Wipro hopeful of outperforming peers in FY13: Azim Premji

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Wipro hopeful of outperforming peers in FY13: Azim Premji

Azim H Premji, Chairman and Managing director of Wipro believes that Europe is plagued by uncertainty and slowdown in growth.

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Azim H Premji, Chairman and Managing director of Wipro believes that Europe is plagued by uncertainty and slowdown in growth. However, he has ruled out recession especially in France and Germany, which are the two largest economies there, nor in the Scandinavian countries.

Speaking on the sidelines of the Davos annual meeting of the World Economic Forum, Premji said that since Wipro has undergone a lot of transformation. "We have put much more horsepower in our sales engine. We are now streamlining our back-end and trying to standardize it as much as possible, at the same time being able to differentiate at the front end. We are investing much more on technology platforms. We will take intellectual property. There is a whole series of initiatives which we have taken over the past 12 months which are overall very positive and you will see the benefits of that over the next two years."

Premji expects the upcoming Union Budget to come up with measures to curtail the current deficit. According to him, if the government focuses on this aspect, inflation can take care of itself. He added, "What we require short term is much more investment in agriculture and agricultural productivity. If that can be controlled in terms of getting the right leadership there and the right drive from the prime minister and his office in the area of agriculture because it is absolutely key area for our country."

Below is an edited transcript of Premji's exclusive interview on CNBC-TV18. Also watch the attached videos.

Q: At last year's World Economic Forum, we had discussed about the European crisis that we were facing. At that point you had told that there is a crisis situation however a collapse is ruled out. I think the last 12 months have forced all of us to better accept what a collapse situation we are standing at. How do you assess what we are likely to see in Europe over the next 12 months?

A: I think uncertainty without question and a slowdown in growth.

Q: Recession is what everybody is forecasting.

A: Recession is sustained negative growth for two quarters. You will see it in some countries. I don't think you will see it in France and Germany which are the two largest economies there. I don't think you will see it in the Scandinavian countries either. I think it's the uncertainty. Are government policies being clearly articulate? Are they going to be effective in implementation? Are countries like Greece and Italy, Spain and Ireland which have huge debts willing to tighten their belt? Will they be able to push it through politically? I think there have been some positive developments in the past one week to 10 days. Hopefully, there could be some restoration of some confidence. But its effects on the economic growth are already there. It is not going to be reversed overnight.

Q: As a business and based on the conversations that you have with other global business leaders have you had a chance to anticipate or assess what the impact on business will be if Greece is declared a default. Because we have had that warning coming from S&P today, saying that if the talks between the private bondholders and Greece and the government fail in terms of a bond swap, then they may be forced to downgrade Greece to a selective default status. The contagion effect of that, what happens to banks holding Greek debt? What happens to the run on Spanish debt? How it impacts Europe and therefore what it does in terms of a worst case scenario to businesses that look at Europe as a big customer?

A: I don't claim to be an expert on Europe. Greece, as a size of an economy, is not significant enough to really have an effect. I think from the point of view of Greece, if they wait to go out to the Union it would probably help the economy because they could then free float the exchange rate. I don't think the European Union wants precedence to be set on this issue. So they will be more flexible as time goes on and if Greece is willing to fall in line, if the money which they can raise, the bonds is reasonable which seems to be at the moment and then private banks step up and start subscribing more aggressively to it which they have done over the past two weeks, I think there could be a possible resolution to the problem. But private banks will be happy to take risks, which they will try to recoup through arbitrage, and perhaps the European Union will have to be able to take some amount of write-offs which it has to take into its books.

Q: How do you build such a worst case scenario into a business model? For instance, after you announced the quarterly earnings, you have put out some guidance for revenue surprisingly because one of your competitors has put out a flat guidance and you said revenue growth will be between 1-3%. I am sure that assumes a certain level of growth coming in from Europe. How do you, as a global business, deal with this?

A: We have not slowed down in Europe surprisingly.

Q: But how do you deal with a potential of something like this happening. If a Greek default takes place, if there is contagion and the bond run moves to Spain. How do you work that into your model?

A: Fortunately, we don't do business in Greece, Italy, Spain and Ireland. So far, if those sets of customers are concerned, we are reasonably isolated from them.

Q: But a default will hurt all European banks. Banks are big customers.

A: Part of the sentiment has already been built and the sentiment has still kept, at least the IT sector, reasonably intact. We also supply some other sectors there from our engineering business and we have seen some slowdown but nothing which is a disaster.

Q: What would it take for you to rework that 1-3% guidance to the downside?

A: We have an order book. We have a pipeline. We wouldn't give guidance unless we were very confident on it.

Q: So even if there is a catastrophe in Europe, at least for the coming quarter or the quarter we are currently in, you would be able to meet this guidance. What happens through the course of the rest of the year is anybody's guess?

A: Yes, depending upon the nature of the crisis.

Q: Based on that I want to talk a little bit about Wipro as well before I move onto our pet theme of India and that is that you have made big management changes last year when we were talking. They featured high on our conversation and I wanted to ask you if having taken stock of those changes in the last one year you believe that Wipro is now back on the path of growth?

A: Yes, our track record of last quarter and the previous quarter, quarter 2 and quarter 3 made that statement. So we are back on the path of growth certainly. We intend to accelerate that growth rate without question.

Q: So was it just the two CEO model or was it other deficiencies in the system that you think got corrected now?

A: We have done a lot in terms of transformation. It is just not a question of individuals here. It's been right through the organization. We have put much more horsepower in our sales engine. We have put much more sensitivity to understanding the customer and being proactive with the customer. We are now streamlining our back-end and trying to standardize it as much as possible, at the same time being able to differentiate at the front end. We are investing much more on technology platforms. We will take intellectual property. There is a whole series of initiatives which we have taken over the past 12 months which are overall very positive and you will see the benefits of that over the next two years.

Q: So we will then go back to the global growth situation. For FY13, can you give me not in numerical terms at least but the kind of growth descriptively that you hope to see now that you believe that the management changes that you have made were the right ones? They are working well to your advantage.

A: I can only reflect what Nasscom will be saying shortly. Nasscom's estimate is that the industry in the current year ending March will grow about 17-18% in dollar terms, year-on-year growth and out of that the Indian multinationals, the companies like Wipro, Infosys etc. will grow around 19% for FY12 more than the average industry, though there will be some slowdown in the multinationals in India. The estimate for next year is being rolled up but it would not be lesser than 13 or 14%.

Q: You have built in the worst case scenarios that we have spoken about in the initial part of our conversation into that estimate?

A: Yes, but we would tend to grow much faster than that, so we are investing to grow much faster than that.

Q: You said that you expect the average industry growth to be about 13% and that you will outperform that, which means at least 5-7% by March so that will be between 18-20% for FY13?

 A: Not necessarily, but we will outperform the industry. We will be very disappointed if we don't. Our assessment is that irrespective of what IMF said the situation in terms of industry leadership confidence and enthusiasm in the US is positive. Typically if you analyze the past 15 years, in 12 of the past 15 years the election year has got stimuli and the stimuli has got short-term accelerated growth rates. The elections are in November-December. Plus the majority of American and European companies have really driven productivity over the past two-three years and the majority of them have reached their hilt in terms of capacity. So they have to add to capacity. People see information technology as a major driver of productivity and efficiency and cost takeouts. So people will not sacrifice investments in technology, it's very unlikely. Some discretionary spending may come down, but it is replaced by transformational spending. It is replaced by what you can sell to the customer in terms of relating it to variability that you get paid for what you deliver in terms of output. I think you are seeing more and more of that happening in the IT services space certainly.