Wipro Limited
Q2 2019 Earnings Call Transcript

Published: 24 Oct 2018

[Operator:]

Ladies and gentlemen, good day, and welcome to the Wipro Limited Q2 FY19 Results Conference Call. As a reminder all participant lines will be in the listen only mode. And there will be an opportunity for you to ask questions after the presentation concludes. [Operation Instructions] Please note that this conference is being recorded. I now hand the conference over to Aparna Iyer, Vice President and Corporate Treasurer, Wipro Limited. Thank you, and over to you, ma'am.

[Aparna Iyer:]

Thank you, Karuna. A warm welcome to our Q2 FY '19 earnings call. We will begin this call with the business highlights and overview by Abid, our Chief Executive Officer and member of the board; followed by financial overview by our CFO, Jatin Dalal. Afterwards, the operator will open the bridge for Q&A with our management team. Before Abid starts, let me draw your attention to the fact that during the call, we may make certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act 1995. These statements are based on management's current expectations and are associated with uncertainties and risks, which may cause the actual results to differ materially from those expected. The uncertainties and risk factors are explained in our detailed filings with the SEC. Wipro does not undertake any obligation to update the forward-looking statements to reflect events and circumstances after the date of filing. The conference call will be archived and a transcript will be available on our website. Over to you Abid.

[Abidali Neemuchwala:]

Thank you, Aparna. Good evening, and good morning, ladies and gentlemen. It is always a pleasure for my team and me to speak to you on this call. I'm quite pleased with our results this quarter both from a revenue growth and margin improvement perspective. Let me share the details on our Q2 performance, my views on the demand environment, and progress on the strategic themes that I provide you every quarter. In constant currency terms our revenue increased by 2.8% which is at the top end of our guidance and one of our highest sequential improvements in recent quarters. It is also a quarter when we announced the $1.5 billion deal which is our largest win to date. We see good momentum in our business led by steady performance in banking and financial services and our consumer businesses. We see revival in the energy and utility business. We have also seen an uptick in our communication business driven by core enterprise spend as well as the new edge areas like 5G. While at the core the business has been doing well, we are expecting Q3 to be impacted by furloughs. In the health segment we continue to see challenge, driven by the uncertainty around the ACA which continues to persist. From a geographies perspective U.S. continues to see a pick up in growth across industry segments. Also we have seen good momentum in Asia-Pacific and in emerging markets in general. Asia-Pacific has grown over 8% quarter-on-quarter. The demand environment and traction in the global markets specially around digital transformation at scale and enterprise modernization is strong and we seem to be getting a fair share of the market. The credit for a strong execution through the quarter goes to the entire team and is reflected in the steady improvement and secular performance across our operating metrics and client metrics. Our net utilization excluding training has reached a new high of 85.5% in Q2, our operating margin adjusted for the onetime impact from the settlement of the litigation that we had announced earlier is at 18.1%. As part of our India business reorganization we are carving out our Indian public sector unique which is called PSU and Indian government business given the distinct operating rhythm and the need for differentiated execution rigor. The rest of our India strategy remains unchanged and we will focus on enterprise customers leveraging our portfolio offerings in terms of digital transformation and cloud enablement where we see good traction. Given this we will carve out the India PSU and India government business out of our IT services segment in our financials, effective quarter ending December 31, 2018. The enterprise business in India will continue to be part of our IT services segment. Our outlook for the quarter ended December 31, 2018 reflects this change. Now let me share a quick update on the six strategic themes. Our digital revenue continues to grow quite strongly and it has increased 13.4% sequentially in Q2. It now contributes 31.4% of our revenues. Our digitally trained workforce has crossed the 100,000 Wiproits mark in Q2 and we now have 102,000 employees trained in digital technologies. Our focus on client mining continues to pay us off well. In Q2 our top 10 client grew sequentially by 3.6% in constant currency terms. We have added $100 million new client and seven clients have been added to the $10 million plus revenue bucket this quarter. In Q2 we’ve filed 15 new patents as part of our drive for non-linearity and IP taking our total patents applied to 2,071, more than 40% of the patents that are granted to Wipro are in new age technologies like data analytics, artificial intelligence, natural language processing, wireless technology, AV and EV investments that we’re making in the engineering space etc. On automation we’ve reached a new milestone of covering 350 of our existing clients where we’ve deployed Wipro Homes, our effort savings especially in fixed priced projects has improved from 1.1% to 3% across our fixed price efforts in Q2 and our fixed price mix continues to remain strong at about 58.9%. This automation productivity is reflected in the improvement in our margins in Q2. We continue to focus on localization and a significant milestone this quarter on localization is that we’ve crossed 60% localized workforce in the U.S. and we announced setting up a center in Reading in the UK for training fresh hires that we get from colleges along with a couple of universities there locally and running an apprenticeship program in the UK. We continue to maintain strong localization level in continental Europe across other high cost markets where we’ve embarked on this journey. On innovation this quarter we closed two new investments through our Wipro ventures platform - one in cloudgenics which is a SD ranked startup based in San Jose California and another in [Goldstart] Ventures, a New York based seed stage fund that primarily invests in enterprise software automation and cyber security; this brings our total number of investments from our $100 million Wipro venture funds to 70. Our Entrepreneurship program that we call Horizon program continues to be quite active and it’s running 10 themes around technologies like cyber security, analytics, autonomous vehicles, industry platform and solutions for additive manufacturing. We incubated one new theme in the area of enterprise performance management this quarter. We continue to see strong traction on Topcoder, our crowd sourcing platform. Essentially in the areas of data science and analytics as more global customers seek to gain insights and accelerate efficiencies through improved analytics and customer algorithms, Topcoder and crowd sourcing is uniquely positioned to answer the pressing customer pain point, especially in this market caused by lack of accessible talent. In Q2 our internal crowd sourcing program which is called Topcare we trained the -- we onboarded 6,000 more Wiproites taking the total number of Wiproites on the crowd sourcing platform to 63,000 employees. We also won a crowd sourcing contract for predictive asset management and energy forecasting from an APAC based utilities and urban development group. The reengineering of the platform that we’ve done to enable enterprise based crowd sourcing has started now seeing very good traction and enterprise clients. Wipro continues to gain recognition in the industry analyst as a leader across various industry segments. We are positioned as leader in 163 such reports of which 25 are in the industry space. In conclusion I'm very satisfied with the strong quarter of execution across both revenues and margins which is pretty secular across business units, service lines and geographies. The consistent improvement in our client metrics, operating metrics, order booking as well as demand environment gives me confidence that we will continue to build further on this momentum. I'll now ask Jatin to give a little more color on our financials.

