Q1 focus to be on disciplined goal execution, re-skilling: Wipro

Wipro, which reported fourth quarter numbers on Wednesday, hopes to return to industry leading growth in next two-three years, the company’s CEO Abidali Neemuchwala said. The software services exporter’s consolidated net profit grew 0.04 percent to Rs 2,235 crore and total income rose 6.1 percent to Rs 13,741 crore in the quarter gone-by. The company also announced buy-back of shares worth Rs 2,500 crore. “Our main focus in Q1 (of FY17) will be on disciplined execution,” Neemuchwala told CNBC-TV18. The company has revised its goals and strategies, he added. While energy and utility sectors continue to be a headwind for Wipro, demand is clearly visible in the digital space, he said, adding, large discretionary spend has increased especially in the digital vertical. The fourth quarter has been good in terms of order inflows, he said.The company is also facing some headwinds from its continental Europe business due to unrest in the region. This is mainly in banking and financial segments and will not last long, Neemuchwala said. Speaking on guidance for Q1, Jatin Dalal, CFO of the company said margins will remain under pressure on back of wage hikes and two-month consolidation of its healthcare services business, which will have 60-80 basis points impact. The budget for wage hikes this time around is 30 percent higher than last year, he said. The focus is on investing in local talent and technologies, which will impact margins but help the company improve its volumes. Wipro will also concentrate on re-skilling its workforce in digital technology, said Saurabh Govil, President & Chief HR Officer. Hiring, he added, will on same lines as FY16. On the company's plan of share buy-back, Dalal said that the proposal is upwards of 6 percent of Wipro’s paid-up capital. Below is the verbatim transcript of Abid Ali Neemuchwala, Jatin Dalal and Saurabh Govil’s interview with CNBC-TV18's Kritika Saxena and Shereen Bhan. Shereen: Let’s talk about the outlook that you held out and that seems to be what is disappointing the street of guidance of about 1-3 percent is what the street seems to be working with on the back of what you put out today. If you look at the commentary that’s coming from both Infosys as well as TCS they seem to believe that the year is looking strong, the momentum has been strong at least at the start of the year is concerned. Are you seeing things differently in terms of the demand environment, in terms of clients and the kind of expectations that you have for your order book.Neemuchwala: As far as Q1 is concerned we have given a guidance of 1-3 percent and Q4 has been one of the best quarters in terms of order book for us, so overall I think from a demand environment perspective there are a lot of opportunities, I have been meeting a large number of customers after taking over as a CEO I have covered almost 70 of our top 100 customers and I do believe that there is a significant demand very aligned to what capabilities we have and we can sell in the market. Having said, the guidance is always what we see at the time of giving the guidance in terms of the outlook we have and we are definitely seeing some uncertainties in certain areas for example the energy and utility business which you know very well doesn’t still seem to be picking up especially given the volatility in the gas prices and having met some of those clients. The sense I am getting is that they don’t worry about what the price is, but they want to see some level of stability in the price after which they can decide their budgets and start the spend and right now we didn’t have a sense of that budget getting started in Q1 and hence that is reflected in our guidance. Similarly, we have seen some early signs in Continental Europe from some of our banking and financial service customers in terms of some of the hardships that they are undergoing and right now they have stopped certain projects and there is some headwinds on the discretionary spend there and we have incorporated that as well in our guidance. So overall, while the demand environment is robust overall I do see that a large amount of discretionary spend is happening on the digital area although a lot of that spend is moving from run to change and there may not be new technology spend coming in enterprises. I think for Q1 we have guided what we see at this point and time.Kritika: You spoke about the two important headwind, so if you addressed them financial services in the Continental Europe market and energy and utilities. By when do you see them bottoming out and finally seeing some kind of a turnaround. Can you give us a timeline?Neemuchwala: I think the financial services in Continental Europe I wouldn’t give it a long time because once some of those decisions are made we also have an opportunity to help some of those customers in terms of consolidating their spend being able to drive efficiencies and that is also an opportunity for us in terms of the services that we have. Oil and gas is anybody’s guess because as I said it is not about what price the oil is at, but what is the stable long-term outlook and that we have seen over the past few quarters so now even I am not hazarding a guess as to when those prices will stabilise and discretionary spend starts.Kritika: What about the financial services vertical because that has been seen some kind of an uptick across the board, but there are pressure points as you said in headwinds. When can you see these headwinds bottoming out finally and actually being profitable.Neemuchwala: I think on financial services I am more optimistic I think in a quarter or two we should be able to start seeing spend. We also had some good deal wins which we will be ramping up, so I don’t worry about that. That is more a one quarter phenomena and at the most two. The energy and utility is the one where there is a higher level of uncertainty.Kritika: The margins are in line with the expectations yes but given that this was a strong quarter from a currency perspective what really were the headwinds for the margins and as we enter into a FY17. Do you expect FY17 margins to be lower than FY16 considering that you will have to factored in the acquisition as well.Dalal: Sure so let me answer that so we had a good satisfactory quarter in quarter 4 we did have a margin headwind or I would rather call it margin investment in form of the impact of the acquisition that we consummated in quarter 4 and that was roughly 0.5 percent of our margin. Currency for us was flat from margin accretion standpoint, so what we did was our operational efficiency really helped us deliver a flattish margin while mitigating the impact of the investment on acquisitions. We also had a little lower margin in quarter 4 for our India and our Middle East business as they invest in some of our projects to get them to a right result and that also impacted our margin slightly but we were able to recoup that and be at flattish kind of trajectory for quarter 4, so all in all a decent reasonable satisfactory quarter in quarter 4.Kritika: For FY17 do you expect margins to still be fairly sluggish because the fact is that there is acquisition on the board and there could be some pressure. So would you probably expect FY17 margins to be lower than FY16.Dalal: Actually, we don’t guide for the margins for full year but let me give you some colour in q1 we will give our salary increases to our employees and this time the salary increase budget is indeed a little higher