Wipro Limited
Q4 2019 Earnings Call Transcript

Published: 16 Apr 2019

[Operator:]

Ladies and gentlemen, good day and welcome to the Wipro Limited Q4 FY19 Results Conference Call. As a reminder, all participant lines will be in the listen only mode. 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, Zaid. A very warm welcome to our Q4 earnings call. We will begin the call with the business highlights and overview by Abid, our Chief Executive Officer and Executive Director 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 made available on the website. Over to you, Abid.

[Abidali Neemuchwala:]

Thank you, Aparna. Good evening and good morning, ladies and gentlemen. I am joined here by my leadership team and it's a pleasure to speak with you all and share the results of the fourth quarter and the full year performance of FY 2019. Let me first quickly provide you an update on Q4. Our revenues grew by 1.4% in reported terms and 1% in constant currency terms, which is the midpoint of our guidance range. On a full year basis, we grew 5.4% in constant currency terms. Through the year, we have built on the momentum with the year-on-year growth improving consistently each quarter. We are also pleased with the recurring execution and focus on improved quality of revenues, which I have talked about earlier, which have resulted in operating margin expansion of 1.8% for the full year. Our operating metrics have shown consistent improvement across the board including the utilization, high off-shoring, higher percentage of work done by bots and moderation in our attrition rates. On our outlook, Q1 is a seasonally weak quarter for us, which is reflected in the guidance. The outlook also factors completion of certain large programs and in some spaces that we've seen some delayed startup fresh projects in spite of having a very strong order book coming out of Q4. That said, we are confident that our growth trajectory will improve from Q2 on the back of the strong order book as well as the healthy pipeline that we have. We see continued momentum in banking and financial services and insurance, in the consumer business unit, in the energy and utilities unit on a year-on-year basis in FY '20. We will see an uptick in growth rates and communications and tech BU this year, while health and manufacturing are likely to remain a bit choppy especially in the first half of the year. The demand environment in the global market is stable and we see abundant opportunities in newer areas of digital and cloud and all the big bet areas that we talked about, and we are willing our fair share of the business. Now let me quickly update you on the strategic teams that I do on a quarterly basis. Our digital revenue growth continues to be strong. It grew 6.4% sequentially and now about 35% of our overall revenue. During the year, digital grew by 32.2% year-on-year. Wipro Digital has helped clients redesign their business to be future ready and move beyond implementing agile into truly achieving enterprise agility. We are helping our clients fundamentally to transform their IT operating model across the different dimensions of digital which is team, talent, method engineering and architecture. As an example, a large global oil and gas company has chosen Wipro as a partner in an engagement that will be executed in a no-shore delivery model. Wipro Digital will help setup a high performance software engineering center that will transform the client applications design, built and delivery which will bring about greater agility, reduced cost of ownership and enhanced quality for the oil and gas major. On mining, in Q4 our top 10 customers continued to post a strong performance and we added three new customers in the $75 million bucket in Q4. On a full-year basis, our top 10 clients grew by 9.6% in reported terms on a year-on-year. Our NPS continues to improve and this year our NPS was 510 basis points higher compared to last year, and we continue to win both business and renewals from our customers as well as participate in their digital transformation and enterprise modernization. We continue to focus on automation and Wipro HOLMES is now deployed in over 350 clients. The work done by bots, which was 6.7% last quarter of our fixed price project, is now 11.3% in Q4. And our fixed price mix has improved to 60%. In a multiyear contract from a consumer goods company to automate and manage their cloud and datacenter landscape, we've been able to win the engagement on back of Wipro HOLMES to be able to enable faster turnaround times and lower operating cost for the clients. On localization, we continue to significantly invest in localization across all our major markets. In U.S., we reached 64% localization and we have now a very well established campus hiring program from the universities across U.S. and some of the key markets in which we have taken our talent development program that we perfected in India. We continue to do well in innovation ecosystem. In Q4, we completed a new investment in B-capital, an enterprise focused VC fund based out of Los Angeles, taking the total number of our investments to 18. One of our portfolio companies Demisto was acquired at 5.5x the investment value making it the first exit for Wipro ventures. The reason I mentioned this is that this is a testament to our selection process and investment framework, which has been working out well for us, and we have now over 90 production deployments of the startup technologies and the companies that we’ve invested through Wipro Ventures in our customer engagements. Through the Horizon Program, we've invested in 16 themes through FY '19 in areas such as software-defined infrastructures, analytics, cloud security, integrated threat management, open banking, additive manufacturing, autonomous vehicle et cetera. Topcoder continues to see strong traction which we believe is the way of working of the future. Our global medical devices company has chosen Topcoder to develop real-time analytics capabilities and sentiment analysis, which will enhance its customer service experience. Our internal cloud sourcing platform Top Gear has on-boarded 7,600 employees this quarter, taking the total number of Wiproites being prepared for the ways of working of the future to 98,000. This quarter 3,053 project challenges were executed successfully, taking the total amount of -- total number of projects to 7,800 in this financial year that were delivered on the Topcoder platform. In conclusion, I would say that we've built a strong foundation for growth and believe that the growth in revenues this year will be better than the last year. I will now request Jatin to give highlights on the financials.

