (WIT) Q3 2015 Earnings Report, Transcript and Summary

Aravind Viswanathan - General Manager of Investor Relations and Corporate Treasurer T. K. Kurien - Chief Executive Officer, Executive Director, Member of Strategy Committee and Member of Administrative/Shareholders & Investor Grievance Committee Suresh Senapaty - Chief Financial Officer, Executive Director and Member of Administrative/Shareholders & Investor Grievance Committee Shaji Farooq - Chief Executive, BFSI Jatin Dalal - Chief Financial Officer of The IT Business G. K. Prasanna - Chief Executive of Global Infrastructure Services Saurabh Govil - Sr. Vice President & Global Head, Human Resources Soumitro Ghosh - Chief Executive, Wipro Infotech and Asia Pacific & Japan Sangita Singh - Chief Executive, Healthcare & Life Sciences Srini Pallia - Chief Executive, Retail, Consumer Goods, Transportation & Govt. Business Unit

Anantha Narayan - Credit Suisse Joseph Foresi - Janney Montgomery Scott Keith Bachman - Bank of Montreal Sandeep Muthangi - IIFL Research Edward Caso - Wells Fargo Srivathsan Ramachandran - Spark Capital Ravi Menon - Alara Capital Viju George - JP Morgan Sandeep Shah - CIMB Research Ashwin Mehta - Nomura Securities Sandip Agarwal - Edelweiss Securities Dipesh Mehta - SBICAP Securities Ankit Pande - Quant Capital Ashish Aggarwal - Antique Stock Broking

Ladies and gentlemen, good day, and welcome to the Wipro Limited Earnings Conference Call. As a reminder all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. (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, [Abha] (ph). Good evening and good morning to all of you. Wish you all a very Happy New Year. A warm welcome 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 question and answers with our management team. The senior management team of Wipro is present here to answer 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 the actual results to differ materially from those expected. The uncertainties and risk factors are being explained in the detailed filings with the SEC. 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.

Good evening and good morning to everyone across the world. Thank you very much for joining this meeting. For us, this quarter has been a quarter of execution, the results of which are reflected in [indiscernible]. Our IT Services revenue grew sequentially by 3.7% in constant currency, towards the upper end of our guidance. Overall the demand environment continues to hold steady with opportunities across key markets in North America and Europe. We see recovery in demand in retail and manufacturing sectors. Banking and financial services continues to demonstrate strong business demand, especially in the U.S. and in Europe. One area of caution is the oil and gas industry where we expect the plunge in crude prices to impact CapEx and discretionary spend in the near term. Now let me give you a sense of our quarterly performance. Healthcare, Life Sciences and Services business unit continued to grow strongly with a 7.5% sequential growth and a 20.3% year-on-year constant currency growth. After many quarters, our Retail, Consumer Goods, Transportation and Government business has grown sequentially by 5% on a constant currency basis. The momentum in Infrastructure Services continues with strong deals in and with a growth of 20.5% year-over-year. Our BPO business on a constant currency basis grew 4.6% sequentially. Our efforts in revamping our delivery structure for efficiency and value creation continue to yield results. Customer satisfaction scores have improved by 4% year-on-year. From a strategic perspective, nothing really has changed in the way we’re going out to market. We remain focused in building our [distinct story] (ph) to drive business transformation and also further leveraging open source, data and AI to drive innovation and cost rationalization. On the digital front, our ability to pull together a range of competencies across content, analytics, AI and agile development for execution have been recognized by both customers and industry analysts. Wipro has won 10 deals in the digital space around driving transformation and supporting our customers in their digital journey, all the way from conceptualization right through to implementation. On the open source and AI space, we’re building scale through industry specific reference architecture, migration toolkit and more importantly by building a strong partner ecosystem. We have scaled our operations and trained over 1,000 resources in these areas. This practice has quoted 12 significant wins and built a robust pipeline during the quarter. We continue to focus on building intellectual property in a way by which we can differentiate ourselves. We have filed 143 patent applications over the last nine months. In a dynamic business environment, people remain our primary assets. Our quarterly attrition rate has dropped from 16.9% to 16.4%. We continue to deepen employee engagement and made significant investments in training and skill development. Last quarter we trained over 6,000 employees in new delivery methods and techniques. We are gratified that our teams are responding positively with employee engagement scores improving over the previous year. Lastly before I close I’d like to recognize Senapaty for his contribution over the years. Senapaty joined the Company when the top line of the Company was roughly 40 crores or INR400 million. From there on till today, he has been part of the journey where Wipro has evolved from being a domestic company to being a global leader that's today. This will be the last time he will be with us for discussing quarterly results. On behalf of Wipro, I would like to thank him for his contribution. Now Senapaty will take over from me. Thank you.

