Wipro Limited (WIT) Q1 2018 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. 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 Q1, FY18 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 detailed in our 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. Let me now welcome Abid to make his opening address.

Thank you, Arvind. Thank you, Arvind. Ladies and gentlemen thank you for joining this call. This is special quarter for us because we launched our new brand identity, we thought rest part of our transformation journey it was eminent that we come up with a new brand identity and it has been very well received both by our clients as well as our employees. Let me now talk about the Q1 performance. We delivered revenues a couple of the upper end of our guidance range, quarter-on-quarter 0.9% in the reported currency and 0.3% in constant currency. As indicated in April, we have seen strong traction in the banking and financial services segment. ENU, as we have said a couple of quarters back is back to on the growth path from Q1 and the BFSI segment across the board we have seen a very good traction in digital. India recovery while I talked about taking until Q2, we’re seeing some very good earnings signs and I am very comfortable with the restructuring of the India business and start taking both revenue as well as our margins and that part of the business. On the back of a good quarter of operational execution, we expect the momentum to continue, while our core business continues to improve the regulatory uncertainty remains in our HLS business which is seeing some headwinds and that uncertainty we have built into our guidance. We continue to build momentum towards getting to industry's level growth by Q4 this year. A quick update on the sixth strategic themes that I have been talking about since the last five quarters. Basically, Q1 revenues now constitute about 22.5% of our overall revenues and about 3% growth sequentially. It was a strong consulting quarter with about 3.7% sequential growth. We continue to do some path breaking engagements and win market share in the market. For instance, the Latin America entity of one of the largest US banks has chosen Wipro for the strategic partnership to significantly change and transform how bank delivers new products and services and integrates with its ecosystem of partner. Wipro can setup and run an API and micro services factory as part of the digital centre of excellent for their digital transformation journey. We will setup multiple agile themes bringing the two-speed delivery model and do all this work in an outcome or output base model for the bank. We continue to work with new age company, which in India we enable the rollout of Paytm, a digital payments platform for the bank. In Q1, we trained about 15,000 additional employees on digital skills taking the total number of re-skilled employees in Wipro to over 75,000 now. This has been a good quarter building on the momentum of last quarter on clients mining, the top 10 account growth has accelerated from about 2.9% quarter-on-quarter in Q4 to about 4.4% in Q1. We’ve also added two customers in the greater than $50 million annualized revenue bracket this quarter. Again, our teams continue to be able to position integrated services to our clients and cross sell and up sell other service lines in accounts where we are present in a particular service line. An example from this quarter is a major US bank where Wipro won an integrated deal to implement KYC solution across all the LOVs of the bank. The deal encompasses application development, maintenance, domain support for the KYC implementation, processes, polices, IT systems, data management reporting and analytics; this used to be an IT infrastructure services customer for us and we've been able to enter or cross sell and up sell domain and platform based services in an integrated services model. This includes our IP which is Wipro HOLMES and this entire solution embeds Wipro HOLMES as a key differentiator. Talking about non-linearity during the quarter, we filed 47 additional patents taking our total patents to about 1,730. Another example of non-linear growth is for a large food, dairy and bakery products company leveraging our integrated Trade Promotion Management system, we are going to be able to digitize the trade promotion and its management through Promax which is a Wipro IP. A unique end-to-end solution leveraging Promax, and the integrated services is a clear differentiator which enabled us to win this deal with this customer in the consumer industry. As part of our IP portfolio we are investing to create derivative IPs for technology partners, so historically we have been doing as part of our product engineering services practice, sustaining services with a large number of technology companies; we've renovated on the business model, where now we're able to create derivative IP for these companies and we have the right to sell the derivative IP with a larger upside to Wipro, the business model also includes shift on higher gain share based revenues for Wipro where we get a percentage of the revenues coming in from the sale of this IP or product for our client. On automation, we continue to deploy HOLMES and various automation tools across our client; we have now deployed over 2,000 instances of HOLMES BOT across 175 customers, bringing in significant improvement in efficiency of operations but more importantly customer experience. As this program is maturing from this year we are starting to measure L2 activities, so if you recollect last year we had been able to deliver productivity equivalent to about 12,000 FTEs primarily on L1 activities and now as the technology matures and as we move up the pyramid this year we are measuring L2 productivity being delivered. I'm happy to report that this quarter we have delivered the productivity of about 2,100 people who have been redeployed from the L2 bucket. A case in point for a European customer where we manage end-to-end IT operations covering close to 2.7 million tasks per month by deploying HOLMES and integrating it with the customers' ITSM platform we've been able to provide 50% auto resolution of tickets and 42% auto resolution of service equipped, so the ticket resolution typically is an L1 activity and that we were able to do, but auto service -- auto resolution of service requests is an L2 activity and that is where artificial intelligence and cognitive technologies and analytics are leveraged better to be able to drive productivity at the next level, and we've been able to successfully deliver these kind of outcomes across our client base. As we had announced during the quarter, we have passed in terms of localization