[Jatin Dalal:]

Thank you, Abid. I think one of the most fundamental things about this year was the margin expansion of 1.8% that almost entirely converted itself in the EPS growth, which was 18.6% for this fiscal. Finally that also converted completely in cash because our net income to free cash flow was 100%. We have given that back or we're going to give that back in form of the share buyback of 10,500 crores at the share price of 325. These are the key highlights. We have had a very stable ETR. Our hedge has remained almost at the same level, 2.65 billion as in Q4 and as in Q3, and our exchange rate has slightly come down from 71.66 to 70.28 in quarter four and that has given us minus 0.4% in operating margin. I also want to bring to your notice that there is a line called other operating income which is a gain on sale of our Workday business which is sitting in the P&L. And then, there is another hit that we've taken on amortization, acceleration of our platform in HPS business which is of INR148 crores, which is sitting in cost of goods sold. These were my opening remarks and we'll be very happy to take questions from here.

[Operator:]

Thank you, very much sir. Ladies and gentlemen, we will now begin with the question-and-answer session. [Operator Instructions] The next question comes from the line of Sandeep Agarwal from Edelweiss. Please go ahead.

[Sandeep Agarwal:]

Couple of questions for me, Abid. One, you have been mentioning that we have been gaining lot of momentum in last few quarters in terms of deal signing and our pipeline and all. And I understand the fact that we have a little weak first quarter seasonally, but even keeping that in mind, doesn’t the guidance look very weak and it kinds of reflect more pessimism than seasonality alone would have? Point one. Point two, on the digit front, what is your sense, means. Are we seeing the same phenomenal growth which our competition is seeing? Or are we doing something differently there or our client sets are different? Means because we are not able to get that sense you know digital is able to compensate our losses from other piece of business.

[Abidali Neemuchwala:]

So, I'll let Rajan answer the second part of your question, but let me address the first one. So, we do see a strong momentum as you know that we've been restructuring and transforming our business. And there is the part of the business that we are divesting out of, but that has had slightly larger impact on the legacy deterioration for us. And if you look at on a net basis, the guidance does look slower. But if you look at the digital and cloud and our big bet areas, we are seeing quite good growth, we are willing our fair share of deals in this area, and we do think that we have a superior offering in that space. I'll let Rajan elaborate on your question on digital.

[Rajan Kohli:]

Thanks Abid. Sandeep, thanks for your question. If you see this financial year, we've had very strong growth in our digital business. We've grown 32.8% year-on-year. Of course, we cannot guide for future growth, but I can tell you that we continue to have strong momentum. We're seeing two types of deals. We are seeing a lot of what we call outside in innovation deals which are largely designed led with rapid prototyping and we make those programs successful and then we scale those. We are also seeing over the last 18 months, a lot of inside out renovation deals. Deals include modernization, cloud, agile. And when we put both the inside out and the outside in together, we are able to take our enterprises and clients to what we call enterprise agility, which is beyond agile. So, I continue to see momentum and we feel that with Wipro we have a very strong digital capability. So, I don’t see a reason for us to be very out for digital growth.

[Operator:]

Next question is from the line of Sandeep Shah from CGS-CIMB. Please go ahead.

[Sandeep Shah:]

Abid, just wanted to understand the 1Q seasonality for us because every year we say that there are some productivity gains which we need to pass on in the 1Q which also impacts the seasonality versus the earlier weightage being higher in terms of the R&D or OEM-related work which has gone down? On the productivity side, just want to understand that by what time you believe that the impact of the same will reduce in terms of the 1Q growth? Because we could be in third or fourth year where there is a possibility that most of the productivity gains might have been transferred to the client and the seasonality may come down going forward.