Thanks, T.K. Good day ladies and gentlemen and good evening to those of you who are in India. Let me begin by wishing you a very, very Happy New Year. So, like Kurien said, this will be my last earnings call as CFO of Wipro Limited. After over 35 years in the Company and 20 years as CFO under the Chairmanship of Mr. Premji. I’ll retire from the Company on 31st March. It has been an unbelievably exciting journey and I’m thankful for all of your support over the years. Wipro has provided me an outstanding platform of learning and growth and I'll be forever grateful to the Company and my colleagues for this wonderful journey. I also would like to congratulate Jatin on taking over as the CFO of Wipro Limited. For the past 13 years Jatin has handled diverse roles in Wipro and left an indelible mark on all of them. He stood out as a natural successor and I’m sure you’ll extend the same support, if not better, to this bright leader. As I prepare to step down by the end of this quarter, I feel very confident that Wipro is well placed to take off in this growth path under the dynamic leadership of Kurien, Saurabh, Jatin and the entire team. So in regard to the financial performance for the quarter, and we note that for the convenience of readers our IFRS financial statements have been translated into dollars at the noon buying rates in New York City on December 31, 2014 for cable transfers in Indian rupee as certified by the Federal Reserve Board of New York, which was $1 equal to INR60.04. Accordingly, revenue of our IT Services segment, that was $1,795.4 million or in rupee terms INR113.4 billion appears in our earnings release as $1,800 million based on the convenience translation. Total revenue for the quarter were INR119.9 billion, an increase of 6% year-on-year. Total net income for the quarter was INR21.9 billion, an increase of 9% year-on-year. In IT Services, our revenue in U.S. dollar terms for the quarter was $1,795.4 million, sequential growth of 1.3% on a reported basis. This was impacted by depreciation of major currencies against the U.S. dollar. In constant currency IT Services revenue grew 3.7%, our highest growth in last 12 quarters. IT Services margin declined marginally on a quarter-on-quarter basis in the current quarter. Utilization dropped and negative cost currency has been offset by fixed price productivity and [SGN] (ph) optimization. Our IT Products segment delivered revenue of INR7.7 billion, which is about $123 million for the quarter ended 31st December. On the currency front, our realized rate for the quarter three was INR63.19 versus the rate of INR61.66 realized for the quarter two of this year. As of period end we had about $2.2 billion of ForEx derivative contract as hedges. Effective tax rate for the quarter was 22% as against 22.8% in Q2 driven by completion of certain assessments. For the quarter we generated operating cash flow of INR17.2 billion which was 79% of net income. We generated a free cash flow of INR16.1 billion which was 73% of net income. We’d be happy to take questions from you.

Thank you very much, sir. Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions) Our first question is from Anantha Narayan of Credit Suisse. Please go ahead.

T.K., I had a couple of questions. The first was related to the energy vertical. Is this something that you’re significantly worried about in FY16 or are there sort of other things that could offset some of the pressures that your customers are facing because of oil prices? And how much of this has made in the 4Q guidance? So that was the first question. And the second was could you give us a bit more color on Europe for you because while this quarter has been good, they've been fairly choppy in the past, the past few quarters? So any color will be helpful.

So on the oil and gas sector itself, Anantha, our view is that in short term we have pain. We’ve factored some of that pain into our quarter four guidance. Long term in that market as oil prices continue to remain where they are, we see substantial opportunities popping up across the world in terms of outsourcing. So while on the medium term to long term we expect that to be positive, in the short term we would take some pain in that particular business. But overall if you look at our other verticals, generally all the other verticals that we have including our geographies have been kind of firing. And we don’t expect that trend to kind of slow down at least in quarter four and into the next year. We see demand has been fairly robust and to that extent the opportunities that we have on the table are, we believe, might offset some of the negatives that we may carry in terms of energy.

And if you could just comment on the choppiness in the European geography for you?

