Wipro Limited (WIT) Q2 2017 Earnings Report, Transcript and Summary

Ladies and gentlemen, good day and welcome to Wipro Limited Earnings Conference Call. As a reminder, all participants lines will be in the listen-only mode and 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, Jas. A warm welcome to our Q2 FY 2017 earnings call. We will begin the call with business highlights and overview by Abid, our Chief Executive Officer and Member of the Board; followed by a financial overview by our CFO, Jatin Dalal. Afterwards the operator will open the bridge for Q&A with our management team. Before Abid 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 detailed filings with the SEC. Wipro does not undertake any obligation to update the forward-looking statements to reflect events and circumstances after the date of filing thereof. The conference call will be archived and a transcript will be available on our website. Ladies and gentlemen, let me now hand it over to Mr. Abid.

Thank you, Aravind, and good morning and good evening to all of you. It is again my pleasure to speak to you. I will begin with comments on the performance of Q2 and talk a little bit about the demand scenario in the IT Services industry as we see and then we have a detailed update on the execution of the six strategic teams that I have been talking about since the last two quarters now. We delivered our revenue growth in constant currency at about 0.9%, closer to the top end of our guidance. IT Services margin for the quarter was 17.8%, which is flat on a sequential basis. The operating margin was maintained in spite of the headwinds we had from the merit salary increase of two months that comes in, in Q2 for Wipro and this was enabled by strong operational improvements, primarily on the teams that we have been talking about, which is execution and discipline on levers like offshoring and utilization. But more importantly, the automation – hyper automation led productivity. And in demand environment perspective, the IT services continues to evolve fast. The tech spend continues to transfer from the run bucket where there’s a lot of focus on cost efficiency, vendor consolidation, hyper automation, simplification into the change buckets, which primarily is digital spend cognitive and artificial intelligence led transformation of the business model in as the service or transaction-based, outcome-based pricing models, and we did see acceleration of that trend to continue. This transition client spend is happening at an operating pace – at an accelerated pace from the companies we believe who will make bold bets to differentiate and capitalize on these opportunities will win. And I believe that Wipro is prepared to make those bold bets and execute on the strategy well. Our early investments in creating a separate digital unit through merging consulting with it, doing the Designit acquisition for the design and the creative part, our BPaaS focus with the HPS acquisition, our investment in Wipro HOLMES, our artificial intelligence and cognitive platform are all kept that we have taken in that direction and executed on it. And this differentiated value proposition is being appreciated with – by our clients and we are seeing some not only good wins, but also good execution on those wins. Also I’m very excited about the acquisition of Appirio that we announced yesterday, which is a leader in the cloud applications, especially across Salesforce and Workday implementation services. Appirio’s leadership in transforming customer and worker experiences, combined with Wipro’s global scale, industry focus, strong customer relationships, and our broader application portfolio and understanding of the customers current landscape creates practice with critical mass, leadership amongst our Indian heritage peers and for our customers in ideal digital partner of the future for – to enable our customers to win in the digital economy. I’ll talk about the client themes, then I will cover those briefing. So the first one out of the six is digital. And we’re pleased to see that our investments in digital have been gaining traction with our clients and delivering results. Last couple of times I’ve talked about the traction in the banking and financial services industry and the consumer industry. This time let me give you an example in the manufacturing industry. We’re partnering with a global contract manufacturing company, which is implementing SmartFactory, a factory enabled by advanced automation, machine learning, IoT and data analytics. Wipro is responsible for enabling the connected journey. And in the first instance, data from the shop floor is being leveraged for knowledge and process automation, involving cognitive involving artificial intelligence and machine learning and some of the technologies that I talked about. During the quarter, we continue to progress in terms of employee transformation. As you know, we targeted to train 20,000 people in digital technologies in this entire year, I mean, H1 alone we’ve exceeded that by training almost 17,500. So I’m confident that through the entire year, we’ll be way beyond the 20,000 target that we have. And this is enabled by futuristic training tools and methodology that we put in, where training becomes a self-service for employees. And we see a lot of enthusiasm by Wiproites in terms of taking that up and transforming themselves. From a revenues’ perspective in Q2, Digital Ecosystem revenues constitutes now about 19.6% of our overall revenues. So the overall growth is quite good, and the revenues from the Consulting Ecosystem now considered about 5% of our overall revenue. So I’m quite pleased with the accelerated pace of traction that we’re seeing in both these areas, which we started measuring and I’m sharing over the past couple of quarters. The second theme is client mining, and client mining continues to be a key focus area for strategy for us. Again, with a leading European technology company, with our integrated services offering, we were able to consolidate our share of the wallet in a rebid process that was aimed at vendor consolidation and it leveraged all of the solutions and tools that we have in the client mining space. From a results’ perspective, the average revenue per client which was about $6 million in Q4, it went up to $6.4 in Q1, and it’s about $6.6 million in Q3. So we’re seeing good traction on that. And this is supported by deep relationship building, investments in the accounts of client partners’ architects and teams, which also has reflected in both our customer satisfaction and the recognition we received from our customers. Last quarter I talked about receiving the award from our top client. This quarter, I want to talk about two awards from leading global retailers. One is a long partnership award for a decade-long partnership, which – where the relationship moved from the traditional IT relationship into the digital enablement and domain centric. And the second award is the 2016 Strategic Partner of the Year, from amongst all the IT and various other vendors that this large retailers – large global retailer has. And let me give you an example of one of the engagement that we’ve done in retail, where Wipro deployed an integrated retail solution across 550 stores for a global retail major, enabling central visibility of inventory, price differentials, cash and sales forecast. The retail solution led to decommissioning of 10 legacy applications and the simplification of the landscape was the value proposition that we had gone into this. And it’s also helped outcomes like reduction of stock, that is the stock that they could get rid of by 90%, resulting an increase in in-store customer satisfaction and inventory turns. In the beginning of the year, I’d also talked that enhanced mining needs, huge investment in