Wipro Limited (WIT) Q4 2017 Earnings Report, Transcript and Summary

Ladies and gentlemen, good day and welcome to the Wipro Limited Earning Conference Call. As a reminder, all participant's 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, Jay. A warm welcome to our Q4 FY17 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 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 of 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 explained in our 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 the transcript will be available on our website. Over to Abid.

Thanks, Aravind. Good day ladies and gentlemen. As always, it is a pleasure to speak to you. I will begin with the comments on the performance of Q4 and follow that up with our view of the demand scenario in the IT services industry. And then like I always do, I will give you an update on the six strategic teams that we have been executing on. So in Q4 we delivered 1.7% growth in revenues on a constant currency basis, it has been quite secular and towards the upper end of our guidance which is 2.7% growth in U.S. dollar terms. For full year FY17 we delivered 7% revenue growth in constant currency terms and 4.9% in U.S. dollar terms. While traditionally Q1 is soft for Wipro, Q1 in FY18 has it's particularly set of challenges due to the uncertainty in the U.S. healthcare industry about which I had spoken last time and the continued structural challenge that we see in the consumer segment, especially in the retail vertical. We believe that Q1 is not the reflection of the growth potential for the rest of the year and we anticipate that the growth momentum to return in Q2 and expect to be at industry growth rates by Q4 of FY18. Our confidence of the recovery spends from the expectation of HPS to bottom out in Q1; the India business recovering which is on the path for the execution on the restructuring that we have done, the BFSI continuing to perform well and E&U picking up. You will remember I had indicated that that E&U business would start growing again from Q1 FY18, however, we saw growth in Q4 itself and we expected in its growth trajectory. Let me now cover the update on the six strategic themes. Wipro Digital has scaled significantly over the past few years since its inception and we continue to win deals with downstream engagement that leverage our deep capability across the organization. For instance a cleaning solutions and hygiene company has chosen Wipro for its digital transformation agenda on our full range of digital services that we offer. First, our digital command center has been chosen as a partner of choice for the support of all build and run digital and IOT initiatives for this customer. Second drawing on our systems of engagement of front end services, design it will transform and enhance the multichannel customer experience driving continuous improvement in customer experience across locations. We are also working with clients of many emerging technologies; we have won an advisory deal with a large European energy and utilities customer to evaluate the operational readiness for the production roll out of their block chain based solutions. In FY17 our digital revenues grew from 17.5% of our total revenues in Q1 when we started reporting it to 22.1% of our total Q4 revenues. Similarly our consulting revenues grew from 4.9% in Q1 to 5.6% in Q4. In line with the growing demand for digital services we continue to augment our workforce with digital skills. We have seen great enthusiasm amongst our employees to up skill themselves against our annual plan of training 33,000 people in FY17, we trained 39,600 employees. Overall, now we have reached 61,000 technical employees trained on digital skills. Let me talk a little bit about client mining. I'm pleased to note that the number of customers in greater than $75 million, $50 million and $20 million buckets have all increased by one each. Our Top 10 client bucket has grown 2.9% sequentially which is above company average. Client mining continues to be a key focus of our strategy, our initiatives put together and our integrated services offerings and the delivery experiences delighting our customers, our net promoter score has improved by 740 basis points in FY17 over FY16. An Australian broadband network operator has acknowledged Wipro for providing win-win solution and investing in their long-term success. On the back of the integrated services offering, we won a deal with an American retailer; the scope involves application development, QA services, analytics and mainframe across IT and business operations at the clients organization. In the beginning of the year I had talked about the launch of the Android program which is designed for delivery leaders to enable them