Europe is kind of interesting for us because if you look at a large part of the oil and gas business that we had, a large part of it was over-weighted towards Europe and that has really resulted in the geographical distribution, the choppiness that you’ve seen there over the past couple of quarters. We made that up to some extent by diversifying our portfolio outside of Europe, but that has not paid the kind of dividends that we expected at least in the short run given the fact that oil prices went down from where they were two quarters ago. So overall if you ask me, I expect Europe medium term to be positive. It will continue to grow for us. The key for us really would be in terms of where the currency finally ends up as far as euro, dollar is concerned. So while volume would continue to grow, and if you look at our last quarter numbers on a constant currency basis grown by 5% and that itself is a decent growth. So overall we don’t see growth actually slowing down too much. We may see temporary choppiness caused by some accounts in some industries, but not beyond that. So it's kind of strong.

Thank you. Our next question is from Joseph Foresi of Janney Montgomery Scott. Please go ahead.

My first question is just around sort of digital and some of the newer offerings and what the opportunity is there. Can you help frame for us your exposure to some of the newer technologies? What kind of impact it’s potentially having now and further in the numbers and how you look at the opportunity there?

On the digital opportunity, Joe, right now most of the work that we are basically doing is really sitting with specific proxies and figuring out along with the customers on how we can completely kind of digitize the processes using analytics, mobility, more specifically locations and how we can fundamentally look at the underlying architecture to make sure that straight through processing is actually enabled. That’s the real focus of what we’re doing. So we’re doing a whole bunch of projects with customers primarily around visioning. That’s really where the big activity is happening right now. As we go through industries, we believe what will happen is that we’ll be able to create frameworks and intellectual property around this which we can replicate them across the industry segments that we operate in. I think that’s the objective. Digital by itself is terrific for us in terms of opportunity and that really is the future. Today it’s not significant enough for us to kind of move the meter as far as our quarterly growth is concerned.

Does the emergence of new catalysts like digital infrastructure, some of the work you're doing in Europe, is that just offset somewhat by modernization and application development and maintenance or do you believe that that’s going to be accretive to growth rates over the short and long term?

I think it's going to be accretive over the short and long term. But digital I would say medium term, it won’t be immediate. Clearly we’re seeing far more interest in other technology components like for example using open source in development. Those are becoming bigger and bigger areas. But if you look at digital itself, is that going to be a billion dollar opportunity for me over the next couple of quarters? The answer is no.

And then the last one for me, and also my congratulations to Senapaty for kind of moving on to maybe his retirement. I know it's been a long time that we’ve known each other. But how do you expect -- what are your expectations for the margin profile with commoditization and these new technologies over the long term? Do you expect margins to hold? Are these going to be diluted in the short and then eventually become accretive? I am just again trying to frame sort of the argument over the long term.

Joe, it's like this. It will remain a narrow bank, no grades up, no grades down. But clearly from our perspective, as commoditization happens, we would drive efficiency in the back, absolutely no question about it.

Our next question is from Keith Bachman of Bank of Montreal. Please go ahead.

I had a couple as well. First, could you talk a little bit about how you're characterizing, what you're seeing in financial solutions? Your sequential growth was significantly less than the overall Company weighted average. What are you seeing there and what do you expect in the next couple of quarters?

Let me hand the call over, Keith, to Shaji Farooq who runs our Banking and Financial Services business globally.

See, what we are seeing in Financial Services is very much a reflection of what is occurring across the globe in the financial services area. It's a fairly mature market and a lot of pressures, cost pressures. Revenues of our clients aren't growing. So to sustain earnings, the focus on cost is huge. So, in fact we’re seeing pretty strong volume growth and we are also seeing successes in large deals. We expect to see continued pressure in certain areas when it comes to cost, particularly when it comes to commoditized services. That will have some more of a limitation on how much growth you should expect quarter-over-quarter. And the numbers you see this quarter, our constant currency growth of 2.2% and a reported growth of 0.2% is really in line with what we had expected getting into the last quarter.

Just to look at the Financial Services over the next 12 months, would you expect to grow in line with the Company weighted average or below?

I would say we will grow in line with the Company weighted average. Of course there are a lot of extraneous factors that are playing right now and that could be differential impact in the Financial Services areas, as T.K. mentioned in other areas as well. But we have to wait and see how that goes. Notwithstanding those, we should expect those to be in line with the Company growth.

And let's go to my second question. ADM was weak sequential growth. How would you characterize the state [indiscernible]?

