Wipro Limited (WIT) Q3 2017 Earnings Report, Transcript and Summary

Ladies and gentlemen, good day and welcome to the 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, Uday. A warm welcome to our Q3 FY17 earnings call. We will begin the call with the business highlights and overview by Abid, our Chief Executive Officer and Member of the Board; followed by 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 the Private Securities Litigation Reform Act 1995. These statements are based on management’s current expectations and are associated with uncertainties and risks, which may cause 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. The conference call will be archived and a transcript will be available on our Web site. Ladies and gentlemen, let me now hand it over to Mr. Abid.

Thanks, Aravind. Good day ladies and gentlemen. Since we are talking to you on the eve of India’s Republic Day those of you joining from India very happy Republic Day to you. As always, it is a pleasure to speaking to you. I begin with the comments on the performance of Q3 followed that with a view on the demand scenario, and then an update on the execution of our strategic teams that I have been talking about for the last three quarters. So in Q3, we delivered a revenue growth of 0.6% in constant currency, which is within our guided range. Operating margins for IT services has improved by 50 basis points on a sequential basis to 18.3% on the back of strong execution. I believe the demand environment for IT services is in a interesting period. In 2016, while there was focus on cost efficiency on the run side of our business the spent on change side has not picked up due to the uncertainties around Brexit and the U.S. election. In this calendar year, we believe clarity will emerge and we expect an uptick in the client investments. Although, it might be a little bit early to call out. We continue to have a very good funnel, and we are engaged in a large number of deals. And we are closely monitoring the decision making cycles of these deals. However, we are particularly watchful on two specific areas of our business. One, the healthcare business where we are heavily invested, and there is a transaction phase, and once there is clarity on the regulation of replay of the ACA, till then we expect to see certain uncertainties and headwinds. The second as I’ve mentioned last quarter, we are well underway in a restructuring of the India and Middle East business. And in the near term, we will continue to receive certain headwinds from that part of business. At an overall level, we are making progress on the strategic breadth to get a share of the changed business from our clients, and we are seeing success in getting a disproportionate share on that part of the business. Our early investments in digital, in business process as a service and overall as a service business model. On Wipro HOLMES, our artificial intelligence platform and cloud application services are providing differentiated propositions across our existing clients and new clients. Let me drill upon the progress that we have made across the six strategic themes that I have been talking about. Wipro Digital has been engaged to lead a DevOps transformation initiative at the global bank. We continue to see very good traction across our digital offerings. Wipro will support for this particular client Process Consulting, Training & Coaching their staff, DevOps Engineering and Enterprise Architecture, services being provided by us as well as Blueprint definition and implementation. For another leading American financial services firm, we have been collected to architect the cloud based solutions to improve the engagement of their consumers across all of their business units. A leading bank in Asia-Pacific has selected Wipro to design and deploy their front office applications using a leading cloud application platform. In the week start of the announcement of demonetization we have worked with a large number of banks and Fintech clients in India to help them address the digital payments opportunity within the Indian market. For NRGi, a Denmark based utility provider, Wipro has been acknowledged in terms of contributing in implementing the most competitive difficult solution in the Danish market in a time bound manner. The digital ecosystem captures the entire gametes of digital spends of our client, which we have started reported. And when we first reported for under 18% in Q3, it is 21.7% of our revenue, which has grown by 4.5% organically and including a period loan over 9% sequentially. Similarly, our consulting ecosystem is now 5.5% of our revenue growing 7.9% sequentially quarter-on-quarter. The enthusiasm of our employees in rescaling themselves has surpassed our expectations. In the three quarters of this year, on the TopGear initiative, we have up-skilled over 30,000 employees and certified them on digital technologies, such as big data, advanced analytics, cloud, mobility, usability, security and DevOps. In such, as employee perception survey, which we do in December every year has shown an improvement of 12.5% in terms of overall employee satisfaction, and this is on the back of significant criteria for employees having the perception of having sufficient opportunities to learn and grow in Wipro to help prepare themselves for the future of the industry. Let me talk about client mining, which continues to be a key focus on our strategy. We have seen success in mining in some of our large clients. One of the examples is one of our utility customers in UK has expanded their business, leveraging our acquisition in Germany to now provide them services in Germany, as well which more than doubles our presence with that client. Our initiatives to put together our offerings of integrate services is gaining traction with our customers. One of the financial services client in Australia has undergone vendor consolidation exercise to choose a single vendor for providing multiple services that they consume. Wipro is differentiated by its IT, which is service mixed and assure mixed has one bad deal, and now we are consolidating services across multiple incumbent service providers for this particular customer. Our overall customer satisfaction has improved by 230 basis points sequentially. In the beginning of the year, I had announced that we had launched the program for delivering leadership transformation quite adjoined. 