to deliver the net sales and next generation delivery. We have completed the training of the housing delivery leaders in FY17. Let me talk about non-linearity and our investments in intellectual property in the form of products, platforms, frameworks and solutions. Wipro homes [ph] our flagship artificial intelligence platform continues to be a differentiator in the marketplace and has been recognized by various analysts. The clearly defined used cases of Wipro Homes enabled us to win a deal with a F1 racing team. Wipro IT solutions are designed to tackle some of the industry's complex challenges. Let me talk about one of our IPs this quarter; if the digital - it is the data discovery platform or DDP. The DDP of an integrated platform capturing and managing data to generate actionable insights through advanced predictive analytics, offering cost performance and time benefits to clients. It accelerates the time to insight for an enterprise using pre-built industry apps including advanced visualization thereby enabling faster decision-making. In the last quarter we have on boarded about five customers across industry verticals on the data discovery platform. One of the examples is an American medical technology company which has chosen Wipro as its preferred partner to enable its advanced analytics journey. Wipro will leverage their DDP to build data lakes and analytical used cases for the client. At the end of FY17, we have total 1,662 patent applications which is over a 50% increase from end of FY16. Our hyper-automation journey has been progressing very well and we continue to scale the deployment of the instances of Wipro Homes, our artificial intelligence platform across clients. In FY17 we generated productivity of over 12,000 people across 140 customer engagements by deploying over 1,800 instances of homes bought in IT services across application, business process operations and infrastructure services. Localization is a theme that we picked up since the launch of our strategy and in FY17 we've seen immense progress in localization in our key markets. In Q1 FY18 we expect to have more than 50% of our U.S. operations localized. We have been significantly investing in U.S. in terms of increased hiring, setting up of delivery centers and focusing on sustainability initiatives; specifically in the area of education. In U.S. we have further enhanced our capability by adding two more multi-client delivery centers, one is located in Mountain View, California, which is the new hub for next horizon technology and collaboration, a center for our partners and clients with a focus on creating highly relevant, advanced digital offerings for our U.S. customers. We've also added another center to our delivery network in Farmington Hills, Michigan to offer engineering services to our customers, particularly in the automotive segment in the engineering space, thus it's becoming strategic for our customers from a time to market perspective. This center also is predominantly staffed with local talent from the local Michigan - our Detroit regional community. Our partner ecosystem continues to deliver well and M&A continues to be an integral part of our strategy. We had been announced the InfoSERVER acquisition which we consummated in April. Appirio had has its full quarter as part of Wipro and we are incredibly excited about what it brings to us. We had numerous wins in Appirio including 14 synergy wins. In Wipro customers where we were able to take Appirio offerings. We completed the divestment of eco-energy and received a sales consideration of $70 million in this contract. Wipro Ventures completed four minority investments plus a follow-on in the last 12 months. We are leveraging the capabilities in our invested companies; we now have 10 commercial engagements across a number of our portfolio companies in various areas of our investment including securities, customer care automation, business process automation and Big Data lifecycle management. I had spoken about our Horizon program which is Wipro's internship program. Our employees continue to be very excited about this program and in Fy17 11 new ideas were approved and funded and a total of 15 ideas incubated in the areas of artificial intelligence cyber security digital, industry 4.0, IoT and software defined everything. We've successfully delivered around 40 proof-of-concepts and pilots proactively to our existing customers to drive the innovation agenda for our key clients. In Q4 we approved three new themes in areas such as artificial intelligence industry 4.0 and digital. Overall, I'm confident that we are making the right investments and we will see the trajectory starting to shift from Q2 onwards. I will now request Jatin to speak on the financials.

