Problems of the US fiscal cliff, uncertainty over the eurozone and policy issues in India have all played spoilsport for the global economy. Azim Premji, Chairman of Wipro expects 2013 to be a year of stabilisation as the US looks a lot better than last year and Europe is firmer than before.
Premji further added that their third quarter results could have been better if not for order closures that were carried on to Q4 along with some of the billing. However, he is satisfied with results and going forward, sees revenues anywhere between 0.3 to 3 percent.
Languishing at number four amongst the top IT companies, Wipro is trying to set its fundamentals right over the past 18 to 20 months, informed Premji. He also reiterated the fact that despite improvement in fundamentals, there has been a delay in its growth pick up and that is certainly disappointing.
Here is the edited transcript of the interview on CNBC-TV18.
Q: Let me start with the global economy, do you expect based on all the conversations you have with your team, with clients that this will be a year of recovery, probably of stabilisation or maybe even further deterioration?
A: I would say it’s a year of stabilisation; the US is looking a little better. I know there is a fiscal cliff coming up again in February but, I think it will get resolved. Hopefully, it will not get kicked around too much into the future. We think for our business in IT, US should be better.
Europe is more or less stable. It’s like a Hindi movie, one week it is good, one week it is not so good. The euro is a little firmer and that is some indication of the strength of the economy. I think it will be stable and we don’t expect any catharsis to take place in Europe. Far East is reasonably good. Due to the high oil prices Middle East continues to be good, Australia is good, Latin America is okay and India has seen a spat of reforms taking place over the past two months, all of which are positive. If that momentum keeps up, it is good for the economy.
Q: I want to get into the India reform aspect in little more detail but, before that I will persist with the global questioning, you seem a little more optimistic about the global scenario this year and yet when I look at the guidance that your company has put out, it is a fairly broad range, 0.5 to 3 percent. Why is it then that your guidance speaks of expected volatility and uncertainty whereas you sound a little more optimistic?
A: We like to be conservative in our guidance.
Q: But, 0.3 to 3 percent is a very wide range?
A: We normally give 2 percent. This time we have given 2.5 percent range. It is neither here nor there.
Q: What is the worst case scenario you are building into when it comes to 0.5 percent?
A: Sometimes the billing carries into the New Year and we just have to keep those contingencies in terms of what we communicate. I do not think we should read too much into it in terms of the 2.5 percentage span versus the 2 percent span.
Q: This global picture that you just described, is that what you will deliver, 3 percent is that what will deliver 0.5 percent?
A: I think you should wait for what guidance we give in Q1 of next year.
Q: But does that global picture fit into 0.5 percent and hence we should expect that if the global economy stabilises, as you mentioned, you would probably meet the higher end of the target?
A: I think you should expect that we will have a result between 0.5 percent and 3 percent. Let’s not try to be more specific, otherwise we would have given it in our guidance.
Q: What did you make of your numbers this quarter because two of your other competitors, both TCS and Infosys outdid expectations by market analysts and they were more delighted with Infosys and TCS numbers than Wipro?
A: We could have done better. Some of our order closures carried over, some of our billing carried over. It was okay. What was expected from the analysts, we did that. Our standards are higher, so we would be less satisfied with those kinds of numbers than we would have been otherwise.
Q: If there was a carryover, you expect to outdo expectations in Q4?
A: We expect to also have carryovers from the Q4 into the Q1.
Q: It has been two years since we last spoke about restructuring Wipro. That was the time when you had just shifted from the two CEO model to a single CEO. Mr. Kurien took over as CEO and Wipro was coming out of a fairly bad phase or a negative phase so to speak and you were hopeful that this new structure, with new focuses would bring the growth back, but it still languishes at number four. What has gone wrong, what have you not been able to fix?
A: We have focused a lot on setting right fundamentals. It is amazing how much fundamentals we have set right in the past 18 to 20 months, whether it is in terms of the sales engine, in terms of sales trading, restructuring, how we go to market and responsibility being rested with a single individual for large and medium size accounts. It is the same thing which we have been doing in delivery in the past six months, that is fundamentally increasing productivity and fundamentally streamlining it.