the delivery leadership transformation, and they had launched a program called ADROIT that we wanted to cover the top 1,000 delivery leaders across the firm. We have cumulatively trained 488 people who’ve got trained and certified to 23 programs in the first-half of the year. The third theme that we’ve talked about is the non-linearity, and we continue to drive non-linearity with significant investments in intellectual properties in the form of products, platforms, frameworks and solutions. We now have about 70 engagements across diverse industry segments deploying HOLMES. The idea is to touch Top 100 customers with a deployment of HOLMES either in the IT operations, which could be applications, infrastructure, or BPS, or through the domain industry process – business process implementation. And recently we added new status in the mortgage insurance industry. And in the oil exploration business in our ENU vertical as well as incorporate actions and settlements in the capital markets verticals. Let me talk about one solution, which is our Medicare Advantage suite based on the SaaS model. We have seven dozen clients already on this, and this platform has been modernized for cloud and analytics. It covers enrollment, eligibility, verification and claims processing of Medicare providers across multiple states in the U.S. In Q2, we executed three more client contracts of the Medicare Advantage suite. So the focus on selling led by IP has been taken very well by the sales team and we have seen some very good traction. Overall, we continue to invest in intellectual property through protecting it through patent and we filed 97 new patents in Q2 alone, taking our patent to over 1,100 total patents. The next theme I want to talk about is hyper automation, and we’re rapidly deploying both robotic process automation and the cognitive bots as part of our HOLMES platform. We deployed now about 143 unique bots and this has been done across about 75 customer engagements and we have been able to pay more than 2,000 core IT activities to be automated. So 150, 143 is the unique number of bots, but they’ve been deployed across 2.000 activities in a repetitive manner. And on the BPS front, there about 24 bots that we have, which have been deployed across 35 customers to automate about 450 process tracks. Totally – while we plan to release 4,500 people across the year to hyper automation, we’ve already been able to release about 3,200 in the first-half itself. And we’ve been able to successfully retrain and redeploy Wiproites who have been released from these engagements to see some of the growth requirements that we have. Again, let me give you an example of the deployment of Wipro HOLMES for a large European technology company to reduce the number of tickets and the ticket cycle time in their head-desk process automation, where the value proposition that we went into the deal and successfully executed on, was to deliver a truly customer focus and end-user experience based IT support transformation. The next theme is about localization and we continue to focus on localization. We’ve included U.S. as a focus area. Our Mountain View, Atlanta, and we launched the Dallas local delivery center, where we’ve been able to do digital and agile project from. We continue to make good progress in UK, Cellent through the acquisition in Germany, Canada, in Singapore, in Latin America and the Kingdom of Saudi Arabia, where we now have about 200 women in our center delivering engineering services in the Kingdom as manufacturing companies invest further offset requirements in Saudi Arabia. Let me talk about the innovation and partner ecosystem. During Q2, Wipro Ventures completed yet another investment in the Israel-based IntSights Cyber Intelligence Limited. IntSights basically has developed a sophisticated cyber threat intelligence platform, which provides not only advanced warning and customized insights about potential cyber attacks, but also recommends real-time remedial action. Overall, we have now made eight investments and already committed a spend of around $22 million from our Wipro Ventures capital fund, and on an average, we continue to look at about five to eight startups a week, and we’ve developed a core competence from our venture capital perspective to both technologically evaluate and take some of these innovations into our customers. Today, we have 10 plus POCs running across these – leveraging these investments across multiple customers. And the pipeline of the opportunities that we are seeing is quite healthy. Also I want to take about the horizon program, which is internally commonly known as the H2, H3 program, which is promoting entrepreneurship or enabling Wiproites to come up with ideas that we fund again on the same lines of Wipro ventures and incubates disruptive ideas to drive entrepreneurship within our employees. We have invested in 75 such ideas and four in the last quarter, areas around software deploying, Open Source platforms the Managed File Transfer-as-a-Service and so on so forth because we’re scaling well and have started delivering revenues as part of the changes and other we are driving our trend. So I’m happy to note the recognition that some of our strategic partners have given, which have been our traditional partner ecosystem in the technology area. Hewlett Packard Enterprise, Microsoft, Salesforce, IBM have recognized Wipro in various areas of focus in delivering some of the joint go-to-market plan that we have committed with them to bring value to our joint customers. Last quarter, I had mentioned about the launch of Top Gear, the crowdsourcing initiative or the Wipro Private Crowd platform that provides virtual and physical environments not only for employees to gain hands-on experience on various technologies that are in high demand, but also defines the future of work the Uberization of IT that we believe is going to be the next disruption in the IT industry. Since it’s launch in Q1 22,000 unique Wiproites have experienced Top Gear and done at least one engagement on it in our journey towards creating a new culture in the organization for learning and solution building. The very interesting thing also is that it has been leveraged to develop about 100 solutions that are under creation within Wipro, which is Wipro IP. And the Appirio acquisition gives us access to top quota, which is a crowdsourcing platform that already has a large community of about a 1 million members crowdsourcing. So while Top Gear was primarily focused on what I would call as the Private Crowd, Topcoder, accelerates that transformation into the public crowd if you will. And Appirio themselves leveraged Topcoder for sales, presales, design, POC development of the delivery that they do with the customers so that’s a great acceleration of the future of work as we believe will happen in the IT industry. So in closing I would like to say that this is a fast evolving environment, we need to continuously evolve constantly, there is a lot of external uncertainty that we continue to deal with, but we are focused on staying the course on our strategy and we’re executing very well with investing where necessary in the future, both buy and make as you saw through my comments are options that we are open to execute on our strategy and we are seeing good traction on both, where we find a good asset we buy and integrate and make a success out of it and where we see a capability that we can internally invest and build. We continue to do that very well and we don’t hesitate in making the investments. Our strategy continues to find strong resonance with our clients and I’m confident that we will build momentum towards a stronger, sustainable, and profitable growth. With these remarks I would like to hand over to Jatin for a slightly deeper dive on our financial performance.