Thank you, Abid. Good day, ladies and gentlemen. As always it's a pleasure to speak to all of you. Let me start a view of financial with consolidated Wipro Limited performance. Gross revenues for the quarter ended March 31, 2017 grew 2.6% YOY to INR139.9 billion. Net income for the quarter was INR22.6 billion, an increase of 1% year-over-year. Gross revenue for the year grew 7.4% year-on-year to INR550.4 billion. Net income for the year was INR84.9 billion, a decrease of 4.7% year-on-year. Now let me go to our IT services segment. IT services revenue for the quarter grew by 1.7% in constant currency which was towards the upper end of our guidance bank. The revenues in U.S. dollar terms for the quarter grew 2.7% due to strengthening of U.S. dollar - strengthening of cross-currency against U.S. dollar. IT services margin for the quarter was at 18.3%, flat as compared to quarter three. During the quarter, we completed the sale of Eco Energy division, consequently we recorded gain due to profit on sale of Eco Energy Divisions in our profit and loss accounts. Also during the quarter, uncertainties around the regulatory changes relating to the Affordable Care Act led to a revision in estimate of our revenue and earnings of our acquisition health plan services. This resulted in revision of carrying value of certainly liabilities and assets. The net effect of this two events were a 70 basis points favorable to the margins in quarter four. Barring the effect of these two transaction our margin would have been therefore 17.6%. IT services revenue for the year grew 7% in constant currency, revenues in U.S. dollars terms for the year Grew 4.9% which was a headwind of 210 basis points primarily on account of depreciating from Sterling. IT services margin for the year-to-date 18%, 220 basis points lower primarily due to the investment that we make in our acquisitions and the restructuring activities that we undertook in our India and Middle East business. Let me talk about forex and effective tax rate now. On the Forex front; our realized rate for IT services in quarter four was INR68.57 versus the rate of INR69.35 which was realized in quarter three. As of period end, we had about INR2.5 billion of Forex derivative contracts as hedges. The effective tax rate for quarter four was 22.9%. ETR for FY17 was 22.8% compared to 22.1% in fiscal 2016. The sustained strong cash generation in the quarter; operating cash flow was 113% of net income for the quarter, for the full year operating cash flow was 109% of net income as compared to 89% of net income in fiscal 2016. We grew our operating cash flow year-on-year at 17%. Net cash as of March 31, 2017, was INR202 billion or $3.1 billion. Now let me talk about acquisitions and divestiture. As I mentioned before we completed the sale of our Eco Energy business during the course of the quarter. We had announced an agreement to acquire InfoSERVER during the course of the quarter, we have announced the completion of this acquisition in the first half of April. Shareholder return, we have always tried to enhance shareholder value for our investors. The company's policy has been to provide regular stable and consistent distribution of returns. There is no change in our philosophy on shareholder return. Last quarter we had announced an enduring dividend of INR2 per equity share for the year 2016-17. The Directors of the company did not recommend any final dividend for the year but adopted this as a final dividend for the year ended March 31, 2017. We have announced that the Board of Directors will consider a proposal for buyback of equity shares of company around July 2017. You may remember that we were among the first few to successfully execute a buyback strategy in 2016. Now let me talk about the outlook for the quarter ending in June 30, 2017. We have guided for a revenue growth in IT services of minus 2% to 0% sequentially in constant currency. We expect Q1 margins to be soft due to lower revenues, impact of Rupee appreciation, annual salary increase and absence of 70 basis points that I had spoken about earlier emanating from the two events which ensued [ph] in quarter four. We have not made any compromises in our investment in business as well as talent. We have said that we will continue our merit salary increase as always from June 1. We expect our profitability to improve after quarter one as revenue growth picks up and acquisitions become more profitable in our automation initiative scale significantly. Our endeavor will be to keep our full year margin in a narrow range in a narrow band on a constant currency basis, and we will endeavor to improve our operating margins in every quarter post quarter one. This conclude our remarks and we'll be happy to take questions from you.

