Wipro Limited (WIT) Q3 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, good day and welcome to the Wipro Limited Q3 FY 2020 Quarterly Investor Conference Call. As a reminder, all participant 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 would now like to hand the conference over to Ms. Aparna Iyer, Vice President and Corporate Treasurer. Thank you and over to you.

Thank you, Stanford. A very warm welcome to our Q3 FY 2020 earnings call. We will begin the call with business highlights and overview by Abid, our Chief Executive Officer and Managing Director; followed by financial overview from our CFO, Jatin Dalal. Afterwards, the operator will open the bridge for Q&A with our management team. Before Abid starts, let me draw your attention to the fact that during this call, we may make certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act 1995. These statements are based on management’s current expectations and are associated with uncertainties and risks, which may cause the actual results to differ materially from those expected. The uncertainties and risk factors are explained in our detailed filings with SEC. Wipro does not undertake any obligation to update the forward-looking statements to reflect events and circumstances after the date of filing. The conference call will be archived and a transcript will be made available on our website. Over to you, Abid.

Thank you, Aparna. Good evening and good morning, ladies and gentlemen. First of all, wish you all a very happy New Year. I’m joined over here with my leadership team – by my leadership team, and it is a pleasure for us to speak to you all and share the results of the third quarter. Let me quickly provide an update on Q3 performance, our view of the demand environment and progress on our strategy. We had a strong quarter both on revenues and margin. Our revenues grew by 1.8% in constant currency terms at the midpoint of our guidance. On a YTD basis, we grew at 4.3% in constant currency terms. In Financial Services, we saw a slowdown in our growth rate due to continued softness driven by macroeconomic environment. We however remain confident on winning the new deals that we are participating in and leveraging our strong capabilities in Digital. We pleased with our performance in Consumer, which grew 12.1% year-on-year constant currency this quarter, and the sustained rhythm in this vertical on deal wins. ENU and Communications continued to grow moderately. We continue to see recovery in manufacturing and are encouraged by the order book and pipeline. Health saw a seasonal uptick in HPS, as Q3 has open-enrollment period, while the Technology business was impacted both by furloughs and slowdown in spend in the semiconductor verticals. The overall demand environment has neither improved nor deteriorated from what I shared last quarter, but we see the same level of uncertainty due to the various geopolitical risks at play. We delivered a healthy operating margin of 18.4% in Q3 versus 18.1% last quarter, aided by the depreciation of the rupee and some favorable movement of the cross currency. Now, let me provide you a quick update on our strategy. Business Transformation: in the past quarter, our customers across nearly every industry have chosen us to embed digital transformation within their business. It is no longer just about enabling new customer experience; it’s about fundamentally changing a business. And I’m pleased to share our wins, which show how our customers are turning to us as trusted business transformation partner. In Digital, our revenue grew 22.8% year-on-year, and now contributes over 40% of our revenues. For example, we have won a service design engagement to define the future vision and establish the strategic foundation for digital transformation at a bank in UK in the midmarket segment called Cynergy Bank. On modernization, we continue to help enterprises through their business first strategy within industrialized approach and enabling our customers to drive business acceleration, customer experience and connected insights. Our investment in cloud studio is continuing to payoff, we have accelerated cloud journey for our customers by migrating more than 39,000 workloads and 2,900 applications. A U.S.-based semiconductor company has chosen Wipro to move its current engineering application infrastructure to the cloud. We will leverage our cloud studio offering to help the client become more agile, ensure faster time to market and lower the total cost of ownership for the client. Our strategy on connected intelligence, which covers data analytics, artificial intelligence and engineering, is delivering good results. The EngineeringNXT set of offerings that I’ve talked about, we continue to invest in it and put the building blocks in place. We concluded the ITI acquisition this quarter. The acquisition will help us build momentum in Industry 4.0 and IoT offerings and will enable us to have a new set of clients to create differentiated value. We have won a contract from the North American subsidiary of a global automobile company deliver the next-gen in-vehicle infotainment software as part of our EngineeringNXT proposition. The fourth area is around trust focusing on enhancing our cyber security offerings, we have created a dedicated oT and IoT security practice to address the changing threat landscape due to connected systems. We recently launched our 15th Cyber Defense Center in Melbourne. As an example, Wipro has won a strategic contract from a leading U.S.-based financial services institution to design and implement a more effective risk and compliance management process for them leveraging artificial intelligence. The rapid adoption of HOLMES continues delivering significant service improvement in ITs and services, testing as well as our digital operations business. Our effort savings in fixed price projects improved from 16.5% in Q2 to 17.8% in Q3. One of the large UK-based global provider of financial markets data and infrastructure has selected Wipro for a data migration contract leveraging, the contract intelligence capabilities of Wipro HOLMES. We continue to drive localization and now our U.S. workforce is over 70% local, enhancing campus hiring, deepening employee engagement and making significant investments in training and skill development in all our markets. This is also reflected in the attrition rates which have improved to 15.7% for the trailing 12 months. In conclusion, we remain focused on deepening our customer relationships and converting our funnel, winning large deals that are due to close in this quarter. I will now request Jatin to give the highlights of our financials.