[Jatin Dalal:]

So, I'll broadly cover the key numbers. Our revenues are at the high end of the guidance at 2.8% sequentially. Our margin is normalized 18.1% which reflects about 1.8% operational improvement after two quarter two months of salary increase and 70 basis point of products. Our ETR has remained broadly in the same range of 22.1% versus 21.9% in quarter one. Our EPS would have shown upwards of 12% growth had we taken an adjustment for the normalization of operating margin. Our hedge position at the end of quarter is roughly $2.6 million of hedges which has been in the similar range as previous quarters. And our cash position both at gross level and at net level has remained in the same range at 4.5 billion and around 3 billion at the end of the quarter. Our guidance for quarter 3 reflects the new segment definitions that we have spoken about in our press release and we it is 1% to 3% in the constant currency that we have mentioned as part of our press release. We will be very happy to take your questions from here.

[Operator:]

[Operator Instructions] The first question is from the line of Surendra Goyal from Citigroup. Please go ahead.

[Surendra Goyal:]

I just had few questions mainly for Jatin. So to begin with Jatin can you please help us construct some kind of a margin walk sequentially, your utilization improvement even next trainees seems to be 30 odd which explains [indiscernible] which should not be that significant for margin. So could you really help us reconcile what the key puts and takes were because of the way the hedge would also have impacted on the negative side?

[Jatin Dalal:]

So if you see the total margin expansion on normalized basis is roughly 2.5%. Of that 70 basis points is ForEx and 1.8% is the margin expansion operationally after absorbing two ones of MSIs. The operational levers have been utilization as you can see in the data sheet but more importantly it is the price improvement which has come through in terms of the automation initiatives as well as operating profit improvement in some of our global subsidiaries. Combined both has delivered that 1.8% operational margin improvement.

[Surendra Goyal:]

And what would be the impact of wage hikes because that would also be somewhere in this right?

[Jatin Dalal:]

Yes we’ve not called out the impact separately of wage hikes Surendra, like -- like we spoke last time you could see that we had shared the one month impact and you could extrapolate the two months impact.

[Surendra Goyal:]

So this 1.8% is a fairly significant margin improvement Jatin so how confident are you of the sustainability of this or is this something which could kind of bounce around a bit as you go forward?

[Jatin Goyal:]

Surendra if you recall in quarter one I had shared that we were confident of seeing the margins improving as the -- as we go through the year and growth comes back and this is exactly as we’ve panned out. We’ve come at the top end of our guidance in terms of revenue, we’ve been able to execute operationally on our levers therefore we’ve improved our margin, going forward we look at that there’ll be a play between some form of furlough impact in quarter three operational rhythm that'll continue to drive and some of the investments that we had done before how they play out vis-à-vis the revenue momentum that it further creates for us. But we feel confident to remain in a narrow band of our quarter two profitability.