[Operator Instructions] The first question is from the line of Moshe Katri from Redbush Securities. Please go ahead.

Thank you very much. Can we get some clarification on organic growth on a constant currency basis, sequentially for the quarter; what was that? And then if we look at your guidance for the June quarter what does that include in terms of organic growth assumptions? Thank you.

Hi Moshe, this is Jatin. We have not broken down our organic and inorganic growth for quarter four. And in quarter one, we will have a small theme on account of InfoSERVER acquisition that we have concluded but we had shared the size of this acquisition in past when we completed this acquisition and therefore the impact of this would be quite small. So the performance of quarter one would be almost entirely organic.

How about if we factor in Appirio?

Appirio as we have mentioned before got consolidated from November 23, so we have seen the full consolidation of that equation in quarter four and hence there is no incremental authorization of that in quarter one.

And then just a final question. You mentioned narrow margin, narrow range from margin during the fiscal year 2018; can you quantify that for us? Thank you very much.

No, we have not quantified that Moshe; we wanted to give a directional sense on the margins.

Understood. Thank you.

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

Just the first question is in terms of the margins Jatin; if we look at on a recurring basis the margin is 17.6, which is a decline of 70 bips on a Q-on-Q basis. I do agree there is a currency - on a realized basis there is appreciation but that was restricted at 1% versus the other peers had at close to 2%. You had a tailwind coming through fixed price, you had a tailwind coming through higher utilization, you had a tailwind coming through offshore pricing. So what has led to this 70 bips margin decline? So is it still a pricing pressure being a big culprit for this margin decline? And how do we see that going forward in terms of a pricing pressure?

So Sandeep there were operationally there were puts and takes and certainly you have seen that in our global business we have driven operating parameters which have provided us tailwind but we have spoken about that we will continue our restructuring of India, Middle East will be only at the end of quarter one. Second, in some form there is an additional dilution which has flown in on account of full quarter integration of Appirio which has had its impact on the margins. So I would think that effectively we had an offset between the 70 basis point upside we got on one-time transaction which occurred in quarter four and additional dilution that took place given and take some basis points.

Okay. And just coming to some client specific issues which we had in communication as well as in the BFSI, especially with some Europe based clients; those are largely over - even the communication as a vertical you can believe that the growth has bottomed out and it can now start growing - the challenges have bottomed out?

So Sandeep, in BFSI some of the softness that we were seeing in certain customers - I think we've been able to overcome that as you see from the trend and we feel quite positive about it. Our digital offerings in BFSI customers are being accepted well. In telecom we have had some completion of transformational engagements that we were doing for across three CSPs, communication service providers and we do expect the softness in communications to continue as we ramp up new deals which is taking relatively longer right now.

Okay. And just last thing in terms of the deal pipeline; how does the bookings looks like in this quarter versus last quarter? Is there any change where the decision-making has further slowed down or it has picked up going forward and that gives you confidence to say that 2Q onwards you would be back to the growth part or what gives you confidence to say that?

You know, some of the investments that we have made as part of our strategy in specific areas of digital transformation, consulting, domain based type, hyper-automation; based on these investments we see good traction with our customers and certain engagements that we are ramping up that we've won. Some of them I've mentioned in my opening remarks as well; gives us a good sense of the traction we're seeing in the market. And overall, I think from a Wipro perspective we believe that we are on the receiving end of some of the opportunities that come up in our customers in both, client mining and digital transformation, and that makes us feel quite good. Obviously there is a certain level of overall uncertainty as you know at an overall industry level and we carefully continue to monitor that.

Okay, thanks.

Thank you. Next question is from the line off from Pankaj Kapoor from JM Financials. Please go ahead.

Couple of clarification first. Jatin you mentioned you expect margins to be in a narrow band on constant currency basis. So should I presume you are referring to the current spot rate or the FY17 exit is the rate and the margins will be constant on that basis?

Yes, our reference for that is really the way - the period over which the previous year's margins were delivered which is fiscal 16-17.

Okay, so [indiscernible] basis there could be some headwinds coming into the reported numbers?

That is right.

Yes, okay. And second, did Abid mentioned the Appirio contribution in this quarter was about $70 million; was that the number?

I talked about specific - the number of engagements that we have been able to win in Wipro customers from the Appirio acquisition that we did. So these were the number of synergy engagements. I talked about 14 synergy wins that we had. And then I talked about $70 million coming from Eco Energy. I'm not sure which executive [ph] you're referring to?

Okay, maybe I heard it wrong. And on the outlook front Abid, of course you expect the revenues to start accelerating from the second quarter onwards and you expect to exit the year with industry leading or matching growth. But that obviously will require a significant acceleration over the next two-three quarters. So I'm just trying to understand that this is more of a hope in terms of recovery in some of our challenged vertical which is giving you this confidence or do you actually see some deals in pipeline or some deals which have already won which probably as a ramp up can give us this kind of a growth. If you can give some color quantitatively on the - either on the order book or in terms of pipeline that will be helpful. Thank you.