Very good evening, very good morning to the participants. As you know, we delivered at the midpoint of our guidance range. We also delivered sequentially 30 basis point higher operating margin. Overall, we delivered 3.2% EPS growth year-on-year. Cash conversion remained very robust. Our operating cash flow was 124% of net income and free cash flow was 101% of our net income. Our ForEx realizations remain very robust. Our realization rate for quarter 3 was 72.09 compared to 71.56 for quarter 2. We have very healthy cash position our balance sheet, our total cash from the balance sheet is [INR 4.9 billion gross and INR 3.6 billion] [ph] net. Our ETR is stable at 20%. We had a slightly lower ETR in quarter 2, because of the changes in the tax law as all of you are aware. Our guidance for quarter 4 is 0% to 2% sequentially in the constant currency that are mentioned in our press release. We’ll be very happy to take your questions from here on.

Thank you very much, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Sandip Agarwal from Edelweiss. Please go ahead.

Yeah, hi. Happy New Year to the management team, and also thanks for taking my question. I have just couple of questions. Abid, as you mentioned that, now over 70% of the workforce for us in U.S. is local, so which means that we have done extremely good job in terms of avoiding any business related risk from a long-term perspective. And ideally, it should have given us a lot of advantage on the revenue growth side, number one. Number two, the amount of work which we have done in last 4, 5 quarters, in terms of deal wins and on the Digital side, which is now like 40% of the revenue, our growth momentum should have now matched the industry level or at least closer to our completion. But we are still not seeing that in translating into numbers. So, two things which I wanted to understand. One, are we very close to the point where we’ll start seeing that transitioning into numbers? And number two, how bad is our non-Digital side, which is taking away all the good work or good growth of the Digital side? Thanks.

So, Sandip, as you rightly mentioned, our ability to fulfill our order book that has been won and execute engagements in the market, especially in U.S., with 70% local workforce is clearly a differentiator, and especially in Digital, where a lot of work happens in agile scrum teams on site, it has been an advantage for us. Clearly, in some of the segments, especially, in the banking segment, this quarter we saw a slight slowdown in Digital, simply because of furlough and this being the last quarter for a lot of banks. Some of the agile projects, which typically also have SOWs for a shorter term given out. Sometimes to save cost, you may not get those SOWs renewed in the last month or so, which may impact Digital revenues. But in general, I feel quite good about both our Digital business as well as the banking segment coming back in the next year. And that’s why I feel good about our pipeline. Both it is – especially with Digital deals becoming larger and coming across various verticals for us. I think the overall business, which you mentioned as non-Digital, the 60%, is also part of the modernization and other strategies that we talk about, where we are enabling that part of the business also, so that overall that doesn’t become a drag to our overall growth rate and we’ve been able to rotate our business from the old to the new relatively well. Of course, there are still parts of the business, which de-grew and there is a productivity that happens over there. But we feel quite good about it on an overall basis.