[Surendra Goyal:]

Sure, and Jatin just a couple of more of data questions, so could you share what were the margin for the business which was dilutive last quarter? That’s first. And what are the margins of the India PSU business this quarter the business which you’ll carving out because that should also be a tailwind for reported margins in the next quarter if my understanding is right?

[Jatin Dalal:]

But so let me start by saying that the business which got hived off you’ve the numbers for that and that number is not a large number to make the impact that you’re seeing, so that was a very small impact. The reason being we divested that business was the strategic reason that what made sense 10 years back was no longer of our strategic priority now. It also improved our recurrent capital employed as you can see it part of our balance sheet. Even for the India business the reasons are very strategic to execute in that segment very differently then we execute or what we drive the objectives which we have for the rest of the business and that business is also a small number of $34 million, so to that extent we definitely -- we don’t see a big impact but certainly it is a lower margin then the company average margin to that extent that will be a small tiny sort of a delta but it won’t be something that would change the direction or the quantum of it.

[Surendra Goyal:]

So that’s a profit making business?

[Jatin Dalal:]

It’s a -- if you know India business remains volatile but yes it’s a profit making business.

[Operator:]

Thank you. The next question is from the line of Ravi Menon from Elara Capital. Please go ahead.

[Ravi Menon:]

Just wanted to [indiscernible] while we’ve seen very good improvement in the 10 million plus bucket for clients. Lower down we are actually not seeing good price and [indiscernible] the cost you think that exceeding client numbers [indiscernible] should just focused on client mining? Or should we expect to see another bottom end from an addition going forward?

[Abidali Neemuchwala:]

So, of course the numbers that you see over here are net numbers but we have got -- as we have been talking about we are quite focused on client mining. And apart from the traditional cross selling and upselling that you would expecting clients also the qualification of customers that we take at the start is important because while -- customers may usually come in under 1 million or 5 million bucket we qualify customers for the potential to grow to 10 million or 50 million bucket as well. Some of the metrics also change because of two other reasons, one is the currency volatility gets some customers in or out because of the materiality of counting a customer has a small threshold but that threshold has changed when currency fluctuates quite a lot. And second is with the BCS divestment a lot of the small customers went along with it. So both of that has also helped with our client focus in the small set of clients with a larger per client average revenue.

[Ravi Menon:]

And then secondly, the largest [indiscernible] modern applications sources and the infrastructure that will put beyond the growth obviously more than -- there are smaller segments. So especially on application services do you expect to see a pickup in growth? Or do you think that we should expect that the segment to complete desire from other things?

[Bhanumurthy Ballapuram:]

This is Bhanu here. On the modern application services you can call out couple of quarters the momentum has been really good. This quarter number is just you should take critical collaboration. But the demand environment for the modern application services both in terms of the digital confirmation as well as the cloud migrations are really picking up for us. And both these are our big bets as well in terms of our service offerings. On the infrastructure services again infrastructure services has been a very strong performer for us it’s a very strong area of service for us. And couple of the sectors that you talked about they caused this dip right now but otherwise infrastructure has been doing very well. Again I want to remind you that as we looked at the infrastructure services we migrated ourselves with [indiscernible] cloud services right now and both services are really doing extremely well for us and our even our pipeline we are looking very strong for the cloud migrations.

[Operator:]

The next question is from the line of Nitin Padmanabhan from Investec. Please go ahead.

[Nitin Padmanabhan:]

Two questions actually. Jatin in the last quarter you had spoken about some transition and related cost that should come back this quarter. So is that a meaningful contributor to all the margin gain?

[Jatin Dalal:]

No Nitin, there is no onetime contribution because of any transition gain in Quarter 2 that has contributed to margin expansion.

[Nitin Padmanabhan:]

The other thing was in the India business which we have sort of mentioned separately close to $34 million. I understand that business is a business that you’re slowly pushing down and not focusing on so any thoughts on how that could -- how the impact would be from a revenue perspective there in that business?