So if you look at our overall portfolio; you know, there are parts of our portfolio which had had headwinds through the past year and some very Wipro specific issues. We've talked about the India and Middle East business and the restructuring that we undertook. Our restructuring has been executed per plant and we think we'll be done by the end of Q1 providing positive momentum in Q2 and beyond. Similarly I talked about E&U vertical bottoming out by Q4 and growth starting in Q1. But as you will notice, we've executed on that a quarter in advance and growth has returned to E&U in Q4 itself which will further accelerate based on what we are seeing today with those customers, as you know we have significant market share on that space. Similarly some of the engagement that we have started in the manufacturing and technology space will ramp up in Q2 and will start seeing some contribution from them in Q2 and beyond. So if I look at the - as you have you seen in Q4 across the board we've seen some good deal execution and we think that as we execute on some of the pro specific headwind that we've historically had, we should be done by the end of Q1, so that our growth redundant -

Thank you and all the best.

Thank you very much. And the next question is from the line off Ankur Rudra with CLSA. Please go ahead.

Hey, thanks. First question Abid, you mentioned that HPSE expected to bottom out in 1Q. Just some kind of, in terms of what gives you confidence that all of the cancellations will just end in the first quarter or is it contractually that you have visibility on or is it other customers that ramp up after this, thanks.

So one good one, if you look at its peers business there are two distinct part of the business, one part is the annularity piece of the ongoing costumer service contract that we have, and the second part is when we acquired if you remember we had two synergy for new customers on boarding on that platform. So we saw in the first couple of quarters of product position, we saw revenue spike coming from the execution of those projects of on boarding the customers and around the U.S election results, we saw - started seeing cancellation of those projects because it became very apparent that the primary regulation along which that businesses based is going to get repealed and replaced. So the ramp up of those engagements we'll complete by Q1 which means we will bottom out on our project revenue in Q1, the foundation based revenue up for continuing to maintain the servicing piece of the individuals who bought the insurance on the exchanges during open enrollment of November, December for the calendar year at 2017. We will continue to do when we get paid on the price per member basis, which we can do, so from that perspective we believe that we will bought amount [ph] in Q1. There will be clarity in by the end of Q1 or early Q2 because the next open enrollment season starts in November, and as we read the situation right now, one is better clarity on what is the replace going to be a number of peers will need a platform to be able to align their offerings and their services in this space. Since we have a significant market share and since we have deep domain expertise we believe that post that we would be able to capture a significant market share off a new player on boarding as there is clarity from the regulation, but right now we don't know the time line for that but we do know that we have bottomed out on a project cancellations and the foundational servicing business it will remain for the rest of the year.

Thanks. On your second point you alluded to the target of returning to industrial levels of growth by fourth quarter, could you perhaps clarify are you referring to growth on a sequential basis or a year-over-year basis that we can measure in in March 2018, when you see industry there was a growth you know approximately what range are we looking at.

Can you repeat your question.

So the first part of the question is when you say you want to return to industry levels of growth by the fourth quarter, should we expect this to happen on a year-over-year basis when we look at March 2018, or in a sequential basis A, and B, what are the sort of range of numbers you're benchmarking yourself against.

So to be able to answer this question that - for the - that our Q-over-Q growth from Q4 to Q1 will become in line with the industry thing that's there, and if you look at the overall growth numbers that although we don't guide they consist of two components, one component is company specific component for any company and then the market component the external environment, we don't know about the external environment but from perspective the company specific challenges and the restructuring and the transformation that we've had, we have been executing well with the past four quarter and we believe to believe that in three or four quarters some of that execution will reach logical point. So then our growth will be in line with what the external environment provides for.

I understand, thank you.

Thank you very much. The next question is from the line of Dipesh Mehta with SBICAP Securities. Please go ahead.

[Indiscernible] some of the vertical you already alluded, if you can provide broad base comment.