Okay, thanks. That’s all on my side.

Thank you. The next question is from the line of Parag Gupta from Morgan Stanley. Please go ahead.

Hi, good evening, and wish you all a very happy New Year. Just two questions from my side. So, Abid, just wanted to understand, getting into 2020, how do you feel about the demand environment relative to what it was when you got into 2019? Are you seeing any sort of client pressures where deal conversions are taking time or projects are being broken up into smaller projects and just getting deferred? So just wanted to understand that. And the second question is, you seem to be a little bit more confident on banking for the next 12 months, so just wanted to understand what sub-segments within banking are making you feel more positive and is there any risk that these projects also get pushed out, given the kind of pressures your customers may be seeing in their own business? So just wanted to get some sense qualitatively on both of these. Thank you.

Yeah, on the second part of your question on banking and financial services, I’ll have Angan Guha, who heads that business, give you some color. And answering the first part of your question, compared to last year, we don’t see a significant change in the demand environment either positive or negative. A level of macro uncertainties do continue. But from a Wipro perspective, we had a very robust order booking in Q3 and we are entering the calendar year with a bigger pipeline that we entered last year. Deal closures, we are not seeing any extended time compared to last year, so the time that deal closures are taking is pretty much the same. Actually, the deals, we have a larger component of large deal, so the deals are definitely getting larger. Especially in Digital, the deal sizes are bigger than last year. Angan?

Yeah. And, Parag, this is Angan Guha. So as you know, Parag, over the last three years BFSI has delivered industry-leading growth. Now, this quarter, we had a challenge because of furloughs, because of certain clients in the capital market space in-sourcing. And that is why we saw a little bit of headwind. But I’m confident, because our funnel is probably bigger than ever. And if we can close some large deals like Abid mentioned, next year will be much better. And the confidence comes in from the funnel size. I think our deal size is gone up and the funnel size is significantly higher than what it was in the same period last year.

Got it. And maybe if I can just ask one more, I do remember you talking about digital work also being discretionary in nature, which potentially runs the risk of either getting pushed out or made smaller, if there is an issue in the market or in the demand environment. So just wanted to understand, is that still the case? Are you still seeing some sort of those conversations happening? Or do you think Digital is a lot more strategic right now and hence is likely to come through even though there may be other challenges faced by your customers?

We have Rajan, who is the President of Wipro Digital. I’ll tell him throw some color at it.

Hi, this is Rajan. Actually, both the statements you made are sort of true. It is discretionary to the extent that it is up to the clients who really spend it. But it is essential, because this is the long-term future of the enterprises. So to the extent, change is becoming the new entity, so we feel that they have no option, but to spend it. But as Abid said in the opening, certain segments have sort of this quarter tightened the belt. But we believe that’s a very short term phenomenon, because they will come back and spend the money on Digital, because that’s the only way out for them to optimize their overall estate. Thank you.

Okay, great. Thanks a lot.

Thank you. The next question is from the line of Sudheer Guntupalli from Motilal Oswal. Please go ahead.

Good evening, gentlemen. Thanks for giving me this opportunity. Within the Consumer BU, if I may ask, what are the sub-segments driving growth, because the strong reported growth seems to be at odds with commentary of some of our competitors, especially in the sub-segment of, let’s say, retail. So, within the Consumer BU, what are the areas where you are seeing strong growth, and what is your take on the specific segment of retail?

Sudheer, I’ll let Srini Pallia, who is the President for our Consumer Business, throw some color. But essentially, our growth in consumer is led by Digital. And also, we work with a lot of our customers in the e-commerce space, which is the part of Consumer, which is growing. And we have a fair mix and share of that business where we are seeing growth, primarily through a lot of discretionary spending on project work. Srini can elaborate a little bit more by vertical.

