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Strategic bets needed to meet $15 bn sales aim by 2020: Wipro

Fewer working days and client furlough are key reasons for Wipro ’s subdued growth guidance for the third quarter, says CFO Jatin Dalal in an interview to CNBC-TV18 after its third quarter guidance disappointed the street earlier in the day.

The information technology major expects revenues from IT services business to be in the range of USD 1,916-1,955 million for October-December quarter, a growth of 0-2 percent over September quarter.

Speaking on the company’s latest big-ticket acquisition of Appirio, he says the US-based global cloud services company is already well managed but as revenues and cost synergies kick in, there is scope to improve margins further.

Through all the acquisitions done in the recent past the company is working to meet its ambition to hit USD 15 billion in revenue with 23 percent margin by 2020, he says.

Wipro’s President and Chief HR Officer Saurabh Govil and President & COO Bhanumurthy BM also shared insights into the initiatives taken to trim the attrition rate and spruce up utilisation levels.

While they hope to cut attrition to sub-15 percent, they believe there is headroom to improve utilisation by 3-4 percent.

Below is the transcript of the discussion with CNBC-TV18\’s Reema Tendulkar.

Q: Let me start with you on the Q3 guidance even accounting for the seasonality it appears to be lower than what we have seen from the company in the December quarter. Can you call out the specific headwinds that you are facing?

Dalal: Just a moment on quarter 2 as you are aware in quarter 2 we came at the higher end of the guidance at 0.9 percent in terms of constant currency growth. As we come to quarter 3 we say it as we see it today and that is what we have guided for and we have said the Appirio revenue from the day from after we consummated the course of the quarter has been added in our guidance.

As you are aware quarter 3 typically is a slightly different quarter, it has lower number of working days. It does have certain client impact vis-à-vis furloughs, which has been factored into our guidance. We feel it is a good guidance as we see it today and that’s what we have guided for.

Q: Even in a seasonally weak quarter you have managed to deliver in December, so this time seems to be a different, but come in a bit more on Appirio how much can you scale up Appirio revenues USD 195 million on an annual basis in the coming years and secondly what margin impact will it have in the coming quarters?

Dalal: As you were shared for calendar year 2015 they had revenues of USD 196 million and they have grown quite rapidly over the course of last 5 years to become the size and scale which they have reached. The market is very buoyant. The market remains exciting and we have a great opportunity to cross leverage Appirio strengths into our customer set, so we remain quite confident that it would provide us the acceleration that the market and opportunity offers as we enter the next year.

We haven’t specifically broken out margins, but they are well managed firm for their size and for the type of work that they do. They have very healthy growth margins which they invest for in terms of sales and marketing for their growth. We feel that as revenues and cost synergies kick in there is a good path to improve margins further, but clearly it is even well managed as we enter the firm.

Q: Two quick questions one India and Middle East has seen a decline for yet another quarter down 1.1 percent in constant currency and secondly in your USD 100 million client bracket there has been a decline. Could you take us through the two key reasons for that?

Bhanumurthy: On the India and Middle East business we are taking certain steps specifically on the India and Middle East business and that is the reason why you see the trajectory that you are seeing right now. We are looking at the overall business, we have looked at the kind of customers that we worked with and the kind of projects that we are doing and the manner in which we are executing to those projects as well. So, that’s the reason why you have seen trajectory like that in India and Middle East business.

Coming to the top customers you have seen the growth rate that we have given for our top customer and you should also look at the overall how our top bracket customers are looking like those numbers look pretty stable, but for certain currency impact and things like that I don’t see a big movement in the top client base as well.

Q: So the USD 100 million clients which has come down from 9 to 8 in terms of a number is on account of the currency moves?

Bhanumurthy: Yes, this is a small moments.

Q: How many more quarters of pain do you see in the India and Middle East segment geography?

Bhanumurthy: As I said we have already incorporated that into our guidance that we have given for the quarter and that business is definitely need to we are looking at the kind of business that we are doing here and we need to relook at the entire customer base that we have. We are looking at what kind of activities that we are doing, so that what included in the guidance that we have already given.

Q: You have managed to improve your utilisations to 71.2 percent, a 134 basis points improvement quarter on quarter. How much more can you improve your gross utilisations, any targets that you would like to give us and even on attrition – still above that 17 percent mark?

Govil: Let me give you a colour on the entire supply chain. If you look at the entire composite, very clearly hiring continues as per plan. We have gone on campuses, we have hired laterals, we are hiring in our new technologies like digital, cloud, analytics, so that is going as planned.

If you look at the attrition over the last six quarters, it has been in a very narrow band of 1 percent. So, it is very clearly predictable, there are no spikes. However very clearly we would want this band to come down sub 15 percent and that has been our endeavour.

From utilisation point of view I have mentioned this earlier also, last three quarters we have seen a very clear uptick on our utilisation and we will continue to see that. I believe that there is headspace for us to improve further on this and this is a big lever for us from margins perspective as well.

The other part is automation and we have a plan of about 4500 people for automation during the year. The first half we have done about 3000 plus. So, we are ahead of plan and that will be another focus area as we move forward. So, overall if you look at it, it is a fairly robust plan. Lot of levers from a margin perspective which will help us to move further and there is headspace for us to become best in class here and we are on that trajectory.

Bhanumurthy: If you look at the way we would like to get the work done, there are three pieces by which we could get the work done, one is, part of the work could be done by bots which is the hyper automation. Second place is you could utilise the wider Wipro employee base on a shared basis and you could use dedicated project teams.

If you look at the three areas right now or the homes which we have invested in, our artificial intelligence platform, it has brought in lot more cognitive capability to automation.

If you look at the Appirio acquisition that we have done, it has given us access to Topcoder which is a crowdsourcing platform and it will augment what we already have inside our organisation right now.

If you look at the investments that we have made in development rigs that we have built, that will increase the productivity within our project space. So, the convolution would be in terms of how we can move the work around between these three areas quickly and that is what will give us a much bigger operational efficiencies that we can see right now.

Q: The target utilisation?

Govil: Want to be best in class. Very clearly see a 3-4 percent headspace for us to improve.

Q: Can the company go back to the 20 percent margins you used to enjoy?

Dalal: We have shared our ambition which we have said that we want to be USD 15 billion of revenue at 23 percent margin by 2020. So, clearly 17.8 percent is not where we want to be. We want to move towards that but at the same time what we must do is to take a step back and see what will take us to USD 15 billion. For us to reach that USD 15 billion some of the strategic bets that we need to take today, we must take. If we have to take those bets, we will have to make small margin investments as those acquisitions consolidate itself and we start getting the synergy benefits. So, that is where we are. We have invested, from January onwards this is the fourth acquisition we have announced and I think they are all what will make us stronger tomorrow.