[Abidali Neemuchwala:]

So let me answer that question Nitin, because we’re very actually very upbeat on India, and we feel that we need to prevent from what we’ve been traditionally doing in terms of services in India to the same services that we’ve been successful in the global market which is around digital transformation and enterprise wide modernization in the enterprise segment and some of the digital India and smart cities related activities smart governance related activities in the government and the PSU segment that pivot requires us to be able to especially in the government and PSU segment which we’ve panned out in a separate segment we need time to be able to complete the long term contract that we’ve with government and PSU and that is why to provide a higher level of transparency in a relatively different rigor and motion of that business we put in a separate segment. But overall our focus on the India business as well as our -- the opportunity that we see to be able to sell in the India market new services is very high. It will see a little -- some revenue decline as you’ve been seeing even in the past few quarters as we get out of some of the services which primarily I would call as product reselling services, product related services, feet on street kind of activity that we’ve been historically doing in the India market and some of the tail accounts and customer consolidation that we’ve done, so we’re well on our path on the enterprise side the government and PSU may take a little longer to make that pivot happen.

[Nitin Padmanabhan:]

Just one last one the healthcare and life sciences business you had anyway highlighted earlier on that would see some headwind how do you see that business now going forward?

[Abidali Neemuchwala:]

So as you would recall our healthcare business also has a large component of our acquisitions that we did HPS which is quite focused on the HCA and both headwind and uncertainty continue and hence the decline in revenue. On a run rate basis as we’ve said before we had over $130 million of annual run rate decline and this quarter again is an important quarter in that business because open enrollment happens in the U.S. which happens every year and that determines revenues and it’s a member fee based business and based on the open enrollment we will know how next year will pan out. But what is more important is that we’ve new leadership in that business, we’re making investments in adjacent areas and we’re very confident, we’re not depending on the HCA business to come back. We’ll be very happy when it comes back and we will again be able to make a lot of that opportunity. But while we wait for that we’re moving into some of the adjacent business and we’ve had some good early success in that. So in the next two or three quarters I feel good about our health business coming back to industry [indiscernible]

[Operator:]

Thank you. The next question is from the line of Viju George from JPMorgan. Please go ahead.

[Viju George:]

Abid, it has been a good quarter. Performance seems to be quite very well rounded particularly in the parts you see that the Wipro has delivered a good quarter it has not been consistent enough to deliver similar fashion thereafter and we proceed in fits and starts. Do you feel actually confident that this could be the first of a series of consistent quarter? And what are the factors that give you comfort if this is the case?

[Abidali Neemuchwala:]

So Viju, I feel quite confident in terms of both the demand in the market that I see and the investment in the capabilities that we have done, purely from the industry transformation perspective as well as some of the restructuring and the work we have done internally on the Wipro specific challenges that we had. So to that extent I feel quite comfortable. Again at least the next quarter guidance is in front of you but overall what gives me confidence also is that some of the restructuring and transformative steps that we have taken and as I have been sharing over the last eight quarters, 10 quarters we have consistently progressed quite well on that. We are seeing good customer satisfaction, good customer growth coming in existing customers, good order book coming to us, we are getting our fair share of wins and we are being able to fulfill and execute on that. And this growth as you see is quite secular. If you look at it about four out of six bins have delivered in constant currency about 4% growth quarter-on-quarter. So I feel quite comfortable with it, of course we are always quite watchful. There is a work that which we done in the India business to get it back to growth while Middle East has stopped be growing, we need to get back to company average growth over there. We talked about the healthcare business some work still needs to happen in our manufacturing business we have seen early signs in comps but we need to have that sustainable. I feel comfortable we will continue our market leadership in growth in the BFSI business. The consumer business has been doing relatively well which I continue to be quite comfortable. In geographies I think we have got good traction in U.S. we have got good traction in Asia-Pacific. We need to do a little bit more there is a little uncertainty in the UK part of the markets. Continental Europe is reasonably good but we have a good pipeline and we are getting a fair share of wins over there. So overall across markets across BUs and also across service lines for example in the beginning of this financial year we restructured or reorganized all of our service lines to the future service lines. And one of the major changes we made is in our data and analytics practice which we combined it with Artificial Intelligence and made it data analytics and Artificial Intelligence practice. I have been very encouraged with the results with that because a lot of data and specially with our top quarter platform and DDP platform and the IT investments that we have made the results and the uptick is quite good on that. So overall I feel quite comfortable. Again we will focus heads down on execution whether it is in existing customers whether it is in winning new deals and as you saw large deal do give us a lot of confidence and also give us momentum which help us with our progress. So that’s how I would summarize the overall confidence that I see in our performance.

[Viju George:]

Sure thanks, appreciate that. Just another question on visas and local costs some of the companies get specifically and also [indiscernible] indicated either a rising sharp caused by contracting costs or immobility service demands because of H1-B either visa issues, given the red hot labor market in the U.S. and the wage inflation there, do you think the progress and work in execution or in cost to serve maybe for Wipro or for the industry?