700 delivery meters have now undergone this program across three quarters, and we are seeing positive results in terms of proactive propositions being driven by the delivery teams, and we wiling and starting these engagements completely initiated by the delivery partners. In Q3, we have added one customer in the greater than $100 million bucket. Let me talk about non-linearity, we continue to drive non linearity through investments and intellectual property in the form of products, platforms, frameworks and solutions. Wipro HOLMES are flagship artificial intelligence platform, continues to be a differentiator in the marketplace. A large international process manufacturing company has selected Wipro as a preferred IT vendor for their entire IT landscape. HOLMES will be able to deliver 40% productivity for this particular customer. Wipro’s IT solutions are designed to tackle some of that industry vertical process challenges as well. And this quarter, let me give you an example of what we are doing in the telecom space. As media and telecom companies empress virtualization technologies to help reduce infrastructure cost and time to market and enable a much high degree of automation, there is a need for these companies to touch whether their cloud solutions satisfy the needs of carrier great applications. VEVATO is a Wipro’s assurance framework, which tests the production readiness of Telco Cloud infrastructure. One of the largest North American Telco’s has chosen Wipro’s IT to health in verification validates of network and cloud infrastructure. During the quarter, we have filed 140 new patents for intellectual property, taking to the total number of applications to 1,353. Also, hyper automation continues to deliver significant traction with our customers. We are rapidly increasing the deployment of HOLMES, our automation platform across our key clients. We have now been able to deliver productivity and redeploy 7,000 Wiproites across 120 customer engagements throughout Wipro. We now have 200 plus unique bots, deployed over 1,700 instances in our delivery centers. On localization, we continue to focus on localization and primarily and in U.S. we’ve seen significant success. We continue to hire locally and invest in the delivery and innovation centers across Indianapolis, Dallas, Mountain View, Atlanta, Tampa and a few other cities within the U.S. And we have seen some good traction in getting customer deals, especially in the digital space in delivering agile and DevOps and distributed agile from beginning these local centers. Our investments in key geographies, such as Continental Europe, Latin America, South Africa, are also in line with our long-term plan to position Wipro as a local player in these markets. Today, we announced the acquisition of Info Server in Latin America, which again provides us a local beach-head within the Brazilian market. Let me talk about the ecosystem sliver of our strategy. So Wipro is building a strong portfolio of differentiated solutions through our investments in very promising start-ups. We have now done nine investments of over $22 million to-date, and are on the pace to invest about $22 million to $25 million every year across eight to 10 investments that we see of value. The ventures ecosystem, we have won five deals in partnership with our portfolio companies in some of our key clients, as well as in new clients. In addition, we have over 20 ongoing POCs, and we expect quite a few of them to result in converting into larger deals. We see a strong desire of our customer to adopt these solutions and bring to them innovative technology that is now available in the market as a provider, as a strategic provider for them. I have spoken about the horizon program, which we commonly call as H2 H3 as part of my remarks last quarter. Since the inception of this program, we have evaluated and invested in 18 ideas in areas like AI, analytics, software defined, Open Source platforms, such as Managed File Transfer-as-a-service, or MFTaaS as we call it, and industry such with capabilities in various industry verticals. Many of these have grown to be practices of scale and helped us differentiate with our client. Horizon is the entrepreneurship initiative for Wipro employees to come up with proactive ideas of IP creation that is funded exactly like a venture fund and has a governance of venture fund, but it is all internally generated ideas and internally encouraging some of our top talent to have a start-up like environment within. In the current fiscal year, we have acquired 34 clients across all of these themes, in industries such utilities, banking and telecom. Six out of these clients are new logos for Wipro. In addition, we have successfully delivered 25 POCs and pilots from within the horizon program. In Q3, we have approved and started 14 in areas of cyber security and digital. We continue to invest in top quarter, which is one of the leading platforms of crowdsourcing. And we are investing in the area of traditional software development lifecycle in distributed agile and data sciences area. The initial response of our customer to pile the crowdsourcing platform is very good. And although it’s relatively young between the Wipro’s ecosystem we are finding very good traction in the crowdsourcing space. Wipro continues to gain recognition amongst industry analyst and advisors. In analyst report, Wipro is in the leadership quadrant and 43 services in 2016 compared to 15 services in 2014, which essentially demonstrates the completeness of our vision across various service areas and our ability to execute in customer situations and get market success further. In closing, I would like to say that Wipro is positioning well to be leading information technology Services Company of the future. Our bold investments in digital strong investments in key markets of growth and restructuring parts of our business in line with our strategy, is starting to deliver results. With this, I will pause and hand over to Jatin.

