Q4 rewarding for staff, shareholders: Wipro

ET Now's Andy Mukherjee got in an exclusive conversation with a panel of Wipro senior delegates, including Suresh Vaswani, Jt CEO, Girish Paranjpe, Jt CEO, Suresh Senapathy, ED & CFO and Pratik Kumar, EVP & HR and talked about company's stellar Q4 results. Wipro's top management shared company's vision, strategy, hiring, atrrition and a lot more issues with ET Now. :

Andy Mukherjee: I have with me today Wipro top management after a stellar set of numbers which also included a bonanza for shareholders in the form of a decent dividend as well as a 2/3 bonus issue. Let me start with you Suresh. A volume led quarter as Mr. Premji has said in his remark with the earnings statement.

Suresh Vaswani: It was a quarter of strong volume growth at 4.1%.

Andy Mukherjee: Which has been the case with all the software companies.

Suresh Vaswani: Well, it is also the back of the previous quarter of volume growth which was 4.7% and all and all, clear signs of industry momentum building up. Of course, we are living up to our expectations in the industry momentum. We have kept to our guidance last quarter and we were on the upper end of the guidance. We have guided reasonably strongly in this quarter.

Andy Mukherjee: Only reasonably strongly because you guys were the most bullish ones. You guys turned bullish before everyone else but when I look at your guidance for the next quarter, this quarter you did sequentially 4.7%. For the next quarter, you are only guiding for less than 1% to 3% revenue growth.

Girish Paranjpe: There is a little bit of misunderstanding about the numbers. For example our number on a dollar basis is only 1166 for quarter 4 that just got over. So on that basis, actually our guidance is 2.1% to 4.2%. So that is the range that we have given. The 1180 number is a constant currency number and if you use that as the base, then it will not look so impressive but on a like to like basis...

Andy Mukherjee: On a constant currency basis, how much are you forecasting?

Girish Paranjpe: The range we have given is for the 1166 number that we have gone for last quarter Q4, our range is 2.1 to 4.2.

Andy Mukherjee: Coming to you Mr. Senapaty, margin improvement, you did deliver that, 60 basis points. How did you do that? Where did you pull it out?

Suresh Senapaty: Absolutely, if you see in the past, we have done a lot of acquisitions and acquisitions have been more like contact-centric and the reason they have been done is to be able to deliver the synergies. So over a period of time, we have been working on it and what we have done over a period of time and particularly in quarter 4 has been a significant improvement on those synergies.

That has been a significant positive despite the fact that we had a negative on account of the currency high basis points. We had improvement in offshore index, we had improvement in other productivity areas, the improvement in the M&A area, the improvement that we got 60 basis points improvement and on year on year it has been even 260 basis points improvement.

Andy Mukherjee: But going forward do you think you have exhausted all the levers or is there...?

Suresh Senapaty: Never say no. So there are always opportunities because the overall outlook looks good, almost near to normalcy. Volume growth has been seen. Yes, we will continue to do investments in sales and marketing but definitely because of some of the initiatives like cost management or rationalisation or in the area of non-linearity and the fixed price projects and the outcome in the large deals and the size of the fund that you are currently dealing with is half relative to what we were dealing with a quarter back or a year back.

So that is very positive. So that point of view, those will come with lot of added levers and hence on an ongoing basis, we will deal with. So you have seen in the industry many others who are ahead of us in terms of margins. So What you will be investing in the future, horizon two, horizon three, we still try to see how we can uptick our margins.

Andy Mukherjee: Prateek, one lever, utilisation rate, how are you doing on that?

Pratik Kumar: Pretty good. If you look at number of net add we have been able to do during the course of the quarter which is upwards of about 5000 people, our net utilisation if you exclude the training is still hovering around about 83 which is reasonably high. If you actually exclude the trainings, then it is actually closer to about 79%. So it has gone through a slight dip.

The question maybe that how we are still being able to hold our utilisation at these levels and this is not just one quarter or two quarters' effort, we have invested significantly in tools and systems in just making the whole supply chain more dynamic which just gives us an opportunity to make sure that we do just in time hiring, be able to deploy people across wherever we have inventories and wherever we have opportunities and be able to just match the two together and as we go forward, we bring in more people onboard. We should be able to hold it in similar range.

Andy Mukherjee: Well, you did one round of salary increase in February and took two-month impact on margins as Mr. Senapaty was saying. When is the next one coming?

Pratik Kumar: Next one, we are not even talking about it yet.

