Aiming for industry growth level in FY15: Wipro management

IT services major Wipro, which has been lagging its peers for a while now, hopes to match industry growth standard next financial year, the Wipro management told CNBC-TV18 in a discussion on its second quarter earnings.

The company said that second quarter earnings were driven by a mix of operational efficiency as well as a favourable rupee. The banking and financial services vertical was the main driver of growth during the quarter that went by. The company has guided for a revenue growth of 1.7-3.6 percent in the current quarter. The company’s strategy is to focus on its top 125 accounts that have been yielding results. Wipro said it is comfortable with a 13-15 percent attrition, and that its utilization levels, excluding trainees, was between 75-78 percent. Also read: Wipro sees Q3 IT services revenue in range of $1660-$1690m Below is the verbatim transcript of the boardroom. Suresh Senapathy, ED & CFO, TK Kurien, ED & CEO and Pratik Kumar, Executive VP-Human Resources, Wipro were the guest. Q: The biggest discussion point on the street has been whether Wipro will now narrow the dollar revenue growth gap that it has between itself and other peers like Tata Consultancy Services (TCS) and Infosys. This time dollar revenue growth at 2.7 percent is still below your peers. What is the sense you are getting about the second half of the year, do you think because of the improvement that you have seen in your own business you could perhaps narrow that gap? Kurien: In terms of demand and pipeline - in Q2 we saw large deal closures improving versus Q1 and there has been quite a significant improvement in that part. Our win rates have gone up. Fundamentally, these two parameters indicate that from an execution perspective we are performing to our strategy. We have also guided for the Q3 quarter. As far as the market is concerned, we see discretionary spend coming back. It is different across industries. If you look at retail, in the second half of the year there maybe a bit of pressure on retail especially in the US given the shutdown but banking continues to be strong. It is a mix bag, but overall we see discretionary spending is up especially in the verticals that we would like to see them in, which are bigger verticals. To that extent there is little more confidence that we will be coming back. As to the question on when we would catch up with industry leading growth - our aim has always been that next fiscal year, we would do that. So, on back of what we have done so far, it gives us a fair bit of confidence that we can get there, although we do not know what the market is going to look like next year. However, as of now there is a fair bit of confidence. Q: Would that be in the first half of the next fiscal year or second half? Kurien: I just said next fiscal year. Q: You have seen an improvement in your margins; it has gone up by 250 basis points. Could you break it up, how of it was on account of currency depreciation and how much of it was on account of operational efficiencies? Senapathy: It has been a satisfying year as far as the margins are concerned and it’s a combination of both; operational efficiency improvement as well as the currency extra realision that we got. So a combination of that has helped us to be able to expand 250 bps margin. If you look at some of the headwinds with which we started the particular quarter - we had wage increase on June 1, which has only one month impact so far as Q1 is concerned and a two month impact in Q2. However, despite the particular headwind, there has been lot of operational improvement that we were able to achieve and therefore a combination of both has helped margin expansion. Q: Even if you look at the fine print of the numbers although your deal pipeline has improved, the revenue from the newer projects has been less than what some of your peers have reported. Do you think it may take you little more time to narrow that gap between you and your peers because the new projects that you are getting the revenue run rate is not as strong? Kurien: That is not completely correct. If you look at our existing accounts; our existing accounts have grown better than the company average. For example we focus on top 125 accounts and they have grown at the rate of 3.6 percent. Our top 10 accounts; they have grown at the rate of 4.1 percent. Therefore, our growth accounts have been very good. The issue that we have today where, which is a journey that we started about a year ago was our hunting revenue and that is right now work in progress. We created a hunting team last year and that has started yielding dividends. However, it is still a little away before we start seeing secular growth in that segment, which is for us are new-new customers. So, if you look at our revenue from new-new customers they are typically between roughly about 2 percent every year compared to competition. which ranges between 6-7 percent and that is the gap that we need to catch up with. _PAGEBREAK_ Q: Are you concerned about the spike in attrition that you have seen in this quarter? Kumar: In terms of attrition we do not internally try to read too much into quarter to quarter swings as long as it is in the band of 13-15 percent. In a particular quarter, it could go down or may see a slight spike, so we should not read too much into it. However, there are reasons to it – One, is that there is certain seasonality to this quarter; there are lot of youngsters in the company who use this opportunity to pursue higher studies and part of that is reflected in the number. Two,  we do have a very differentiated strategy in the way we approach our salary increase cycle and because of that maybe there could be some fallout by those who perhaps did not get, or maybe got an increase which was meager. Not to say that we do not continue to put in our endeavour to make sure that it is on the lower end of the band, which I described to you but that is not something which we are losing our sleep over at this stage. Q: Geographically where do you expect a major chunk of the increase in discretionary spend to come from because although the sales have been robust in the US, in the European markets we have seen some amount of muted growth at about less than a percent quarter on quarter? Senapathy: Across, the geography we see momentum. For a particular quarter, maybe some geography did well and some didn’t - It is a function of which particular account and where you picked up the bigger deal and therefore you executed it. So, some of those combinations maybe vary quarter to quarter but we have to look at it for the year, maybe half a year and that is balanced. Europe has been traditionally a good growth region for us and so is Asia Pacific. As far as US is concerned, although we do have a strong base there has been certain pockets in the US where it has been little sluggish. For example the semi conductor piece of the business or the hi-tech kind of an area where we are highly focused. However, we have seen some amount of uptick in US, and we continue to believe that in Europe we have potential to grow more and as well in Asia Pacific. So, we think overall it looks good. Kurien: If I had to breakup the verticals and the segments, I would say banking continues to remain strong and that’s an area where we see growth accelerating in the next couple of quarters. If you look at our portfolio, and banks financial services & insurance (BFSI) in specific, there is one area that we would like to step-up our investments and that is insurance. Insurance is a big market and for us it is important to have differentiated play there where we can make an impact. So, that is going to be in the area of investment, which is going to play itself over the next 12-18 months. Manufacturing is the other segment, where everybody has done well. We have been over weight on hi-tech and that creates significant level of ups and downs in our revenue profile. We need to balance that with businesses which are more stable like automobiles, electrical engineering and those kinds of areas and that is the focus. So, two things; one is stabilise the portfolio at the vertical level, second is to stabilise the portfolio in front of the customer. That is broadly the strategy that we are playing. Demand continues to be patchy but strong. For example if you look at healthcare, we have grown 6.4 percent last quarter on a constant currency basis. So, overall some industries where we have got our act together in terms of portfolio mix have done well yet others is work in progress and we are sure that we will get there. Q: Couple of your peers are operating at utilisations of closer to 80 percent. This quarter your utilisation excluding trainees inched up at 74 percent plus. Do you see it going up to target levels of 80? Kumar: The utilisation percentage is an improvement over the utilisation number of the previous quarter. So, to get at the right level of utilisation - there are multiple factors which go into it. It’s your own anticipation of how you see the future deal flows. You want to make sure that you have adequate bench strength to be able to seize the opportunities which are likely to come through. Having said that employee productivity, utilisation will continue to be strong areas of focus of all our organisations and so it would be for us as well. So, there is a head space but I would think that that band is likely to move anywhere between 75 to 77-78, and if it is anything more than that and you are squeezing yourself too tight.