Thank you, Abid. Good day, ladies and gentlemen. As always, it's a pleasure to speak to you. Let me start my financial commentary with the consolidated Wipro submitted numbers. The gross revenues for the quarter ended December 31, 2016 grew by 6.4% year-on-year to INR136.9 billion. The net income for the quarter was INR21.1 billion, a decrease of 5.7% year-on-year. Let me now go through IT services segment. IT services revenue for the quarter grew by 0.6% in constant currency, which was in-line with our guidance. The revenues in U.S. dollar terms were affected by strengthening USD, leading to reported dollar revenue of $1,902.8 million, a sequential decrease of 0.7%. IT services margin for the quarter was 18.3%, an increase of 50 basis points over 17.8% of quarter two. The impact of additional leaves, shutdown and investments in acquisitions in form margin dilution, was offset by improvement in our core operations. We had one-time benefit related to purchase consideration of Designit, which was offset by additional margin impact in India related business, and effectively therefore the margin expansion came through core operations. On ForEx front, our realized rate for quarter three was 69.35% versus the rate of 68.55%, which was realized in quarter two. As of the period end, we had about $2.5 billion of ForEx derivative contracts as our hedges. The effective tax rate for quarter three was 23.3%. For the quarter, we generated robust operating cash flow of INR26.4 billion, which was 125% of our net income, and free cash flow of INR21.9 billion, which was 104% of our net income. For the year-to-date of the current fiscal year, the operating cash flow was 108% of net income as compared to 90% of net income in the corresponding period of previous fiscal. Net cash on balance sheet as of December 31, 2016 was INR175 billion or $2.6 billion. As you might have known, we completed acquisition of Appirio, a global cloud services company on November 23, 2016. There is a lot of encouraging news about the synergies that we are gaining from all across our customers and their customer base. We also announced an agreement to acquire InfoSERVER, a company based in Brazil for a consideration of $9 million to-date. It’s a small acquisition but provides a solid footprint in Brazilian operations for us. The acquisition is subject to customary touring conditions and regulatory approval. We expected to consummate the transaction by March 31, 2017. You might have also read about announcement of our divestment of our EcoEnergy’s division. The revenue of this division was reflected as part of our IT services segment. We have signed an agreement to divestment to UTC Group at a valuation of $70 million. The sale is expected to conclude during the course of the current quarter, that is quarter ending March 31, 2017, and is currently subject to receipt of necessary regulatory approval and closing conditions. Now let me talk about the shareholder returns we have always tried to enhance the shareholder value for our investor stakeholder, value for our investors. The Company’s policy has been to provide regular, stable and consistent payout plus distribution of returns. Our payout ratio for fiscal '14-'15 was 41%. The payout ratio for fiscal '15-'16 was 48%, including the buyback program that we’ve end during the course of the year. In the Board Meeting today, the Board of Directors approved an interim dividend of INR2 per share. There is no change to our payout philosophy, and we will continue to follow through the course this year. Our outlook for the quarter ending March 31, 2017 is as follows; we have guided for a revenue growth in IT services within a guidance range of 1% to 2%, sequentially, in the constant currency at the exchange rate that we have mentioned in our press release. We do not guide our margin as you are aware. We have a good solid operating rhythm in place that we have been executing on for last few quarters, and we are confident and encouraged by the success of the space. As Abi spoke about in his commentary as well as in the press conference, we do have certain revenue headwinds in India and Middle East business, led by the restructuring. We are also watching the regulatory development carefully in the healthcare space in United States, because it could impact the planned decision making and our ability to earn revenues in that segment. Overall, we are confident that we are making right investments and change the business sites, and generating right productivity benefits on run the business site. Overall, we are quite happy with the progress we have made. We’ll be very happy to take questions from you.