Thank you, Abid. Good day, ladies and gentlemen. As always it’s pleasure to speak to you. Before I speak on the financial performance of the quarter kindly note that for the convenience of our readers our IFRS financial statements released today has been translated into dollars at noon buying rates in New York city on September 30, 2016 for the cable transfers in Indian rupees as certified by the Federal Reserve Board of New York, which was $1 equal to rupees 66.5 rate. Accordingly our Q2 revenues of our IT services segment that was $1916.3 million or in rupee terms rupees, INR131.4 billion appears in our earnings release as $1973 million based on the convenience translation. Let me first talk about the consolidated Wipro Limited results. Gross revenues for quarter ended September 30 grew by 10% year-on-year at INR137.7 billion. Net income for the quarter was INR20.7 billion. IT Services segment is next in my commentary. IT Services revenue for the quarter grew by 0.9% in constant currency, which was close to the top end of our guidance. Revenues in U.S. dollar terms, however, were affected by a depreciating pound sterling leading to a reported dollar revenue of $1916.3 million, a sequential decrease of 0.8%. Margins in IT Services segment were 17.8%, flat as compared to the margins of quarter one. The margins were maintained in spite of headwinds from an incremental two months impact of salary increase by strong operational improvements in automation led productivity, offshoring and utilization. You’ve head Abid give an update on automation, allow me to talk about utilization and offshoring. We increased gross utilization by 134 basis points to 71.2%, and it is among the highest utilization we have achieved in recent quarters. The revenue mix from offshore efforts has also increased this quarter by 0.5% to 46.1%. Let me now talk about foreign exchange and effective tax rate. On the Forex front, our realized rate for quarter was INR68.55 versus a rate of INR67.89, which was realized for quarter one. As of the period end, we had $2.3 billion of Forex derivative contracts as hedges. Going forward we see currency is remaining volatile especially pound sterling in the quarter to follow. The effective tax rate for quarter two was 22.2%. Now, let me talk about cash flows. For the quarter, we generated robust operating cash flow of INR26.4 billion, which was 127.5% of our net income and free cash flow of INR19.5 billion, which was 94.5% of our net income. As you can see, these are very good measures. For the first-half of the current fiscal, the operating cash flow was 99% of net income as compared to 85% of net income during the first fiscal of last year. During the first-half of the fiscal 2016, net cash on the balance sheet as at September 30, 2016 was INR189 billion, or $2.8 billion. As you might have read, we announced the acquisition of Appirio, our global cloud services company yesterday. The purchase consideration of acquisition is $500 million. Appirio is headquartered in Indianapolis with an employee base of 1,250, and that calendar year 2015 revenues were $196 million. Let me talk about the outlook for the quarter ending December 31, 2016, we have guided for a revenue growth in IT Services of 0% to 2% sequentially in constant currency. The exchange rate is mentioned in the press release. We expect to consummate the Appirio acquisition in quarter three and hence revenues from the acquisition are included in our guidance. We will be happy to take questions from here. Operator, you may open the line now.

Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Moshe Katri from Wedbush Securities. Please proceed.

Okay, thanks. Good morning. Good performance in margins. A couple of questions on Appirio. So based on my calculations if we exclude Appirio from your guidance for the next quarter, your sequential growth is going to be anywhere between, I don’t know, 0% to minus 1.6%, is that kind of ballpark correct? And then Appirio had some issues in terms of the cloud sourcing business making it work. And I don’t know if they were able – ever able to make this work, how do you suggest fixing that as part of Wipro? Thanks.

Yes. Hi, Moshe, I will start with the first question and then I request Bhanu to take the second question. So, Moshe, as we have shared, we announced the acquisition yesterday, and we will close the acquisition during the course of the quarter. And based on what we think would be a reasonable time period for customary closing conditions and regulatory approvals, we have factored in the guidance, the revenue coming out of Appirio. And as you know, we have never broken our organic and inorganic revenues from a guidance standpoint. So I’m unable to share or confirm an organic revenue number there. But we have made a reasonable estimate of what we’ll get out of Appirio and that has been baked in the guidance range that we have shared with you.

So, Moshe, this is Bhanu here. This is regarding the question you asked about the cloud sourcing platform. We already have an internal platform that we utilize for doing work internally. Abid referred that in his opening remarks, they just call the Top Gear. And what we believe is that, first of all, the top quarter business for a period is a small part of the business. And second, we could leverage that for our internal use as well as for some of our customers. And people actually augment the platform that we already have.

Okay, I understood. And then…

Moshe, here we believe is that cloud sourcing for customers is right now, I would put it on late horizon to early horizon, three kind of activity, because it is like what cloud was in 2008/2009 that security, data privacy, intellectual property protection and lot of other questions are yet to be answered. But our experience from Top Gear has told us that it is a significant advantage for what I call as private cloud, which is for Wipro I should be able to use it. And this gives us a lot of early experience, both for private cloud and public cloud and that is what that excites us about the platform.

All right. And just final question, what are you doing just to make sure that Appirio’s top talent doesn’t kind of bailout before – after the acquisition, maybe you could give us some color on that? Thanks.

So we’ve created what I would call as a playbook for acquisition integration. The most recent one, which has been about a year old, I will talk about which is Designit, where we decided to leverage the brand to attract the skills that we want to attract and continue to command the pricing and the customer differentiation that it has. And we over the one-year successfully executed on it, at the same time leveraging revenues able to get those capabilities into some of our large accounts’ key client portfolios. That model has worked quite well for us. We replicated that kind of integration for HPS and the whole idea for Appirio is also that Appirio will be our cloud application services practice. We are reverse integrating whatever about a $40 million practices that we already had into Appirio and within the deliveries to Appirio keeping some of the cultural aspects of Appirio impact, while there will be a higher level of financial integration and there will be a very concerted effort on both the markets that we are able to accelerate the pace of taking that capability across our customer portfolio, at the same time maintaining the uniqueness of this. Obviously, as you would imagine, we’ve also – talent is what we get as part of all of these acquisitions and we developed a good playbook around some of the earn-outs that we provide into the management team and we’ve replicated the same for Appirio as well. Essentially, we believe that providing the right environment, continuing to maintain the brand and the culture which has made it successful and providing the larger growth opportunities by opening the full canvas of Wipro in terms of its global customer reach and combining with some of the services and capabilities that we already have, for example, the managed service and support capability that we have for ERP and enterprise applications could further enhance Appirio share of the market that it can get, and we plan to execute on that strategy. So we feel very comfortable in terms of retaining the talent and being able to give opportunities for growth to not only that talent, but also to be able to transform some of the Wipro’s talent into those new technologies. And Designit is a good example. If you remember about a year back, we acquired Designit, which had about 300 creative designers. While we were able to hire 20 or 30 internally at Wipro, we reverse integrated them into Designit. Today, as of last count, about 450 designers are within the Designit umbrella, which is about a 50% growth of that, primarily very low attrition of the existing talent and ability to build on top a similar skills and attract some of the best talent within the market through the brands. So we feel quite comfortable replicating that acquisition integration strategy for HPS, for Appirio another acquisition that we did.