[Abidali Neemuchwala:]

It's a great question and one of the things as I talked about the 10 quarters of six themes that I’ve been updating localization, especially starting with our largest market, or the key strategic theme that we had adopted and now we’re 60% localized which does help us a little bit and gives us an advantage especially in new age skills to be able to fulfill in the market relatively better; on the cost part I don’t think there’s a major difference in the employee costs whether you send a visa enabled employee to the U.S. or you hire an employee locally in the U.S. the wages are at par. The difference becomes in the operating model which maybe slightly more expensive because in the old visa days if a person -- a project gets over the person comes back to India and the bench costs would be incurred in India now we incur the bench cost in the US. Similarly training costs is incurred in the U.S. so those kind of things does have a little bit of a cost play there but overall I think from how we have institutionalized business model both from a demand servicing perspective as well as cost perspective we’ve now baked it into our operating model and we don’t see any headwind because of that. Of course specially in the US the talent market is quite hot and the demand supply gap continues and to that extent we get affected like all other players would.

[Viju George:]

But not something that worries you?

[Abidali Neemuchwala:]

No.

[Operator:]

Thank you. The next question is from the line of Vibhor Singhal from Phillip Capital. Please go ahead.

[Vibhor Singhal:]

So Abid my question was just a small one so I mean when we gave that cover guidance for the next quarter is 1%, 2%, 3%, and this is adjusting for the carving out of the India PSU and foreign business, this guidance still includes I would say the incremental two months revenue of a light deal I would say?

[Jatin Dalal:]

Thank you for, this is Jatin. That is right; in -- unlike it’s like any other deal for us it is now part of our overall guidance and we’ll continue to execute on that.

[Vibhor Singhal:]

Sure so I mean if I were to just adjust for it so would that mean our guidance probably comes out to be more like 0% to 2% other than 1% to 3%?

[Jatin Dalal:]

We don’t break down, as you know, and therefore it would be I would say it may not be right to see that way. You have to see it in the light of the fact that there’s quarter three does have a furlough impact which is very common for our industry and that has been factored in overall in our guidance.

[Vibhor Singhal:]

I understand that, also secondly in the last two quarters we’ve seen two successive forms of divestments initially, we hived off the data center business and now basically the India PSU business. And I guess what probably that you said more in we are trying to move more towards or more stable business with more predictable cash flows and revenues and margins. So anymore divestments that would perhaps we could expect maybe in the next few coming quarters or as you now we've done with it?

[Abidali Neemuchwala:]

The way I would put it is that we are on a transformational journey and as I have always said both the industry has been transforming and there is some Wipro specific transformation that we need to undertake. In doing that build and buy is always an option one looks at. We have also looked at sale or divest as an option because it's equally important to acquire and you know we have acquired some skill which we thought give us advantage in the market and that has paid off well to us. Similarly there are some parts of the business which from a long-term strategic perspective and shareholder value perspective and customer value perspective may have little bit length and we may divest or restructure. So I wouldn’t say it's an end of restructuring but whenever we saw an opportunity to acquire something we will acquire and similarly when we find an opportunity that the value is higher for a shareholder for divesting we will divest and move on in that transformation.

[Jatin Dalal:]

I just want to add that there from a financial standpoint the two transactions are very different. One was truly a divestment of the entity and second is a segment change and the financial result is reflecting our net profit and EPS. So I just wanted to make that distinction in the color of question that you asked.

[Vibhor Singhal:]

I was just trying to basically get towards the transformation journey that Abid was talking of. That’s pretty clear. Just one question if I squeeze in, I'm not sure if you have answered that before. Just on the HPAs revenues that we had acquired. Last quarter we had mentioned that we might be but we were not sure close to bottoming out of that business. Do we have that visibility at this point of time? Or is it still kind of ambiguous and we may not know where the bottom line is for that business?

[Bhanumurthy Ballapuram:]

This is Bhanu here. On the HPH business the uncertainty on the administrative requirements for the ACA continues, so the uncertainty still continues. But this quarter specifically quarter 3 is an enrollment period we need to watch carefully how the enrollment volumes pickup.

[Vibhor Singhal:]

So maybe after this quarter we would be able to take a call more on whether the business has bottomed out or where we could still see more [indiscernible] downsizing of that business?

[Bhanumurthy Ballapuram:]

It will be little bit more clearer than what it is now.

[Operator:]

The next question is from the line of Kawaljeet Saluja from Kotak Securities. Please go ahead.

[Kawaljeet Saluja:]

Since the flavor of the fall seems to be [indiscernible] pressure on margins [indiscernible] as well. So Jatin you have spoke about an operational efficiency drive which contributed to the margin improvement. Now logically the top question if efficiency drive through second margin improvement across verticals. However when I look at a segmental margin your BSSI segment margins have barely improved where as verticals in which there has been muted growth has seen a significant margin improvement whether it is technology, manufacturing, health and healthcare vertical. What explains this anomaly?