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

Just to go back to the acquisition of Appirio. If I remember correctly, when there was announced last quarter it was supposed to close by the end of December, now it’s been pushed out to the end of March. Is that -- what’s actually going on, is there a reason for that? And then just to confirm that the guidance for IT services for March, for the March quarter, is all based on organic growth or organic revenue growth contributions? And if not, maybe you can give some color on that.

As you might have heard, we have concluded this transaction so this transaction is concluded as of November 23, 2016. And hence, we had five week revenues in quarter three, the quarter ended December. And we will have corresponding remaining quantum of revenues that will get consolidated from March quarter. But, acquisition is done and completed.

So, what’s the contribution, what’s the expected contribution from a period from March, and is there a way to get us some organic sequential growth expectation, so we’ll know exactly how we’re looking at this on an apples-to-apples basis?

Moshe, we have shared our overall guidance, and once the acquisition starts getting consolidated, we don’t give out separate numbers as you might be aware. But I’m sure you can make such a mathematical assumption.

And then Middle East and India, obviously, underperformed during the quarter, you’re talking restructuring. Are we having any specific problem contracts in those areas that we’re seeing that weakness? Is it an execution issue, maybe you can get some color on that?

Moshe, there are two parts one is that we are refocusing ourselves to be in the core value operations that we believe we can generate a lot of customer value for ourselves and for our customers. And therefore, there is a restructuring in the way we look at this business. For example, earlier India and Middle East was run as our single -- a joint ownership. Now, it is being separated. India would be separate and Middle East would be separate. So, there is a full whole impact of the new way of doing business there. And second there is, of course, there are contracts that we are investing to complete the customer commitments that we have made in past and come out with a positive feeling with customer. And that has also impacted the profitability side. And these contracts are typically in government domain, and that has also had a little bit of impacts on our profitability.

And then the final question, when do you think we’re going to get to a point where Wipro does come out and post growth rates that are in line with the industry, and where are we in that journey? Thanks a lot for all the color.

I feel very comfortable that the strategic part of transforming the organization that I’ve been anticipating over the past three quarters now in terms of what transformation we are driving within the organization. The execution of the transformation is on track. As I talked about the six themes and some of the other markers within the fields in terms of the improvement and customer satisfaction, improvement on some of our top account growth in mining, our improvement in employee satisfaction and rescaling for the digital initiatives. The analyst reviews across our offerings in the market and getting leadership position in a large number of those offerings compared to our peer-set, all of those are indicators which enhances our confidence that we will be able to demonstrate industry leading results over the next few quarters. As I’ve always said, we’ve not fixed the timeline, but clearly, we see improvements. Also at the same time, we are undertaking certain restructuring. We divested that EcoEnergy business. We are restructuring our India business across the product segment, across the small accounts that we were providing AMC and reseller -- doing reseller activities to franchisees, which were low margin business. We have focused on the core business, as Jatin mentioned. Middle East, we have separated, which is better aligned to our global business, and we are seeing huge investments in Middle East by individual countries in -- for example, some of the oil producing countries are now investing in downstream petrochemical activities where we are participating given our strength in the oil and gas and process manufacturing space. So, that business has a better affinity, both from services and business model and margins to our global business. So, we’ve pulled it out of the India business. We have taken some restructuring costs and some of the contracts in India, as Jatin mentioned this quarter, and a couple of more quarters we will see certain headwinds in that. So, the core business is organically grown quite well, although we don’t separate out the numbers. And I get a very good feeling across service lines and across verticals on the core business. As we are through with some of these restructuring and some of the headwinds, which has come after the U.S. elections on the repeal and replace of the ACA, as you know, we have significant market share of that business through our HPS acquisition, which is providing some near-term uncertainty and potential headwinds. Overall, I feel comfortable at the long run for us to returning to industry leading growth.

Thank you. The next question is from the line of Ankur Rudra from CLSA, please proceed.

Could you perhaps highlight how long will the impact of this restructuring in India continue, and the impact of the cost-over that you’re seeing there?

So, we targeted this quarter the plan for completing this over the next two quarters. So, we should hopefully be done by Q1 of next financial year.

