Wipro Limited (WIT) Q2 2023 Earnings Report, Transcript and Summary

Ladies and gentlemen, good day and welcome to the Q2 FY '23 Earnings Call of Wipro Limited. 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 now hand the conference over to Ms. Aparna Iyer, Vice President and Corporate Treasurer. Thank you, and over to you.

Thank you, Inba. A very warm welcome to our Q2 FY '23 earnings call. We will begin this call with business highlights and overview by Thierry Delaporte, our Chief Executive Officer and Managing Director, followed by financial overview by our CFO, Jatin Dalal. Afterwards, the operator will open the bridge for Q&A with our management team. Before Thierry 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 the 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, Thierry.

Thank you, Aparna,. Hello, everyone. Good evening. Thank you for joining our Q2 earnings call. And for those of you joining us from the U.S., good afternoon, I guess, maybe good morning for some. Since the last time we spoke in July, you've seen the macroeconomic conditions across almost all markets and sectors have changed, right? In speaking to our clients every day, we're seeing a change in the level of optimism as business around the world are dealing with inflation pressure with geopolitical turmoil with energy crisis also rising interest rates, almost every major economy is experiencing economic deceleration. And it's against this backdrop that we delivered a strong quarter. Our business strategy is sound and our value proposition continue to resonate with clients across markets. This is reflected in robust bookings, healthy deal signings, growth in revenues as well as operating margins. Let's start on bookings. Our bookings in total contract value terms grew 24% year-on-year in Q2. Two of the four markets, Americas One and Europe, grew more than 30% year-on-year. We said in the past that large, transformative deals are a key pillar of our growth strategy. Indeed, they will allow us to demonstrate the true power and scale of our services, talent and operations. Large deals are where we deliver maximum value for our clients. So I'm pleased to share that large deal wins have continued to be really strong. In Q2, we signed 11 deals with a total contract value of US$725 million. This actually follows an exceptional quarter in Q1 when we clocked over a $1 billion in deal signing. And this strong booking trajectory translate into a 42% year-on-year growth in our large deal bookings in the first half of this fiscal year. Over the last few years, we have steadily increased our win rate, improved the quality of our pipeline. As of today, our pipeline has what I would say a well-balanced mix of transformation growth and cost takeouts engagements. Now, this mix may change in the coming quarters based on external conditions that I talked about earlier. But we expect continued strong demand for our comprehensive portfolio of services. We know that technology in good times like and bad has become the underlying success factor for any business. Regardless of what the problem is, increasingly, technology is the solution. I believe we are better positioned than ever before to help our clients tap into the true power of technology, whether that's to drive growth and transformation, or manage cost or build a sustainable future. Speaking of sustainability, we continue to build sustainability into everything we do, including across our tech stack. You will see us leveraging our sector domain expertise and a strong partnership to develop new, low carbon impact solutions for our clients. Our enterprise scaling and sustainability process experience is helping us stand out in the market and leading to strong client demand. Overall, with our deep engineering expertise and comprehensive set of offerings, we are, I know, well-positioned to be the partner of choice for client as they face a growing set of headwinds. Now turning to our revenue growth, we recorded 4.1% growth in constant currency terms sequentially and 13% on a year-on-year basis. That translates into double-digit growth across all markets. Business growth translates into growth for our colleagues and I'm happy to share that we rolled out quarterly promotions to our employees in July, and salary increases effective September. And yet, we've achieved operating margins of 15.1%. As we continue to enhance our portfolio with the newer and more strategic service offerings, our clients are recognizing the value we deliver. This is increasingly reflected in our improved price realizations. This is of course combined with operational excellence, automation, higher productivity are the key levers for margin improvement. As every quarter, I'll now share some final details on markets, service offerings and sectors. Let's start with our markets. In Americas one, we grew 15% year-on-year in the second quarter with all sectors showing some growth. During the quarter, the fastest growing sector in the market was technology products and platforms, which grew 26% year-on-year. Order booking is in total contract value terms grew nearly 34% year-on-year in Q2. Now moving to Americas two, we grew 12% year-on-year in Q2. Manufacturing and energy and utilities led the performance, recording a growth of more than 20% each year-on-year. Financial services actually grew 17% year-on-year. Moving on to Europe. Our European business delivered a year-on-year growth of 12% in Q2. Most of the markets recorded strong double-digit year-on-year growth with Benelux, U.K., and Ireland and Southern Europe leading the pack. Our order book in total contract value terms grew at 36% year-on-year, which is quite massive. Our APMEA business grew at 11% year-on-year in Q2. Regions that did particularly well during the quarter where South East