the 50% mark in our largest market with local employee. And we have over 1,000 employees now in four states in the US, across Florida, California, Georgia and Texas and we continue to establish deliver centres across US localizing our US workforce more and more. We are also this quarter announcing the digital innovation centre in Mountain View, California that we are going to inaugurate which will be the first innovation centre outside of Bangalore for Wipro. In Mexico, we added capacity in Quetla for another 7,000 people, our Latin American operations are over 98%, 99% local and we continue to localize in other key markets like UK, Singapore, Saudi Arabia with full figure [ph]. We are also replicating the various community activities across the markets where we are localizing including university relationships and we also are investing in building stem capabilities especially within US through teacher development programs which we have very successfully done in other parts of the world and we are engaging with some key public school in districts and universities to be able to promote the creation of stem talent that we will be a bit consumer of especially in the year. An update on the ecosystem, [indiscernible] continues to excite us quite a lot in Q1 alone, we won 25 synergistic deals in cloud applications and implementations. As announced previously the InfoSERVER acquisition was consummated in April augmenting our capability in the BFSI segment in Latin America. During this fiscal Wipro Ventures closed an investment in [indiscernible] an established leader in test automation segment taking a total number of investments to 12 and total dollar investment commitment of over $34 million. We are leveraging our investing companies well, Wipro Cyber Security solutions are integrated threat management solution where we have a leadership position in the market is a cognitive based offering which helps organizations take full control of security incident detection and response lifecycle and leverages the technology capabilities of Demisto, Vectra and Insights all three of which are Wipro Ventures Investment and we’ve been able to integrate the three, bring them together embed them in our platform and deliver a platform service to our customers. During the quarter, we have seen seven joint customer wins with these venture capital investments – investee companies. I’ve previously spoken about the horizon program which is the Wipro’s entrepreneurship program. In Q1 we’ve approved another two themes in the areas of connected retail and digital insurance platforms now taking the currently ongoing investments to 13, which are being incubated through this program. We continue to gain recognition in the industry analyst and advisors, Wipro is in leadership quadrant in 62 services to date spanning across digital automation, cloud, engineering, R&D, Big Data Analytics, BPM, B2C mobility, testing, RHL and other domain and technology areas. Overall, I continue to be very confident that we are executing well on our strategy and our investments are delivering the right results are seeing a trajectory shift within the current financial year. 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 you all. Let me start with consolidated Wipro Limited results; gross revenues for quarter ended June 30, 2017 grew 0.2% year-on-year to INR136.3 billion. Net income for the quarter was INR20.8 billion, an increase of 1.2% year-on-year. For IT Services segment, IT Services revenue for quarter grew by 0.3% in constant-currency. Revenues in U.S. dollar terms for the quarter grew 0.9% due to strengthening of cross currencies. We saw an all-round growth except for healthcare which was impacted by what is happening in U.S. and communications where we saw some softness due to projects closures. While we see growth momentum overall continuing, these two sectors are likely to remain in an uncertain zone. IT Services margin for the quarter was at 16.8%, which was 150 basis points lower than quarter four margins. While the net impact of the one-time benefit that we had of 70 basis points in quarter four, impact of ForEx was 130 basis points for quarter one. This was an adverse impact. Q1 was also impacted by lower utilization and higher costs of incremental salaries for one month. This headwind was partially mitigated by improved profitability in India and Middle East business and better business efficiencies. ForEx and effective tax rate is the next topic I want to talk about. On ForEx front our realized rate for IT Services in Q1 was INR66.06 as against INR68.57 for $1 for quarter four. The 68.57 was for quarter four. The variance [ph] cost us 130 basis points impact on margin as I mentioned earlier. As at the bigger end we had 2.3 billion of ForEx derivative contracts as hedges. The effective tax rate for quarter one was at 22.4%. Now let me talk about cash flows. For the quarter, we generated robust operating cash flow of INR29.6 billion which was 142% of net income and free cash flow of INR22.7 billion which was 110% of net income. The cash flow includes $46 million of investment made in opportunities to create derivative IPs that Abid spoke about. This investment is part of committed 90 million. Net cash as at the end of the quarter was $3.5 billion. Let me talk about shareholder returns. During quarter one we completed the bonus issue that we had announced in April. Board of Directors have approved a buyback proposal for the purchase by the company of up to 343.75 million shares from the shareholders of the company on a proportionate basis by way of a tender offer at a price of INR320 per equity share, aggregating to Rs.1,10,000 million which is INR11,000 crores. The price is 24% premium over the preceding 60 days volume weighted average market price of NSC. We look at shareholder returns through a combination of dividend and buyback. At a philosophy level, we intend to maintain pay-out ratios over a block of years. The buyback process involves obtaining shareholder and regulatory approval and may take until November to complete the process. For the quarter ending September 30, we have guided for the revenue growth in IT services of negative 0.5% to positive 1.5% sequentially in constant currency. In quarter two, our margins will be impacted by salary increases for additional two months. We will endeavour to offset the impact with operational efficiency. For the full year, our focus is to build revenue momentum that will further enhance our ability to maintain and improve margins. Our endeavour will be to keep full year margins in a narrow band of FY, 2017 margins on a constant currency basis. We’ll be happy to take questions from here. Operator, you may open the line now.