We have raised our customer satisfaction levels; we have consistently raised our employee satisfaction levels. All the fundamentals are proceeding according to plan. Our growth should have kicked in a little early. We are disappointed that it has not.
Q: And what reasons do you attribute to the delay in the growth kicking in?
A: I think it was the lack of momentum in the organization two years back and that takes time to pick up again.
Q: Have you been able to fix that in the last two years because from all the analysts I speak to, I am not sure if they are fully expecting you to catapult yourself from the number four position or three to two in the near future at least. I wanted to know whether you have sort of exceeded that timeline you would lay out.
A: You start the question of catapulting position in terms of relative size, I think we would like to have industry leading growth rates and that is our target. We will work hard at it for the next year.
Q: But cannot imagine that you don't want to be number two or number one?
A: Those gaps have to be made up. Let us be realistic about it.
Q: You have put it well and you have almost made it sound like the bulk of measures that you have adopted in the last two years, are they incremental or are they transformational?
A: They are completely transformational.
Q: Can you give us a reason or an illustration as to why you think Wipro might make it to number two in the next year or two, what the timelines could be like? Give us a sense of how the organization is transforming?
A: I am saying that we have put into place fundamental structures in terms of the overall organisation. There has been more push down of responsibilities.
Q: These couldn't have been lacking.
A: No, we were a very mixed bag between horizontals, verticals and geographies. We had three sets of people going to the customer and causing a lot of confusion. Only the customer engagement manager of the large accounts is a single point responsibility for the customer now. Everything reports into him, the geography reports into him, the horizontals report into him. It is a fundamental structure of how you manage an account.
Similarly, in terms of the uptraining which we have done to field force, it has been very systematic, very drawn out, very much in-depth over the past year and a half. And similarly what we are doing in delivery, in terms of automation, in terms of raising quality levels, in terms of using much more frameworks and in terms of trying to drive better mixes.
Q: When will we see the results?
A: Next year.
Q: I remember two years ago we were talking here and you were at that time hopeful that the change in leadership structure would yield results in 12-18 months and I am wondering whether we are lagging behind on the schedule right now.
A: We are lagging behind by six months.
Q: You are lagging behind by six months and you are hopeful that you will see some of these transformational changes kick in next year?
A: That’s right.
Q: How do we recognize it? Give us some set of numbers by which we can measure or understand that these are the transformational changes that are kicking in and it is not necessarily just a pickup in the external economy?
A: We do not give forward guidance for the next year.
Q: I am not asking for a specific profit band. I am saying by what do I recognise that this is a whole new Wipro at work.
A: You should see us having growth rate relative to the industry, see our growth rates being better. We should have better growth rates than the industry averages.
Q: Are you happy with this new leadership structure that you worked with in the last two years?
A: Yes, I am very happy with it.
Q: Are you internally also working with some succession planning?
A: We are always working with succession planning. It was right from the top to senior management level and that is the key responsibility of the board.
Q: I am asking you a direct question regarding succession to you?
A: We have TK Kurien now in charge. So, very obviously he has taken over from me the mantel of the chief executive officer’s role.
Q: And the chairman's position?
A: I am the chairman but, I am not involved in operating decisions.
Q: Is there a timeline as to when you give up that position?
A: Perhaps there is but, we don't discuss it in the press at this stage.
Q: But is there a retirement set in stone at a board level in the organization? Many organizations have a cut off date; Mr. Tata just retired because he turns 75.
A: We have not defined a cut off date.
Q: You don't intend to continue or do you intend to, because you are 67 years old and the Tata cut off date is 75 years.
A: We wouldn't discuss this with the media.
Q: But why? Most large organisations across the world offer lots of transparency when it comes to succession planning because it gives people a degree of certainty?
A: Succession planning so far as the CEO is concerned has already been appointed two years back and that is adequate in terms of the continuity of the company.
Q: So Mr. Kurien stands a chance at becoming chairman?
A: He certainly stands a chance of becoming the managing director. Our restructuring is going to make some changes.