So going industrial industry that I have a few of my colleagues here, so I will have them pitch them, but I feel quite good about banking and finance services should give you a little more color, I feel better about our manufacturing and technology business, as I said ENU has bottomed out, we have had some good deals and we have seen that returning back to growth, which has been growth for the first time past 10 quarters for us. In terms - there is structural issue that - we think that our digital offering in that space is getting good traction but it'll still continue to have a headwinds given the state of the retail business although in some of the New Age companies we are seeing some traction, but it is relatively very small compared to the match quarter it still is in the brick and mortar space for us. We do see headwinds in the health care and life center business both funding health care side as well as Life Center site. And we see softness in communication because some of our large turn engagements got over and ramped down and some decision making and some of the things which we're currently biding for is taking longer. So that is kind of the broad summary in the last study to.

Hi, this is Shazzi [ph]. You know, we're are seeing a pretty secular trends overall in the financial services industry if we look medium to long term. Things look good particularly as the change spend kicks in there is continued numbered pressure on around spend, and as the shift happens one should expect a little bit of volatility in other bites here a little bit of choppiness, but from a secular medium to long term perspective and I feel that this industry has as reflected in the extend of most of the financial services firms out there, should actually pick up. And we'll continue to see traction areas, as we are seeing traction shift of the change spending to digital search which is the area of spend for us, and we are also seeing a lot of interest in our offering around automation, robotics and artificial intelligence, which is our home platform.

[Indiscernible] some color on the M&D segment.

Hi, this is Bala [ph] I had the matching in the technology business. We've seen a good recovery in the discretionary spend in parts of our business which gives us good confidence that we will see a recovery in the business. We've had some challenges in the technology sector over the past year but we see some good recovery in that part of the business. The areas of growth are basically around clock transformation where we see customers wanting to move their workloads to the cloud and variablize their cost model. We also see good pickup in the digital conversations we are having with our customers, particularly in areas like aftermarket service transformation we are seeing a lot of connotations around that and we've been able to invest in platforms that are able to give us the momentum to pick up that business. We are also seeing reasonable recovery in the technology part of the spend where we are seeing customers going back and looking at creating a more of a standardized ecosystem and therefore we are seeing that their ability to spend in the description part of the business again picked up and we are poised for that. So overall I'd say that we are quite confident about what we see going ahead. There could be something water-specific challenges because of the moment in specific accounts but overall, from a market environment it looks slightly better than what it has been in the past. Thank you, Abid.

Sure. Just on BFSA, what our subsegment is driving spend or where we are more incrementally positive. If you can provide color?

Hi, could you repeat the question, please?

In BFSA, which sub-segment we are more positive than others? If you can provide some color sub-segment wise?

Yes, I mean overall if you look at banking, capital markets I think definitely the deal ones that are trending, clearly training, positive. You'll always find exceptions here and there that are specific to certain client challenges. Insurance again, it's a mixed bag; some areas are growing and some are not. I think the most relevant thing to note is the whole shift from reducing run and run spend and moving into change and the entire change portfolio are gradually shifting over to digital and digital ways of working which I think is the most important thing to note about the sector, right. And different clients are in different cycles, stages of the cycles and consequently you will see some level of variability written how clients react. But overall, I would say banking and capital market sectors we are beginning to see a secular trend that is moving in this direction.

Thank you very much.

Thank you. The next question is from the line of Mukul Garg from [indiscernible] Securities. Please go ahead.

Thanks for the opportunity. First, let just ask a question to Jatin. Jatin, what levers do you think you have enough in FY18 to stabilize margins? You are exiting the year with 17.6% EBIT margin which has again declined because of the acquisition. And then first quarter and second quarter you will have impact which will come in from the hikes. And now then the growth is still little bit week; so if you can highlight some of the levers which you have - which you can utilize? And second, if you can give an idea of what the wage hike going to be for FY18?

Mukul, happy to answer that. So there are two types of levers that one is focused on. One is the structural levers and second is the operational levers. Structural levers we have already spoken about in my opening remarks which is making as we - as they realize more synergy benefits from our acquisition, both on revenue and cost side, they become more and more profitable and less dilutive at company level, that's one. And two, if India and Middle East will complete its restructuring effort and come back with a growth and expansion in margins from quarter two onwards. So these are two structural reverse. I'd request Bhanu, who is our Chief Operating Officer to talk about the levers that he is focusing on overall IT business to expand - to improve the cost structure.