Thank you, sir. Ladies and gentlemen, we will now begin with the question-and-answer session. [Operator Instructions]. The first question is from the line of Ankur Rudra from CLSA. Please go ahead.

Hi. Thanks for the opportunity. Congratulation on a relatively good quarter also good to see healthy capital return. Just one question from my side, Abid you said last quarter and you repeated this time that you want to end the year with a growth rates smashing the industry. Could you clarify do you want this to basically imply that under fourth quarter exit rate basis you will be at industry growth rates. And should we assume then from FY 2019 basis we can peg you with industry growth rates. Thanks.

That is the endeavour Ankur. We see a robust deal flow. We see some of the transformational efforts delivering results on the expected line. And we also see being successfully entering some of the Wipro’s specific challenges that we had. So, unless we get into a situation that new uncertainty shows up, I feel quite confident on exiting at industry growth rate.

And this would bake any kind of recovery from HPS that we currently see?

We of course we don’t give guidance beyond one quarter, but for at least this quarter we have baked in any potential uncertainties that we see in HPS system.

Okay. Thank you and best of luck.

Thank you. The next question is from the line of [Biju George] from JPMorgan, please go ahead.

Just one question on automation, I think you sort of said that in addition to L1, you're also displacing people from L2 as well and I think you gave a number of 2,100, if I caught you right, what's the impact on margins you're seeing on this, because it doesn't seem to be reflected at the overall margin profile of the company, so my question really is that you end up surrendering those benefits substantially to client or it just gets lost in some of the other moving parts that impact margins?

Good question Biju, so, number one as you rightly pointed out, when we are able to deliver productivity through L2 resources leveraging more of artificial intelligence, machine learning, and machine reasoning technologies, the savings expected are higher simply because this is the higher rung in the pyramid which means we are more senior people. One other things that we are learning as we have changed this metric and have matured in this, is the redeployment of those people takes longer because the skills that they get released from are obviously automatable skills, so they don’t get redeployed with the same skill, so we need to re-skill them, and unlike the re-skilling that we did for the lower end of the pyramid which were relatively shorter re-skilling cycles and then redeployment, these more senior people need to learn more complex technologies for a longer time to be effectively redeployed in new engagements and that will also -- you would have noticed utilization impact because of that. So, in the near term, yes you won't see that those margins slowing in but in the long term we believe that it provides us both a differentiating capability in terms of going to market as well as better ability to deliver from a cost structure perspective.

So, L1 have you been able to see those margins at a broader level as desired Abid?

Yes.

And the second question I had was on buyback, I think you've said that it'll take till November to probably conclude the entire process, just trying to understand is this timeframe because your area listed, and they also need to participate so is the process a little elongated because of that factor?

No, Biju the only difference from last year, because last year also we went through a buyback process, only difference is that because this time the buyback size is greater than 10% we will have to go through the postal ballot which is approximately a month-long process, so that is the only differentiation vis-à-vis last year, there is no other change.

Okay, the fact that your area listed does not complicate things at all?

There is no difference, it was last too, and we will work through the process this year too.

Thank you. The next question is from the line of Diviya Nagarajan from UBS. Please go ahead.