[Jatin Dalal:]

Yes, it’s a great question. In some form the margin improvement is driven by two or three separate areas of focus, one is in the core IT services business in which we drive margin through automation, through employee productivity and through utilization and levers like that. Traditionally where you higher fixed price project your ability to drive automation is much faster than the rest of your IT services business. So that’s one layer; the second layer is I spoke about we’re being also very focused in some of what we call as our delivery units or operating subsidiaries where we’ve driven margin now this operating subsidiaries could have weight of certain segments higher or lower and third is India Middle East which is separate unit here and that also plays through in the segment that is expected here. So it is a combination of all three factors which have played out and I would see the way it has -- we’re quite happy with -- in all three layers, of course there’re certain levers that I mentioned are far quicker to be implemented in certain parts of the business and others will have to follow.

[Kawaljeet Saluja:]

Jatin to persist on that point see your BSFI margin and let's say if you're driving automation and imply for activity your BSFI margin should have gone up which is where you’ve seen the maximum growth but if the underperforming verticals are showing margin improvement and actually in some of those verticals there has been absolute cost decline I mean somehow it just gives us a feeling that there had been some amount of aggressive cost rationalization which could have driven margin. So if you can help me break up the margin drivers between the three layers that you highlighted, that will just help me draw better mental map of drivers for underlying margin improvement.

[Abidali Neemuchwala:]

While I’ll let Jatin quantify let me give you a little bit of color so there’s obviously a huge scope for efficiency improvement which we’ve undertaken across the organization and that has delivered results apart from the traditional levers there’re two major levers that we’ve deployed one which I’ve always spoken about is that automation deployment led productivity, and if you look at our -- I’ll just give a color on one segment the BFSI segment, a lot of our growth in the BFSI segment recently has come from digital transformation, so the run part of the business in certain verticals has been relatively higher compared to say the BFSI segment and there the benefit we get from automation especially in our IT infrastructure services or the CIS service line or the digital operations and platform or the traditional BPS service line is relatively higher. So that kind of improvement gets reflected over there however there are levers within BFSI as well which will show margin improvement. It may take a little longer, both the PNM, content of BFSI the lower amount of run services and higher amount of digital transformation and services in BFSI and overall TNM component would have a relatively less impact on some of the levers we were driving the short term however in the long term across the business we see opportunity for margin improvement and maintaining the margin in a narrow band as Jatin mentioned.

[Jatin Dalal:]

So Kawaljeet, I mean we have spoke in the beginning of the quarter, beginning of the call we have not broken it out but if you have to say roughly half of the benefit of that 1.8% has come from how we have uplifted our operating rhythm in some of our delivery units and subsidiaries and roughly half has come through automation and other core operating units in the evolution.

[Kawaljeet Saluja:]

Got that. Just a final question. I hope that whatever operational efficiency has driven in global subsidiaries would not have any even negative implication for getting the longer term benefit, essentially what I'm referring to is acquisition that you have made. I hope that there'll be more aggressive cost rationalization on that count.

[Jatin Dalal:]

So I think the point which I'll reiterate what Abid spoke. Our -- even within the global business or even -- and that applies even for the operating subsidiaries where there is a run and there is an ability to create a better productivity we have gone all across. And then there is an investment element which comes in where the high growth areas and that does grow and we have spent some of that productivity to keep the growth going. So overall it does -- if at all, I would say the very fact that margins are not uniform across should give all of us comfort that we are investing some of the gains where we need to invest.

[Operator:]

The next question is from the line of Sandeep Shah from CGS CIMB. Please go ahead.

[Sandeep Shah:]

Abid just one strategic question. In terms of BFS you have commented that the digital traction is much more deeper and that has led to a consistent double digit YOY growth in constant currency. But hoverer we do not see this kind of a growth in the other segment. So is it fair to say that our digital traction is still a work in progress for the other set of verticals? And can you split within 31% of digital sales what could be the skewness towards the BFSI as an industry?

[Abidali Neemuchwala:]

So like most technology cycles that I had seen the BFSI segment is faster adopter of those cycles, and that’s what we saw starting a couple of years back in the BFSI segment. It was very closely followed by our consumer segment. Some of the segments which are relatively less penetrated in digital would be health segment where it takes relatively longer because of the higher level of regulation in that business. Others are kind of somewhat in the middle. Today's numbers would be quite uniform if I look at the 13% plus quarter-on-quarter growth would reflect pretty much quite uniformly between 10% to 15% across all the six verticals or SBUs. But historical effect of some of that starting early will be much higher in BFSI and consumer compared to some of the other verticals. Otherwise from an offerings perspective I think we have strong offering strong investments in our digital used cases across the vertical and we continue to invest as we see the market opportunity developing.