Asia, Australia, New Zealand and Middle East. So as you can see across all markets double-digit growth. Strengthening client relationships remain a top priority for us. As a result, we're gaining share in our metal accounts. Our top five clients grew 19% year-on-year, our top 10 clients grew 17% year-on-year both in constant currency terms. Now moving to service offerings. You know we have two global business line, iDEAS and iCORE. Let me go through each of these two business lines. Our iDEAS, global business line grew 15% year-on-year in Q2. This growth was led by cloud transformation first, which grew 26% year-on-year; by applications and data, which grew 21% year-on-year; and finally, by engineering services, which grew 18% year-on-year. Now looking at iCORE, the other global business line, grew 9% year-on-year in Q2, but here, led by cybersecurity services, which grew 23% year-on-year on Q2. And as the speed of transformation accelerates, we are experiencing increased demand for our full suite of cyber offerings, while leveraging internal methodologies framework, intellectual property in collaboration with our technology partners to help clients manage a dynamic and complex risk environment. In one recent example, we helped a global communications organization improve and automate their compliance processes, leading to an enhanced risk posture. We now operate and execute this program globally and have driven significant cost reductions in their security and in their compliance program. Then talking about Wipro FullStride Cloud Services, which is more than one-third of our business today. It continues to be a driver of our success and partnerships are at the center of this growth. In fact, in the second quarter, bookings with high per [ph] growth partners grew 24% year-on-year. Working alongside our partners we know we are creating industry solutions and leading major transformation efforts designed to help clients unlock the value of cloud, but also realize new efficiencies. In addition to modernizing applications, we see a great amount of interest in modernizing data operations. Organization realize the power of data in gleaning new insights into their business. For example, our U.S based diversified financial services group, we are working on a digital transformation in data modernization effort, which actually involves building a next generation cloud analytics platform. The goal here is to deliver omni-channel experiences that help our clients get better real time insights into their business. Ultimately, the transformation is helping our clients reduce time to market for new capabilities, and deliver enhanced experiences. In another example, for a leading provider of industrial automation solutions, we are working on a transformation program that will help them become more client and relationship centric. We are building a multi-cloud solution that will transform the firm's marketing sales and services around a single client definition, creating opportunities for more meaningful engagement with customers. And we continue to double down on strategic investments in areas that we know will drive long-term competitive edge for us and for our clients. For example, recently, we launched Lab45, a new brand for our CTO organization. Lab45 is a new direction for our technology research and development unit. The objective of Lab45 is to develop new assets, intellectual property and products through client collaborations and partnerships. Lab45 will help our clients build new business models, enhance user experience and drive growth through enterprise technology. In fact, the opportunity to tap into our expertise and world class talent through Lab45 is already factoring into client decisions and making an impact on how we win in the market. We're continuing to also expand our capabilities in strategic areas, such as artificial intelligence and data, but also 5G, Metaverse, IoT, Industry 4.0 to help clients gain new competitive edge. I now share a view of the talent landscape. I’m first happy to share that our attrition has continued to moderate for the third quarter in a row. In Q2, attrition was down to 23% on -- if you're looking at it on a trailing 12-month basis, and our quarter annualized numbers are trending even lower than that. We expect a further moderation in Q3. And like I had shared last quarter, we are now offering promotions to our employees every quarter. And in Q2, we promoted about 10,000 colleagues. I’m also pleased to share that the annual salary increases were given to our colleagues across bands in Q2, as you know, our -- is our philosophy, a steep differentiation in rewards for our top talent. We've also on boarded over 14,000 freshers in H1, which is over -- imagine 75% of what we added in the whole of last year. And finally, I will share an outlook for the next quarter. We have guided for revenue growth of 0.5% to 2%, which will translate to growth of 10% to 12% year-on-year in constant currency terms. This guidance reflects the current environment and the quarter and seasonality. For the full year, we ascertain that we will report double-digit growth. Our margin in Q3 will have some headwinds, just the impact of two incremental months of salary increase and yet we expect to hold a margin in a narrow band. In a summary, we have delivered a strong performance against the backdrop of a mixed macroeconomic environment in Q2. Our order bookings and large deals reflect an improved market competitiveness and prove that our strategy is working. We are experiencing a real shift in the market as clients increasingly turn to us to realize their boldest ambitions. And based on all these factors, we remain confident of gaining market share in the coming quarters. With that, I will hand it over to Jatin now for his comments.