Sure. Thanks, Abid. Hi Sudheer, this is Srini Pallia here. So there are 2 parts to this industry that we see. So specifically on the retailers, obviously, you would have seen the news that they had a good holiday season in the U.S., thanks to the consumer confidence. And if you look at overall retail, last quarter grew 3.4% during the holiday season. And, of course, like Abid mentioned, e-commerce grew almost 19%. While e-commerce still contributes only 15% of the overall retail, and however, brick-and-mortar actually declined 1.8%. So net-net, what we are seeing is retailers investing in technology to kind of create a core differentiation this above-context, which is e-commerce picking up quite a bit. And whoever is investing in technology are doing well. We also see a traction in modernization and the digital transformation that again Abid and I talked about. Overall retail market, from my point of view, will continue to be choppy and volatile. [Technical Difficulty] with our customers and specifically focus on executing to their strategic priorities. Now the other part of retail [Technical Difficulty] changing behavior of consumers, right? And if you look at – there are lot of dynamics around that. And specifically on the consumer business in addition to digital transformation, brand companies are looking at going direct – D2C, which is direct-to-consumer, and there are also investing significantly on their supply chain modernization. So both the retail companies and CPG company to my point, but in my mind, will continue to invest significantly on technology. And if you look at the growth of some of the CPG companies that we have seen, they are actually growing in emerging markets and they continue to invest in that, which is their next way of growth. And our presence outside of the U.S. is also helping us to go after that part of the business. So net-net, the industry will continue to be volatile and choppy. We will stay focused on where the customers are investing, especially on the technology transformation. I think that’s the right way to go in my point of view, Sudheer.

Sure. That’s very helpful. And the other question is, there seems to be a sharp improvement in the vertical margins in communications, almost 450 basis points or so. And this came despite revenue remaining more or less the same. So any color on the same will be helpful.

Yeah. So I wouldn’t see too much into the quarterly variation. We had a onetime collection which reversed provision for doubtful debt and that has improved the quarterly – that has improved the quarterly operating margin. I would look at a full quarter trend for normalized sustainable margins.

Okay. So this quarter, if I adjust for that provision, what would be the normalized margin – adjusted margins?

Well, that would be difficult to breakout, but if you see the trend you will – you should be able to see that additional which is sitting there.

Sure, sir. Thanks so much and all the best for the future.

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

Yeah. Thanks for the opportunity, and congrats on good execution. Just Abid, wanted to understand if you can throw some light in terms of – is it fair to say most of the portfolio-specific issue in the global markets outside of India is largely behind, because last quarter, we called out manufacturing. Now you are foreseeing some amount of green shoots and tailwinds also coming out of manufacturing. So is it fair to say outside India most of the client-specific or portfolio-specific issues are behind for Wipro?

Yeah, Sandeep, I would say including India PRE. Most of the portfolio issues that we had that we were working on the turnaround are behind us. Of course, the state-run enterprises, which is a segment outside still has restructuring work to do, and there also we’re making a lot of progress. Having said that, obviously, in our health business, the – again based on some of our portfolio mix of higher exposure to HCA does continue to be an area of uncertainty and that will drive volatility. But otherwise, overall, if you look at the portfolio I do feel good that things that we had set out to both reengineer our portfolio and address Wipro specific issues as well as a lot of the investment in capability that we have been doing, where we get to the mind share and traction with customers with very robust set of deal wins gives me confidence that those issues are behind us.

Okay. Just a follow-up, Abid. Around 3, 4 quarters back, we said that the growth outperformance in the banking financial service is largely driven through higher penetration of digital offerings in the banking as a vertical. So if you need to put that number in terms of penetration, are we able to replicate that success, which we have done in terms of digital penetration in banking in other segments or still that’s a work in progress.

