Certainly more bullish on 2014-15 growth: Wipro's Kurien

In an interview to CNBC-TV18, TK Kurien, executive director and chief executive officer; Suresh C Senapaty, executive director and CFO; and Saurabh Govil, senior-VP, HR Wipro spoke about the IT company’s Q3 performance and the road ahead.

"Focus on account management has yielded encouraging results. Global infrastructure services business grew strongly (5.6 percent Q-o-Q) on revenues," TK Kurien told the channel.

Below is the edited transcript of Wipro managemnt interview on CNBC-TV 18

Q: Wipro has seen multiple quarters where it has underperformed its peers on its growth. This time around as we pointed out it is one quarter where you have delivered growth which is in the middle range of your peers. Is this a start that Wipro has caught up on the sector average and from hereon you will be delivering industry growth averages from this quarter on?

Kurien: It is pretty simple. Last quarter has been the quarter of execution for us. We laid out a strategy for ourselves many, many quarters ago where we basically said that our fundamental strategy is going to be differentiation in the front and standardisation in the back. This meant that at the back we need to drive increasing productivity and on the front we need to make sure that we are able to differentiate enough to get value for our services.

To some extent we have seen that kind of playing out this quarter and the results kind of reflect that. Next quarter our guidance again reflects growth, so overall if I look at 2014-15 sitting where I am, I am certainly more bullish about what is going on in the marketplace than I was the same time last year.

Q: Has Wipro finally caught up on the sector average and will deliver sector averages in terms of growth from hereon? Is that what we can expect in FY15?

Kurien: Typically our guidance is only given for a quarter. We do not give a full year guidance. To that extent I wish I could answer that question without going to jail as far as the SEC is concerned. So our guidance is a quarter and I would suggest that you should read nothing more than what we are giving you which is a quarter’s guidance.

Q: Your margins at 23 percent are the highest that we have seen in the last close to about three years. In your press conference you said that margins are stable, but with a positive bias. Can you quantify what this positive bias is? Can productivity led gains inch up your margins to 24 percent or 25 percent in the next few quarters?

Senapaty: The reason we say that is that you would have seen that while our margins have improved significantly. Based on the effort that we have taken in terms of driving productivity, creating lot of intellectual property -- which is able to help us to reuse and drive automation -- I think the journey is work in progress and much more to happen.

Also, we know that there is competitive pressure in the marketplace for us to be able to make sure that we are possibly able to not only pick some margin expansions, but also make sure the organisation to be competitive. We have not necessarily the best operating margin so far in the industry history, so consequently we think there are enough levers that are available for us to work on to be able to have a positive bias, should it be in next quarter -- two quarters cannot say, do not want to say -- but in the medium-to-longer term we think there is a element of positive bias around it, particularly from an organic growth point of view.

Q: Speaking about levers, your utilisation still stands at close to about 74-75 percent as of this quarter which is much lower than what your peers are. Some of your peers are operating in utilisations at 80-84 percent, for multiple quarters they have managed to sustain it. What would be the target utilisation level that you are at least aspiring to have in the next 2-3 quarters?

Kurien: It is pretty simple. I think what happens is sitting where we are I think we have enough head space to grow that and the focus would be to bring that back into the average of the industry, because today and that extent what it means for us is that the minute we improve our utilisation, Senapaty talked about an upward bias of profitability and that is really where all that is going to come from.

Q: You have recently concluded the acquisition of Opus CMC. Could you tell us what the margins on this Opus CMC were in calendar year 2013?

Kurien: We do not break out the acquisitions’ margins separately. As far as Opus is concerned, it used to be a customer of ours on the BPO side and we used to do a lot of offshore work for them. We have continued to believe that there is far more opportunity to reduce cost at Opus and improve margin. We do not see Opus being significantly dilutive as far as acquisitions are concerned.

Q: If not significantly margin dilutive, Opus could be at least marginally margin dilutive, is that what we could understand?

Kurien: Yes, but even with Opus we do not see the margin changing too much. I do not think you should expect a negative bias as far as Opus is concerned.

Q: Your headcount has declined for the last two quarters and you have said from hereon you should not link headcount directly to your revenues. Could you give us any colour on what the hiring or the net count addition could look like in FY15 when demand is picking up?

Govil: Let me just take a step on the recruitment piece. Our recruitment is as per plan. We have gone on campuses, we have made our offers, we are onboarding people whom we had offered last year. We would continue to hire based on the guidance we have given for next quarter. Our bias of hiring people onsite has gone up very clearly, so that is very clearly on as per plan. We do not guide for a full year number from a hiring perspective, but what we see from a hiring point of view is what we have hired so far and moving forward it is as per plan.