[Sandeep Shah:]

And just on fixed price project contribution, we kept seeing that the productivity gains are also driving from that side of the business, but that number has remained at close to 57% or 59% over the last several quarters so is it fair to say that this now toppish but we’d have lot of work to do in terms of achieving a 100% gains within the existing fixed priced projects so how should we look at this?

[Abidali Neemuchwala:]

What you’d look at it is not the fixed price percentage but the automation percentage in fixed price which I talked about which has moved from 1.1% to 3%, and that does have a flow through effect on our margin and the whole conversation we had around run business being able to be automated better than the transformation and development kind of business.

[Sandeep Shah:]

But what could be potential 3% can reach to over a medium to longer term, your target is to apply more and more automation going forward on the run side of the business?

[Bhanumurthy Ballapuram:]

Hi, this is Bhanu here. I think the potential is somewhere between 10% to 15% so with the current technology availability right now but I am sure we also evolve, we build new capabilities, new technologies, new platforms so that we increase further; so right now we see somewhere between right up 10% to 15% and obviously when you -- when we get into customer qualifications some things do get past through the customer and some things do get retained in the organization.

[Sandeep Shah:]

And just last question Abid Q4 generally is one of the strongest for the Wipro in terms of organic growth so even this year looking at your confidence about the company specifications getting behind the larger deal wins the client confidence, the client mining, is it fair to say that trend will even continue this year because that will define in terms of your growth outlook next year so I am not asking any numbers but directionally is it a fair assumption even for this year as a whole?

[Abidali Neemuchwala:]

Yes so Sandeep, difficult question to answer as you would appreciate it, we guide only Quarter three, certainly our outlook is well reflected there, and we will talk about more as we come to quarter four it would be too early to start speculating on where it’s [indiscernible].

[Operator:]

Thank you. The next question is from the line of Madhu Babu from Prabhudas Lilladher, please go ahead.

[Madhu Babu:]

So banking has been doing very well for I think six consecutive quarters of strong growth, so is it few clients which is driving growth or is it market share gains or what is your [interpretation]?

[Abidali Neemuchwala:]

I think Shaji is on the line, I’ll let Shaji answer that question for banking.

[Shaji Farooq:]

See, growth one thing that’s been very positive about the growth in BFSI is that it’s been very stellar, of course there are challenges in one area or other now for a short period of time [indiscernible] challenges, but overall growth has been very evenly spread out both across regions and the various verticals that is banking, capital market and insurance, so I don’t know I hope that answers your question.

[Madhu Babu:]

And the sub contracting expense around 16.5% of our revenues so how much of that is onsite sub contracting?

[Abidali Neemuchwala:]

Are you asking this about BFSI, or it’s a general question?

[Madhu Babu:]

No, generally just want to see the trend, because that’s been your actually not gradually increasing the subcon expenses so overall I think it’s around 16.5% of our revenues, right, subcon expenses?

[Bhanumurthy Ballapuram:]

Its Bhanu here. Our regular break on the sub contract expenses, big in India and you know onsite and offshore in other geographic locations. The number has grown a little bit but it has been -- it will remain in a narrow range. As Abid explained it will be a significant amount of talent capability at all the on site locations as well. To that extent we will be able to manage that sub con [indiscernible].

[Madhu Babu:]

Last one on the currency if you see there is almost a 15% drop in the currency over the last six seven months so going into January do you see some of your large clients asking for renegotiation and the pricing on the traditional [indiscernible]?

[Bhanumurthy Ballapuram:]

Madhu, we don’t see that as we speak and as you know we have been [indiscernible] in last two to three years as well from 67, 68, 69 we went all the way to 64, 65. And from there on if I say there is a moment which is on the opposite side now. So right now we don’t anticipate or we are not seeing on the horizon those kind of sequence.

[Operator:]

The next question is from the line of Shashi Bhushan from Axis Capital. Please go ahead.

[Shashi Bhushan:]

Now, I'll start profitability in HPS would that be given the challenges there in, and how that moved quarter-on-quarter? Or did we do some rationalization given the challenges? Is it over or there are still some benefits would flow in?

[Abidali Neemuchwala:]

It’s a interesting question. Space of the platform business, which compared to average Wipro has the higher proportion of fixed cost and hence the HPS team has done an amazing job of bringing the cost down as the revenue run rate fell as I mentioned by about $130 million or more than 50% of its run rate. But obviously given the nature of the fixed cost the costs have not gone down in proportion of the revenue. So the profitability of that business is severely challenged but as I said we are pivoting that business. We are not waiting for the FCA uncertainty to get resolved and that volume growth definitely will give us incremental margin improvement simply because a lot of the cost is already being made very efficient.