So, 2Q onwards will be clean quarter and 1Q will be the last quarter with any impact. Is that the way to look at this?

That is the plan. Some of these things are also different and some of the customers and contracts that we have and some of those conversations are ongoing with customers or their representatives. So, yes, that is the plan. And that is what we are monitoring on execution, and the new leadership team for India is quite directly involved in very rigorous execution of that restructuring.

And Abid over the last one and half years, you’ve made several acquisitions. You’ve highlighted them moving you in the right direction. Over what period is it fair for investors to expect revenue synergies coming from here?

So, let me go here -- there’re four acquisitions that we’ve done in the past few quarters. Let me go by acquisition-by-acquisition. So, in Designit, acquisition that we did in the creative design scales in our digital business. We are seeing significant synergies, some of the deals, transformative deals that we are winning. Our synergy deals, in which the design is an integral component, as well as it is a differentiator for us. As you might seen, our digital business, from a quarter-on-quarter basis, has grown very well and as a percentage of overall revenue. And part of it is contribution by the Designit acquisition. Although, HPS acquisition, we had a very good initial first couple of quarters where we had the earliest synergies in there. Right now, we expect certain slowdown, and falls in customer spend, simply because of the uncertainties that the post election situation has created. But otherwise, from a synergy perspective, bringing business process as a service and platform based as of service model has worked very well for us. There are a couple of these and different segments outside of the healthcare segment where the HPS business model synergy has come into play. We are very positive about being able to close those deals in Q4. So, I feel quite good about that HPS success for the member servicing and member enrollment part, which is directly related to the Affordable Care. The current acquisition has started delivering results from a synergy perspective to us in Continental Europe, especially that market both in Germany and Austria where both we are able to provide services to Wipro customer in a more deeper manner, as well as expand our presence, our joint presence, in the historic select accounts. We have also -- it was almost a year that we’ve done that integration, and we’ve taken the second step as part of our integration playbook of further integrating it as part the Wipro go-to-market and delivery structure, which has just been announced a couple of weeks back. So, we are well on our plan to integrate it. And we were part of the next stage of complete integration on the front office and back office. While Appirio is quite early, but having learned from Designit, we have done front-end integration of Appirio and we’ve seen some very positive sides already. At least there are two deals which even during the immediately post closing, we’ve been able to close. Although, they are small in size, but they are in Wipro customers, where Appirio expertise has been used for providing the services. So, I do see all of these acquisitions delivering as a significant benefit that we are expecting. And we just need to watch the HPS acquisition, and this is carefully, because of the regulatory uncertainty which has confronted us due to the U.S. mix.

And just finally your energy and the financial services business appear to have been relatively better than the rest. Any comments on what demand trend you see there, do you see signs of a turnaround in both of these? Thanks.

So, as I’ve said in the last couple of quarters that if the oil prices stabilize there is a lot of pent-up demand in this segment. And we being in leadership position feel quite comfortable in terms of capturing that demand. We are starting to see signs. Although, the budgeting is not complete in the energy company, but based on my interactions, what we have seen is that there is a level of confidence, which should enable IT spend because the OPEC agreement on the oil production has been standing its ground. So, I do feel optimistic for next financial year on our new business. We are seeing good traction in banking and financial services. And we are optimistic even give the deregulation happening in the banking space. We have good traction, specifically in the digital and certain industry utilities business process as a service platform, home based, global automation based investments that we are doing, and acquiring some new BFSI customers, which were traditionally not Wipro customers to increase their penetration in this industry.

Thank you. The next question is from the line of Ashwin Mehta from Nomura, please proceed.

Abi, just wanted to check on our top two to 10 clients. It seems they have declined almost 6% sequentially. So any client specific issues that we should be aware of?

So, there is a little bit of impact of the December per load, which has played out in the growth rate between 2% to 10%. And there is little bit, one of the customer is in healthcare space, which is slightly impacted by the lower decision making that we are seeing in light of the regulatory environment that is there.

And secondly, Jatin, you mentioned in your opening remarks that there was some one-off benefit, which came in from Designit. What was the nature and quantum of this benefit?