[Abidali Neemuchwala:]

So, I think we're continuously working on it, but a lot of the deals that get renewed there because primarily these deals are in the infrastructure and the run space. They get renewed and the year-on-year productivity aspect continues. Having said that, we are consciously making sure that we kind of make ourselves immune to this seasonality so that we can have more robust growth through Q1.

[Sandeep Shah:]

But in terms of renewal, you believe that if these deals may be in the fourth year or fifth year of renewal starting from FY '21, maybe the seasonality impact may be lower? Because you might have transferred almost 90% to 100% of your portfolio in terms of the productivity gains on renewals.

[Abidali Neemuchwala:]

Yes, but we've renewed a lot of those deals and as we renew the deals, it's an ongoing cycle. We're just trying to stagger it across the year. And also as we mine our accounts more, some of these accounts have been single service line account on the infrastructure. As we mine our accounts more, we are able to cross sell into these accounts. Just as an example, we did a renewal for an auto company this year and we have been providing infrastructure services to the auto company. And now when we did the renewal, we've been able to do another deal with them which is around developing a solution platform for their autonomous vehicles and an advanced driver assistance system. This kind of project involves platform design and development, automation, artificial intelligence and those kind of things. With that even at an account level, we are able to avoid this seasonality because we are cross-selling and up-selling better through a higher farming mindset. So, we're doing both staggering those renewals and deals as well as reducing our dependence on single service in that account. So that when the annual productivity comes in, we see a dip in revenues from the account.

[Sandeep Shah:]

Just in terms of order book, you mentioned that there is a strong order book in fourth quarter. Can you give some color in terms of any Y-o-Y growth number or a Q-on-Q growth number? And you also alluded that there would be some delay in the projects in the 1Q. So, what is causing this delay? And is it in one or two segments or one or two clients OR it is more widespread?

[Jatin Dalal:]

So, Sandeep, overall deal momentum has remained -- order booking momentum has remained robust, and we have had you know closer to double digit growth. But at the same time, we have seen couple of instances, few instances where a deal that would have got signed in quarter four has now got pushed to quarter one. So, it's a little mixed environment, but we remain largely on large component of our business. The order booking does give comfort and that's what we have highlighted in Abid's opening remarks.

[Sandeep Shah:]

What is causing this delay in startup projects? Is it more macro related? Or is it maybe your aberration which may…

[Abidali Neemuchwala:]

Yes, it's a mix. There are a couple of deals in the banking space where given some of the volatility that happened towards the end of the year and early beginning of this calendar year. The customer wanted to take a little more time. Some of this is just a timing issue because a lot of our digital work comes as projects, and sometimes while the first phase of the project gets over, the customer doesn’t immediately sign the next phase, which in a very stable macro environment could have happened immediately. Sometimes, it is some as delayed a little more. In one of the cases where when we were supposed to start the deal after winning, the CIO changes over there and there is a little time in the new executive gets comfortable and we can start. So, there is no pattern but there is just a few such areas in different parts of the business which have had a little impact to keep the Q1 guidance softer as you think right now.

[Sandeep Shah:]

Just last question Jatin. Juust wanted to understand, if I look at the recurring margin or the excluding some of the one-offs, the margin looks close to around 19.2 for the IT services. So, how are we looking in terms of the margin band going forward? Because you might have or juiced out many of the levers on the margin or you believe still there is an upside potential entering in FY20?

[Jatin Dalal:]

Yes, so Sandeep, as always our endeavor is to get revenue momentum. Revenue in our business drives the impact on the margin has a very good byproduct as all of us are aware. So, we will remain focused on getting revenue momentum. Having said that, there are two prospects of specifically on margins where I would like to talk to talk about. One is that, in Q1, we do have the salary increased for the whole company and that will move a headwind as we enter into quarter one. And at the same time what I would like to say that, we have shown execution in form of superior operating levers management over the course of last four quarters, and our endeavor is to clearly remain very focused on automation, on superior wealth management, superior fix price project management and hence pricing in line with our digital growth. So some of these levers, we'll continue to remain very focused on as we get into the year.

[Operator:]

The next question is from the line of Vimal Goyal from Union Mutal Fund. Please go ahead.

[Vimal Goyal:]

My questions on the P&L have been answered. I just had a question on the balance sheet. We are seeing some sort of an improvement in your unbilled receivables and your payables have gone up quite sharply. So this improvement in working capital, is it sustainable? Is it something which is one time in nature? Or can we see this sustained improvement working capital going forward?