So at the operational level, we talked to you about one of the big levers that we have and we have started to utilize that lever well. This is focused around our homes, hyper automation platform and utilizing that - if you look at the last year, we generated about close to 12,000 people's worth of work across the delivery organization. And as we look more and more into deploying homes significantly into our delivery organization, we do see opportunities for looking at further optimization of our work. The second level that we want to look at is - we have engaged with our outsourcing platform within Wipro; the platform that we got as part of Appirio top quarter. We have leveraged the same platform within Wipro as well we call it the top quarter for Wipro, top gear. And utilizing that platform we're able to get higher value from Wipro associates for executing our programs. The third level I want to look at is in terms of executing the large programs with rigor [ph], there is a significant amount of best practices we've generated across running various programs in various geographies and looking at those levers we are trying to improve the operational execution for some of the programs that we are running right now. So three broad levers; hyper automation, cloud sourcing capabilities and operational excellence in terms of our delivery.

Any idea which sort of you can provide on the wage hikes excluding the quarter?

The wage hikes for us will be effective June 1 for one month in line with what we are doing with the industry, single-digit growth.

Got it. And then final one for Abid. Abid, can you provide any idea in terms of the first quarter growth? I mean if we take out the issue of which are happening at HPS; so any idea about other areas from a quarterly point of view? Your peers have commented about optimism and hope in the banking vertical; so are you sharing the same hope that it is going to improve from next quarter onwards or are there any other issues as well except for the one which you highlighted?

The first quarter regrowth is primarily impacted by two major units, one is the HLS and the second is the communications unit. Rest of the others while it doesn't become evident from the guidance which is at the net level but other four verticals are delivering positive growth in Q1 which will kind of continue for the rest of the year.

Understood. Thanks for answering my questions.

Thank you very much. The next question is from the line of Ankit Pandey from Quant Capital. Please go ahead.

Hi, thanks for taking my question. My question is, you just mentioned that the first quarter software is coming from healthcare recommendation. I think on the press's conference…

Ankit, we are unable to hear you. Can you - can you pick up phone or some…

I'm sorry, is it better now?

Yes, please.

Yes, thanks. My question was that in the press conference you actually had two retail segment; seeing some softness in Q1, could you highlight that? And my second question would be in the next year, again, drilling down on margins so sorry for belaboring there. But in the next year if I look at your margins levers; again, the way you say it that the constant currency terms you may expect it to be in a range but would you expect it to be in a range given the impact of Appirio or HPSE? Will these - excluding these would you be in a region? Thanks so much.

So Ankit we - I will answer both questions. I think our guidance factors in all the headwinds and tailwinds that we have shared and Abid has given his view on individual business units. And beyond that it's difficult to breakdown what specific business you need to build [ph]. So I would much rather stay at the overall guidance that we have shared for quarter one. Now again on - and very similarly while we don't guide formally for - on the margin we have shared our current endeavor would be there we will remain in a narrow band of FY17 margins in - as we improve margins from next quarter which is quarter two and that's the broad directional sense that we are giving. We have called out currency because currency remains sort of a joker in the pack, it has being hugely volatile in last 40 days and before that it was also quite volatile. And we are also seeing some new volatility emerging in Europe as we speak; so that's the reason we have called it out to give a view of what is our operational focus would be. So Ankit we are - it will be difficult for me to share including/excluding a certain acquisitions or entity.

Okay, thank you. And just a quick comment also on the softness in retail?

You know, software and retail is more structural and we saw it last quarter, we saw it this quarter and will see it next quarter. The specific two verticals that I talked about - the HLS and communications are creating the growth from Q4 to Q1. So software as retail is more an ongoing phenomena that we see whereas HLS and communications have - as I mentioned, project cancellations are done to engagements giving logically over and that is creating a dip in one particular quarter for us.

I understand that. Thank you so much. Thank you so much and all the best.

Thank you. The next question is from the line of Sandeep Agarwal [ph] from Edelweiss. Please go ahead.