Yes, so there are agreed plans and related to that, there are earn-out computations that we do when we do the acquisition. And specific to a particular plan that earn-out component has not certified, and that has flown through P&L. And we had a corresponding offset of that in terms of the India, Middle East lower profitability. So, they have offset. So the core operations have delivered the higher margins. But I do want to underline the fact that overall we are quite encouraged by what we have been able to do with the design and digital capability that has come in and how we are able to leverage it in a larger conversation. But this particular plan was predicated on a particular methodology. And accordingly, we have taken the right accounting treatment for it.

Thank you. The next question is from the line of Sandeep Agarwal from Edelweiss, please proceed.

So, just wanted to understand a few questions, one thing -- I know this question has been asked earlier as well. We have done some good work on the acquisition side and also on the execution side. And the rate for revenue growth is getting slightly elongated. So, what will you assign this to? Will you assign this to the micro factor, and related delays in decision making? Or you really assign this to some impact of uncertainty, which may not be true but which is holding the client to spend on the -- due to fear cloud, how it will play out. Or you think our mix of portfolio is not exactly in-line with where the demand is currently coming? And we are trying to obviously align it in that direction by doing this acquisition. And second part is that, the weaker guidance, basically for the next quarter, is it to do with the restructuring which is happening in India totally? Or, you think there’s some other component attached to it as well?

So, Sandeep, on the first question it is all of the above as you know. There is a level of uncertainty in the macro-environment but more importantly, there are certain areas, specifically, which have impacted Wipro, which we’ve talked about in the past. The energy segment telecom equipment provider in telecom service provide segment where we have historically had significant exposure and market leadership. Also, there is a part where when I talk about the HOLMES deployment in automation, it does help us with consolidation of the shareholder value, but this is something -- this is also cannibalizing our own revenue. And we’ve taken a bold move to proactively go to customers and do that to position ourselves as a strategic provider for them. So that is the only one more reason that I would add to the reasons that you mentioned. Again, from a guidance perspective, also, we don’t break-out. The core of our business is having a long base on the strategy and transformation that we’ve embarked on within the organization in the right direction. And meeting the metrics we have internally set for ourselves. The guidance does incorporate certain headwinds that we foresee. In the restructuring of the India Middle-East business, as well as the impact that might have due to regulatory uncertainty in the healthcare space in the U.S. market.

Thank you. The next question is from the line of Nitin Padmanabhan from Investec, please proceed.

Just wanted to understand what would have been the impact from the India, Middle East business on margins this quarter? And the second question was on, Jatin, I think you mentioned the EcoEnergy business being sold out, and that being part of the IT services business. What could have been the impact on revenue there? Or are we likely to see their impact next quarter?

So we have not broken-up impact of India, Middle East, but the benefit that we had as -- which came from Designit was broadly offset, ultimately because of the impact that we had in India, Middle East. Your second question on EcoEnergy, EcoEnergy has -- is continuing to be part of Wipro until the transition is completed. And to that extent, assuming that will complete the transaction by March 31, 2017, it will -- till the date of acquisition, till the date of product sell-out, will be part of Wipro, and subsequently bond, so it will impact quarter four. And assuming we complete in quarter four, from quarter one onward it will go.

So, basically Q1, we will see the revenue impact because of that. Is it?

But this is small business, Nitin, and we already factor that in our guidance for current quarter. And we will also factor in our guidance for quarter one, so it should not be large.

And lastly, just wanted to understand your thoughts on the communications business, this has being a pain-point for us for quite some time. And when do you see this sort of coming off, because the equipment side of the business has been a very long-term impact for us. When do you see this sort of changing successfully for us on this side?

So, as part of the strategic transformation of this business, we’ve made some aggressive bets on the digital part of the communication service provider transformation, and that is how we’ve aligned our offerings in this segment. We do expect to continue to see some pressure on the traditional part of our business in this segment, while the digital and future part, cloud part of the business, is increasing. But the growth of that in absolute terms is just somewhat offsetting, or just a little less than offsetting the impact that we are having on the traditional part of the business. And that is why we see a little bit of headwind in that business.

Thank you. The next question is from the line of Dipesh Mehta from SBICAP Securities, please proceed.

Yes, my question has been answered. Thank you.

Thank you. The next question is from the line of Sandeep Shah from CIMB India, please proceed.

Just on the guidance, I think, the two main reasons we are sighting for muted growth is the India Middle-East actually it’s in terms of the healthcare, especially coming through HPS. And on both of which we are uncertain about turning around maybe by the the next quarter or may take couple of more quarters. So, is it fair to say that if that continues that the muted growth may continue even beyond 4Q of FY 2017, and that also impact the margins because the tailwinds which were one-time in this quarter may not be there in the coming quarters?