[Abidali Neemuchwala:]

I think it's a -- it reflects the quality of revenue that I would say business has been a very focused on over the last eight quarters and in some form finally starts reflecting in the percentage unbilled. And as you know, where percentage unbilled was much higher earlier, now we are at 11.6% which I would think is very, very competitive very, very good vis-a-vis the rest. Our endeavor would be to build on this, but there would always be one or two large projects and fixed priced engagement where milestones may not be exactly reflective of the cost that we're incurring. And therefore, I think this will remain in 12% to 15% range and that would be our endeavor as we go forward.

[Vimal Goyal:]

And how much of this improvement has come from the divestiture of your some of the businesses that you divested during the year?

[Abidali Neemuchwala:]

So, both businesses that we divested were capital intensive, but certainly DCS was a capital intensive business, high capital employed, but its working capital cycles were quite regular. So, I don't think either of them contributed any meaningful way for improvement of unbilled. This was really the core of our business, which has shown the improvement.

[Operator:]

Thank you. Next question is from the line of Sudheer Guntupalli from Ambit Capital. Please go ahead.

[Sudheer Guntupalli:]

Firstly, can you please help us understand the thought process behind the sale of Workday and Cornerstone OnDemand practices? Both seem to be in a new age and high growth areas and both of these practices were acquired fairly recently, and at the time of acquisition, these areas are expected to augment that capability significantly. So, what has changed in that thought process in terms of how we look at these businesses and their strategic fit with our portfolio?

[Abidali Neemuchwala:]

So, as we did the acquisition both our Workday and Salesforce practices have done very well, as you rightly said, they are new age practices. And we had the opportunity to create a strategic partnership with Alight which got reflected in the $1.5 billion deal that we signed with them. And as part of that, there is a larger opportunity in the market that we could go together with them in an enterprise HR transformation kind of situation. And in the interest of that partnership, we decided to divest our Workday business, which cater to small enterprises inherently to Appirio and to Alight and then that gives us the opportunity to partner with them more holistically in the overall HR area.

[Sudheer Guntupalli:]

And secondly, certain media reports actually indicate that security of some IT systems of the Company were compromised and used to launch cyber attacks against more than a dozen clients and the Company Wipro is actually investigating the matter. Any further context sitting here will be helpful because we're seeing varied reports in media? And what are the risks we are foreseeing at this point in time because of this incident, be it in the form of financial, regulatory or even reputational risk especially because it appears to be a matter involving clients?

[Bhanumurthy B.M.:]

Hi, this is Bhanu here, I'll take this question. We came to know about potentially abnormal activity within our network and that involved a few of our employee accounts and these people were subjected to an advanced phishing campaign and a persistent phishing campaign. And as you know like any large enterprise, we investigate a large number of alerts every year. We investigate about 4.8 million alerts every year. And on knowing about this alert, we promptly kicked off our standard processes that we used to alter such incidents. And we investigate, we've begun investigating the incident, we've identified and isolated the employee accounts, which were impacted us as part of this incident. We've taken remedial steps to contain the incident and mitigate any potential effects of this incident. We have used our own industry-leading cyber security practices and our partial ecosystem for these steps. This being a zero-day malware attack where shared this intelligence with our partners to develop and upgrade antivirus signatures and the same, we have applied to our enterprise systems as well. We've informed the handful of customers where our employers are engaged with these -- the affected employees are engaged with, this is our standard protocol and we have done that right now. And we continue to collaborate with our partner ecosystem both to collect and monitor advanced treat intelligence. And this will help us to further enhance our security posture, and as you know, we continue to monitor our enterprise infrastructure at very heightened level of alertness right now.

[Sudheer Guntupalli:]

Yes, sir, anything on the potential reputational risk here?

[Abidali Neemuchwala:]

So, when you look at everything that Bhanu said, we're able to detect this and respond to this quite reasonably fast and we've had some customers appreciated. I can understand a lot of customers are anxious about it because what came in the blog is as you would expect not entirely the accurately, but we are responding to customers. The ones there we felt, there was a reason Wipro actively had contacted. Now since it is out in the media, we are talking to all the customers to avoid the anxiety on that. Most customers, who understand the whole process that Bhanu explained, do see it has industry standard process that one would undergo whenever there is an alert and they appreciate what we've done.