Suresh Senapaty: But this particular year has been rewarding not only for the employees that we gave the increase but also for the shareholders, look at the kind of return in terms of share prices, return in the form of dividend because dividend payout ratio has been increased over about 18% to 22% and similarly the bonus because after 2005, this is another good reward and I am sure the Indian investors will like it.

Andy Mukherjee: What are you doing about your ADR holders? What plans do you have to boost liquidity for them?

Suresh Senapaty: That is a constant issue we are engaged in. We will know for sure that there is opportunity for us. We will be able to increase the liquidity there.

Andy Mukherjee: 52% premium.

Suresh Senapaty: Yeah, I do not think we are so much negative about the premium but as you are saying that how can boost liquidity there. So from that point of view, in addition to organic, we are pretty active in inorganic instrument that we use for growth and hopefully we will get some of opportunity to be able to build that and also we have been giving stock options both in AVR as well as ADR. So as and when we go further around, there will be dilution that will take place and therefore there will be increase in liquidity. Multiple initiatives that have been contemplated and hopefully over the next two-three years, we will see a much more stable reasonable liquidity even in Indian market.

Andy Mukherjee: Coming to you now Girish, is it now fair to say that discretionary spending is coming back as far as...?

Girish Paranjpe: No clearly. The fact that budgets have been settled that everybody is talking about maybe 2% to 3% increase in IT budget but more than that, there is an intention to spend the budget that people have and I would say that discretionary spending is back with the only caveat that people are still being careful about how they spend the money. So there is lot of rigour. The people are expecting a business case that they are not signing up for big amounts upfront but spacing it out, doing a phased approach. So there is lot more prudence in how people are thinking or spending their IT budgets which is in a way good because that boards long term sustainability rather than moment-bust cycle.

Andy Mukherjee: Suresh, you did announce quite a few chunky deals with this. Of course there is the best buy deal. There is also an unnamed consumer product company which has given you a multi-year deal. There is also a win in the insurance space but overall, your 50 million plus client number is still 16 which is where it was. Do you think because some analysts have highlighted this as an area where you can perhaps do a lot better?

Suresh Vaswani: Yes, our 15 million customers, roughly 16 and that remain the same but what you need to do is maybe peel down in a little bit more and look at customers between 20 million to 50 million, look at new acquisitions that we have done which have probably given a billing of between 5 million to 20 million this year. So if you look at a larger chunk of customers where our thrust is and we call these mega accounts and growth accounts, the growth has been significantly higher than what the company averages.

So our strategy going forward is to invest in our large accounts, is to invest in our growth accounts and when I say invest, we are talking about strong client engagement investments, strong business advisory and consulting investments, co-innovation with them in terms of driving some transformation and the cost structure and the business models. So we have been driving that and will continue to systematically drive that.

Andy Mukherjee: So this is your partner led sales model, this is what this is all about?

Suresh Vaswani: It is all about partnering customers. It is all about enabling customers to transform their business going forward and transform the cost structure going forward but I must add that if I reflect back on last year, it has been a year of really good solid quality customer wins. So we have had four wins through the year which were greater than $100 million and we have had some of the largest wins ever in the last year and all these were transformational wins, had a lot of systematic component, had some serious cost transformation and business transformation for customers.

Andy Mukherjee: Pratik, attrition rate. Now I believe on a quarterly basis when annualised your attrition rates of about, what 17% has gone up from 13%, sharp uptick there, what is happening?

Pratik Kumar: Yeah, 13.4% to be precise. So yes, it has gone up. Part of it is anticipated because in some manner it is a reflection of the demand environment and the kind of hiring which has taken place outside and you have to actually bear it in mind that it is the whole upturn we have seen taking place after a gap of almost about three to four quarters, so some of it was anticipated.

We expect that the attrition levels and its spike what we have experienced in the last quarter and not only us but pretty much heavy one of there in the industry should remain at these level for another quarter or two before it begins to just settle down but just like what we are experiencing on the attrition front because of the demand environment, the upturn in the demand environment also allows us to do things which earlier we were constrained to do. So we were able to go ahead and give the increases effective February which was initially not planned. So we are on course for our progression cycle which should be happening in another couple of months' time and in the normal course, the way we have...

Andy Mukherjee: Progression has a meaning promotions?