Thank you, Thierry, and good evening, good morning, good afternoon, everyone. We had a solid quarter. We delivered slightly about the midpoint of our guidance at 4.1% sequentially, which was 12.9% Y-o-Y growth. We delivered operating margin which was slightly higher than quarter one at 15.1%. We had an ETR of 22.5%, which was again 1% also better than what we had for quarter one. And as a result, our net income grew 3.7% sequentially for quarter two. We had robust performance in cash collection, and overall improvement in working capital cycle management. We therefore have posted a very robust 180% ratio of operating cash flow to net income. At the end of quarter two, we had $4.3 billion of gross cash and $2.2 billion of net cash on our balance sheet. We had a good performance in ForEx. Our realization rate was 79.93 and we had $3.8 billion of ForEx hedges at the end of the quarter. Our guidance, as Thierry remarked, for quarter three is in the constant currency we’ve mentioned in our press release, and it is 0.5% to 2%. We will be very happy to take your questions from here.

[Operator Instructions] We'll take the first question from the line of Sandeep Agarwal from Edelweiss. Please go ahead.

Yes. Hi, good evening and thanks for the opportunity to ask the question and wish the whole management the happy festive season. So I have a small question for Thierry. Thierry, in all your discussions with the client right now, are you hearing any kind of cautiousness from any of the clients in any of the vertical or geography regarding this macro? Or it is more a preventive step that they don't want to go aggressive right now, or they want to also be careful and watch the environment, how it plays out? So what kind of restrains you are seeing whether it is a realistic pressure, which is leading to some kind of cautiousness, and it is more likely to get cut, or you think that it is just a preventive step from them right now, where they want to wait and watch the macros? Number one. Number two, the guidance, while you know I understand that the environment is very volatile. And because of that, probably you would have kept in some bit of conservatism while guiding, but it still looks a little lower given the kind of demand environment what we are hearing from the industry, what we are hearing from the competitor. So what is hurting us more than the others? Can you elaborate a little bit on that? Thank you.

