Software major Wipro reported its best quarter in years as its revenue increased by 12.2 percent on a sequential basis, at $2.414 billion. While 7.7 percent came from its acquisition of Capco, it grew organically by 4.9 percent edging ahead of rivals TCS and Infosys, which reported a 4.1 percent and 4.8 percent increase respectively.
Wipro CEO Thierry Delaporte could not have asked for a better anniversary gift, as he completed a year as Wipro CEO earlier in July. Paris-based Delaporte said Wipro will get to the $10 billion run rate mark in the second quarter, as it continues to see momentum in business and is also stitching up plans to capture more share in the cloud market. While he spent his first year as CEO in making the organisation more nimble, accelerating the pace of growth, and making its largest-ever acquisition, he said Wipro will have a bigger market impact and emerge an unquestionable leader in 2021.
EDITED EXCERPTS:
Q: Can you break down the organic and inorganic growth Wipro saw during the quarter since the Capco acquisition played a big part in this? In terms of margins as well, this is the lowest in the last four quarters. There is also 215 crore of other operating income, adjusted for which they are way lower than expected.
A: Our growth is 12.2 percent on reported terms and 12 percent in constant currency, which obviously includes Capco. Without including Capco we grew 4.9 percent, which is organic growth. I would say both organically and including Capco, we have grown very well in the first quarter. And we feel that we'll continue to grow in the same trend going forward in Q2.
That's why we guided on 5-7 percent. In terms of profitability, we didn't miss any. We have said that we would deliver a 19 to 19.5 percent margin and that was before Capco. I've communicated consistently for the last four quarters that are margin levels where we feel comfortable. Capco is two points of margin dilution, which is 17-17.5 percent. And we continue to say the same. We delivered 18.8 percent this quarter, but it doesn't change our story around the margin projection.
Q: You are looking at the run rate of $10 billion in the quarter ending September 2021. What is giving you confidence?
A: When we are looking at how we have grown in the first quarter, we are projecting the growth for Q2, looking at the gross trend of Capco as well. The guidance 5-7 percent, even at the lower end of the guidance, we will get the $10 billion run rate mark.
I think we have had a consistent level of percentage growth over the last few quarters systematically over 3 percent, 3.3 percent, 4.9 percent organically, 12.2 percent including Capco. Giving 5-7 percent, we will grow over 20 percent year on year. That is when we will hit the $10 billion mark in Q2. It's going to be a nice milestone to celebrate for Wipro.
Q: Do you expect to catch up with peers in the coming quarters? At $10 Bn you are inching close to HCL Tech, which is the no 3 player right now
A: Catch up in size for sure, catch up in growth- who has grown faster than us this quarter?
Q: Historically Wipro has been very aggressive when it comes to acquisitions and used to follow the 'string of pearls' acquisition strategy. While inorganic growth has been growing at a good pace, what about organic growth? Your TCV has come down sequentially?
A: Yeah. The total contract value (TCV) has come down sequentially. I think the difference is that we did not close a $1 billion deal this quarter.
We did it two quarters in a row and we did not do it this quarter. So usually looking at the TCV you do not have the same impact, but from an annual contract value standpoint, we've done really well. So we continue to have the right volume of deals. Turns out that this quarter we did not have one mega-deal but we had a lot of smaller deals.
The strategy we focused on over the last four quarters is paying off. We are raising the bar in the way we are positioning ourselves with our customers, the way we invest in our relationship with our clients to focus on large deals, and the way we are focusing on developing partnerships with large technology companies like AWS, Google, Microsoft, Salesforce, SAP, and so on is paying off as well.
Then we are focused on our efficiency. So sales productivity, win rate, and everything that makes us a business with more impact-driven with more discipline, rigor, and constantly pushing to accelerate growth.
We have also brought a lot of talents from the outside to drive a culture of diversity, but it's also to bring people with new expertise, new ways of looking at things challenging the way we have been working for years at Wipro and really constantly leveraging the best of all worlds.
We are focused on organic growth. Though acquisition is a strategic lever that we will continue to play on, it is not to compensate for insufficient organic growth to address strategic priorities. That is the way we are looking at the minute. That's why we did Capco because it was going to change our position in the BFSI sector as a partner for clients. We see that every day, every time I connect with the client, be it a bank CEO, we are engaging at a level we could not before. We are seeing synergies coming up and we are going to continue to do it with other sectors.
In other industries and in other markets as well, mergers and acquisitions will continue to be part of the strategy. It will start with a string of pearls strategy, but we are not saying no to any other larger acquisition if it makes sense from a strategy standpoint. The real driver is strategic impact, but our growth strategy is built on organic growth.
Q: If you look at your clients, while the $1 million clients have gone up, the larger client buckets- $30 million, $50 million have largely remained flat in the last few quarters. What is the pain point here? What are you doing to improve your win rates in these buckets?
A: That is where we are focusing our investment and this is where we've got some good results.
This quarter, in particular, we have two more $100 million accounts, and we have two more in $50 million accounts. So I think it is paying off definitely and it will continue to. There's no question.
I think we are not keen to create or develop more accounts than what we have. But we are focusing on growing these relationships and we will continue to do so.
So if we look at our top 10 accounts they have grown faster than the average organisation. So they became the growth engine for Wipro, which was also part of the strategy definition.
Q: Banking and financial services have been Wipro’s strong suit and are now complemented by Capco. But what about areas where Wipro has been strong in - health, telecom, etc.
A: Yes, we will continue to make strategic moves in some of these sectors to reinforce them. That you can expect that at some point in time, for sure. If I look at sectors, such as healthcare, energy, and utilities, and manufacturing is sectors where we will continue to reinforce our position in some strategic buckets.
Q: At 15.5 percent, your attrition has surpassed pre-COVID-19 levels. Is this going to be one of the biggest challenges?
A: This is a challenge not for us, but for the entire industry. I have not yet seen a company that does not have attrition that is not going up. There is very high demand and even our clients are exposed to attrition on their side. So these numbers are a reflection of the fact that we are in a different world, where there is a lot more fluidity of the labor market, where you are one click away from responding favorably to another opportunity. So that's the world we are in. And so we need to adapt to that and we need to be able to respond and connect.
Q: You are going big on fresher hiring. You will be hiring 33 percent more this year than in FY21 and rolling out offers for 30,000 in FY23. Will you look at compressing training time for freshers so that they can be deployed given the high demand you are seeing?A: We are making some adjustments to the way we are onboarding and developing the fresher programs to make them more efficient rapidly. We are working on that. We have refined the model a little bit to make sure that when we have a team of freshers, they can be deployed efficiently and rapidly in the field with our clients.
Our final couple of questions: a) What are the big cloud-based announcements that you were referring to at the press conference? b) If you have to do your self-appraisal based on your year 1 as CEO, how do you rate yourself? Would you say you have exceeded expectations?
A: You will have to wait but it will be an announcement where we will show our ambition in the cloud where we are playing a key role as a strategic partner for clients. Second, I rarely exceed my own expectations.
Q: But, what's the big vision for year two going to be?
A: Market impact. We will continue to grow and improve our economics, and be more efficient. We will have a bigger market impact. We will be an unquestionable leader in our industry.
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