[Sudheer Guntupalli:]

One last question, if I may. In health BU, we have a new leadership in place and we seem to have relooked at our value preposition in the segment. Even excluding the weakness in HPS part, still there seems to be no respite in this vertical and we are seeing, next year also we don’t expect this vertical to do very well. So any qualitative color on the developments here will be helpful?

[Abidali Neemuchwala:]

Sure, I will let the new leader, Bill Smith himself give you an update on that.

[Bill Smith:]

So, we're seeing sharp uptick in our pipeline with increased demand. We continue to see ability to leverage our assets, both the HPS asset as well as we will he having our Medicare and government group plans, renew offerings to our clients, that's being received well. So, we have a positive outlook that especially coming into the second half will continue to see growth.

[Abidali Neemuchwala:]

And just to add to that, as I've said, the core of our healthcare business has been doing relatively well. When you are add it up along with the decline in HPS, that has kind of given relatively slow and bumpy ride to our health BU. As we bottom out on the HPS and as we do think that Bill just mentioned in terms of re-platforming and providing new services on that platform, I feel quite good about our in the later of the year.

[Operator:]

Next question is from the line of Dipesh Mehta from SBICAP Securities. Please go ahead.

[Dipesh Mehta:]

I have a couple of questions. First is about, if we look FY '19, revenue growth is largely driven by BFSI in consumer vertical, rest of the verticals are still not firing. So, if you can provide some color, when you expect broad-basedness would be quite evident, considering the pipeline and robustness which we are referring to? Second question was about geography also, I think Europe and rest of world is still seems to be relatively softer. If you can provide some color about, how you expect those geographies to play out over the next year or so? And what are led to this kind of weakness, if you can provide some more color? And third question is about, if I look 1 million plus, 3 million plus, we are seeing some kind of lower number in terms of number of clients. So it is by design kind of thing or how one should read that number?

[Abidali Neemuchwala:]

Thank you, as we rightly said, we've had a great run in BFSI and I also want to take this opportunity to recognize Shaji Farooq who’s led this growth and introduced Angan as Shaji because of health problems is going to take some time off and take care of this health, and Angan will be leading our Banking and Financial Services and Insurance as BU. But as you see, consumer has been doing very well. Bala, who’s taken responsibility for Energy and Utilities, we've had almost double digit growth in E&U while BFSI and Consumer have been having double digit growth north of 13% to 14% and Banking and Financial Services 15%. So, three of the units I feel quite good about. We talked about healthcare already. Communications has started doing well. This quarter was a little choppy primarily because of India, but I do see, I have great confidence that communications specially with our investments in 5G and the new leadership, which as you know Milan has taken over. We've seen some great traction over there and we'll see growth. So as part of our transformation by vertical, I think each one of these verticals has been gradually improving in performance and more importantly have been executing on the strategy that we've outlined. Sometimes, it takes a quarter or two more or less, but I feel quite good on that. North America especially in U.S., we've had double digit growth which is our largest market. In Europe, AP, Anand Padmanabhan is now leading that market with Chris, and we're making investments in that market specially on the intersection of manufacturing and Europe is where, we have some work to do and I would give it a couple of quarters. We have historically had a relatively lower penetration in Europe. We have invested in a team there we had restructured it a few quarters back. The restructuring has now stabilized. Historically, we had been present only in the capital markets in banking and financial services now with the new leadership in BFSI. In Europe, we're seeing a very good pipeline in the BFSI market. It was especially both banking and financial services and manufacturing, which would be the two largest verticals in Europe with our new teams over there. I feel good about the pipeline and it will take some time to translate into revenue growth. So that’s kind of in summary overall, our Asia-Pacific has been doing very well. We've grown very well over there. As I talked about our India markets restructuring where we have new leadership for both the state-level enterprises, which Sanjeev Singh now runs, and the private enterprises which Anand Padmanabhan runs, which both we're seeing the right traction in what I call as a services of the future is a digital transformation and consulting like business compared to the historic infrastructure kind of that we were doing primary on feet on street. So overall, I wanted to give a color across market and across BUs. All of our services perhaps done well, our digital operations and platform services which enable automated operations have done well. Our cloud infrastructure services transforming well from historic data center on-prem business to cloud. This year cloud business would have growth about 25% to cross about $1.4 billion in revenue. So I feel quite comfortable about that. Analytics and artificial intelligence there, data analytics and artificial intelligence factors has done very well. Our offering both -- the platform offering that we have over that as well as the overall AI offering has been seen very well with the customers and the digital of course we spoken about already. Digital grew by about 32% year-over-year for us. So I feel quite good about overall across services and of course when some of these verticals and services and geographies intersect, we have some work to do in some of the areas which we will continue to do.