This is Jatin Dalal. See, fundamentally we have spoken about there are a couple of accounts where we have completed the large projects and the replenishment of that work will take a couple of quarters to come through. And the lower growth in ADM that you are witnessing is an outcome of that. And we do hope that we will be able to reignite the ADM growth as we go forward. Also if you see, we are quite unique for ourselves that we branch out business application services separately and you should see that both lines together, if you are really comparing apple-to-apple with the industry trends, and we continue to grow in the healthy manner in business application services. This quarter the growth is 9% Y-o-Y which is in line with the Company growth rate.

The last one for me then is, the operating margin was down a little bit sequentially, call it, 20 basis points. With currencies I thought it actually might be a little bit better. What were some of the puts and takes that kept you from capturing more margin opportunities? I assume some of the wage rates were in there. But if could you just describe some of the impacts to margins this quarter and how that will play out next quarter.

So Keith, this was a quarter in which operationally there were some pluses and some minuses. But if you really see, the margin have been in a very narrow range of that -- we declared in quarter two which was 22%. The delta is 20 basis point which in some form is the currency impact because while we had an upside on rupee-dollar leg, there was clearly downside on the cross currencies and which flew through as the overall slightly negative currency impact for the quarter. Operationally we have remained flattish vis-à-vis quarter two.

Thank you. Our next question is from Sandeep Muthangi of IIFL. Please go ahead.

I have two questions. The first one is on the Infrastructure Services. T.K., could you give us some color on how the cloud exercise is impacting Infrastructure Services? And what kind of outlook do you have for the near and the long term?

So we have the best person to explain that question for you, G.K. Prasanna who runs our Infrastructure business.

I heard the question as impact of cloud on infrastructure services, is that right?

Yes, that is correct.

Firstly, it is an opportunity, because there is a lot of work that has to be done in terms of building the cloud infrastructure right now. So there is lot of work that is coming in terms of -- in building out that infrastructure. Also there is a lot of work in terms of moving these workloads to cloud. And so in the short term it is an opportunity and we see our share of this work coming to us. We see it as positive. Medium term, right now we all know that because workloads will move out of conventional infrastructure into cloud. There will be an impact in terms of some of the conventional work coming down. That’s what I see.

And by medium term are we speaking of -- are we not speaking of the next three years four years and the real long term or is it something that’s going to happen in the next couple of years?

Cloud is real. So let me leave it at that. It is no longer a concept, it is real. People are doing this work fairly seriously. So a lot of work will move to cloud apart from just office productivity applications, lot of enterprise applications are moving and will move. So, cloud is serious and cloud is real.

My second question is on client mining. T.K., we have seen a period during 2011, '12, '13 where the client mining was doing really good. And after that we have kind of seen a flat-lining of the top 10 account growth et cetera. Can you give us some more color on what’s happening and whether the expansion of that mining is really working or is there something to be bothered about over here?

So clearly there are two parts to it. It’s a very good question and I will answer that in two parts. One is, if you look at our minings and if you look at the top accounts and if you eliminate the [indiscernible] that we have had from large big box retailers and some large oil majors, if you eliminate both these, our growth in the rest of the segment has been fairly decent. In fact it's been a little above Company average. So that’s the positive. The business work that we have to do today in terms of mining is to make sure that we are able to broad base our calling outside of the CIO's office and I think that's where the big focus right now. I am feeling confident in the next couple of quarters you will this this trend reversing and that will be -- that now we view as a positive for the Company in the foreseeable future.

Thank you. Next question is from Edward Caso of Wells Fargo. Please go ahead.

On the infrastructure business, what’s the opportunity set, what’s the level of renewals that are coming up here in the next two years? And what are you seeing about the incumbents protecting? Are they willing to adjust their pricing or the way they are doing their business to be competitive? Or is this just easy opportunity for Wipro and some of the other India based peers?

Hi, this is G.K. Prasanna again. The opportunity is big. It's been published and then depending on what [indiscernible] is, it’s several hundred billions of dollars of renewals that are coming up in the next two years time. And at the moment there is a fairly significant advantage that Wipro and some of our peer group companies have in this space and it is way beyond just pricing. I believe that the strength of solutioning, the experience that we have in this space, the references that we have in this space, all of them are playing out to our advantage and I expect that to continue in terms of we taking this proportionate market share of the renewals that are coming up in the next two years time.

My other question is on utilization which has been on a year-over-year basis is much higher for yourself and some of your peers. I guess how much more is there to go and is there something in the industry that’s driving this desire for higher utilization? I would have thought it would have gone down as you're in the process of rescaling your workforce.