Yes, Sandeep, thank you for those questions. So let me take them one by one. One is the -- talking about the market environment. I think -- the answer was almost embedded into your question. The reality is that I think we all are connected with the market news. And it's quite interesting to see every single day what’s happening in the whole world. Macro environment, whether it's what's happening in Ukraine, what's happening with the oil, energy, sorry, what's happening with market conditions in America or in most of the countries, I think people see that, people hear that and there is a certain evolution of the climate that is certainly the confirmation that we have the market has changed. The market share conditions has changed. We are no longer in the same market and condition that we were nine months ago or 12 months ago. That's a reality. But the big question is, is this context going to impact our industry? And frankly speaking, I am not sure, that's why I see a certain level of uncertainty today. There's a bit of uncertainty because in talking to clients, they all are assuming that at some point in time, this will have some implications for them. And I think it's -- that would be naive on our side to not hear what they're saying. So that's probably what is, and I'm moving to the question, too, it's probably what's leading to our guidance. The business is good. I mean, we've been growing well over the last quarters. We've been performing well on bookings. So there's no sign on our side of any particular slowdown, except that the market has changed, except that there are a certain environment of uncertainty that is impacting our clients. And then obviously, Q3 is also a quarter where there's furloughs. Do we have more furloughs than the previous years? I don't know. I don't know. But they are -- we know that there will be furloughs. And so I realized that you might see a point of caution and it's may be the case, but I think we've tried to be cautiously optimistic. I want to also give a perspective in terms of the trajectory, the growth trajectory, right? If you look at Q2, we do 4.1% of growth, which is a sign of very strong performance. All our markets have grown double-digit year-on-year. Not one grew less than 10%. So we see this trend. Now, if you take even more a step back and look at Wipro's trend, last year where -- industry leading growth, right. This year, double-digit growth, and we are only halfway through the year, we know that will be double-digit growth. This company will have grown to 40% in two years. That's the reality. And then again, the performance in bookings, the impact we have in the market gives us great confidence that will continue to grow well and certainly gain market share in the next quarters. That's the mindset that we have right now.

Okay. Thank you. That's very helpful, and wish you best of luck for the current quarter. Thank you very much.

Thank you, Sandeep. Thank you.

Thank you. Our next question is from the line of Abhishek Bhandari from Nomura. Please go ahead.

Thank you for the opportunity. Thierry, I have two questions. One is more from a near-term and one is more medium-term. The first one is in the backdrop of volatile macro, which you have been alluding to multiple times in your press conference and even in the recent last 20 minutes, how are some of your recent consulting acquisitions playing out, especially Capco and Rizing. If you could share some trends over there? And also from a pipeline perspective, do you see any kind of change coming through these two particular subsidiaries?

Okay. Abhishek, thanks for those two questions. So the first one about consulting. Consulting business has been a massive driver of growth for us over the last two years. We've -- I was talking about Capco, we've grown more than what we had in the plan every single quarter. Now there's no doubt there's a slowdown, okay, and we see it. It was actually forecasted for us, and we see a slowdown for this consulting business. We also know because it's a reality in our industry, that consulting tends to be early cycle. So the first one to slow down, first one to accelerate and extremely agile to adjust to market evolution. So that's for your first question. In terms of, as you said, looking at the pipeline, our pipeline is stronger than ever. We have a solid, very solid pipeline, I think, supporting our growth. If we look at the nature of the pipeline, yes, there might be a certain evolution of the type of deals. One, there are definitive significant driver of growth. We see it. Cloud will continue to grow massively for us, and it's a third of our business. Security will continue to grow also a large double-digit. Engineering is growing very well as well. In terms of type of offerings, those are here. But I think even if we look at the cloud, I think it is -- the type of deals will possibly and I'm being cautious in my assessment because the trend is to be observed over a longer period of time. But I think it's -- we should certainly expect that a lot of the investments that our clients need to do in technology will require a business case. And therefore, will have a stronger focus on cost optimization, on productivity gains and so on. That's possibly where I see an evolution of the pipeline.

Thanks, Thierry. Thierry, my second question which is more on the margin side. More from a medium term perspective, while we understand in the current context, there is around 200 basis point impact of the acquisition, which is continuing. But if I look at the gap between our margins and our peer set margin, that gap has widened quite a bit. So maybe if you could elaborate some of the medium term steps you think you could take to go back to your old levels of margin, your older levels of margin of around 18% to 19%. And do you think the current softening of the supply side issues could help you achieve it faster than what you would have thought maybe 6 months ago?