Pratik Kumar: Promotion cycles and in the normal course the way we look at in terms of the RSU grants and the rest which would be to our managerial level and above which is on the annual and the right time we would be able to decide and communicate to our employees. The only additional point which I would like to share because these numbers do get compared and so while we talk about on a quarterly analysed basis to be able to do an apple to apple comparison as necessary also do share the last 12 months' numbers on an LTM basis, our attrition is at about 12% which is pretty much in the industry.

Andy Mukherjee: Coming to you Mr. Senapaty, one is will promotions have some kind of the impact on margins, two, give us a sense of what geographies are you seeing most traction in.

Suresh Senapaty: Yes, promotions will have but it is yet to come and so far as the quarter 1 is concerned, it does a little bit of extra number of days and that does give us some good benefit and hopefully, the impact on the currency would be lowered than what we experienced in last quarter and similarly on the compensation impact that we saw two months, this is only one month. So relatively there are some tailwinds while there are headwinds like something that he has talked about.

There are multiple levers for us to be able to work on. So on a short term, there could be two-way movement of the margin but on a medium to longer term, we should be a sustainable one. So far as the geography that you talked about, I think that we have been growing pretty fast so far as India, Middle East is concerned, APAC is concerned because some of the deals that we won, last particular year has been very satisfying so far as the pack is concerned led by financial services, energy and utilities, retail and so far as domestic India, Middle East is concerned, telecom becomes a big area, airlines is another one and airport, all infrastructure related stuff. So some of that momentum will continue based on the kind of wins that we have got and you see our euro, euro business has been pretty good in terms of last year and that momentum also will happen because some of the orders that we have locked in...

Andy Mukherjee: Is that UK or Continental Europe?

Suresh Senapaty: Both, energy and utilities we are also seeing spread in beyond UK into Continental Europe. So we are seeing traction particularly in RCTG that is retail, energy and utilities and manufacturing and some of these in financial services where multiple developed markets are also seeing lot of momentum.

Andy Mukherjee: How is manufacturing doing as a vertical?

Girish Paranjpe: So manufacturing throughout last year has done well. There are some quarters in which it kind of gets affected because of the broad based slowdown or inventory stocking. The stocking that tends to have an impact but broadly manufacturing has had a good run in terms of new wins, new deals signed. I think the great thing about that sector is that they are very open to outcome base engagements. So actually last quarter we won a award from Nasscom for the most innovative solution and that was actually won by manufacturing vertical because of the solution that they came up with which was very-very unique.

Andy Mukherjee: But you would say that retail, healthcare these are the sectors that are doing much better?

Girish Paranjpe: So they have say advantage of the things like retail and package consumer goods and healthcare is that they have a secular demand push which is coming which kind of helps us to do much better. Manufacturing is lot driven by efficiency, so where plants are willing to reduce cost and look at global sourcing and see how they can have a much widespread network across the globe that's when they come to us and leverage our manufacturing solutions.

Andy Mukherjee: In terms of contribution to business has BFSI already overtaken what you were getting from R&D?

Girish Paranjpe: Its neck to neck at this point of time we are 26 point 1% from financial services and all telecom media technology around the same number so its currently neck to neck I think the good news there is that after almost 10 or 11 quarters engineering business which is what drives telecom and tech has actually sees a strong pick up. So one of the reasons why we are feeling much more confident today is because the fact that one industry sector which is kind of depressed all this while has kind of taken an upswing and there is strong demand in that sector.

Suresh Senapaty: And the reform that are you seeing in the healthcare in the US also will, I mean, we can look for a lot of opportunities in that particular space healthcare and services is a big areas of growth for us.

Andy Mukherjee: Telecom, do you see much happening there because of the 3G auctions?

Suresh Vaswani: Clearly telecom is a sector particularly in the emerging markets where we have done outstanding integration deals in the Middle East and we are there in the telecom sector as a really well class system integrator winning against the global players so clearly the 3G opportunity will throw up opportunities for us. We are already fairly strongly entrenched we further enhance the practice both in India as well as globally and we do therefore see the communication media service provide a vertical driving growth for us way forward. It was one of the big growth drivers for us last year and we see a strong momentum in that going forward.

Andy Mukherjee: If could tell me something about the outlook for the infrastructure management services business you are the rock star or really the big stud or the big horse in your stud farm how are you thinking in terms of the outlook for that business?

Girish Paranjpe: Very very strong and I think what is especially heartening for us apart from the fact that now remote infrastructure management is mainstream so we no longer had to go and sell it as a speciality and so on people just expect that when you put together a solution remote infrastructure management will be a big part of that. What is even more heartening is a fact that the investment that we made in for crossing two years back is beginning to pay off because when we go to clients and offer them this combined value proposition of being able to host onshore in the United States all the data centre and all their equipment and still do remote infrastructure management as far their services part is concerned its almost unbeatable play so in the last..