Thanks, guys.

Thank you. The next question is from the line of Pankaj Kapoor from JM Financial. Please proceed.

Yes, hi. I had just a few question again on Appirio. So if you can just give me what the share of revenues for the Topcoder would be, any idea on that?

Yes. Hi, Pankaj. Pankaj, the biggest benefit of Topcoder is what the opportunity it brings to us in terms of cloud sourcing. The revenue is not large, but the capability is very powerful and that’s what [indiscernible] seem to.

Okay.

And it’s very small percentage for – of the total revenue that we have disclosed.

Okay. And from a margin perspective, is it fair to assume that this will be maybe, given it’s onsite-centric and consulting kind of a work, it would be more of a high single-digit kind of a margin profile for Appirio?

Yes. So, Pankaj, this is – the margins are very similar for the companies in this space, which are growing rapidly and investing in building the capabilities and investing in SG&A that is needed to continue to build the growth momentum. I would put it slightly differently. I think they delivery tremendous value and that value is reflected in the business model that we are able to see in the P&L. So, overall, I would say, yes, margins would be akin to a company of this nature. But overall value proposition is quite powerful the way it is represented in the business model.

Okay. And I understand that they have some offshore presence currently, right? They have a center, I believe, in Jaipur, if I’m not mistaken. So I was wondering that if they have a slightly different profile of margins. So, that’s fine. And lastly, in terms of the senior management team, what’s the kind of a period that you have for them to be with the company, the lock-ins, or in terms of retainership structure that you have, any sense of the timeline like it is three years, four years or lesser than that?

Pankaj, the plan is to have them forever…

Of course.

…by ensuring that we grow the business and give them opportunities to grow with us.

And lastly, Abid, maybe you can answer this, that we are trying to, of course, build our digital footprint rapidly, and I think inorganic appears to be quite a key component of this. Designit has been one good acquisition and this also appears to be fairly interesting acquisition. So, while I understand there are – you have a structure in terms of ensuring the integration of Wipro service lines with the acquired entity service lines and all. But how about the cross-selling of services between these entities themselves? So what’s the plan in terms of ensuring that there’s active synergies flowing in-between, say, Designit and Appirio also, not just between Designit and Wipro, and then Wipro and Appirio? So what kind of an overall game plan do you have as you go ahead in terms of building out this digital portfolio?

So let me answer it in a slightly different way. The day we operate Wipro is we operate it across about 27 verticals that we have, or we operate it across the six major geographies that we have, or we operate it across six service lines that we have. And there are sufficient forums that provide the ability for each one of these operating units to synergize with each other. For example, some of the customers that we have in the manufacturing SBU, leverage our healthcare and life sciences SBU quite effectively to be able to provide services to some customers who are not only traditional technology manufacturing, but also have medical devices and diagnostic component of that. So the world going forward is going to be much more matrix, where there’s a need, a vertical becomes a horizontal service lines is a horizontal and there’s an interplay of integrated services across multiple horizontal. And this is the DNA that we are transforming the company into and some of the steps that we took in August to October last year through the initiative, which we named as Drive internally, to enable the might of Wipro to come together, the integrated services that I talked about in some of those quarters have now become a way of life in Wipro. So I would not have a different strategy, for example, for Appirio and Designit to come together. It is exactly the same strategy through which any one operating unit of Wipro comes along with the other operating units and provide them integrated service, which is relevant to the context of the customer. Let me give you a couple of examples from the existing acquisition. HPS is an acquisition we did recently, as you know, and through our IFOX acquisition, we had acquired the Medicare business, and we’ve been able to effectively create integrated offering of under 65 or over 65, which is an innovation in the industry and has been cross-selled [ph] very well to not only some of our existing peer customers, but also position to some of the new clients as well as a powerful offering that by bringing the two capabilities together, bringing Wipro HOLMES on top of it for mining and analytics of data across these two platforms that data can be effectively monetized by our customer. So this is the way of life. And I would say as an organization, we are getting better and better. We are not perfect, that’s not how we’ve historically been operated. But I’m very encouraged by the momentum and the value that operating leadership sees in cross-leveraging. I can go on with examples after example. For example, a lot of technology customers who sit in the technology vertical today are disrupting the financial services industry. And for them, actually our payment domain becomes a horizontal rather than a vertical. So it is happening across the Board and we have a concerted effort. It actually is part of all of the training and stuff that we are doing for teams to be able to leverage the might of Wipro through the One Voice sales transformation program and the ADROIT delivery transformation program, where our leadership across the organization has a minimum level of understanding of organization like capabilities. And then we have processes in solutioning by bringing all the service line capabilities under Bhanu, our Chief Operating Officer to be able to integrate those before we take it to the customer rather than the customer having to integrate some of these capabilities from within Wipro across their multiple providers. And another example that we talked about last time is a bank in UK, which selected us for their – as their digital transformation partner, replacing two of their incumbents. One, the design space, which was a niche company and one in the technology delivery space, which was one of the traditional competitors. And we could integrate both of them and provide us a reduced handoff for the customer and provide a more outcome focused model for the customers. So this is becoming the way of life. It needs continues focus on investment and that is what we are doing through training of safe and delivery team.