Abhishek, so one in term of margin, yes, you said it. Certainly, there was a -- it's a strategic choice that we've made to make some significant investments in this business to make us stronger in the future. And you're right to not only look at short-term, but also mid-term where are these investments. Clearly, strategic move with some of the acquisitions we've made with all the acquisitions we've made, they are all -- they've all been driven by a strategic objective. Then significant investment into talent, significant investment into our operating model and into our operational excellence, significant investment into our efficiency, our market impact. So we have been a significant investment as well in on freshers. I think we spend more time explaining this a quarter or two ago, but we didn't have a fresher strategy until a few quarters ago at Wipro that was at par, if you like, with some of our colleagues in the market. And so we've decided to go ambitious and really build this precious strategy. And it requires investment from because, as you know, freshers are an investment that delivers over time. And so we've made those conscious choices knowing that, that would knock down a little bit the margin. We also knew, Abhishek, that in a market where we are growing, as I said, 40% over 8 quarters in a high demand environment with cost of people being higher, would have this impact. But that is also conscious. Now what did we say? A quarter ago, we said 15% is our floor. We are building from here, and we are going to progress. We will not guide, as you know, beyond the current quarter. But it's clear that we are -- we do not see the end of the road where we are absolutely not. And so what are the levers? Continue to drive our fresher strategy, continue to progress on the automation where we've also made some significant investments, continue to go for larger deals, continue to go for deals delivering more value and not only going after volume. And finally, I would say, continue to work on our efficiency. We've made some significant progress. There's still more to do ahead of us. So I'm not worried at all about our ability to continue to improve margins and close the gap with some of our colleagues.

Thank you, Thierry and wish you a great end to 2022 and talk to you soon. Thank you.

Thank you, Abhishek. Talk to you soon.

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

Yes. Hi, good evening. I had two questions. The first is, if you could throw some light on the restructuring cost that is impacted this quarter, I think it's around INR136 crores. What is that pertain to, if you could give some color there? The second, just wanted your thoughts roughly from a vertical perspective in terms of how you see demand on a going forward basis? For instance, I think capital markets, specifically nearly capital markets, retail and the high tech side of things and manufacturing. So some color on those as well.

Yes. Absolutely. So I'll take the first one, and I'll ask Jatin to build on it. So on restructuring, so this is -- it's a one-off, okay? So this is not something that is to be done repeatedly. It's -- it was needed. I think hadn't been done for a long time, and it's absolutely [indiscernible] exclusively focused on Europe. And that was really to address some inefficiency that we were carrying for a long time. Jatin, do you want to say more?

No, it's just that it's sitting in reconciling item because it's a corporate action which we took at the company level. And as Thierry mentioned, it was -- it is a one-off. There could be probably a small tail spend there in quarter three, but nothing beyond that.

Yes. Now your second question, Nitin, was about sectors, right, industries and an outlook for the industries. We are obviously observing the evolution of the market, industry-by-industry and certainly everyone has different kind of challenges. You could imagine -- I believe actually the banking sector should be holding pretty well and they are -- one, it's a sector that is used to adjust rapidly to market changes, but also it's -- it's an industry where a lot of efforts will have to be done around driving simplification, alignment, streamlining and compliance is also another important topics for banks going forward. Now a sector that has been growing tremendously over the last year and certainly is slowing down is a set of technologies. If you look at the large tech look at what they're doing. Hiring has been slowing down and sometimes they are even reducing headcount. And I think there's this perceivably more slowdown to expect in this industry going forward. Another one where I could potentially see a potential slowdown if the economy worsens, is a sector like retail, right? So we will see, Nitin.

Sure. Just a follow-up on the restructuring costs, both the restructuring, do you think that improves the margin profile in Europe? And should we anticipate that it should be a tailwind on margins from a European perspective after the restructuring?

Yes. So Nitin, it is right that we have done this to reflect what we need from a technology standpoint of future. But I don't think it would be right to equate this number with the reduction in spend going forward because, as you know, in Europe, as some of this restructuring cost you many years of pay. So I would request you not to equate this with the reduction in spend, but there would certainly be a tailwind where we have reduced the employee spend.