My question -- two questions for you Abid, one, could you run us through the relative strength that you're again seeing in the banking financial services insurance base the last couple of quarters, in terms of what are the markets and sub segments that you're seeing this growth come from? That's question number one. And number two, I think you've talked about getting to industry level growth rates from an [indiscernible] perspective by 4Q, what are the key assumptions in terms of sectors and segments that you expect will return to growth by then?

So, I will answer your second question first and we have Shaji on the call, Shaji Farooq who is the President of our Business and after I answer your second question, he will answer your first question. Diviya? So, as I said the six teams that I have been talking about a couple of them relates directly to our ability to create a pipeline and growth, one of them is client mining which we have identified as an issue and if you’ve seen the trend over the past few quarters, I talked about customer satisfaction improvement in our top clients, top 100 clients we have seen more than company average growth in those clients again in this quarter I talked about moving customer in revenue bank. So, that is one lever of confidence that we get in terms of the successful execution of the strategy that we’ve embarked on. Second is our traction on digital and consulting which is a key transformation lever in terms of how the deal flow is changing. Our pipeline on that although we don’t publish the pipeline, our win rates from that and our execution on those deals have been very encouraging. And that also gives us the confident that as the industry is transforming, our ability to capture market share in that space is superior and hence it adds to our confidence. For your first question, Shaji if you can take it over.

Yeah. Hi, Vidya. Yes, overall to your question about where growth is coming from, it fairly broad based definitely seeing significant strength in the US banking sector. Again, the opportunities are very much driven by digital transformation based on opportunities and I think that’s giving as an advantage in many ways. Our investments in digital are being leveraged extremely heavily, our investments in cloud base transformation as well. And I expect that opportunity in the digital space will continue to provide them a free momentum. Overall the deal pipelines are looking pretty good and as you would recall, in the last quarter call I have mentioned that we are in the midst of several transitions related to strategic deals that we have won in the past. These transitions tend to be a little long and but most of these transitions are coming to an end and that is also giving us additional momentum from a revenue standpoint.

Thank you. And have a good year.

Thank you.

Thank you. The next question is from the line of Ashish Chopra from Motilal Oswal Securities. Please go ahead.

Yeah. Hi and thanks for the opportunity. Abid, just wanted to understand that at the growth in this quarter in terms of aging [ph] was more driven by average lease emerging market. And you expressed a good confidence in the India, Middle East segment. But as far as the guidance for the next quarter goes how do you see the geographical spread of this growth shaking up, will it be more or less similar or do you see it balancing out?

Sorry to interrupt, before you proceed. Mr. Chopra maybe request you to mute your line, please because it’s... there is some static disturbance on the line, sir.

Sorry, is this better now?

The disturbance is still there, so we would request you to mute your line when you’re not speaking, sir.

Sure, I’ll do that.

Thank you. Sorry sir, please go ahead.

So, Ashish I see pretty secular growth broad based across geographies and also, I pointed out India, Middle East because that was under restructuring and we had said that it'll come back to growth in Q2, but with superior execution of our India, Middle East teams, the restructuring has gone well and we are already seeing early signs in Q1 itself, but from a Q2 guidance perspective I see a broader based growth across the geographies.

And just secondly from my side, on the margin front, so you mentioned the benefits of automation now even at the L2 level expected to kick in, but how do I kind of tie that in with the comment earlier in the prepared remarks of trying to maintain the margins within the band that where they are and why not target to exceed the margins over the next one to two years, probably handsomely given that now you're also being able to replace more higher end workforce with the help of automation?

So, although we don't guide on margins, I'll just give you a colour of what we've seen in the industry, so number one, as you're aware that we had the last quarter about 70 basis points of one-time and about 130 basis points this quarter of ForEx, about 200 basis points has been relatively offset and this offset -- by operational efficiencies primarily delivered by automation and this also includes the merit salary increase that we give annually which we gave on time on June 1st, and about 50% of that impact comes in the first quarter for us and 50% will come in the second quarter which needs to be offset again in the second quarter. We continue to invest in some of the areas of our transformation of our business, I talked about our horizon investments, the M&As that we have done in the area of cloud and digital and all are still investment businesses for us, so we are not shying off from investments and that has an impact on our margins, and there is areas where we cross sell and consolidate, initial discounts given in anticipation of automation and efficiencies that we are able to drive, and that does have near term impact on margins. So, despite of all of those headwinds we feel comfortable in maintaining a narrow range that you alluded to, but in the long term I do see our ability to be able to deliver better margins in line with our ambition.