Hi, this is Saurabh here. So if you look at the utilization for the current quarter, it is getting impacted because of the leaves. And this is a season, a quarter where there is high leave. Net of leave, operationally, I think we are flat from last quarter. And very clearly, we’ve seen a trend where we have been improving our utilization over the last few quarters and you would see that same trend as we move forward. As far as head space is concerned, very clearly we see our head space to grow further on.

Thank you. We will take our next question that’s from Srivathsan Ramachandran of Spark Capital. Please go ahead.

Just wanted your comments on your revenue [indiscernible] trickles more from a cost take out perspective, I do understand that discretionary [indiscernible] would be big. But do we see these strong steep decline in oil prices kind of make some of the customers who have been reluctant on the cost take out side kind of make these decision cycles fast or expand the real estate [indiscernible] from a cost take out point of view?

Absolutely. But also realize that in the short term that will come at much lower prices than what we’ve seen in the past. So I think you’re going to see extreme price competition in that sector, especially for commoditized services. Look, everybody’s going to fight to protect share. It’s not going to be unique to Wipro. All of us who claim that segment, especially the big -- the large guys who are dominant in that space, will also compete at least in real estate. So in the short term you’re going to see price pressure coming in. The bigger opportunity is that today if you look at the way we address the market, there is a significant portion of the market that today is not [indiscernible] by companies like Wipro and I think that’s the big opportunity. So for us given our dominance in oil and gas and given the domain expertise that we’ve built over the years, we think we are in a unique position to grab this opportunity.

And just if you have to look at for the next 12 months to 18 months period historically, 1Q of financial years have been slightly dippy. I just wanted to understand how the existing pipeline buildup for all the take outs gives confidence in kind of having a pretty good revenues on a sequential basis on a three-four quarter period?

Srivathsan, all of us around the group are painfully aware of the fact that if we don’t perform in quarter one, you’re dead for the year. I think that’s clearly one of the issues for us. So that’s something that we are all focused around and that’s something that we are working on. I cannot give you a quarter one guidance right now, but that’s broadly what all of us are focused on driving.

Thank you. Our next question is from Ravi Menon of Alara Capital. Please go ahead.

BPO, I’d like to talk about it. You’ve shown very good growth this quarter. If you could give us some color around the deal or deals that ramped up in BPO and what's helping drive growth there?

So one of the big things that we’ve been doing in BPO over the years is as the movement towards digital again, we’ve been building our services around digital as a platform and especially offering BPO services around that. We’ve also been offering integrated services combining both technology as well as process so that we can drive the next level of digitization end-to-end as we go through the journey. So I think BPO last quarter had some nice wins in that particular space where we've been able to combine IT plus BPO together and that’s the area of opportunity that’s driven growth last quarter. Now BPO we will have a little bit of bumpiness in and out in quarters at least for the next two quarters before they get secular growth of this side. But overall I’m very bullish about BPO. And by the way, most of this growth that’s coming incremental apart from the new deals have come in through organic growth.

And if I could ask you about the IT Products revenue that's declined, what really drives this segment of the business?

On the IT Products, I will ask Soumitro Ghosh who runs our India and Middle-East business to kind of respond to it, because a significant portion of the market that since our IT Products released, it's been in his territory. But just to give you a little bit of color on that, we typically sell IT products only when we have different integration opportunities as part of a large contract. But Soumitro can give a little bit of color on what’s happening to the India market and what specifically is driving that particular trend.

I think T.K. just answered the question. Fundamentally we have a different philosophy that standalone hardware products business we are not chasing the way we used to chase earlier. So clearly the focus is towards integrated deals and focus is towards services. So to that extent, our entire proposition is where we have a end-to-end solution offered to the customer. As a aside, he expects products to be sold along with the services. So we are providing turnkey solutions to these customers. Typically government is a classic example. PSU banks are a classic example. But standalone product deals, we are consciously not giving it the same priority as what we used to.

And just probably if I can sneak in one more follow up to that. The India and Middle-East business have seen a very strong growth this quarter. So despite that we’ve had this sort of year-on-year decline in the products business. So is the nature of your engagement changing?

No. The numbers for the India and Middle-East business is the pure services business. The numbers which you’re talking about for products is only products. So on the services business, we’ve shown a sequential growth of 5.7% on reported basis. So that’s still services.

Thank you. Mr. [Naqvi] (ph) your line has been unmuted, please go ahead. There seems to be no response from this line. We’ll move to our next question, that’s from Viju George of JP Morgan. Please go ahead.

