Moneycontrol
Aug 05, 2017 05:27 PM IST | Source: CNBC-TV18

Looking at both small start-up type companies & large ones for acquisition: Wipro

CNBC-TV18 is the only TV channel to get access to the newly set-up centre of Wipro in Silicon Valley and Shereen Bhan caught up with CEO Abidali Neemuchwala at this new facility and asked him about the company's plans for alliances and investment strategies in the Silicon Valley.

IT major Wipro has set up an innovation centre in Mountain View, California to develop and showcase next-generation technologies and solutions for enterprises. These technologies include artificial intelligence, virtual reality, hyper spectral imaging, machine vision and collaborative robotics and automation.

CNBC-TV18 is the only TV channel to get access to the newly set-up centre in Silicon Valley and Shereen Bhan caught up with CEO Abidali Neemuchwala at this new facility and asked him about Wipro's plans for alliances and investment strategies in the Silicon Valley.

Below is an excerpt of the interview:

Q: Why this innovation lab here in Mountain View?

A: There are a few things as we rolled out our strategy that we talked about or which we are executing. One, we are not only a very trusted partner for what our customers do today but as they evolve into digital, they need futuristic partners who are very innovative and the innovation centre caters to that requirement where customers can come and co-innovate with us. Of course the capital of innovation of the world is the Silicon Valley, so the innovation centre right here in Silicon Valley.

Q: What are Wipro’s plans for alliances and investment strategies in the Silicon Valley?

A: As part of the entire eco-system, our eco-system works with multiple stakeholders. So one is our own researchers, who come and sit here and do research and we get some of the best technology talent over here. Second are the academic institutions.

Q: Have you tied up with anyone already?

A: Yes we have tied up in Israel. We have tied up with some over here and shortly we are going to make some of those announcements.

Q: You won’t reveal anything to us before you actually officially make those announcements?

A: Yes.

Q: Big names on board?

A: Yes, absolutely. The venture capital, Wipro Ventures which is our venture capital fund and we have already made 12 strategic investments over there and all of the start-up ecosystem becomes part of the innovation. Apart from that we do have alliances with large technology companies which are able to participate here in our innovation centre. So, all of this put together creates a huge innovation eco-system to be able to take relevant innovation to our customers.

Q: So this is all about showcasing your next generation services and your next generation technologies. Let us talk about what we are currently seeing operationally on the ground for you. Digital about 22.5 percent of your revenues currently and I believe have about 15,000 additional employees on digital services and the aim is about 75,000 employees. Give me a sense of where things stand and what we can now expect especially as far as digital is concerned for Wipro?

A: Digital is becoming the norm and we see more and more customers with whom we are already working currently to accept proactive proposals from us to how to help them undergo the digital journey and the digital journey the way we look at it and we help customers is, we help them strategise on digital which happens in 14 digital pods around the world and one of which is here (Silicon Valley) and others are in London, Europe, Bangalore in India, Australia and at Tokyo in Japan. So they come and strategise about digital and what digital means to them and then we look at design. We have a large design shop, we acquired Designit about a year-and-a-half back and now we have about 650 designers all over the world which apply design to create a very human centric experience in digital transformation. After we apply design then we help them quickly prototype using new ways of working essentially Agile and DevOps and then we are able to create a minimum viable product with a high velocity for them.

Q: Everyone that you talk to whether it's in the Valley or its even companies back home from India, everyone is talking the same language - Agile and DevOps and so forth. What is going to be the key differentiator for Wipro going forward?

A: I used the word 'relevant innovation' and it is not only about the technologies which are available today but how you can incorporate these technologies in actual used cases. As you saw over here in our innovation centre we have taken the banking sector and applied the innovation to banking and said this is how the bank of the future will be, our milieu product. If you look at healthcare - the whole connected healthcare, patient centric value, generating healthcare. So each one of the verticals we have taken and we have created industry used cases, so that customers can find our innovation relevant for them and also what is very important in the innovation is that it is an open innovation platform; an open innovation platform means that we have the ability to plug in a lot of new technologies, a lot of new work happening across the globe as part of our innovation - that is what customers value too much and that is what differentiates Wipro, also we have been very bold in our innovation. So not only it is an investment over here in the innovation centre in the Valley but also our merger and acquisition (M&A) that we have done, some of the acquisitions we have done of design, we have almost spent about billion dollars making these acquisition, so that makes us differentiated.

Q: So are you going to continue to be as aggressive as you have been in the past when it comes to acquisitions. What kind of war chest are we talking about when we talk about future M&A for you?

A: We will continue to be acquisitive. We will look at assets; we have a strategy lined out. There are wide spaces in that strategy where we think building capability will take longer than acquiring. Wipro Venture is also located in this innovation centre and they typically look at about ten companies a week, these are start-ups, so these are very small companies and at the same time our M&A team looks at almost about two or three companies every month. So acquisition happens when two things come together. One is wide space in our strategy and second is an asset which we like and is affordable.

Q: Is there an alignment currently between the wide spaces that you see as well as an asset that you like and could we expect something significant in this financial year?

A: We continuously keep looking. I do not know if something would close in this financial year but we continuously keep looking and if we find something attractive we will go for it. When we did the Appirio acquisition, we did it in flat three weeks from the time we came to know about that asset being available to signing was three weeks.

Q: What would be the size of these deals because you talked about the start-up M&A which you say is on the smaller side but what could typically be the size of these acquisitions where you hope to plug the wide spaces that you see?

A: If you look at the last 15 months or so, we have done acquisitions of sizes from about half a billion dollar to about USD 100 million. So I would say it would continue to be in that kind of a range, again it depends on the asset and space that it comes.