Sure that’s quite comprehensive. Thanks and all the best.

Thank you very much. The next question is from the line of Keith Bachman from Bank of Montreal. Please proceed.

Hi, this is Steve Schneiderman calling in for Keith. Thank you for taking my question. Wanted to start off talking about the Financial Services sector, growth for the quarter was only about 2.8% year-over-year, constant currency, below your company averages. Can you talk about some of the dynamics that you’re seeing within that segment right now?

Jatin, can you take that question.

Yes, yes I am sorry, I was in mute. So here are the trends that we are seeing right, we continue to see a very strong shift in spend from run to change BFSI. The change engagements in particular are driven by digital, agile, DevOps initiatives. Our strong capabilities in these areas have positioned extremely well for winning in this space and we continue to see an acceleration in wins across the entire be BFSI client portfolio. And also in anticipation of the shift we have already scaled up and we will continue to scale up strongly the unique skill sets that are required to service the space. The next trend we are seeing is that there is an increasing shift towards IT plus BPO platform lead deals, particularly in the securities and capital market and insurance space. This is an exciting trend that can result in annuity revenues through long-term contracts. And finally revenue growth in the run side where we are seeing the shift, in our view will be driven by winning highly competitive consolidation deals. And profitability in the run part of our business will rely on implementing hyper-automation driven efficiency and productivity realizations. Our win rate in such consolidation deals continues to remain strong. So, basically these are the key trends and digital is happening its real and is definitely top of the agenda for all CIOs in the BFSI space.

Okay. I mean, is there any challenges that you’re particularly finding that’s impacting the growth, for why it would not be at higher levels like the rest of the company average?

Yes so see the challenge has really come about because of the fact that these shifts happening even at our client base, okay. So the end state looks very promising in fact. I think we will see some choppy growth particularly as these shifts happen and as these consolidation deals happen and in fact as you also have to realize as you win these consolidation deals we go through some very long elongated transitions. And when we do these transitions we actually are adding people, but we are not recognizing revenues yet because of the nature of the contract because transition in these deal, you know we do not charge exclusively for transitions in these deals. So that again causes a choppiness, but in fact if you look at the addition of headcount in these areas, particularly in consolidation deals is actually increasing very rapidly and that bodes well for our future growth.

Okay great. Thank you and that was helpful. Just more general to the entire company, are you seeing any changes in the pricing environment over the past quarter or so and as you look forward?

Well on pricing I will let Jatin speak, but I do see pressure on the overall cost of ownership on the run side of the house that customers are demanding and given the competition and the provider space overall is aggressive. There is a total cost of ownership that however the strategy and focus at Wipro that we are driving is while we provide the services to the customers at the price point that makes the customer win, internally we drive the level that we required to drive, specially hyper- automation and the operating discipline. To be able to realize the revenue per employee or the pricing that we think we are comfortable that’s in terms of our aspirations and our clients.

Okay great and one more from me on the margin front. You had painted a picture on the last call that you weren’t going to see all the benefits from the productivity offsetting the wage impact for Q3, and it sounds like that’s holding true again. My question on the margin front is a) was there any impact from foreign exchange in the quarter, and did that hurt or help you? And b) how much of the pick-up in margins are you theoretically expecting to – for the productivity to be able to offset all those wages as we move forward?