Thank you. The next question is from the line of Sandeep Shah from CIMB. Please go ahead.

Just related to U.S. and Europe in this quarter I think Europe we have a lot of volatility in the growth rates, and most of your peers has done well in terms of Europe in this growth, even U.S. if you look at it's been largely flattish, so, Abid, do you believe any go-to-market strategies needs to be changed in these two markets to accelerate your growth by the time you're saying about the 4Q you would be at the industry leading growth rate for -- to the industry average growth rate?

Yes, so, Sandeep I will request Abid to answer the question, as you've paused, but I do want to leave one data point with you that for the whole of last year our both large -- largest two markets which is U.S. and Europe grew ahead of company growth rate, so this quarter is one data point, and I would request we see it over a course of period and not just one data point, but having said that, your questions about future in demand are relevant and I request Abid to answer.

And again, this quarter if you look at Europe in particular a significant transformation engagement in our communications vertical has got over which has had impact on the other two dimensions of both Europe as well as product engineering. So, I wouldn’t read too much into it as new projects come into pipeline is quite healthy and it will be back to health. We continuously evaluate opportunities of how we can enhance our go-to-market and right now we feel quite comfortable with go-to-market that we have in these and all other geographies. Our deal pipeline in both these markets especially is very robust. So, I wouldn’t get overly concern by this quarter.

Okay. Just Jatin two book keeping questions for deprecation even if I exclude the one timers in last quarter, in this quarter it looks like there is a sharp decline Q-on-Q and second on a dividend if you look at the buyback amount as a percentage to the quarterly annualized back for this quarter were 130% and you said on a block of period you want to maintain at close to 45%, 50%. So, last year we have not announced a large dividend, so is it like fair to say that FY 2019 dividend amount can come down?

Yes. So, I would on the depreciation I would not read too much into it, it is driven by how much of our assets come off in terms of recapitalization once they are through the depreciation cycle. And once in a while, you have this bump. On your other question, can you just repeat your other question?

Yes. Just a buyback amount which we have announced as a percentage through the quarterly annualized?

Yes. So, you’re right then, we have say following things. One, fundamentally we want to maintain a pay out ratio which is around 45%, 50%. But that’s a combination of dividend and buyback. There is a rhythm to dividend which is different than the rhythm of buyback because buyback you can conduct and complete in a only over a certain period of time. And therefore, rather than looking at it on an annual basis, it is appropriate to see it over a block of period basis, by the time we will complete this buyback we will be in November which is more than six months down of 2018, 2019. So, a portion of our current buyback also reflects our pay out for FY 2018-2019 and that’s how we should see it. It doesn’t mean anything for future except for the broad guidelines that I have shared that we maintain a pay out ratio over a period of time.

Thank you. The next question is from the line of Ashwin Mehta from Nomura Securities. Please go ahead.

Hi. Thanks for the opportunity. Just one clarification in terms of your outlook of growth being similar to the industry by 4Q. Do you mean sequential growth or y-o-y growth here?

Yes. I don’t think we have clarified that Ashwin. We have said that we want to be in line with industry growth.

Okay. Just one more question in terms of your growth in top 10 clients, that seems to be very strong and I would believe that most of these clients would be in developed markets, but your traction in developed markets seems to be weak with U.S. being flattish and Europe declining, so just wanted to get a sense in terms of what's causing these diversions?

Again, as I said I wouldn't read too much in one quarter certain program get over. Typically if you look at it the top 10 clients are a large portfolio of services and mining kind of accounts, when projects get over, these are one project customers, which forms towards the tail end of the customer pyramid and as they get over they have compensating impact which is what has happened in this quarter, so as you rightly read, our top clients and mature markets in the core business are performing well, these are some one-off impacts which have offset the overall revenue numbers, especially the healthcare and life science has declined, you should read the other dimension is United States because that has got impacted as we had said in the last couple of quarters as well, due to the repeal and lack of replacement of Obamacare.

But do you think the health plan revenues stabilize over the next few quarters?

Yes, so, at least the project cancellations that we had, there were some logical steps of completion etcetera, which will bottom out in the next quarter, so you'll still see some impact in Q2 for it. After that there is a base rhythm which will be maintained, but I see a huge upsize if there is a clarity on what is the next, because we have as you know about 33% market share and leadership in this market and we believe and we're right now investing in positioning ourselves for success not only from the existing clients but post clarity other customers who decide to enter the market. So, that part of where it's kind of --- when it stabilizes is clear, when it'll come back to growth is based on the regulatory environment and how the legislative or administrative decisions are taken in the U.S.