So to answer it, I think it will be -- we have what we think would be timeframe by the India and Middle East, restructuring should be complete and we should start seeing normal profitability, and that is by end of June quarter. For healthcare business, as you rightly pointed out, it is difficult to make an estimate of when and how the whole situation will pan-out. Having said that, you are aware we guide only for quarter four, and our endeavor would be that, while this uncertainty play-out themselves, we create sufficient momentum on rest of the business. So, I would not carry the sentiment beyond quarter four because that’s what we guide for, and then we’ll come back and give you press commentary in quarter one.

And, Jatin, just a clarification regarding the India profitability, why you mentioned this as a one-off. Is it more to do with any write-offs of receivables or this have some restructuring costs apart from that?

So, it is principally completing the troubled contract where we want to really put our minds behind, invest right amount of effort, time and manpower, to be able create right amount of customer satisfaction. And for that, what we need to do we are doing it. And it will, if it's a fixed price project and investing more effort it will reflect in revenue, as well as in cost side and that accordingly that impact has been taken in quarter three that we have concluded.

And just last question on the BFSI, there has been a growth in this quarter. But at the same time, earlier, we were citing some client specific issue for some of the European BFSI clients. So, whether one can say that those issues are behind, and BFSI is on a growth path, going forward?

I request Abid to answer that. But just before that, I wanted to clarify that quarter three was, the expansion was, driven by core operations. And there was no one-time that was sitting in quarter three. I hope we sort of clarified that. I’m just referring to our earlier comments in what happens if the one-time benefit goes away from margin run rate. But what I wanted to clarify that quarter three, we did not have in the eventual outcome any one-time benefit.

Jatin, what I meant to say is that compensation may not be there, because you had impact on India profitability and got compensated through one-time benefit. But coming into fourth quarter, that portability issue may continue in India and you may not have that one-tine benefit. So, can you say that margin may have the challenge in the 4Q, as well?

So, if that was so, I would have said so. We don’t guide on margin and our endeavor is that we will put our base put forward when we execute for quarter.

And on the question on the BFSI, if you just clarify…

So, on the BFSI, yes, as we have highlighted, we have seen some headwinds last quarter, and we are beyond that, we are passed that. And I think we did -- we are in the process of closing some contracts there, if they’re getting signed in January and through January, so we feel comfortable on European.

And Brexit is not creating any impact in terms of ramp-ups of some of the large and digital wins, which we had from European clients and the BFSI, that large deal is on track in terms of ramp-up?

Yes.

Thank you. The next question is from the line of Sudheer Guntupalli from Ambit Capital. Please proceed.

I have two questions, the first one being, the many sections of mainstream media in U.S. have been reporting that this repeal and replace ObamaCare is going to take a significantly longer time as in, at least, two or three year. So can we expect that till that point of time, the clients will be in wait and watch mode on this healthcare spending? This is question number one. And my question number two is can you please give us split of -- quantify the impact of margin, because of both profitability impact in Middle East and India, and Designit, one of benefits because of Designit? Thanks.

So, let me take the first question and then I am sure Jatin will say that he can't break it out, but I’ll just ask him for the second question. Whereas, if you look at our, especially the healthcare business that we had is around both, the Affordable Care Act where we provide a platform based service on member registration and member servicing. And the second is we have a Medicare, Medicaid business, which is again where we have market initiative. I think as we see this spanning out, there were a number of client acquisitions that we had have after the acquisition of HPS on being able to onboard additional clients on the ACA platform. Those clients, definitely the decision making and spend is going to slow down. But the run business of providing the member servicing for our share of the 22-odd million ACA members, this will continue on business as usual. But the change project in terms of what the new regime is going to be will start only after there is clarity on what that replace is going to be -- anybody’s guess as would as mine that could take a couple of quarters to the time you mentioned versus the way we are seeing, at the speed at which the administration has moved, the chances are that it will be earlier than later. And once we know what is the clarity we do expect projects towards coming in giving us deep domain expertise in this space; having said that, HPS also has a lot of work in some of the other areas of group insurance and ASO and all, and Medicare which is not impacted like this. So, the impact is limited to the project work of on-boarding new customers in the member origination and member service business.