Just one question on IT budgets. I don’t know T.K. if you’ve answered this in your prepared opening comments, but if you could just sort of ex-energy talk about how the budgets are looking like for you based on the combination of customers and how they look relative to last year? Do you see a marked improvement in this year?

As far as budgets are concerned, Viju, outside of energy, fairly I would say positive on the cost reduction piece of the business. Clearly very positive when it comes to discretionary expenses in the U.S. Europe we see signs of the market kind of changing a little bit and more outsourcing seems to be coming into the market, clearly and these are mostly coming in from first hand customers. So overall if you ask me sitting where I’m this year compared to where I was sitting last year, customers' propensity to buy is clearly higher.

Thank you. Next question is from Sandeep Shah of CIMB. Please go ahead.

The first question is in terms of the oil and gas. So the fourth quarter guidance, it’s more about the directed or negotiated ramp downs with the clients which has been factored or is it a combination of that plus our conservatism towards the potential ramp downs which can come?

This is Jatin. We have factored in the uncertainty that we see in oil and gas in our guidance. Beyond that it won’t be fair to say because guidance is always a view of what we see today of the quarter which is forthcoming and we have factored in the certainty on oil and gas in our guidance.

But is there any negotiated ramp downs which has already -- like we have to do as per the direction of the client or it's more to do with our expectation of the likely ramp downs which can come?

So Sandeep, certainly we see that there is a reaction to the lower oil price from the client environment and therefore there's certainly a pressure on the business and that has been factored in. Now it is difficult to say whether a project came to a closure and therefore it was closed or a Phase 2 of the project which could have been extended was not extended by the customer. We have factored in that uncertainty in our guidance.

Second question is in terms of some of the client specific issues which we were speaking about in the last couple of quarters which was not just limited to E&U, it was being spread to other verticals including BFSI. So can you give a color how segment wise these issues are largely behind or this will impact the growth going forward also?

As you recall, Sandeep, we had said at that point that we think that this will persist for a couple of quarters and that situation, there is no -- further update to that situation certainly it was only a quarter specific phenomena for quarter two. So we had said couple of quarters and we’re in that situation right now. However, we do think that some of the work that got over and has not been replenished will start coming back as we enter 2015 and we’re quite hopeful about it.

And last question is in terms of the deal pipeline. Can you give some color in terms of the pipeline as well as the order book in this quarter versus Y-o-Y and Q-on-Q how does it look like? And if you can share some TCV of the large deals?

So, Sandeep, you’re aware that we don’t share the details that you have sought. I can share with you qualitatively that we continue to see a good demand in the marketplace. We continue to see that we’re participating well in the demand. And we’re winning also our fair share and sometimes a little better than our fair share and that is heartening. And we hope that continues as we get into next few quarters.

Thank you. Next question is from Ashwin Mehta of Nomura Securities. Please go ahead.

I had one question in terms of returns of margins. There was a material reduction in SG&A in this quarter and that was largely led by sales and marketing expenses. So what led to that? And given the fact that you’re at almost three-year lows in terms of SG&A as a percentage of sales, how should we think of that going forward especially in light of investments to drive sales especially in newer areas like digital?

So Ashwin, we have not reduced any physical investment into any of our sales infrastructure, be it number of people or offices or strength of reaching out to customer. What you are seeing in terms of reduction is a one quarter phenomena. It is also impacted by the fact that some of the strengths are in European currencies and they have been disproportionately impacted in the current quarter because of the depreciation of cross currency and then always some lumpiness one quarter which will be positive, one quarter will be negative. But we remain very invested in our sales efforts.

Thank you. We’ll take our next question from Omkar Hadkar of Edelweiss. Please go ahead.

Sandip here from Edelweiss. My question is primarily related -- and I am not asking guidance so that is a disclaimer I would like to give -- but T.K., if we say that other than energy and probably to some extent telecom we’re seeing good opportunity and robust pipeline, so will it be fair to assume that at least excluding energy and excluding telecom we will be at NASSCOM guidance range for next year? And also, these two verticals will at least not de-grow, will it be a fair assumption?

So, my reaction to that is first of all I don’t know what NASSCOM guidance would be next year. And second, certainly for our own growth projection, it is little too early to comment on. We will certainly come back to you in next quarter and talk about where we see the growth trajectory. But I would like to highlight the fact that this is a quarter where we have seen the broad based growth. You have seen healthcare which has grown 7.5% sequentially in constant currency. You have seen retail which has had tough time due to some of the exposure to the retail industry in U.S. has also grown 5% sequentially in the current quarter. You have seen the BPO which has grown 4.6%. Our infrastructure business continues to do very well with 20% YoY kind of growth rate. So we feel good about how we have executed quarter three and that itself I think is a good data point of our performance.