[Dipesh Mehta:]

One question was unanswered about 1 million, 3 million bucket. It is by design we're reducing some of the tail account or if you can give us some color there? And the last one, on manufacturing, what would be your outlook? How you see that sector playing out for us?

[Jatin Dalal:]

So, effectively, it is combination of two things. We do have a minimum threshold for us to recognize our customers as I think consumer and that plays out on the total number of acting customers line that you see. On $1 million to $3 million, the impact would be largely on account of the divestment that we have done, because those businesses would have small size customers, which have gone up. [Technical Difficulty]

[Dipesh Mehta:]

On manufacturing, if you can provide some color?

[Milan Rao:]

Hi this is Milan here. Yes, so the manufacturing business has been under some pressure because of closure of some programs. And these renewals particularly in some of the legacy areas where the renewals have been at lower rates. But what we're trying to do now is a significant shift towards modern applications and toward engineering services portfolios, which we believe are the growth areas for the future. Abid talked a little bit about the intersection of Europe and manufacturing. We've undertaken restructuring there and as we mentioned and we expect to see the results of that coming in a couple of quarters. So, we feel that the pipeline is going to get better and we see recovery in manufacturing in the second half of the year.

[Operator:]

Thank you. Ladies and gentlemen, in order to ensure that the management is able to address queries from all the participants, you're requested to register your questions to one for participant. Time permitting, you may return to the queue for your follow-up questions. The next question is from the line of Viju George from JP Morgan. Please go ahead.

[Viju George:]

Thank you for the opportunity. Did you say Abid that you're confident of better growth in FY '20 versus FY '19 on the IT services side?

[Abidali Neemuchwala:]

Yes, Viju, I think I see that there is a momentum with which we are entering the FY '20 both from a deal as well as the order booking that we’ve done in the last couple of quarters. I will believe we will be better in FY '20 compared to FY '19.

[Viju George:]

And this is the call on attrition because Infosys clearly seen a lot more attrition. So, I want to try and understand, is there -- into the environment, is the environment hottening up, which makes it difficult for you to hold on to people, anything that is causing you worry on that front?

[Saurabh Govil:]

Hi, this is Saurabh here. So, first on attrition, firstly if you look at Q4 numbers, attrition has improved by a percentage from Q3. And over the last six quarters which we look at it, we have been in a narrow band of between 1 and 0.5%. So in summary, over that perspective, it's stable whilst I'd say this for the people with five year or less experience, we see much more mobility and much more turnover for such people and we are taking measures to make sure that we ring fence the right people. We have a merit salary increase coming up in June and that's the time when you really differentiate and take care of these people.

[Viju George:]

But it's not something that's worrying you where you need to go out-of-term promotion, hand out greater than expected either wage hikes or retention bonuses, nothing of that sort, is it?

[Saurabh Govil:]

So, we had done something regarding this for people who were below five year experience, effective 1st January we had given them a ring fence critical people, especially people who had joined us from our campuses this year. But that was more to make sure that this gap between from a market and where they were, and we continue to look at this people. And I will never say that it's not a worry, it's always making sure attrition will continue to be a worry for everybody and we make sure that we retain our best people. That'll always continue, but from a number if you see, it’s been very stable across over last six quarters.

[Viju George:]

And last question, when you look at the virtues of doing this buyback via tender versus open market. What made you go for this tender? Is there any particular reason? Is it easier to do, very quicker to do versus an open market kind of mechanism?

[Jatin Dalal:]

So, Viju, you know in our specific case that the promoter group holds a large, very larger percentage of the stock. And if we were to go through the market route then our headspace would be very less. So for us to return large quantum of share -- capital cash -- cash back to shareholders, it will imperative that we go to the tender route that's how we can built a size that we have built which is 10,500.

[Operator:]

Thank you very much. The next question is from the line of Sumeet Jain from Goldman Sachs. Please go ahead.

[Sumeet Jain:]

Firstly, congratulations on a good execution around the margin improvements for the entire year, and if I look at the margin improvement a significant portion has come through your sales and marketing spending. There, if I look at the 1Q FY19, it was around 13.9% of your revenue, and it stands at around 11.8 in 4Q. So, can you give some color as to what's happening around that front? And even if I look at your sales and service support staff that has come down over the year and that has seen largely flattish over the last three years. So can you comment as to how will we look our sales and marketing spend going forward?