Does that answer the question, Sudheer?

Yes.

Thank you. The next question is from the line of [indiscernible] [55.37] [Shankar AVSB] from JMD Capital, please proceed.

Folks, I have couple of questions slightly longer term questions, not on the near term guidance of margin at all. I’m trying to assess the fitness that Wipro as a Company or engine has for growth and market share captures than the actual opportunities or projects, which have been in pipeline or in the shelf. Actually, do come out, because they will come out at some point. And we will have, and I’m fairly confident having seen business cycle robust, there will be a rush of work across the board. So, my first question is for both Abid, Jatin is that, how confident are you that when the customers start releasing projects in multiple industries? How confident are you that; one, you would not lose customers to competitors; and two, the actual competition capture customers from competitors?

Shankar, we have executed with a lot of discipline on what we think is the strategic imperatives of being a provider of the future for our customers. And these are across the fields that I’ve been talking around. Our execution has been on track. I’m very proud of our digital business. I’m very proud of our artificial intelligence, HOLMES platform. Our teams are creating platforms, and I see not only in the IT operations space to deliver cost efficiencies, but also in the business space where it by vertical, we’ve created platforms and we have 12 platforms with 12 banker customers where the platforms are under-development and in pilot and deployment stage. So, from a long-term perspective, I think, we are very well positioned to capture the trend of the future that comes from our customers, and gain market share. We are investing currently very heavily in our existing customers to proactively going and propose those solutions, and those customers have seen those solutions relevant. And that is what is helping us improve our customer satisfaction within those customers, which have grown up by about 230 basis points in the last quarter alone, and throughout the year has been increasing. So, overall in the long run, I do feel that we are well positioned to capture market share, and defend our share of the wallet and expanded within our existing customers.

So, you are very confident that you will defend your market share for sure when the growth happens in the industry?

Absolutely, and almost $1 billion of investments that we have done through acquisitions on those capabilities, which could have taken longer for us to build or difficult for us to build, make us actually better prepared in the market to capture this spend when it opens up.

Yes, because for sure, I think, we will have definitely readjustment or realignment of market shares than the natural growth happens. So I think you know that from experience. So, that was my first question. My second question is related to what you just answered. How many customers does Wipro have today? And of those customers, how many, approximately, have used any of your digital or new products or platforms?

Shankar, in my opening remarks as I mentioned, HOLMES platform has been deployed, either in pilot or production. And when I say either in pilot or production, because there is a certification, et cetera, which happens. So it’s a cycle with run, which on the average takes about five to six month in our experience. In 120 accounts, our target was to cover the top 100 accounts. I think 60% of our top 100 accounts are covered, but the uptake is so good that while we’re focused on the top 100 accounts, our client partners and customers have deployed it beyond that. Similarly, for digital, we have proactively positioned ourselves across the buyer in all of our key clients, and we are seeing good traction over there as well. For certain clients, these are point solutions that we have been able to take. For certain clients, we have been empanelled as the Digital Center for Excellence and that’s ramping up significant digital deals. So, both digital as well as the platform space, I see quite comfortable. Although, this is an ongoing activity if you remember, I had talked about the One Voice program where we have over four sessions trained about 1,000 plus of our salesforce, which is in the field engaging with these customers to be able to proactively take these propositions, at least to a pilot or a proof of concept level after which the expert teams comes in and convert that into a production instance of these platforms and offerings.

If you could summarize, what would the approximate percentage of overall customer base who have at least tried a pilot or a full project with any of the new solutions that you have on offer?

So, as I said, we do measure it from top customers’ perspective, and it is 120 out of the 100 top customers.

And my last question, which is very tactical, is what percentage of Wipro workforce is based out of U.S. currently?

Can you repeat the question again?

The question is at what percentage of Wipro workforce currently is based out of the U.S.?

About, roughly 10% of the global workforce...

14.5% of the…

10% okay. Thank you very much guys, and wish you all the best. These are slow times, tough times as we call it. But based on the answers, I think, Wipro is there and ready to take the growth when it happens, so all the best to you.

Thank you. Ladies and gentlemen, that was our last question due to time constraints. I now hand the conference over to Mr. Viswanathan for his closing comments, over to you, sir.

Thank you all for joining the call. In case, we couldn’t 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 lines.