[Shashi Bhushan:]

And then second one on [indiscernible] which was finished this quarter. Was there any inorganic component in that? Or is it all in anticipation to the growth that we are seeing?

[Abidali Neemuchwala:]

There is no inorganic component, it's all organic. About 9000 employees have come for the large deal which we had gone from light and that’s led to overall increase.

[Shashi Bhushan:]

The Light employee got added in this quarter but the revenue contribution will be next quarter for. So it was the one month contribution for a Light payment this quarter.

[Abidali Neemuchwala:]

You are right.

[Operator:]

The next question is from the line of Ashwin Mehta from Nomura Securities. Please go ahead.

[Ashwin Mehta:]

I had some questions with Jatin. Jatin in the rewards you had mentioned that sale of traded cloud based licenses reported at start of IT services. I just wanted to understand what's the nature of this revenue and what could be the approximate quantum or trend that you’re seeing in these revenues?

[Abidali Neemuchwala:]

So this is not a new phenomena this has been for over last few years. This is nothing but if in a end to end applications deal if I have to also run through a operating lease model for any cloud licenses or that is factored in because it is integral part of the overall solution and sales and it’s difficult to carve it out as a separate element of separate costs, having said that the component is very small it is only to the extent that we have committed to customers to provide end to end services; and we don’t see that number anywhere material to overall $2 million of revenue that -- it’s very-very tiny component.

[Ashwin Mehta:]

Okay, fair enough, thanks. And the second question was in terms of the light deal you’ve indicated a run rate of over 150 million to 160 million there is this after taking into account the monetization of the cost of a light deal on revenues?

[Unidentified Company Representative:]

So Ashwin we’ve not given -- we’ve given a deal the revenue over 10 years. And that of course translates in annual number of 150 million but we’ve not broken it down year wise, of course and that number is after factoring the accounting that we’ll do vis-à-vis the various legs of the transaction.

[Ashwin Mehta:]

And just one last one in terms of your product business for the last two quarters there’s been almost a 15% to 20% negative margin which had been generated, it was more or less closer to breakeven or minor positive margins earlier so what exactly has happened there for margins to have fallen off so sharply?

[Abidali Neemuchwala:]

So Ashwin, if you see we’ve been -- this segment has been volatile for a whole of ’16, ’17 we had a negative contribution on profit side from there and ’17, ’18 was a good year for us where we had small profitability from there. Over the years we continue to bring the segment down and this just reflects the volatility that is present in the segment. We do expect that we will curtail this negative contribution to net profit down in quarter three and quarter four but as a segment it is a difficult to pick because one or two deals where ForEx volatility or a particularly component, sub components price could change the overall quarter outlook for profitability for that segment. And as we’ve mentioned always this segment is in predominantly in India and our endeavor is to not go beyond our commitments and remain very-very strategic vis-à-vis new opportunity that we perceive here.

[Ashwin Mehta:]

And the India carve out that you’ll have that’ll be a separate reporting segment or it’ll be part of the products?

[Abidali Neemuchwala:]

It’ll be a separate reporting segment.

[Operator:]

Thank you. The next question is from the line of Rahul Jain from MK Global. Please go ahead.

[Rahul Jain:]

So, if you could help in terms of guiding how this hive off and sell off that we did of some of the businesses in past, what are the further potential opportunity within the current business? And also in terms of what are the growth and margin expectation threshold did a segment need to achieve when you take as you said buy or make or sale kind of end decision?

[Abidali Neemuchwala:]

So our expectation of our IT services segment is well reflected in our numbers as we talked about. So along its products and the new segment or the India carve out segment that we have done the focus really there would be to enhance the effectiveness of the capital employee there reduce the capital employee there over a period of time and restructure and improve the overall profitability of that business and not necessarily the growth that we see on the IT services site. So that business is set with the objective of only selling what is necessary for us to remain a relevant player from a system integration space in India and to the extent it is strategic for us to sell that. So all three segments have different objectives and they are not governed by any uniform financial or strategic goals.

[Operator:]

Ladies and gentlemen, that was the last question for today. I'll now hand the conference over to Aparna Iyer for closing comments. Over to you ma'am.

[Aparna Iyer:]

Thank you all for joining the call. In case we could not have taken any question due to time constraints please feel free to reach out at Investor Relations. Have a nice day.

[Operator:]

Thank you. Ladies and gentlemen, on behalf of Wipro Limited that concludes this conference call. Thank you for joining us and you may now disconnect your lines.