If we take the entire supply chain thing, the entire hiring plan as well as the attrition all these three put together would be deciding on how we move forward and we see headspace as we spoke about on the utilisation side. So, I think our plan is on track as we move forward.

Kurien: I will just give you a simple answer to that. Our headcount last year that we hired in India and what we expect to hire this year would more or less be stable. We have not changed or delayed any of the dates on which people have been onboarded. We continue to believe that nothing will change next year also, but there is going to be a fundamental shift in terms of our hiring.

The kind of hiring that we do in India, the similar kind of programme is going to be launched in US and in Europe, because we truly believe that long-term we have to be more local in the geographies that we work in and more importantly from a supply-chain perspective. From a customer demand perspective, I think the customers are demanding that. So onsite hiring is certainly going to be a big area focus going forward.

Q: One of your peers who reported their earnings very recently has said that they have seen some slowdown in India business and they have also flagged off that India business could be muted for the next three quarters. For you all India business was quite strong. India and Middle East grew by 5.5 percent. Was that aberration? How should we read? One of your peers is saying that India business could be weak, but for you all it has been a strong quarter for India.

Kurien: We do not see bias in terms of any reduction in India business in the next quarter also, that is in Q4. However, on the medium-to-long term, we clearly see a slowdown, primarily driven by the uncertainty of the elections. So next year we see a slowdown coming in as far as India is concerned, but we are hoping that our Middle East business would be able to provide some kind of a buffer for us to take care of that.

The other piece that we also see again is that state government spending is not changing, central government spending is. So depending upon your portfolio and where you play you can be impacted in a different fashion.

Senapaty: Also, some of these numbers that we have been seeing from the government in the recent past and the softening of the interest rates that we should be seeing pretty soon with the inflation rates softening maybe there will be an investment climate that will happen, because already talks are happening in terms of little bit on infra, little bit on the power projects and with banks’ performance improving -- with interest rates softening -- maybe some of these spends on the banking sector can go up. So, I think there is an uncertainty vis-à-vis the election, but perhaps the economy has bottomed out and therefore there could be some upside coming forward. So it is a mixed bag.

Q: The application, development and maintenance (ADM) business was quite weak. Growth over there was only close to about 1 percent and in the call you have also indicated that there was some pricing pressure which you have witnessed in the ADM business. Will it continue to grow at this anaemic 1 percent that we saw in this quarter with some pricing pressure, will that sustain?

Kurien: Basically what we are seeing on the ADM business is clearly two things. Number one, the ADM business for us at least has to grow by way of shared gains and the impact of the cloud while that would be felt on the edges of the ADM business is not going to kind of significantly change the overall pie, because if you look at the cloud business, the cloud business is really nibbling at the ADM piece on two ends, one is on the customer relationship management (CRM) piece and the other one is on the HR piece. These are the two areas where you are seeing changes. The core continues to be still very much driven by core enterprise resource planning (ERP) and traditional systems. So to that extent I do not see the overall ADM business for us kind of coming down. We see it remaining at the same ballpark range in terms of growth as the rest of the company.

Q: Demand environment is improving, that is something that you and your peers have said. Will wage hikes be significantly higher in FY15 which could impact margins at least for that quarter?

Govil: We will be going for a wage hike on 1st of June this year as we have been doing every year. It is too premature right now to decide on exact hike which will be, but I can only say it will be very differentiated given the different concepts. So it is more not looking at a number, but looking at some concepts which we require more, some less and that is what we will need to work on. I think by the time we finish this quarter and close of the day we will be in a better position to speak on the exact number of what kind of increase will be there.

Q: Wipro’s strategy in terms of acquisition was called string of pearls. You all were known to make many of these small acquisitions, one of them you all concluded in December-January this Opus CMC. Can we expect more of acquisitions from you all maybe this quarter or in the next quarter?

Kurien: Here is what it is. We have a strategy. We have the spaces identified as to where we are going to play. We do not do acquisitions for revenue aggregation, we do it because we believe it can be a force multiplier and to that extent it is a little premature to call them out. At the end of the day we have a standard saying in the company -- you may want to marry someone, but the other person also has to want to marry you. To that extent it is a little uncertain to comment on acquisitions. If there are opportunities that come up in the spaces that we want we will certainly make them, but today I cannot say with certainty that in Q4 I have two, or Q1 I have one, I do not have that number. Nothing on the anvil.

Senapaty: Nothing on the anvil to be able to share with you.