Thank you. The next question is from the line of Rahul Jain from Emkay Global. Please go ahead.

So, we said that digital revenue growth is 3% Q-o-Q, can you share the same number on TTM basis, and are we satisfied with a 3% sequential growth in this kind of portfolio?

So, Rahul we have not shared that number and you can be in touch with Investor Relations team to get a TTM growth rate for the digital. But the way I will position is like this, that we have significantly improved our digital proportion of revenue when we started reporting five quarters back it was very different. I will request Rajan Kohli who leads our digital to talk little bit about the success so far.

We've done quite well in digital and we take a very long-term view of our investments and growth strategy in digital. If you see over the last four quarters we have moved our digital market share within Wipro from 17.5% of Wipro’s business to now today 22.8%, so that’s significant growth on the back of consistent quarterly growth in digital. And we also measured quality of revenue beyond this, and we’re quite satisfied with the quality of business that we are driving within revenues especially moving us outside CI [ph] office to get deals directly with business by leveraging both at video and designing acquisitions that we have. Thank you.

Okay. Interesting. Secondly, on this 50% markets event on the US delivery side and the kind of commitment we want to do on the incremental hiring as well as training. So, is there any CapEx OpEx budget in mind for FY 2018 and 2019 towards this?

As you’ve noticed we went from at least about 18 months back to less than about 35% or so, 15% increase. I think now we have created a rhythm of being able to do the localization. Initially you did see an impact because there is a transition cost involved when we localized, but over time that cost gets baked into our operating margins. So, we don’t have incremental cost and while we will continue localization and that transitions will continue but for example if there are 500 people transitioning every quarter that cost gets released from the last quarter and then gets again incurred in the new set of 500 people in the next quarter. So, for us we don’t see any additional margin impact going forward. So, we have not need to budget for OpEx on that. CapEx obviously as more and more work moves to our own delivery centres we will incur the CapEx, but that is nothing out of the ordinary. It is an ongoing process that we have which will be able to fund those delivery centres.

And just lastly if I can squeeze on, the realized rates for us has been better than the peers. And so, do we see that impacting adversely in Q2 given the rate that we have closed in Q1?

So, Rahul you mean ForEx rate?

Yes.

Yeah. So, you are right our realized rates for quarter one is 66.06 and that’s not really the market. We do have hedges that will continue and give us benefit in quarter two as well. But reality is that if ForEx remains at this level sooner or later we would be at the market. But so far, we have been benefiting from our hedging program. And we will see how much more the benefit continues to throw.

Understood. That’s it from my side. And best of luck for the rest of the year.

Thank you. The next question is from the line of Pranav Kshatriya from Edelweiss. Please go ahead.

Hi. Thanks for the opportunity, Sandeep here from Edelweiss. Abid, I have one question and I know you have kind of addressed it, but just wanted to know there is two parts to the same question. One, if you see our growth in this quarter and I understand that it is one-off quarter and you will not be able to give more data on that. But if you wanted to understand that this quarter growth has been driven by volatile markets and maybe next quarter guidance witnessed it because you might lose some growth in this volatile market and among the developed market the growth might come back. Is that – that is something which you're thinking while issuing the guidance or you think that it is best to be very conservative while issuing the guidance, so that is point number one. And point number two, I wanted to know on the digital side, like 22.5% is our digital revenue, is it purely the revenue which has started from let's say 0% few quarters back and we have worn deals and it has come from that way or there is also some angle or some kind of reclassification which has also been part of this?

So, Sandeep we don't reclassify for digital revenues, so, we have a very strict governance process in how we calculate the digital revenues and we've been consistently following that process and the last six quarters that we've -- last five quarters that we've been reporting the digital revenues is based on that same basis and as we win more and more digital revenues you'll see the percentage of revenues going up. It does to certain extent replace our existing legacy revenues. I don't have any additional comment on the market question that you asked compared to what I said before. As I said, I see a very robust mature market growth as Jatin had mentioned that we've had the last few quarters of very robust growth in those mature markets, we have a very good pipeline; some of that [D] growth or slow growth has been explained by certain account specific or project specific completions, I talked about communication, one large transformation project getting completed in Europe and a significant D growth in our healthcare business impacting the -- or offsetting the core business growth in the U.S., so beyond that I wouldn't read too much into it.