[Abidali Neemuchwala:]

So, Sumeet, as we rightly identified among the SG&A also we've done a lot of optimization of our G&A. While we continue to invest in sales and we continue to invest in practice which is also part of the SG&A, we are around both horizontal practices and industry practices. So, we do see headroom from improvement of margin, but we are very conscious that there we save and where we invest. And I think that is what I feel quite pleased that the team has done very well in terms of taking cost out from the G&A and reinvesting a part of it in the same trend practices as well as passing a part of it into the market.

[Sumeet Jain:]

So the coming back to you shall we assume your 4Q run rate of G&A as well as normalize run rate going forward?

[Abidali Neemuchwala:]

So, it's a fairly stable run rate there is always little bit of up and down in quarters because when salary increase the G&A start that they'll push up the numbers in quarter one and quarter two. And it has also the component which is little volatile depending upon what has been the performance in that quarter, so these are the two aspects. The third aspect is that we do have an investment plan on our IT systems which will lead to probably a larger presentation line within G&A. So these are the three variables that one needs to keep in mind as we enter the year.

[Sumeet Jain:]

And then just lastly on your guidance I mean you said that minus 1% to 1% for 1Q is excluding the impact of divestment of work day and corner stone business. So is that divestment completely done or a portion of it is yet to happen?

[Abidali Neemuchwala:]

So there is a small component which is in Europe which is going through the process that we need to go through in Europe which is looking more long tailed which will complete in quarter one but our estimate is that it will get completed fairly soon so it should not have any material impact vis-à-vis worked we are considering guidance with overall.

[Sumeet Jain:]

So there won't be a one-time guidance reset downwards because of that divestment in a way.

[Jatin Dalal:]

No, we have an expected timelines and that has been factored in what we have guided.

[Operator:]

Thank you very much. The next question is from the line of Brian Krebs from KrebsonSecurity. Please go ahead.

[Brian Krebs:]

This is Brian Krebs from KrebsonSecurity. I'm the reporter who wrote the story yesterday about the security incident and we thought it was discussed earlier. Thanks for taking my question. One of the gentlemen speaking in response to a question earlier, said the incident, said the original report in the news media was incorrect on several points. And I was just curious, if you could clarify what points in the story were in error given that you guys made me wait three days for a statement, which didn’t address any of the points brought up by my sources? Also could you just please clarify what points in particular were wrong about the story? And also how would you clarify the current situation? Does Wipro believe it has the situation under control? Or would you characterize the Company in terms of its process of going through and finding out the extent of this incident?

[Bhanumurthy B. M.:]

Hi, this is Bhanu here. So, we can -- I can definitely clarify to you what we observed and we can have a separate conversation, right, you and I'll set up the time with you on that call. At the same time, I do want to stick to the statement which I told you at the beginning of this call that we have looked at the incident and we have taken the steps that require to be taken and we continue to investigate to understand the modus operandi of the attack and the motive.

[Operator:]

Thank you. The next question is from the line of Ankur Rudra from CLSA. Please go ahead.

[Ankur Rudra:]

I've got a couple of questions on financial services. You've had some very good years of strong growth in this vertical, any changes to the near, do we get some growth momentum which is almost been at mid teens consistently within the changing in the macro and the capital markets part of the business? And also, maybe do you actually have any large customer project completion? That's the first part. Second part is on the margins, the segment margins financial services have also been very strong and we've been through a downward trend of the rest of the business. So what's working better here and what can be executed more broadly?

[Abidali Neemuchwala:]

So, Ankur, as I've always said we've been undergoing twofold transformation one is Wipro's internal transformation. We feel quite good on the journey we have embarked and how we are executing. The second is as our customers transform we help them transform and that is the new offerings that we take to them, and again there, we actually very good traction with the customers. So you know I do see, as I said the growth momentum changing even in the last four quarters which we see. The year on year growth of the four quarters has consistently improved and we do think that if macro environment remains the same we will continue to have that improvement. There is a level of anxiety in the macro environment as you mentioned, towards the end of last year early this year. In the capital markets then we saw some of that, we saw some of that, that in European banking last year and in U.S. banking, there we saw in the early part of this year. So, we will continue to make sure that we remain cautious on that. But, as we see the environment, technology spends are not necessarily getting impacted as customers navigate that environment because they are transforming. And we do feel that we have offerings that I think even from a margin perspective that you talked about, the newer offerings that we are able to command premium pricing, which gives us a little uplift in margin. At the same time, we are still in the investment phase in all of these offerings. Certain operating margin level, it may not come down while our gross margin levels we do see differentiate margins in the offerings.

