Wipro is far off from a slowdown or delays: CFO Jatin Dalal

Jatin Dalal, President & Chief Financial Officer, Wipro Limited

IT company Wipro had some strong deal wins, but the management has said there is caution and a level of uncertainty due to macroeconomic conditions. While the company’s top line was along expected lines in the second quarter, the bottom line fell short.

Wipro's stock has been under pressure on Thursday post disappointing revenue outlook for the December quarter. Wipro has guided for revenue growth of 0.5-2 percent for Q3.

In an interview with Moneycontrol after the company released its Q2 earnings on October 12, CFO Jatin Dalal spoke about the recessionary impact, levers to defend margins, and the deal pipeline. Edited excerpts:

Is there a change in tone in the conversation with clients?

There are three things that we have spoken about – there is a factor of inflationary pressure on all businesses, there is a sense of geopolitical uncertainty, and energy prices and availability of energy resources playing up in various parts of the world. These are now forming parts of our conversation, parts of the decision-making of our customers. That’s the change that I would say we didn’t see some time back. There is certainly more uncertainty or sense of caution… Having said that, we are far off from a situation of slowdown or delays. None of that is playing out as of now.

Any pockets where there has been a slowdown?

Tech has been impacted a bit, mortgage too, but these are smaller sectors. Large business – if you see our performance on a q-o-q sequential basis – you will see that the numbers look good for all sectors except communication, but that has also done 12 percent year-on-year. So, the only one that you will see a little soft is technology.

Any specific impact in Europe?

We are not seeing it. We have done very well and we feel confident about Q3 also. We’ll have to see how it plays out. But that is one area where I think the environment is tough, certainly more cautionary there, but we have done well. That reflects the market share gain that we are getting. There is a sense that whatever is the business-as-usual impact is more than getting mitigated by the market share gains that we have.

What is the pricing environment like now?

Pricing environment so far is holding okay. We are not seeing any undue pressure on existing pricing. Of course, new deals will always be competitive – that never changes. Large deals are normally more competitive. But if you see business as usual, I think we are able to have a conversation with the customer on the value of the services that we provide. I'm not seeing undue pressure, I think we’re holding quite okay.

Are mega deals drying up?

We have deals in our pipeline… Large deals grew 42 percent in H1 year-on-year, so there is certainly positive momentum in the number of deals and value of large deals.

As far as mega deals are concerned, I don't think you can ever do a proper trend analysis. If you're lucky, you will have three big deals in a quarter and feel very good. Otherwise, they will be in that bake zone and at some point they will be ready to be consumed.

It’s a constant process and we have some in the pipeline. I’m not worried about slowing down. I think we should remain very careful to make sure that we accelerate it and not let it slow down.

Acquisitions seem to be fueling your growth. What about organic growth?

We had very strong organic growth in this 4.1 percent (QoQ revenue growth in constant currency). We don't break it down. But if you do some math, you can make it out. It's very strong organic growth, which is embedded as part of this 4.1 percentage point for sure.

What are your levers to defend margins?

I think the biggest lever is utilisation. Our utilisation is probably, last 6-7 quarters, low still. We have a great opportunity to use the investment that we have made in the last two quarters on hiring people a little ahead of time.
Secondly, quarter three will have a headwind of two months and a salary increase. I don’t want to shy away from that. Q3 even as you entered you have walked in with that cost increase which you have to mitigate as you work through.

But assuming you keep that aside and you see yourself on January 1, then you feel at least that I have put this year’s salary increases behind me. So, in some form, you don't have a headwind – that in itself is a good position to me.

Thirdly, we have been very focused in terms of automation in our fixed-price projects. Fixed-price projects are 58-60 percent of our business. If you drive automation in a fixed-price project, you will be able to get a lot more productivity out every quarter.

In some form, I think as we were in an almost -- very exciting -- growth phase, some of these measures take a backseat. Now we have time to orchestrate some of this far better. Otherwise, in the phase that we were in FY21 and FY22, our primary goal was that demand is flowing, and how do we fulfil that demand? You are not able to think a lot more. But now we are in that phase where we can think about it.

What has the impact of delayed US visas been on subcontractor costs?

We have been able to optimise the subcontracting cost in quarter two and the reason for that is not related to visas. It's related to the fact that we invested in talent a little bit ahead of time... So as we had our internally homegrown talent, we were able to put them on projects rather than subcontractors, which are obviously more expensive resources. We have not been impacted comparatively on subcontracts and, in fact, we have a very good position on subcontracts.

What emerging areas are you looking to invest in?

I would give some broader areas rather than subcomponents. Certainly 5G. Cybersecurity continues to be a great investment area and so is cloud. Roughly more than a third of our business comes from the cloud and it is growing at least two-and-a-half times’ the company’s growth. You would be able to capture that additional growth if you're selling actively into the cloud. The third is data. Data is a big play and we are quite excited about it. The fourth is engineering.

Has there been any pushback with asking people to return to office three times a week?

People like to come back to work. I certainly like to come back to work, my team loves to be in the office. People are not complaining, people understand. Yes, there are calls that you will have to make as a manager where somebody needs flexibility for a week. If somebody has some priority which you have to accommodate for some time, you will be more than open to it. I think the pandemic has taught us the biggest thing is that nothing is the right model, neither office nor completely working from home. So you will manage it. But we very fundamentally believe that the magic of Wipro happens when people come together and we should continue with that.