So, if I can squeeze a follow-up on that, so basically then this 3% quarter-on-quarter digital growth which you mentioned, is it again some kind of impact because of some projects which you got closed, or it is -- you're not very unhappy about this number?

No, I'm not at all unhappy about it, one of the things is digital is all project based business, almost I would say it's not 100%, over 90% is project business, so digital doesn't have -- runs business at all, which means on an ongoing basis as we complete projects you'll see a little bit of volatility in the digital growth; I feel very good about it. Again, the order book that we've closed in digital is extremely good. I do know a couple of projects that could have started in this quarter in Q1, are starting only in Q2, which also could have contributed a little bit to this, but again I'm pretty satisfied and I don't -- I wouldn't read too much into this quarter's slightly lower growth rate. In the last four quarters, our revenues have been growing very robustly and based on the order book and already some of the ramp up that have happened, I think we are on a good wicket on this one, and in some of the areas we've market leadership amongst our peers especially if you look at design, if you look at the cloud application services, some of the customer experience offerings that we have, we feel pretty good about it.

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

Abid, just wanted to understand a little bit on the HTS [ph] side the opportunity, I believe earlier in the day you mentioned that you had lost about 120 million in last four quarters in that. So, what are you hearing from your clients in case the Obamacare replacement does not pass through US Congress in Obamacare space, would that immediately lead to pick up deals and are orders from clients or would that continue to have some uncertainty from the client budget point of view?

So, Mukund the way I look at it is certainty of what is the future of US healthcare is extremely important for our clients and the repercussion of that is our business. If for example there is the uncertainty continuing that whether it will get replaced or not and when it will get replaced, no client is going to invest in entering Obamacare again because it is not only the platform that we provide to do it, but customers have to also invest in their IT systems for integrating that with our platform and customers won’t make that investment. So, I think the key is clarity on what US Healthcare in this affordable space is going to look like in the next two years or three years at a minimum for customers to start reinvesting. We do feel confident that the base business that I talked about after this ramp down of projects and new client acquisitions, the base business should continue as it is unless there is another set of development where these $20 million Americans who get some kind of coverage through Obamacare, don’t get any coverage at all for example next year, the $6 million of that happens through our platform, we have one-third market share and there could be further adverse impact to it. But, it’s very hard to guess right now, what could be the outcome, but I’m just painting a couple of scenarios that could take place.

Got it. And in case there is continued uncertainty how are you going keep the workforce in guess there and how are you going to reuse it platform for some other purpose. Do you have any contingency plan for the same?

Oh, yes. We have not only contingency plan, but we are already seeing some good results of the deeds that we did, because now we are already almost two quarters into it. So, if you look at our HTS business, it brought us two things. One is obviously what is very clearly known which is the platform to do the member registration and member onboarding and servicing of the ACA member. The second it brought to us a capability to deliver business process as a service. And there are a couple of deals which are significant in size that we are leveraging this opportunity and leveraging the talent and the IT from this acquisition which as those deals come to closure, we’ll be able to ramp up quite quickly and leverage this asset for both from a synergistic perspective and actually some of that infrastructure to be able to do that. Not only that, we are also engineering the platform for some adjacent reuse of the platform in the areas of healthcare, Medicare, insurance and so and so forth which also creates new market in a very similar business model for us. So, obviously while we are very hopeful that the opportunity in the primary domain will return, but irrespective of whether or not this would have happened, some of the other synergy leverages that were planned for HTS are being accelerated so that we can bring this business back to health.

Got it and the final question if I may is on energy side, so you mentioned that energy, you guys are seeing it pick up and last two quarters have been good on that perspective, so what kind of growth rate -- I know you don't provide guidance, but is there something given the weakness in this space for last two years, is there a space which should further accelerate from what it has been reporting so far?

Anand Padmanabhan who is the President of our ENU business is on the call and Anand if you can take this and give some color? Although we don't give guidance by individual units but Anand will be able to provide some color to you on this.

So, from an energy perspective, if you know what's happening in the market, I think the market has -- market per se, the primary market has stabilized from a cost perspective, and if the market -- we're expecting the oil prices to sort of fluctuate and I think by now the realization that this price is going to be around the same for a period of time has come to -- come to them. So, fundamentally I think everybody has accepted the fact that it'll be over around the current range of $45 to $50 or $55 per barrel. So, to that extent I think a lot of organizations across the world have re-budgeted, set their budget around the new factors. And to that extent that that market has stabilized; so, we're seeing a lot of activity in terms of focusing around new way of doing things and adopting digital to re-imagine the process and redo a lot of things, which we were doing -- probably we are not doing for the last two years. So, we're seeing here a lot of stability and new initiatives being launched by the oil companies. So, I think fundamentally I think we're pretty optimistic in terms of the direction in which this particular industry is growing as we speak.