Yes, so we in quarter two, we did not have any material impact of foreign exchange on our operating profit line. However, in quarter three the currencies are volatile as we have spent 20 days and we will watch it carefully. Sorry, can you repeat your second question, I missed it.

The part b of that is, as we look forward and as productivity offshore and utilization starts offsetting all your wage increases, how much margin increase should we be looking at as we look forward for Q3, Q4, et cetera?

So you know we don’t guide on the margin, but you know as we enter quarter three of, let me first talk about quarter two, quarter two we had two months impact of salary which we were effectively able to mitigate through the variety of levers that we spoke about which is automation in off shoring and utilization. And that I think was quite satisfactory from our execution standpoint. Now as we enter quarter three we have investment in form of Appirio that we have made and it will have its impact on margin as depending – as we consolidate the quantum of revenue into the quarter. And second is, I would look at the volatility in currencies, which could potentially have a headwind to the margin. Apart from these two we don’t see any large headwinds or any other headwinds on the horizon and we will continue to invest our efforts on utilization off shoring and automation. And you know, see how much of that is offset. The other factors of course are furloughs and related impact on revenue, but that has been factoring the revenue so I wouldn’t separately call those out.

Okay great that answers my questions I’ll see the floor. Thank you guys.

Thank you very much. The next question is from the line of Sandeep Shah from CIMB. Please proceed.

Yes, thanks for the opportunity. When I look into the guidance for the 3Q, my sense is it’s one of weakest 3Q guidance in the last several years, because generally 3Q turns out to be better seasonally for Wipro, despite furloughs, as a whole. And Abid, I think there are several transformational deal wins, which we have spoken about last quarter in the Europe BFSI; this quarter about manufacturing and retail, which you have spoken about. So a lot of things has been changing on the transformational side in terms of the wins. However, our organic growth does not pick up. So what is your post-mortem analysis, because you are also in the system now more than one year? So what is your analysis, when do you believe that this is a bottom and the organic growth will pick up, besides the client-specific issue, which we keep talking about?

So Sandeep if you look at our performance in Q2 across verticals, the good news is that growth is very secular on a constant currency basis, although the currency impact across verticals are different because of the GDP and hence it doesn’t become visible in the reported currency, but constant currency except for manufacturing and technology, every other vertical has had a positive growth momentum, that to me is quite encouraging. And in the manufacturing and technology also we are a little more challenged on the technology side of the portfolio compared to manufacturing. So that gives me positive confidence, but we do continue to live in an environment where a level of surprise does keep hitting us like there is an uncertainty because of Brexit and its impact. Although we’ve not seen, except for the GBP depreciation we have not seen direct client impact on that, but there is a level of spending slowness that we see due to that kind of uncertainty. The U.S. elections have lent it themselves to certain uncertainties on spend, especially for WIPRO because ENU has been a large portfolio for us, while oil prices have achieved, this is what I would call as a level where companies are willing to plan and spend, I don’t think we would see that spend before our Q4 and their new calendar year for budgets to become available. And we did see a little bit of an unexpected slump in retail and the overall consumer business for us which was going quite strong in general and you can either have good deal wins and consolidation wins, but in Q2 typically there is higher spend because there is normally seasonally free spending in Q3 given that that is their season of highest revenue generation and they don’t encourage a lot of IP changes in deployments, but this time we saw headwinds in Q2 itself. So those levels of uncertainty do get built in the guidance that we give out, while we continue to execute very well, you know we have a healthy pipeline we have a healthy fulfillment rate internally for the skills that are in demand in our customers. So, as long as we see demand we have very good confidence to be able to fulfill that but the title that we give as you know takes into account what we see on the day that we give the guidance and that does have the reflection of what we can see with certainty.

Just a follow-up on the energy utility, I think in your earlier comments you said that it all depends about the stability of the crude oil. And if you look at, of late, there is no much volatility. So, do you still believe that the bottom has not reached and it will not be still a recovery phase, it would be still a stable to a declining phase?

No, I do I am more optimistic than I ever was in the last three or four quarters on our ENU vertical, which also includes the constant currency growth sequentially of about 1.3% and on a ENU vertical this time. So, as you rightly pointed out, I was so bigger votary of stability in price rather than a certain price, oil price at a certain level because the stability allows the organizations to plan their spend and once they plan their spend we do end up being in a lot of cases the choice of the vendor they go with. So, I think that if the prices stay in this range bound manner or for oil and if there are no further uncertainties on political front or geo front in the oil sector I think we will see an uptick in terms of services and spend. They have a level of pent-up demand in digital transformation as I talked about one of the example that we have been able to apply homes in some of the upstream oil production space. We have a very strong domain consulting practice. We have a very strong presence in the sector across the various stakeholders of the sector. So, I think if we don’t see for the surprises in terms of the business environment I would exhibit a level of optimism that I have not exhibited in the past as ENU vertical.