So if I can squeeze little bit more on that side. So will it be fair to at least say, not going by numbers, but at least that barring energy vertical all other verticals are looking much better than what they were looking last year at this time?

Certainly if I reflect on the numbers I just shared, absolutely we’re doing very well compared to last year in the verticals except energy verticals.

Thank you. Our next question is from Dipesh Mehta of SBICAP Securities. Please go ahead.

I just want to understand about -- if you can help us understand growth momentum what we have seen in healthcare, how we see going forward, because healthcare is doing well for us for quite some time. And about retail, because retail has shown some improvement this quarter. So how we see retail performing for us going forward?

So I'll hand over to Sangita Singh who runs our Healthcare business. She’s right here, so she can talk a little bit about healthcare and what’s driving the growth there. And what I’ll also do is after Sangita finishes, I’ll talk a little bit about retail. Srini, if you're on the call, you can take on after Sangita finishes.

So in Healthcare & Life Sciences, we continue to see the strong momentum really as an execution of the Wipro strategy and it's three pronged. The first is our investments in differentiated domain solutions have really helped, a case in point being driving medication adherence and analytics platform for a life sciences company that helps drive engagement and increase clinical trials. Second, we continue to see our investments and leverage our strategic investments that we have made in Opera by creating powerful and relevant client offerings as an example of just differentiated domain offerings that helps in the growth. The second has really been our ability to bring the best of Wipro to our core client across infrastructure, across product engineering, application development and maintenance, case in point being Takeda, Catholic Health and some of the other life sciences customers. The third to our strategy has been really our ability to add marquee new logos to our portfolio. We added six new marquee new logos in this current quarter. I see ourselves being able to execute to the strategy continuing in the next quarter and forward as most of our client requirements are being addressed through these three strategies that we have outlined here at Wipro. So I am very positive about us being able to address what our clients need today. Over to you, Srini.

Thanks, Sangita. This is Srini Pallia here. Just to reflect on the retail. Retail as an industry is going through a transformation as we speak. And if you have looked at the holiday sales, that was really mixed. While there is a drop in the stores uptick, the retailers are seeing growth in online as well as mobile, which in one way is good news for a retailer. So what we see are the trends in terms of the retailers investing for their revenue growth or business growth is on omni-channel retailing which is becoming very significant, there is a lot that’s happening around customization and also engaging customers digitally. And this is also driving the efficiencies around multi-channel supply chain and we’re participating in some of these. Also T.K. alluded to BPO. We’re seeing a lot of work around customer experience and back office work around retail that’s driving some of the deals that we have. Now if we were to look at retailers, they are definitely stressed on pricing and margins and the cost takeout is another aspect of retailers that we see consistently across and T.K. alluded to that which is reflecting in terms of application and perception and BPO. So overall while it’s very mixed in terms of revenue, I think we have had some [success] (ph) of the customer which has helped us grow. The second aspect definitely I want to talk about is consumer goods, the way we’ve had a good deal pipeline and wins as well. Again, consumer goods companies globally are under cost pressure and margin pressure and they're definitely investing in consumer engagement in digital channels. Again, T.K. talked about that where we are seeing engagement. Net-net retail and CG had a good quarter and continues to have opportunities around.

So do we expect retail to now coming back to growth part?

So retail in general irrespective of whether UK, Europe or in the U.S., retailers, if you look at their performance, it has been choppy. So at this point in time the best I could say is that there is drive by the retailers to take cost out. In addition to what I talked about applications, infrastructure and costs, they are also looking at taking cost out at a store level, be it in terms of energy management or taking cost around that, labor and workforce optimization and also managing their store infrastructure much more optimally. So those are the areas we’re getting traction around. And I think it’s led to a better understanding of where the budgets are as we get into this quarter. So right now most of our customers are working on that.

And last question is about just to understand the increase in depreciation. Whether there is one-off or it is only because of amortization increase and this would be the new normal?

So Dipesh, I think this is on account of the certain capitalization which we have done during the quarter and I think this will follow this pattern.

Thank you. Our next question is from Ankit Pande of Quant Capital. Please go ahead. Mr. Ankit Pande, please go ahead with your question.