Thank you. The next question is from the line of Ankit Pandey from Quant Capital.

My first question would be just a clarification on the indication that you have given that your Q4 exit rate should be industry level, is there any secular reason to believe that Q1 from next year will not be the seasonality that we've been used to seeing in Wipro?

So, Ankit, it's a good question, but I must consult, we have talked about quarter four, and at this juncture we'll stay with quarter four and we will certainly like to talk about more about 18, 19 months we come closer to it.

And there was one mention that the SPF [ph] business will have some negative impact as well in Q2, could you just clarify if that was more from the growth perspective or from the margin perspective?

Again, we don't guide specifically on a particular part of the business, so I was just trying to explain, when customers shut down projects they don't kind of stop the next day. There're certain logical conclusions that happen. And as you've been seeing the D growth, that D growth tapers off from Q3 onwards, so in this quarter some of that residual tapering might be visible. And this is captured in our guidance, so there's nothing over and above that I would have to comment.

There's another one, if you could just carry on in this HPS vertical, could you just clarify business impact of this indecision HPS versus non HPS, you know that healthcare and there is life science and pharmaceuticals, currently this quarter you have recorded about three percentage decline and your immediate peers are growing at 3% or 4% in this particular quarter. I mean that’s a kind of near-term divergence. Would you believe that once this is clarified, let say a couple of quarters down the road that your vertical can grow at industry level?

So, Ankit, you are aware of the size of the of HPS. So, it is a meaningful part of our healthcare. But once you do an acquisition it is part of the business as good as any other part of any other business. So, I wouldn’t want to call numbers as ex-HPS or including HPS when we bought it, we had a fabulous couple of first two quarters. We did have the headwind of the change in the regulatory aspect in US and we are confident that we are in it for long and when the good times return we will participate in those good times. So, why to call out separately a part of the business.

Okay. So, when you talk about the ACA impact because of the recency of the few acquisition, all of it was pretty much directed at HPS?

Yes, so Ankit, I'll just say I wouldn’t want to call it out and quantify what part of it is towards the HPS or what type when we grew was contributed to HPS. It's one healthcare due for us now and we have to work towards getting overall growth in that deal.

Okay. Thanks for the clarification Jatin. And also on the consumer business, if you can just comment on a little bit, I think last quarter you did mention secular weakness other competitors, you have also mentioned the same, this quarter you have been flat. Will your commentary remain the same or is there some change to be assumed then?

We have Shrinipalya the President of our Consumer Business and I'll let him give some color on that consumer business. All right, I think we are running out of time. So, I think the commentary remains the same, we are seeing headwinds at the same time we see this as an opportunity to gain market share. So, I feel quite good about this, we have undergone a similar title with ENU and I think a lot of times we see these opportunities to invest in clients. And we have seen some good consolidation deal flows and deals happening in this business. So overall, I feel comfortable with this business, there are definitely headwinds in the environment right now.

Okay. Thanks, Abid. And one last question for me, if Jatin could take this, utilizations rate we are in the early 70s, our competitors are pushing 80s and even mid-80s. So, can we say with some confidence that this is an aided, this is the focus and tighten, we can have a lot of upside in margins. Would you say that this is something that the management will be working towards?

Yeah. So, Ankit the measurement is different, what we say early 70s is the growth utilization which in the – so just for the clarity is a denominator is same. But, when I say calculation of gross versus net utilization which is also for us in early 80s, I take out the support staff from the calculation which will never get build. So, if you compare apples-to-apples we are not far off from our competition at best within 100, 150 basis points.

But, let's say, even net utilization is part of 82, competitors are now pushing above 85, so would you say that this is significantly new for us?

Hi, this is Bhanu here. If you've looked at the last six to seven quarters of our utilization, I think the utilization has been doing very well. This quarter as we talked to you about, we have taken the level two automation incorporated in our delivery organization and using those people for further training, we are utilizing those people from the training, if you look at last quarter, quarter four, our net utilization excluding support is almost about 81.9% one of the highest ones. So, we will ensure that as utilization -- as the training for these people gets completed, the utilization -- the levels return back to normal.

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 sir.

Yes, thanks. 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. You may now disconnect your lines.