[Ankur Rudra:]

I want to interject in and clarify the question with specific to Financial Services. So everything you said are within in terms of improvement momentum and going into next stage, is that true for Financial Services separately also?

[Jatin Dalal:]

So, Ankur, this is Jatin. You know what we maintained is that we see continued good demand in BFSI. However, we do see moderations on the growth rate that we have seen in last year and we don't see any change in that position.

[Ankur Rudra:]

And on the margin commentary, again, was just financial services would look like anything you said?

[Abidali Neemuchwala:]

As I said before, our endeavor would be to make investments for growth. Those will go in terms of the priority areas for us which is a key element that we articulated as well as making sure that we have right talent for the growth and that would be in terms of talent increase of quarter one. So, for first quarter certainly, I see that there will be some downward pressure on the operating margin but I do want to recognize the word that the piece have done on automation, utilization overall tighter execution of the project and operational improvement that we have been able to achieve our last few quarters. And we will want to make sure that we don't let go at operational level.

[Operator:]

Thank you. Next question is from the line of Ashish Chopra from Motilal Oswal Securities. Please go ahead.

[Ashish Chopra:]

Abid, just had a follow up on the previous question in particular on the macro. So when you gave guidance from the full quarter, you said that the 0% to 2% embedding some sort of caution due to the uncertain macro and considering that you have actually -- the guidance I'm guessing it would be fair to assume that some of that caution played out because you mentioned that BFSI has been slightly slower. So just wanted to know you mentioned that again the gaps between entry projects commencing next quarter which is the macro. So, is it currently just been witnessed in Europe and BFSI? Or are you also saying that may be there are few more vertical where some of it is visible?

[Abidali Neemuchwala:]

No, we are not seeing any other vertical. And as Jatin expressed that we grow well in BFSI, but it will be a little moderate as compared to last year. Although, some of the slowness that we saw in the beginning of the year as we objectively as we feel that as with progress through this quarter, some of -- digital projects are project based. So a lot of a sort of deals get signed one after the other in a sequential basis, and sometimes some customers want to wait and watch and then sign this. So, we do believe that during this quarter some of that work is yet to be shifted and we'll start getting the momentum back.

[Ashish Chopra:]

So, these would also BFS that you would be referring to in terms of deferrals of commencement of some digital process?

[Abidali Neemuchwala:]

Yes, primarily, but there are some customers in Europe and some we saw in the technology vertical as well, some very similar effects.

[Operator:]

Thank you. Ladies and gentlemen, we will take the last few questions now. [Operator Instructions] The next question is from the line of Ravi Menon from Elara Capital. Please go ahead.

[Ravi Menon:]

Among your service lines, there's been good growth across all, except a minor decline in application services. So, I am considering this. Can you say that your service portfolio is very well, but the vertical specific decline seemed to be client specific issues? So, how transient are these or how structural are these do you think the declines that we've see at the vertical?

[Abidali Neemuchwala:]

Yes, if you look at the core application services, right. If you look at the year-on-year, year-on-year, it has shown a good growth. And the areas where we are focused on in terms of our own data analytics as well as our digital operations and platform stays, those have grown very well as well, right. So, if you look at across the service lines, you see good momentum on -- it's a secular growth that you see across the service line for the full year. And some of the quarterly variations are because of certain project movements and certain application run activities that we have where there is a amount of seasonality for the same thing, but otherwise you would see that the momentum across the service capability is very high. And as previously explained to you, all the things that are modern, all the things that are important for the future of our customers, digital, cloud, engineering services and cyber security and our cloud infrastructure services, all are doing very well. Thank you.

[Operator:]

Thank you. Ladies and gentlemen, we will take that as the last question. I now hand the conference over to Aparna Iyer for closing remarks. Over to you.

[Aparna Iyer:]

Thank you all for joining the call. In case we could not take any questions due to time constraints, please feel free to reach out to the Investor Relations team. Have a nice day. Thank you. Good night.

[Operator:]

Thank you very much members of management. Ladies and gentlemen, on behalf of Wipro Limited that concludes today's conference. Thank you for joining us and you may now disconnect your lines.