Andy Mukherjee: Info crossing capacity is all deployed right or committed?

Girish Paranjpe: So in the last one year we almost sold half a billion dollar of new deals, leveraging info crossing plus our remote infrastructure management capability. So at this moment you are right we are almost sold out in info crossing in terms of our current installed capacity but that the great news is that we can always create more capacities since there is typically a 6 to 12 month headspace that we have bring new capacity on line by the time this deals get productive.

Suresh Vaswani: We have a got a few rock stars its not only infrastructure, we have got business process outsourcing which is growing very very strongly for us.

Andy Mukherjee: Package Implementation?

Suresh Vaswani: Package implementation like to touch a point the business process outsourcing, infrastructure services, package implementation, testing services have all driven growth for us in the last year and for the last couple of years and we see that momentum continue strongly going forward.

Andy Mukherjee: What about cloud computing?

Suresh Vaswani: Cloud computing so let me just step back we as a company are investing for the future. There are some 6 or 7 very very co-areas that we are investing across all our business units, across all our service lines and one of the top areas is cloud computing. So we are looking at being a very-very strong cloud system integrators in terms of building private cloud, integrated private public cloud solutions for customers. We are also looking at launching our own cloud services in certain specific areas, in certain specific markets so it's a big thrust air for us in terms of investment for the future.

Andy Mukherjee: How is BPO doing?

Girish Paranjpe: BPO has done very well. Actually we have signed very innovative deals which are traditionally people think that BPO really is a function of English language capability that Indian companies have. Actually we have proven that some of the large deals that we have signed actually are multilanguage including running centres out of Eastern Europe and China and so on. So a big thrust for us has been how to take the broad capability that we have in process based BPO into continental Europe and in other non-English speaking markets and I think that's where lot of growth is coming from whether you look at continental Europe whether you look at China whether you look at Asia a lot of growth is really coming from that.

Suresh Senapaty: Interesting as you exit Q4 more than 50% of what we are do in BPO is transaction processing.

Girish Paranjpe: That traditionally voices to be a much more dominant part of BPO. Now because of the growth of non-voice business, it has almost become 50:50.

Suresh Vaswani: The key point really is at the intersection of BPO and IT, that means integrating the BPO and IT proposition in terms of taking it forward to the customer can really deliver serious transformation to the customers because one is in terms of IT outsourcing and IT rationalisation but even bigger upsides are there when you look at your entire process and you transform the process and given the fact that we are strong in BPO and have the whole stack of IT, we are in a unique position to deliver that sort of transformation to customers. So the point that I am making is BPO and IT, the combination, will drive our customer transformation in future.

Andy Mukherjee: What kind of tax rates are you looking at for?

Suresh Senapaty: If you see the year 2009-2010, we had about 16.8% under 17%, so as we go forward at least in the transition when the STP gets out of the tax holiday, etc., so there could be about a 2% point change that will happen because our objective has been and will continue to be put more and more software development due to SEZs as we have created the capacity to almost all parts of India, so therefore, we think we should be within a 2% range vis-à-vis what is a normalised effective tax rate for your 2009 and 2010.

Andy Mukherjee: A couple of percentage points higher?

Suresh Senapaty: Right.

Andy Mukherjee: How is the product business doing?

Suresh Vaswani: See we focus on the product business in the domestic market. The business has done well. We have gone ahead of the market and our thrust on the product is really looking at it from a more larger system integration perspective and solutions that we deliver to customer, so net-net we are meeting our aspirations on products. We are there in the products business to deliver complete solutions and system integration solutions to customers and it is pretty much meeting the objective that we have set from a strategic perspective.

Andy Mukherjee: What are your hiring plans for this year? Can you give us a number?

Pratik Kumar: No specific numbers right now but just to give you a quick sense, as we shared with you last time, we have agreed that we would be starting to visit all the engineering campuses, which we have done and we are midway through the exercise of bringing on or at least making the offers to a number of people who wish to get onboard during the course of the year. The only interesting information I would like to share here that of our total hiring mix of freshers whom we are going to be bringing on, at least about 40-50% of them would be non-engineers.

Andy Mukherjee: Why are you doing that?