My question is around the digital deals. I think you mentioned 10 digital deals. Would this be a comparable number to deals that you mentioned last quarter?

No. So the digital deals that we talked about, really in most cases what we started this quarter is really sitting and re-imagining and redrawing processes along with digital as a [indiscernible] and that’s what we are working on. It's not significant enough to add to our revenue, as I talked about earlier. So to that extent, all I would encourage you do is look at them as lead indicators in terms of opportunities as they come down in the future after we've built more and more of the -- working with customers building proof of concepts really can start getting scale in the division.

And also on India and ME, we are seeing very good growth there. But is that rather macro led? Do you think it has something to do with the sales to government in this business environment? Or is that more specific to the situation that faces the Company?

So in oil -- so really if you look at the Middle East, the Middle East market is primarily driven by commodities, especially oil and gas. We are clearly seeing more opportunities coming out of the oil and gas segment in terms of outsourcing. As far as the India market is concerned, I’ll ask Soumitro Ghosh to kind of react to that.

I’ll just give a summary of the Wipro Infotech results. I think if I look at it from the geography perspective, we grew very strongly in both India as well as Middle East and the India part being more heartening. From a vertical perspective, four verticals really contributed to this growth. One is BFSI, second is Telecom, third is Energy & Utilities and the fourth is Government. From a service line perspective, while we’ve been always very strong on infrastructure, but this particular quarter we saw very strong growth on the application side. Coming specific to the question which you asked, Middle East was primarily contributed by Energy & Utilities which is specifically more oil and gas and India was around again Energy & Utilities more on the energy side than utilities and BFSI and Telecom. What is good is that we are seeing some large deals in the India market as well as Middle East market. So we saw four deals of very large size, two of them being outsourcing in nature taking cost out, while two of them are really in the implementation and development space. Two very marquee wins which we won in the last quarter was IDSP which was a new marquee win in the new banking license. So we are really helping them growing out the business architecture for the new banking license. The other one is Andhra Pradesh architecture for the digital world. So broadly it is a pretty strong growth.

Could you just give me a rough split between India and ME in the [indiscernible]? Is it mostly equal?

So Middle East would be 40% and India would be 60%.

And I just had a question on the payment space where we financed two deals here in the latest Q. So could you just highlight what kind of opportunity is there in this space? Is this sort of a new trend, another new area where the backing players are looking to new development and new technologies? It's kind of an exciting space. So do you think that players who are more entrenched having their own traditional products in the backing space have sort of more leverage in this space already or do you think that we can start from scratch and you have as good a fitting as anyone else here?

So fundamentally what’s happening in this space, Ankit, is that if you look at the entire payment space, as new technologies come in, payment, the way we're moving forward the past 30-40 years is sort of fundamentally go through a massive disruption. And I believe that with the technologies out there that are available today, there are lot more things that are going to happen in this space than we've ever seen or even imagined. So clearly from our perspective that's a big push. That’s clearly a differentiator for us, because we’ve done quite a few projects especially with [indiscernible] on the card side of the business and also with the equipment side of the business. And a lot of the work that we're doing has been actually using open source to leverage the technology depth that we carry and that’s really the exciting part of what we're trying to do here.

So do you think that the entrenched banking product players, they don’t really have an advantage in this? Is that the case?

So look, it's like this. I think they’ll always have an advantage at the core. Nobody is going to move out the core very quickly. But what we’re going to see is on the edge they’re going to be such substantial kind of ultimately the score will get disrupted.

Thank you. Our next question is from Ashish Aggarwal of Antique Stock Broking. Please go ahead.

Most of my questions have been answered. Just one thing. In this quarter, were you surprised positively by any verticals where you saw a strong growth helping you achieve towards the upper end of the guidance?

So whenever we give guidance, we give a range. We expect some negatives, we expect some positives. I guess this time around the negatives did not happen, the positives did happen. So it’s a normal quarter.

And secondly, this is more from the industry perspective. Looking at the demand environment sector, do you think as an industry, IT industry should do better than what they ought to do in FY15?

I really can’t answer that question. I can talk broadly about Wipro next quarter, but I can’t talk about industry specifically. If you wait for a couple of weeks, we’ll have the NASSCOM estimates and I think we should just wait for that to figure out where the industry would finally go.

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

Thank you all for joining the call. In case we could not take any of your questions due to time constraints, please feel free to reach out to us. Thank you and have a good day.

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