Sure. Thank you so much and I will leave it at there.

Thank you. We will take our next question from the line of Ravi Menon from Macquarie. Please go ahead.

Hi. Thank you. Congrats on excellent revenue growth this quarter. Thierry, could you give us some color about how you're thinking about the demand environment in the U.S. and Europe? So you called out the macro uncertainty, does that apply equally in both geographies or ...?

Yes, that's an interesting question, Ravi. What should I say, I mean what we observed in the past is that typically, when there is a slowdown [indiscernible], it's steeper in America, but it's quicker as well, right? In Europe, it tends to be a little -- coming a little later, but it takes more time to bounce back. So we will see. Today, the performance -- what's clear is if we look at our own business, the growth we see in Americas and Europe are -- I don't know if the comparison help, but I think they are in the ballpark, they're similar. So there's no market that is growing faster than another. But if there is a slowdown, I'm guessing it could potentially come from America. Now there is something that is specific to Europe, which is more this energy crisis, okay? So here also, there's a bit of uncertainty here. It doesn't necessarily impact us directly, but certainly impact some of our clients. I'm guessing in industry like manufacturing, for example, that could have an impact on Europe if not in Q3 and Q4, we'll see.

Thanks, Thierry. And you spoke about how there is almost a sense of needing to accelerate the digital transformation and continue on the journey. So do you think that, that makes technology spending a little bit more resilient in this downturn compared to what we've seen in the past, like either the GSE or in 2001?

Ravi, I am convinced that, indeed, you're right, technology -- technology services company are a lot more resilient in the world. Absolutely no doubt because technology is not seen as a cost to reduce, but seen as a mean to transform organizations. And that is systematically what I'm hearing from clients, systematically. I mean the fact, Ravi, that when you are connecting with the CEO, he is talking about technology, it's part of his priorities. Was not the case in the last economic cycles. So it is definitely different. And there's no doubt that when you are working on topics like security, take the topic of security, I don't see this market slowing down. If you look at what we are doing in cloud, definitely not slowing down either. Now for sure, it will have to be at the back of business cases, right? But I think it's -- clients are very natural and they are -- they know what technology can bring to them and they know why they're investing in technology. So to your questions on absolute and front years.

Great. Thanks so much and best of luck.

You’re welcome.

Thank you. Our next question is from the line of Mukul Garg from Motilal Oswal Financial Services. Please go ahead.

Thank you. Thierry, I just wanted to follow-up on the consulting business. It kind of sounded that you expect consulting to be a bit slow in the near-term given the volatile demand environment. How do you think about the profitability of the business in the near-term? Because this business usually has very high operating leverage and slowdown kind of impacts the profitability meaningfully. So how should we think about the profitability aspect and consulting interval? I'll have a follow-up question after this.

Okay. So first, talking about the consulting business. One point interesting to note, yes, consulting is slowing down from where we were growing some quarters ago, it's true. But what's interesting is that consulting continues to drive growth in our business. If you look at our banking sector, for example, while Capco's growth has been slowing down, the impact of Capco to us winning large deals in the BFS, in the financial service sector is higher than it was. We win more synergy deal. We win more deals that we wouldn't have won, and those deals drive more value. They are more strategic. And so from that standpoint, they continue to drive positive impact for us. From a profitability standpoint, you are making a good point. Yes, you're absolutely right. They are agile, they have -- it's part of their DNA to react and adjust to the demand rapidly. And that's exactly what we are seeing. Actually, why as they are slowing down margins are improving.

Okay. So you expect consulting margins to improve as the growth moderate, not the other way around?

Yes, that's what I'm seeing for Q3.