Q: Does your son Rishab stand an equal chance?
A: He is not going to be the chief executive officer, that's not the career plan for him but, he would be representing ownership obviously. One has to have continuity and ownership. You are just splitting this point too much.
Q: I think there is curiosity given what kind of succession plan do you have in place and hence I am asking. It is not just related to Rishab, I am asking broadly, who stands a chance to fill your shoes in the next five years or so? Maybe we will revisit it next year in Davos.
A: Maybe we will revisit it next year in Davos.
Q: You did a demerger of your consumer business recently. Explain to me why now because from what I understand, many analysts have been asking for this for several years, you chose to make that decision now and I would also like to ask you why you choose not to list that consumer business? Again some requests have come in from shareholders, even though you have offered them a cash exit.
A: The reason we demerged it now because we thought that the timing was appropriate and why the timing was appropriate is both the other businesses, our Wipro Infrastructure Engineering business as well as our consumer care business had reached a certain critical mass to be completely on their own.
The reason we decided to keep them private is because it just gives us more flexibility in terms of making acquisitions, in terms of investing for the future including acquisitions which can be dilutive on margins as most acquisitions are dilutive on margins, particularly in consumer care there is a large legacy of amortization cost which have to be charged off to the profit and loss (P&L) account.
Q: So this speaks of a large inorganic growth plan.
A: It speaks of a reasonable inorganic growth plan beyond what would be the internal funds generation from natural cash flows.
Q: And that's the only reason you have kept it private?
A: Yes that is the reason. But, one has to also ask what the listed stock value is. We didn't see any specific value so far as the listed stock is concerned.
Q: It is also currency in a merger and acquisition situation but, not so frequently here in India?
A: No we have never used it. We have cash reserves there, we have virtual zero borrowing and therefore, we have a lot of leverage. We can get in that business and that combined can fund significant growth rates, both organic as well as inorganic.
Q: What would you be looking for as part of your inorganic growth strategy?
A: We have just announced one acquisition recently in Singapore. We are continuously looking for acquisitions. We have done about five in our consumer business.
Q: And you intend to keep this business unlisted for the foreseeable future?
A: Yes and there are no plans to list it.
Q: What kind of a response have you got from shareholders in terms of opting for the cash exit? I am just trying to understand what your stake holding in that business would be given that it is unlisted.
A: It has been reasonable but, the real call will come when ‘D Days’ come and that is going to be in three to four months from now. It is difficult to make a judgment on it.
Q: In your main business, for Wipro you were at 78 percent and you were hoping that the demerger would help you meet 75 percent?
A: It was not 78 percent but, the holding as reported was 78 percent. About 8 to 9 percent belongs to the foundation.
Q: But, all 78 percent was calculated as promoter’s stake I would imagine?
A: That’s the way law reads, which frankly to me makes no sense because I have no control on those shares.
Q: But you still had to meet the 75 percent limit. Does the demerger do it for you? You had requested Securities and Exchange Board of India (SEBI) for some permission on that account, has it come through?
A: No it has not yet come through.
Q: There can be only two situations if it comes through, you are done and you don’t need to dilute any further, but if it doesn’t then you will have to sell some stake?
A: Or we can get a deferment of time, one of the two.
Q: I don’t think SEBI seems keen on deferment of time.
A: We are a little more exceptional because we have already done one offering to the public. So we are the only company in India which has done that so far in terms of dilution. We have communicated our intention to do it in stages. So we could be an exception, we could not be an exception. If we are not an exception, we will deal with it but the stake is not very large.
Q: Do you have a preferred route of how you will dilute that remaining 3 percent?
A: We do have a preferred route but we don’t discuss it with the media.
Q: What do you discuss with the media?
A: Why should certain internal strategies which are not public be discussed in detail with the media in a highly volatile market.
Q: A question on the Indian economy, you sounded a little more positive about the reforms when you made a brief mention earlier. I am not sure if I would call it reforms. Actually multi brand retail, FDI liberalisation are not reforms and we have not seen many grass root reforms. Take stock of the last one year and do you think we have made progress back home?