Thanks for the opportunity and I'm very happy with the extremely positive commentary which is coming out. Just a couple of things Abid, I agree from the industry vertical side that you and other things have kind of bottomed out and that gives us a big advantage and that will be a big beneficiary out of that. But I wanted to just understand that - one, is it going to be only because of bottoming out or you see some kind of secular uptrend in spend, that is question number one. And question number two, are we behind the damaging in the legacy business which has been happening for the industry and everyone? And third, are you seeing some kind of structural change in the digital deals and sizes and participations so that you know it gives us some comfort that we will get lot of compensation from their - for the destruction in the legacy side?

On the digital if you look at it, we've been reporting our digital percentage of revenues as a ratio of our total revenues. And you see that in FY17 we brought it up from about 17.9% to 22.1% where we see good traction in deals. We do see a certain increase in average deal sizes and we are getting more and more opportunities to become the digital partner of certain clients which helps us play in a larger space in the digital transformation of our customers. I think overall, from - for the second part of your question, there were certain Wipro specific issues that we've had and we've worked on it over the last three or four quarters and we see some green chutes in that; so that is the reason for our optimism although there are lot of industry uncertainties so I wouldn't call it an extremely positive commentary but we need to continuously watch the uncertainty in the environment around the sociopolitical, around the regulation, around the mobility piece and that is very - I would say that some company specific issues, we are better off than we were earlier. The overall environment continues to remain the same and from a strategic investment that we have made, we do see some good traction with that.

Okay, thank you. That's very helpful.

Thank you. The next question is from the line of Moshe Katri - Redbush Securities. Please go ahead.

Just another point for clarification; one, did you include the proceeds from the sale in operating income rather than below the line? And then is there a way to kind of quantify the dilutive impact from a period in margins during the quarter and maybe for the fiscal year? Thanks.

Moshe, can you just repeat your question? I missed the second half.

Yes, the second half was, can you quantify the impact in terms of margin dilution from Appirio for the quarter and for the fiscal year 2018? Thanks.

Yes. So I will - so your first question was whether the sales proceeds of the Eco Energy business and the resultant gains, whether the gain has been included in the operating profit line and the answer to that is yes. And your second question was the dilution which came through on account of Appirio for the quarter four - that would be approximately 40 basis points that we accounted in quarter four.

So just as a follow-up, if we take out the gain from proceeds from the operating income - the margin degradation sequentially would have been - I would say significant than reported, right?

So Moshe, we have spoken about two events which took place during the course of the quarter. The one was the onetime gain on sale of Eco Energy business which is part of operating income line. We also talked about the impact of the certain changes in accounting that we did for the intangible that we had for the HPS business and that net effect of that was 70 basis points at an operating margin level for quarter four which will not recur in quarter one.

Okay. Is the only way to quantify the actual impact that you're seeing in terms of cannibalization in your legacy business; especially given the structural headwinds that we're seeing and obviously I think you're doing whatever you can do in terms of quite mining and getting the business onboard. But on the other hand clearly that's not offsetting the distillation [ph] that you're seeing in the legacy business? Any color on that will be really helpful to kind of understand where we are in that process as kind of migrating away from legacy and going towards digital? Thanks.

Moshe, I'm afraid we have not broken that down but you are right, the impact on legacy business continues to be quite a bit in terms of the pricing pressure. And we are mitigating that to a good extent by the automation initiatives and other cost drivers. We also get premium for the new services that we sell which is digital and cloud and some of the newer service line which are in vogue [ph] and client is ready to pay premium for that. As we speak, the balance for FY16-FY17 was more tilted towards legacy reduction in pricing vis-à-vis the overall uptake of new services but we remain optimistic that some of the work that we have done; acquisition/investments that we have made will overall make a balanced play and enhance the overall scenario but we have to be cognizant that in short-term the pressure on legacy business is real and we should - we will continue to do as Bhanu indicated before; everything to reduce its impact but it is there and that is reflected in our margins.

Understood. Thank you.

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

Yes. 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. Ladies and gentlemen, on behalf of Wipro Limited, that concludes today's conference call. Thank you for joining us. And you may now disconnect your lines.