Okay thanks and all the best.

Thank you. The next question is from the line of Nitin Jain from Credit Suisse. Please proceed.

Hi good evening this is Anantha actually. Abid, just if we look at your acquisition strategy over the last couple of years, and has been a lot more aggressive than that of many of your Indian peers. And many of them have actually looked quite interesting and promising as well. But, overall, growth has been so weak compared to the same peers. So, what would you – and I know you all don’t break out your revenue growth into organic and via acquisitions, but what would you attribute this weak growth? Has the acquisitions been a positive contributor, or have some of these actually dragged down revenue?

So very good question Anantha, my view about Wipro is that there are three parts to our overall strategy. The part number one is the change and transformation that is happening in the market. Part two is some of the Wipro specific and you know I won’t go into the details because we’ve talked about it over the past 3, 4 years, but Wipro specific challenges and headwinds that we had, which did not allow us to have industry-leading performance in the past few years. And the third is some of the ongoing external uncertainties that show up which is more across the industry and in some cases we get impacted a little bit more like in the oil and gas, and in some cases we get impacted a little less like in Brexit. I think so the dynamics to answer your question is across all the three and if you look at the six strategic theme that I have been talking about and we as the management team have been executing on it. It addresses all the three quite adequately. It takes care of some of our historical challenges whether it is plant mining, integrated services, consolidated selling et cetera, which I could call it as a little more Wipro specific. It addresses the change in shift happening in the marketplace, which primarily you see a track of M&A doing that because there is already a lot of work have time for us to do within Wipro in getting to what we would call as a norm, but we in in parallel pursued a strategy of M&A for going beyond the norm and the future ready, and that you see as part of the acquisition. And then obviously like the entire industry uncertainties that creep in, we try to address it on a very nimble footed basis and that’s also behavioral change and a culture change that I think we are successfully undergoing as an organization. We are agile and responsive to market changes and we are able to – like technology changes we are able to predict or if not predict at least react swiftly to some of those, so it does not doesn’t have a more than what I would call as a reasonable impact on either capacity built and hence margins or capturing demand as in our ability to sell and have the expertise to fulfill and deliver it. So slightly complex answer to this, but the way I look at it is, it’s about three moving parts and you know to get to industry-leading growth and margin we need to work on all the three together and I feel very comfortable, but as a management team both our strategy addresses that and our execution is focused on all the three parts.

And just as a follow-up, Abid, would you say that you’re satisfied with the way these acquisitions have panned out for you?

Yes. I would say that I’m quite satisfied with the acquisitions that we’ve done thereon from a business plan perspective, they are on plan, design is slightly above plan. We have been able to do more synergy then we had only originally planned. HPS has had a little bit of current uncertainty again given the U.S. elections and as you are aware, some of the payers who are our customers have either decided to or certain to withdraw from the public exchange domain, which HPS addresses. So, this being the enrolment season Q3, our Q3 which is October, November, December is the open enrolment season and there is a level of uncertainty on that depending on how things pan out and it also has, the U.S. election has some bearing on that as well. So, but for that I think the synergy win has been very good, we have been able to penetrate some of our existing customers with HPS offering. We have been able to integrate some of the other services with HPS and most importantly we have been able to build a business model of BPAS, business process as a service or business process on the cloud, which we are extending to some of the other service offerings and some of the other IP. And from that perspective HPS has been a very successful acquisition. Cellent which is a local market present in Germany has panned out well. We have been able to cross sell in that, but that – just by the nature of the geography, some of the geographies like Continental Europe or Japan and other states are slightly longer so the time horizons are longer. So you know, while I can talk about design it where you were able to more quickly accelerate the synergy benefits. Cellent, again as per plan is factored into taking longer time to be able to deliver all the benefits, but it is on plan broadly, is what I would say, and a period of quiet thing, but I’m very excited about that as well.

All right thank you ABid.

Thank you very much. Ladies and gentlemen that was the last question. I now hand the conference over to Mr. Viswanathan for closing comments. Over to you sir.

Thank you all for joining the call. In case we could not take any questions due to time constraints, please feel free to reach out to the investor relations team, have a nice day.

Thank you very much members of management. Ladies and gentlemen on behalf of Wipro Limited that concludes today’s conference call. Thank you all for joining us and you may now disconnect your line.