I think learning from what we did in the banking and financial services segment, you see the evidence of replicating that in the consumer segment. Also it’s a function of both the horizontal capabilities that go with digital as well as the vertical capabilities that each one of the business units are building to be able to contextualize digital put their own vertical. And the second part of that is also the uptick in spend that these companies in particular industry verticals have in terms of investment on digital. So I feel good, for example, we are seeing good deal traction in the health care piece outside of HPS in our health business, where healthcare companies are investing in patient experience, which essentially as part of digital. And we are winning a fair share of our business. In the ENU business, in the energy space there is a lot of investment happening in digital and cloud, and we are winning a fair share of our business. So I can go vertical by vertical, but essentially to answer your question, yes, we’ve been able to take our expertise, our horizontal capability banking led because banks were the first to invest. But we are able to translate those capabilities and each one of the vertical. And each vertical, I would say is at a different level of readiness as well as industry uptick to be able to take digital.

Okay. Just last 2 questions. If I look at the commentary of the funnel looks really positive especially on the banking financial service. So can you throw some light in terms of the sale cycle here and where are we standing in terms of the number of competitors? Is it more proactive/reactive? And the last question to Jatin, this is the fourth quarter, where the EBIT margin on IT service has been close to 18% despite the headwinds on the margins. So do you believe that this is a sustainable levels to look for and there could be a further improvement if the growth pickups?

So Sandeep, the funnel looks good. It has a combination of both, what I would call as, deals of large size as well as average size deals. We’ve not seen any change in the time, it takes to close the deal, but typically a large deal takes almost 6 to 8 months to close, small deals obviously close faster, so that pace continues. And we see a good share. We are getting our fair share of deals in terms of both in our funnel as well as getting into the last 2 or 3 where we then really have a chance to win the deal. Jatin?

Okay. And question on margin?

Yeah. So Sandeep, Jatin here. So as you know, we have delivered for this fiscal 18.4% in first quarter, 18.1% in second and 18.4% in third quarter, so that we have demonstrated the discipline of execution even as we have continued to invest incrementally in our big bets through the course of the year. As we always maintain our priorities to get our superior growth trajectory for the organization, because we believe that is the source of margin expansion or margin sustenance in medium term. And therefore, we’ll remain always committed to initiatives and investments that we need to do to get the growth trajectory up. So far, we have been quite successful at finding those dollars by squeezing the cost that we believe we can squeeze out and that would be our endeavor going forward. We are not guiding on margins, as I said, we will remain committed on getting the growth trajectory further improved from where we are.

Okay. Thank you. And all the best.

Thank you. The next question is from the line of Madhu Babu from Centrum Broking. Please go ahead.

Yeah. Hi, Sir. So last one year, we have been going slow on acquisitions. So currently around INR 25,000 crore is the net cash on balance sheet. And we generate almost INR 10,000 crore of free cash flow per year. So would we start looking to increase the payout ratio more of interim dividends, because anyway, the buyback for the next buyback would be only post September of this year. So with such a high cash component on the balance sheet, would you look for more interim dividends from here on?

So as you know, we have had 2 cash events in the year, and I think that’s optimal, we have declared an interim dividend in this quarter. We will – the board will continue to evaluate as we move forward on what should be the way of returning cash to the shareholders. For last 2 years, if you see we have gone significantly ahead of our commentary of paying 45% to 50% of net income in over a block of years. And therefore, our philosophy has been around what we don’t need for our growth, we will certainly look at returning, but in the guided range that we have spoken about. So we will continue to look at opportunity and board will make decisions as it deems fit based on our requirement of funds.

And one more on the top 2 clients from the banking, I think, the top accounts have been weak, and one of that is a banking account. And even within the top side, there are 2 banking accounts. So what are the outlook on those 2 accounts for next year?

Well, we cannot talk specifically about which 2, because your 2 could be different now in this quarter compared to the 2 that we had in previous quarter. But overall I wouldn’t worry about the commentary specific to customer, Abid and Angan had spoken about our overlook – overall outlook on BFSI space. And I would see that as an important step forward from our side, because individual clients can always go up or down, but what I’m sure you are looking at is the portfolio outcome from the BFSI.