Q: Let me talk to you specifically about what you are seeing now as far as specific verticals are concerned. You were just talking about the healthcare space and that of course is about 15 percent of your overall revenues and it has been under pressure now for some time. So what is the sense that you get about the turnaround in the healthcare space?

A: I would look at the healthcare space for Wipro in two parts. One part which is the pharma, life science piece, all of our areas that we do work, which we historically did without HPA and the second is the healthcare piece around HPA, which was our acquisition in Florida which caters to Obamacare...

Q: And the uncertainty continues on Obamacare?

A: Exactly. The core healthcare is growing very robustly and we are very excited about that. The piece which is Obamacare we did, as I said lost about USD 120 million of annual revenues over there.

Q: Do you see that getting worse?

A: Right now it is at the bottom because all the new customers that we acquired and the new projects that we were running to migrate new companies onto Obamacare - those have been cancelled. We have a process which will continue. The new projects will come only after we know what the replace of the repeal of Obamacare is.

Q: Since that continues to be mired and uncertainty. Is there a way that you are looking at offsetting the lost that you are seeing on the healthcare side?

A: Absolutely. We are looking at a few things. One is within the healthcare domain itself; we are accelerating our growth so that healthcare unit itself can offset some of the losses that are happening on that side. On the other hand we have talked about energy and utilities (ENU) vertical which for us is one of the leadership positions that we have in the market and that is doing well. Fortunately that was under pressure last year because of the oil prices and now that there is higher level of certainty in oil prices, we are seeing an uptick in that, a lot of digital transformation is happening in that area. We just finished one of the very largest projects in the utilities industry in UK, it is one of its kind where 20 million customers have been impacted positively. So I am very upbeat about ENU.

In banking we are getting more than a fair share of digital revenues as we help banks undergo the digital transformation. So there is definitely some offset which will happen.

Q: Digital revenues 22.5 percent odd at this point in time. Where do you see that headed given everything that you are doing? I don't mean to ask you about five years down the line because the world changes every six months these days but maybe a year or two years down the line. What is the kind of headroom that you see for growth?

A: There is tremendous headroom. So eventually when you look at three-five years, everything will become digital because there are no new engagements starting which could be called as non digital but right now the move to digital is - we are also very strict and conservative about it that these need to be new engagements, these need to be transformative and help customers transform immediately and that we will have growth rate which far exceeds the company average growth rate, as you can see for the last few quarters. This year we are hopeful that over 25 percent of our revenues will be digital and over a time that proportion will keep increasing.

Q: I want to talk to you about and we have discussed this about six months back and that was the aspirational target that you have set that for Wipro of about USD 15 billion by 2020. Now like Infosys and like what Vishal Sikka is saying that that is an aspirational target and not a financial target, you are pretty much giving up on this as being a financial target as well and this is a sort of aspirational number that you are working with.

A: We from day one said this is an ambition; we called it ambition 15x20. So it is ambition. It has helped the entire company rally behind it.

Q: You will have to push back the 2020 period, won't you, unless you still think that may be through acquisitions etc, you have a chance of being able to achieve that?

A: I think there is a good chance, but at the same time, if we take one extra year to achieve it or we get USD 14 billion instead of USD 15 billion, I don’t think that we have not achieved the ambition.

Q: So you are still holding on to it?

A: Absolutely. And the ambition is about transforming the company, we re-launched our brand and now that has been taken very well. We have been able to transform, as you said, about 75,000 people are on their way to get rescaled in digital. We have looked at each one of the areas, localisation has been a big part of our ambition and we are now over 50 percent local in the United States.

Q: What does that mean in terms of actual headcount?

A: We have about 14,000 total employees in the US and over 7,000 are US locals, hired from the campuses all around the US.

Q: What is the hiring plan now given the fact that we have just seen President Trump endorse another bill which aims to bring down legal immigration very significantly and move to a much more merit based system. We do not know the details yet but what that mean in terms of local hiring for you?

A: For us it means that our dependence on visa is less which means we will be able to staff engagements for our customers faster because now we have a our entire ecosystem build over here to be able to hire locally and that means for us that we will be able to respond to customers' needs faster.

Q: Are you going to be hiring significantly more here (US), locally as well?

A: Yes, we continue to hire as we grow. We continue to hire in the US, we continue to hire in India and we continue to hire over the world to take care of our requirements.

Q: I want to talk to you then about the margin aspiration as part of this USD 15 billion plan and you have sort of spoken of a range between 20 and 22 percent, you are between 16 and 18 percent, much lower than your peers at this point in time -- Infosys is at 24 percent and TCS at over 23 percent, so what can we realistically then expect as far as margins are concerned?

A: While we don’t guide on margins, I think there is headroom for margins to improve. We looked at our margins and we are aware that as we do acquisitions, some of those acquisitions come with a lot of intangible amortisation and that kind of takes the margins down. As those acquisitions are starting to deliver growth and as we continuously drive efficiencies, and especially hyper automation that is through our HOLMES platform, we are able to drive productivity significantly in all our fixed price engagements. That margin gap between what we think is realistic for us which is 20-22 percent and where we are right now which is around 17 percent, I don’t feel there is a problem to get to it. As I said we don’t guide on margins, so I won’t be able to get very specific.

Q: How confident do you feel that on account of the high utilisation, improved productivity, automation etc. that you are going to be able to get closer to the 20 percent range, sooner rather than later?

A: We have not given it a date, but absolutely sooner rather than later.

For entire interview, watch accompanying videos.

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