Understood. The second question was also on the profitability side. If you look at the net adds this quarter and the [indiscernible] decrease in utilization, can you just share some thoughts on how we should look at growth versus profitability trade-off over next few quarters. While I understand you have scope and you will seek improvements in both of them, is there some point where you think you need to prioritize one over other?

Well -- okay. So Mukul, it's -- If I look at the situation from a client to another, you may have different situations where sometimes there's a bit of a trade-off to do between margin and volume. But I think as an organization, let's be clear on the margin side. We will not go down from where we are, okay? So that is a clear position on margins, okay? Our objective is to continue to grow certainly and drive profitable growth, okay? So that's continued -- we are, no doubt, balancing growth and profitability. When you are -- you were referring to headcount evolution and so on, what we had said in Q1, if you remember, is -- we have made the conscious decision to make quite a material amount or a significant amount of hiring knowing well that we could end up the quarter with a little more headcount and a bigger bench than expected, and I'm excluding freshers in my statement because we needed to get ready for the demand that we were seeing in our business. But we also made the conscious decision to invest in our freshers. And so we've just put all this strategy. We haven't changed. We have hired in H1 as many freshers as -- actually, 75% of the total number of freshers we hired last year, over 12 months. And those are investments because we knew we needed it to continue to improve our operating model while being able to deliver and respond to the demand. This quarter, if you look at the utilization, part of the utilization is obviously impacted still by the volume of freshers. But we've continued to optimize our capacity and managed to deliver a significant increase of the revenue without having a significant increase of our headcount. It's actually the mirror of what we had said a quarter ago.

Sure.

And, Mukul, I'll just add to your -- to the point which Thierry made, where he said we continue to utilize this talent that we hired earlier, while it may not reflect in the numerical utilization number that you are seeing in data sheet because it has -- effectively the more experience or lateral branch [ph] has got utilized that has got replaced by a higher fresher branch. So economically, we have got an upside in quarter two out of utilization, but it is not reflecting yet in the numerical number.

Understood. Jatin, if I may ask one question on capital allocation. You have in past mentioned about focus kind of moving towards acquisitions, given the environment in which we are, do you think we need to take a step back from an acquisition point of view from an organic growth point of view and kind of move to more cash return to shareholders or is this the time to press accelerate on [indiscernible]?

So Mukul, we have always mentioned that acquisition remains the core part of our strategy. So there is no change in that position. We also mentioned that 50% of the cash that we generate, net income that we generate, we will return back to shareholders, and that also we will consistently maintain. We had one of our special dividends that we announced in Q4 FY '22, as you are very much aware. Acquisition decisions are a factor of many things, especially apart from the attractiveness of the asset, it's also a factor of willingness to sell, price correction in the market and so on and so forth. But overall, our position remains on the acquisition as well as on cash distribution back to shareholders consistent with what we have said before, too. Thierry, if you would like to add anything?

No, I think you said it. What I would remind is, Mukul, is that what we've always said is that acquisitions, we do them for strategic reasons, okay? So we do not have a number like we need to do x number of acquisitions in a given year. What is driving a decision is really what -- does it make sense? Is it a sound decision from a strategic standpoint? And so that approach doesn't change for us. Now acquisition will never be used to offset organic focus. Organic focus is what's driving out day-to-day, the strategic, the acquisition, sorry, is really to get us to reinforce our position in a place where we have already a strong position of strength, but we believe we can accelerate and have a bigger impact or actually acquire a new capability or a set of new technology or new relation with clients. So clearly, strategic drive the decision. It's never tactical. And second point, Mukul, is we do not have a number to fill. So there's no such thing as we have to do an acquisition. We do it when it means, when it's right for us.

Understood. Thanks a lot for answering my questions.

You’re welcome.

Thank you. Our next question is from the line of Manik Taneja from JM Financial. Please go ahead.