Okay. And last one on the engineering side, I think, we brought in a new team and also, could you elaborate more on to next year, what is the target growth? Because that segment actually, some of the pure play vendors are growing at a much faster pace.

Yeah. So we – as I mentioned in my opening remarks, we are making significant investments, we just closed an acquisition also over there. I’ll Harmeet Chauhan, who heads our engineering business, give a little more detail color on how we feel about our engineering business.

Hi. This is Harmeet here. As you know, we’ve been operationalizing our new strategy for last 2 to 3 quarter including the acquisition of ITI, which we completed in Q3. We also rolled out our new EngineeringNXT offerings, which is to truly enable innovation for clients across 11 different industries for both accelerating time to market, and also delivering efficiencies. So based on where we sit, based on where we are, we believe that we are headed in phase where we have a complete stack of engineering offerings to really sharpen our value creation for our customers. And that should position us in the industry leading growth, even if you see in quarter 3, we have delivered Q-on-Q growth, and we believe the momentum to continue going forward. And of course, the other data point I would like to share as far as our operationalizing strategy is, our customers are really engaging us across 5G, across IoT, across Industry 4.0, across connected products, across software products. So the breadth and depth, we are seeing in terms of addressing, and we are winning against competition. We have seen in Q3 as well a significant traction of growth across geographies, North America, Europe and in Japan as well. So we – I remain bullish, my team remains bullish to deliver on industry-leading growth going forward.

Thanks.

Thank you. The next question is from the line of Abhinav G from SBI Pension Funds. Please go ahead.

Good evening, sir. Thanks for taking my question. I just wanted to a couple of things. First one is that our digital and platforms are doing better. So is there any tailwind coming from HOLMES? And the second part is, can we give more color on the AI. How are our capabilities, because of our peers? Are we doing some work on cognitive AI as such? Thanks.

Yeah. So HOLMES, both as part of – a lot of the run deals that we bid for becomes an essential part of our solution and it is a differentiator for us. If you remember a couple of years back, as the engineered HOLMES, we had picked up some of our large accounts and run engagements in those accounts to deploy HOLMES to build use cases, to build interfaces so that they can be deployed at an enterprise level. Those deployments, as well as that IP along with the overall HOLMES framework has helped us win a large number of run deals and deliver productivity and margin within those deals. As AI technology has become available primarily also from the cloud providers, we’ve identified use cases where we can inherit technology from each one of the cloud providers, whether it is Azure, whether it is AWS or GCP, and we’ve created use cases across platforms so that we can deploy HOLMES in a cloud environment in the work that we do for them. So I feel pretty good over 280 customers now have HOLMES deployed with use cases. We have about 17.8% of our work being done in FTE-equivalent terms through automation, which is primarily driven by HOLMES. The second area where we see attraction with HOLMES is what we call as HOLMES for Business. One of the examples that I gave in my opening remarks is an example of HOLMES for Business, we’ve identified about 12 industry use cases, where the applicability of artificial intelligence and cognitive technologies delivers business transformation, and we have deployed one or more instances of those use cases with our customers, a lot of those deals are also proactive, they are also part of our business transformation offerings. And including change management, we are able to do those deployments, although the size of those deals are small right now, but we see quite a lot of traction and we are building more accelerators leveraging HOLMES across different industry verticals.

Yeah. That’s helpful. Thank you.

Thank you. [Operator Instructions] The next question is from the line of Harit Shah from IndiaNivesh Shares and Securities. Please go ahead.

Yeah. Thank you for the opportunity. I just want to get a sense of what is happening on your top clients? The revenue in dollar terms is down at the slowest level more than 2 years. So some sort of color on that, what is happening over there? The trends that are playing out in that space. That would be helpful. Thank you.