than previous years in fact its 30 percent higher budget. So that will have impact on our margins in quarter 1. We will also the two months consolidation of health plan services in quarter 1 that will also have impact on our margins, so we do see an investment on margins in quarter 1 and therefore we will have to work through rest of the quarters to get the trajectory back as our volumes pick up during the year and that is the overall sort of direction or the pattern of margins that we see panning out and the only thing I want to talk about is that there is a great opportunity in the market place for things like digital and localisation. There is a lot of onsite demand for newer technologies and we will invest in some of those and we will continue to invest in the these that we spoke about. That could mean that there is a short term compromise on margins but that is for volumes and once volumes come back in our business as you very well know the margins follow shortly because our business is about volumes and scale.Kritika: So, by when are you expecting that volume pick up to come in and also for the coming quarter what is the exact impact. Typically about 100-150 bps is the impact that you see as a result of salary hike on margin. So, would it be in line with that or slightly higher?Dalal: It will be in line with the previous years and we have spoken about helpline services will have 60-80 bps impact for full quarter. One third of that is consumed, so two third of that will flow through in quarter one. So, we do see an investment of margins in quarter one.Kritika: I want to understand the attrition. The attrition has abated significantly but as far as utilisation is concerned there is still scope for some kind of an uptick. By how much can you inch up utilisation further in the next coming quarters?Govil: Attrition has been a good story for us. In fact attrition in this quarter has been lowest across the last 11 quarters for us. But we will have to look at utilisation, attrition, hiring, the entire supply chain together. So, firstly clearly we must see that we have headspace to improve utilisation.We have improved from the previous quarter but as I have said in the past very clearly we have head space and today we are doing three or four things. One is our attrition numbers have come down and are stable over last 7-8 quarters over a percent. So, that is a very stable way of looking at attrition.Second is as Abid had called out we will be driving hyper automation and we are going to release people which will be used for retraining and re-skilling for a new digital work which we will be doing. So, that is the second area where you will be seeing people. Third is the hiring which will happen as we move forward. Our combination of all these three would look at overall utilisation.But I must tell you the focus of the organisation going forward is more about how well we can re-skill our people into digital technologies rather than only depend on hiring externally. So, let us strike the right balance. Given the very clear fact that we have headspace to improve our utilisation overall.Kritika: So, what is the hiring target that you are looking at for this quarter and can you breakup the salary hikes as well for the coming quarter?Govil: We don't call out the hiring targets both for campus as well as for lateral hires but I can say it is in line with what was there in FY16 so far. From a wage hike perspective Jatin has been kind enough even with the margin pressures to have higher budgets for the increases. But the focus very clearly this time again as we drive is how we can differentiate more based on performance potential and skill category of people.Again those critical skill related areas will get a premium from a merit increase perspective. So, it will be much more focussed and given across. We have not yet fixed on the exact increases. We are working through the numbers because our increase is effective June 1 and closer to the date we will let you know in terms of what will be the actual range in which we will be increasing our salaries, both offshore and on site.Kritika: What was the reason for the buyback of only Rs 2,500 crore because the market was going - you could have gone up to about 10 percent of paid up capital and free reserves, and it could have gone up to about Rs 3,500-4,000 crore?Dalal: It is a great question and let me articulate the way we have gone. There are various ways of returning cash to the shareholders and in a way that increases the value for our holders. We think that the current proposal which is a little upwards of six percent of our paid up capital is a fair good proposal. We are doing buyback for the first time. We want it to be successful, we want people to be excited.So, we have gone with a good price and a quantum that will be a first time good quantum to go to the market with. Overall we feel we are giving back cash which is up to 48 percent of our 2015-16 profits which is again a good strong indication in terms of our intent of rewarding the shareholders who have been with us for a long time. That is really it, that was the boards consideration in looking at the overall package.Kritika: This is your first quarter as the CEO of the company. What really will be your strategy in terms of realignment and by when can we see Wipro going back to industry leading growth?Neemuchwala: One of the advantages I had is I had a little bit of a runway before I took over as CEO. So, a lot of the changes as you are aware which the delivery realignment where a large number of peoples reporting was changed in October last year. We were able to do some leadership changes in December. So, when I was announced the CEO on January 6 I could announce both the structure and my leadership team very clearly. We used the last 70-80 days to put in place our detailed strategy, the strategic theme that I shared and by unit, individual strategy and roadmap we have also been able to do the revision of the goals and objectives and the incentives aligned with the strategy and the structure and by March 31 before this fiscal year started everyone of the 2000 top leadership have accepted their targets and that has been aligned.So, the focus in quarter one and going forward is on disciplined execution and looking at some of the early output markets that we need to see in terms of successful execution of strategy and if we see any gaps over there to plug those gaps early. That is how I would look at it. We now have a stable leadership team and organisation structure which is aligned to strategy and a governance mechanism to be able to monitor the progress and I am looking forward to reporting the progress on a quarterly basis in terms of some of the input markets and output markets for the strategy.Kritika: And by when can you go back to industry leading growth rate. That is the one timeline that the entire street is watching out for?Neemuchwala: Absolutely and so am I.Kritika: Timeline, when can you go back to industry leading growth rate?Neemuchwala: The way I would put it is we have clearly articulated our ambition and where we want to go. We know where we are and if you just extrapolate that trajectory we can't get to our ambition. So, definitely it will be a trajectory that will show improvement in performance on a periodic basis. It is not going to be a pivot, it is going to be a trajectory that will take us to where we want to go.Kritika: So, can we take a 2-3 year timeframe?Neemuchwala: I would hope it is the lesser but definitely yes.