Pratik Kumar: Well for very clear reasons, one of course that we have been the frontrunners in trying of those models and this is something, which we had actually launched about 10 years back and we had done it on an experimental basis. Since then our numbers have swollen to almost close to about 5500-6000 people within and we just think that we are at a stage where we can scale it up, extremely productive, they can get deployed right across, very fungible and just looking at the talent scenario and the talent shortage scenario out there, unless and until we broad base and look at wherever the talent is, we all will get caught in that spot where we will get choked, so its good for us given our experience and the background for us to be able to take it forward and be able to scale it.

Andy Mukherjee: So they are coming here with a good bachelor's degree and then they learn how to write code?

Pratik Kumar: We train them for it. We have a tie-up with another private engineering school and through that process, they go on to actually get an additional...

Andy Mukherjee: They get a BITS Pilani degree?

Pratik Kumar: Yeah, BITS Pilani, which we shared earlier through Academy of Software Excellence. I did not realise it got so well known.

Andy Mukherjee: Going forward what are your key challenges? We of course talked about the rupee and we have also discussed wages but what else?

Suresh Senapaty: So we are looking forward to much more stable rupee dollar.

Andy Mukherjee: Why?

Suresh Senapaty: Well, the speed at which rupee appreciates is not necessarily bearing out of the fact that Indian economy has suddenly done so well as compared to the others, so just because of the capital flows if rupee were to appreciate like this, it does not reflect the fair pricing and, therefore, competitively it puts exporters out of the way. Forget about the IT exporters who are having enough range to be able to deal with that but what about the players who are operating at a 5-10% kind of a margin and the speed at which it is doing, if it continues like that, it can even hurt domestic manufacturing vis à-vis the imports.

Andy Mukherjee: So basically you are expecting the RBI to step in and manage the pace of appreciation?

Suresh Senapaty: It is important that the country appreciates the fair value and the fair value is maintained and managed rather than go by the demand-supply on a capital account and revenue account, that has to be managed because we will continue to be on current account deficit till such time export picks up, till such time our dependence on oil imports comes down significantly and from that point of view, you have to take a five-year range and look at that that we should not kill industries by overly pricing rupee, so that's the biggest thing.

So far as the other aspects are concerned, India is becoming a bigger market, the kind of reforms that is happening, the kind of investments that is happening and the kind of money flow that should be available to pick up more and more projects, that will be key important whether it is a power sector because many more things have to come or it is area of renewable energy, many more reform related execution efficiency has to come into play, PPP (the Public Private Participation), some of that will unlock a lot of activities in India and that will create employment, that will create lot of business for us etc. etc. So some of this, we will try and bank on in terms of 2010-2011 and next 2-3 years.

Andy Mukherjee: Analysts are saying that it is very critical for Wipro to increase its average dollar revenue per client. Now you have a partner led sales strategy, you are putting some set of consultant types to go and talk to clients and to try and mind the clients more hopefully. Is it working? Is the strategy working?

Girish Paranjpe: No, it is working and we are investing even more into it because the way we see it, we have to form a wedge in front of clients, which consist of the client partners, which is a partner led model. They have to be supported by a strong consulting capability, which we have done significantly, added almost 38 client partner type of people into our consulting business.

Andy Mukherjee: So these are really domain experts?

Girish Paranjpe: Plus we are hiring something called business advisory services, which are domain experts, so there is management consulting type of people, there are client partners and there is business advisory services. Through a combination of all this, we are just creating sufficient consultative and advisory capability in front of client and at the backend, we have strong programme management and system integration capability to execute on large downswing projects, that we hope will really flow out of big advisory engagements that we do at a front end, so that's broadly the game plan and we are kind of executing on it.

Typically this has play, which will take 6-12 months to actually start delivering results. We have seen earlier results, which are strong but it has to be much more broad based, which we think will happen over the 6-12 month period.

Suresh Vaswani: It's all about really being very proactive with the customer, skin in the game with the customer, making upfront investments with the customer and that yields long-term results. Now one is to really look at it from a revenue perspective, like Girish said it takes time for the revenue to build up because these are on large basis and second is to look at it really from an order booking perspective or from a TCV book from large account perspective and clearly we are seeing an uptick on that.

So while results reflect what the revenue but the real driver really is the total contract value or business that you have booked from some of our large customers and some of the wins that we have had are actually from existing customers, large opportunities converted in existing customers, which will show you the growth over a period of time.

Net-net it is really about being proactive with the customer and like Girish said making investments upfront, aligning the organisation behind the client engagement manager, which will give you the results and we are seeing early signs. We are seeing strong early signs.