So Harit, we’ve been talking about the cross-sell and client mining across our top clients for the last many quarters. And as you saw, we saw double-digit growth in the last 2 or 3 years, which we’ve seen a little bit of slowdown in the last couple of quarters. If you – if I give some color on the mix of the top clients for Wipro, our top clients are primarily from banking and financial services industry and technology industry verticals. And both of these – as we have discussed, financial services – last year because of the – as you guys know better than anybody else, because of the interest rate change, a lot of banks did curtail their spend. We had some challenges at a macro level in the capital market space. And that has impacted because they form part of our top 10 clients. Similarly in the technology space, of course, Q3 always is a difficult quarter for technology because of furloughs. But apart from that, we are seeing again due to macro issues challenges in the silicon segment of our tech business unit, primarily driven by the U.S.-China trade and the slowness of the uptick of 5G with telecommunication service providers, which has an impact on the network equipment providers, which – both of which in banking and financial services, as well as in the Tech BU, I see our mid-term or short-term temporary, and next year, we feel that there will – it will be back to growth and there will be uptick in both of these. So the relationship with our top clients are very robust, we are gaining market share, even when sometimes our revenue goes down as they consolidate, as they renew. So we feel quite good about our overall top client portfolio.

Sure. That’s helpful. You had mentioned last quarter that you do a lot of new digital-related work for your top clients. So – and you had mentioned that some digital projects had ended and renewal is taking a little bit of time. So is that – have you seen that trend continue this quarter also, and any kind of renewals taking time maybe because of budget – the new budgets being decided, or any other reason?

Yeah. So specifically, our Q3, which was the last quarter for a lot of banks, we did see customers holding their spend back sometimes to address their own internal budget challenges, because as you rightly mentioned, digital work is also a lot of discretionary spend. And they may decide to pause work and not renew the SOWs, and we did see that. Coming into January, we are starting to see that demand coming back. But it’s too early to call right now, so we will – we have built that uncertainty in our 0% to 2% guidance that we have given.

Okay, fine. And my last question, a bookkeeping question, what is the outstanding ForEx hedges that you have at the end of – around the quarter?

Yeah, so we have $2.6 million of outstanding hedges as of December end.

And then, what rate would that be on an average?

As you know, we have stopped sharing those rates, but we typically hedge at any point in time for next 50% of our next 4 quarters’ net inflow. And you can gauge what rates we would have booked those at.

Sure, no problem. Thank you very much and best of luck.

Thank you. The next question is from the line of Nitin Padmanabhan from Investec. Please go ahead.

Yeah, hi. Thanks for taking my questions. Abid, you clearly highlighted that there is an improved funnel that’s driving confidence of growth, sort of improving going forward. And also, the fact that there is a potential deceleration of headwinds from the existing client buckets, and at some point, they would actually start spending. So I just wanted your thoughts on two things. One is, in terms of the funnel, are these more cost-takeout kind of spends or are these higher on the Digital side of spends? And second, now, something that’s at loggerheads with the broader thought process, if you could clarify, is that the broader market environment appears to be, continues to be weak, at least if you look at banks and their own profitability and so and so forth. So what in your mind is sort of changing that they will actually come back and really spend? And what is the confidence of that really happening?

So there are three areas that I would kind of like to touch upon. One is banks and all other industries, but especially banks continue to invest in digital. So that gives us optimism, because as that digital spend happens, we are able to participate in that. The second is, as you rightly mentioned, there are challenges as the macro-economy slows down and it impacts banks. Banks would normally lead some of these areas of slowdown and cost efficiency as well. And we have a significant play in the area of helping banks deliver a better revenue to cost ratio, and we participate in that. And those deals are cost-takeout deals, consolidation deals. Those deals have a component of large deal. But none of them come without a transformation component. So to answer your third question, the third part of my answer is that, invariably those deals are digital in nature. In some cases, they may be more on the business transformation and experience front. In some cases, it may be more of automation and AI-led business transformation. So digital is essentially part of all of that. I wouldn’t imagine a pipeline, which is not 60%, 70% digital in today’s IT services environment.