Hi. Thanks for the question. It's to Thierry. I wanted to pick your brains about the aspect that while you mentioned that in the -- that we've been investing in our talent supply chain, but generally for the Indian region or the Indian heritage IT services players, we have seen margins now being at least, it's not on par, but being lower than pre-COVID levels and that's the case for us as well. While for some of our global competition, both from the European heritage players as well as U.S., in their case, we haven't seen any margin deterioration. So if you could help us understand what do you think essentially explains the disconnect in terms of the margin profile or the impact on margins for Indian companies versus the global peers?

Manik, you asked me to comment the margin trends of my colleagues, is it what you're asking me to do? I have too much respect for them to do that.

I just repeat my question. While all -- while the players have a [technical difficulty] …

Yes, I get that. Manik, I will try my best, okay? But don't hold me against that, okay. I'll try. So what happens is that why are the [indiscernible]? Why has the margin been impacted? Because of the evolution of the cost of employees. Why the cost of the employees have gone up? Because in a high demand market, attrition has gone up. And attrition, we need to be backfilled, and backfill was with more expensive resources. I think it's what anybody in our industry has experienced, but also our clients have experienced in the last 12 months. Now it is a reality that is uneven from one market to another. One market where it's been extremely true is India. And so the companies that have the biggest part of their headcount in India have been most impacted. I think it's a reality. That would be my explanation. Jatin, do you have anything else to add? No? Okay. All right. Are you okay with that, Manik?

Sure. Thank you, Thierry, but I also wanted to get a sense on how do we think about price increases over the next 6 to 9 months? Given the macro volatility, do you think price increases still continues to be a margin lever for the industry over the next 6 to 9 months?

Over the last quarters, it has been the case, okay? We’ve been able to raise prices with a lot of our clients. And when we've really driven a conscious focus on that, just to make sure that, obviously, our clients understood that given the reality of the supply pressure, if you like, it was the same way they see inflation. We also were exposed to the same situation. And most of our clients want us -- do not want us to be pressure from that standpoint. So I think we've been able to work on it pretty well quarter-after-quarter. Will it continue? That we are assuming for the time being that, yes, it should continue. But market can change to a point at some point in time where it becomes more difficult. I don't see it. For the time being I believe that we should continue to expect price increase from our clients, certainly our view.

Sure. Thank you and all the best for the future.

Thank you. Our next question is from the line of Sudheer Guntupalli from Kotak Mahindra AMC. Please go ahead.

Hi. Thanks for the opportunity and Jatin, apologies if this question has already been asked. But net utilization ex trainees it has dropped almost 400 basis points. Any client drop-off or any project drop-off that is causing this reduction?

Sudheer, thanks for asking that question. No, there is no such drop-off. Please -- I will just define it well. I don't think the net utilization, excluding trainees, the trainees are the freshers who are getting trained in the organization. So that's a very limited period for that. It is not a -- I mean, utilization, excluding freshers, who have come on board. So it's for a very limited period that they are in training for a couple of months where we exclude it. So as they've completed their training and they've gone on projects and they are becoming productive. During that period of time, they come in this definition of overall bench, and that's why you are seeing a reduction. However, as I mentioned before, the economic utilization of quarter two has very clearly improved compared to quarter one, and that has given us benefit. So I would request you for this quarter, not worry about the numerical aspect of utilization.

Sure, Jatin. Just a follow-up. So as these resources start getting built the projects, you should see a sharp increase in the utilization in the coming quarters. Is that correct understanding?

Yes. We will see an improvement in utilization as we move forward as they become more and more revenue generative.

[Indiscernible].

Thank you. As there are no further questions, I would now like to hand the conference back to Ms. Aparna Iyer for closing comments.

Yes. Before Aparna goes on behalf of Thierry, myself, Saurav, Stephanie and our entire Wipro team, we wish you a happy Diwali and a brilliant New Year for those who take it as New Year. And over to Aparna.

Thank you all for joining the call. In case we couldn't take any of your questions, please do feel free to reach out to the Investor Relations team. Have a nice day, and happy Diwali again. Bye.

Thank you. On behalf of Wipro Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.