A: What is your definition of a major reform?
Q: Work in labour or in agriculture or broader areas.
A: Those are touch-me-not topics at the moment. You have to appreciate the fact that elections are 20 months away from now.
Q: Every year, every government has treated them as touch-me-not topics, whether it is the beginning of their term or end of the term?
A: I do not think you will see any reform in labour.
Q: I am just giving you illustrations, you asked me for illustrations and I am saying those are reforms but FDI in multi brand retail is not so much a reform.
A: But, liberalisation of diesel prices is a bold move in the current circumstances. I think the new issue on bank licenses is also a bold move.
Q: You are keen to see corporate houses get banking licenses?
A: I do not have strong views, one way or the other. But, there are strong views which say corporate should not be in banking and that is a law in many parts of the world because their proprietorial rights can be questioned.
Q: And yet you are counting it amongst the reform measures? I am just keen to understand.
A: There can be a non-corporate who can get into banking. But, it is not clear who will be issued the new bank licenses and the fact that the Reserve Bank of India decides is a good thing.
Q: When we met in Bangalore last time it was off camera and you sounded despondent.
A: That was because nothing was happening. Now some things have started to happen. I wish it would have happened three years earlier because there would have been at least a chance for the new set of ministers to get some results. Now the time window is one year or a maximum of 15 months before the election fever starts.
Q: What is your outlook on the economy given that we have just one year to make more progress on such similar measures and by the time all the election noise starts?
A: We have lost an enormous amount of momentum. Recouping of that momentum is not an overnight job. But, what will this year end with? It will be about 5.5 percent growth and the RBI is forecasting about 5.7 percent growth.
Assuming, it is somewhere between the two, next year I think we can look forward to something over 6 percent. You are certainly not going to see 8 percent but above 6 percent is possible and maybe 6.5 percent is also possible.
Q: Have you recouped some of your confidence in the political leadership?
A: The political leadership is going to change. I do not know if it will change to be the same or it will change to have different members of a coalition.
Q: What would you like it to change to?
A: I would like it to change to a stable government.
Q: How would you describe a stable government?
A: At least one party in a significant position of seats.
Q: And you are agnostic to which party?
A: At the moment, I am not agnostic to which party it is.
Q: Why is that?
A: Why not. It would be whichever party that is able to get the following of the population with a certain degree of majority. Nobody is going to get absolute majority and that is very clear, but it should have some amount of stability and when it comes down to brass tacks, there is not too much difference between most parties.
Q: In 2009 when the United Progressive Alliance (UPA) came back to power sans the Left support, most of us felt that was the breakthrough point. I am curious to what you would like to see happen in the next year-and-a-half in the political economy for India to have any hope of regaining the momentum in 2014?
A: I think what we need more than anything else is a stable government, which is not unduly blackmailed by very fractious oppositions or very fractious coalition partners which are part of it and everyone is pulling in a different direction. I think that is the most important requirement for the country.
Q: Are you hearing more confidence come back in some of the business leaders from India that you speak to because the one big hurdle which we have not yet crossed is the fact that investments are just not picking up, large projects are still hugely delayed?
A: My last connect with them was at the Confederation of Indian Industry (CII) lunch and dinner and that was one month before the subsequent phases of changes which have been announced by the government. That only strengthens it. It was certainly more upbeat, certainly feeling little more confident. The acid test is now going to be those large infrastructure projects worth above Rs 1,000 crore, which are now the job of the ministerial committee to sort out and give permission. That should be put to action because it will have a significant filter down effect.
Q: What are you expecting from some of the key areas of conversation outside of the sovereign debt issues on both sides of the Atlantic?
A: I think it is going to be a fairly extensive discussion on the economy. It is going to be a fairly extensive discussion on what one does to reduce volatility, what one needs to do to get more fiscal disciplines so that there are no issues of what has happened in the past as a repetition.
I think how does one mainstream the emerging countries more into the world scene? Some of the emerging countries are facing more problems than other emerging countries and how does one see to it that there is generally more containment of inflation and the whole issue of sustainability that comes in every year.