Sure. That’s helpful. Just one follow-up there is, do you think, looking at the funnel that customers, do customers really expect vendors to really invest upfront for them, considering what they’re going through? Is that something that’s sort of there out in the landscape or that’s not really the case?

Actually, nothing has changed much. If I look at some of the large deals we’ve done in the last 8, 10 years, invariably large deals have a component of skin in the game. They have a component of upfront capital investment on transformation and the gains coming over a few years. And invariably, those deals sometimes require deal structuring depending on the customer’s cash flow needs as well as the ability for us to leverage our balance sheet if it makes sense. As you would remember, as part of our strategy, we have sharpened our ability to do gain share deals, element-based pricing deals, where we take the risk of transformation upfront and commit to a certain amount of savings, which does give us, given our balance sheet, it gives us the ability to structure the deal. But I would answer that question on a deal by deal basis. I wouldn’t generalize it. And the large deals that we have done, in some of those deals, we had to do some kind of an upfront investment. In others, we did not have to. And wherever we have to do that upfront investment, it is priced in – the cost of that capital is priced in to the deal financials. If you look at our unbilled revenues over the past few quarters, it has shown a steady improvement. So we’ve maintained a lot of discipline in how we leverage our balance sheet, so that our quality of revenues are not impacted in the near term.

Sure. That’s very helpful. Just one data point, if I may. What was the contribution from ITI this quarter?

Hi, Nitin. This is Jatin. 0.3% of our 1.8% sequential growth came from ITI.

Thank you, Jatin, happy New Year. Thank you.

Thanks.

Thank you. [Operator Instructions] The next question is from the line of Shashi Bhusan from Axis Capital. Please go ahead.

Yeah, thanks for taking my question. Our margin performance despite growth volatility has been very stable. And we have invested in building localized talent pool despite any major impact on the same. So shall we assume that margin gains through automation or high-margin Digital deals would be reinvested in the business for growth going forward, and we are comfortable at the current level of margin profile and not eyeing for expenses?

So, Shashi, you articulated well how we have delivered first 3 quarters of this fiscal, where we have continually invested, especially in our articulated big bets to get a superior growth trajectory. And we have been able to find those dollars from automation, AI and our traditional operating levers. However, we will remain very focused on growth. The priority number one for us is growth. And for that, we will continue to invest. So we don’t want to guide forward but our effort is to go ahead and invest, and also squeeze that dollars out of the other cost levers that we have.

So, very, very helpful. So, thanks a lot.

Thank you. The next question is from the line of Ruchi Burde from Bank of Baroda. Please go ahead.

Thank you, sir, for the opportunity. My question is on your retail and consumer verticals. You identified the growth in vertical was led largely by your association with the e-commerce name. So what I’m trying to understand here is was this now a function of more seasonality, strong seasonality of the e-commerce player that one witnessed or this is more structural growth uptick that Wipro witnessed and can sustain in the future?

I’ll let Srini address that.

Sure, thanks, Abid. If you look at the last few quarters of where we were with the Consumer BU, I think one of the – and the point that I made in the previous question as well – retail CPG companies are definitely going through turbulent transition and transformation at the same time. What’s important is look at those customers who are trying to transition and look at those customers who are trying to transform themselves and be part of that journey, and if then you are part of their strategic priorities. And that actually has been helping us. So in the context of the industry itself, yes, it’s going to be choppy and volatile. But from our point of view, trying to focus on those investment areas and executing to their priorities I think is what will sustain the growth and momentum in the few quarters ahead as well.

Thank you.

Thank you.

Thank you. Ladies and gentlemen, as there are no further questions from the participants, I would now like to hand the conference over to Ms. Aparna Iyer for closing comments.

Hi, thank you all for joining the call. In case, we could not take your 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 this conference. Thank you for joining us and you may now disconnect your lines.