Wipro Limited
Q2 2016 Earnings Call Transcript

Published: 21 Oct 2015

[Operator:]

Ladies and gentlemen, good day and welcome to Wipro Limited Earnings 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. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Aravind Viswanathan. Thank you, and over to you, sir.

[Aravind Viswanathan:]

Thank you, Inba. A warm welcome to our Quarter Two earnings call. We will begin the call with business highlights and overview by T. K. Kurien, Member of the Board and CEO; followed by financial overview by our CFO, Jatin Dalal. Afterwards, the operator will open the bridge for question-and-answers with our management team. The senior management team of Wipro is here to answer your questions. Before Mr. Kurien starts, let me draw your attention to the fact that during this call we may make certain forward-looking statements with the meaning of 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 being 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 thereof. The conference call will be archived and the transcript will be available on our website, wipro.com. Ladies and gentlemen, let me now hand it over to Mr. Kurien.

[T. K. Kurien:]

Good morning and good evening to everyone across the world. Let me begin by talking about our performance and I'll share some perspective around demand environment and strategic focus areas that we have at Wipro. In Quarter Two, our IT services revenue grew 3.1% sequentially in constant currency ahead of the midpoint of our guidance. It's been a quarter of all round growth. The Retail, Consumer Transportation and Government business, and the Manufacturing and Hitech business showed momentum with growth rates of 3.5% and 3.6%. Healthcare and Life Sciences recovered in Quarter Two with a 4.2% growth and we expect the momentum to continue in the back of strong yieldings. Global Media & Telecom showed sequential growth of 4.4%. However, we expect weakness to continue in the OEM space, while service providers will see momentum. The Energy, Natural Resource & Utility business was impacted by a steep fall in commodity prices which delivered flat results in constant currency with customer increasingly focusing on cost take out and consolidation. We're building on a market leadership in this segment. The Banking and Financial Services business unit saw a pickup in quarter two. We've seen growth in securities and capital markets. Banking has been focused in significant cost takeout and insurance continues to be the investment mode for us. Amongst service lines, the Business Process Services business has done well with a sequential growth of 7.1%, while analytics grew by 3.3%. Product engineering has shown consistent growth in the last few quarters. Global infrastructure continues to be a very exciting market for us and we've seen a healthy pipeline of strong track. As we look forward, we have seen the stable demand environment; we continue to see strong competition around large deals, and there's clearly pressure on pricing with respect to new deals. The deal sizes are getting smaller and the number of multi-hundred million dollar deals have clearly reduced in the marketplace. Our investment in HOLMES, a cognitive intelligence platform, and the NextGen delivery programs will give us a competitive edge in completing the large deals. In the digital space, we believe that partners who can provide end-to-end design and engineering services will have an edge in winning digital deals and we are investing heavily in that direction. Overall, our guidance for quarter three is impacted by higher furloughs, lower working days, and a slow ramp up on the deals that we close. However, we aspire to achieve the second half that is better than the first half. Let me talk a little more in detail around our areas of focus. Our digital business showed strong traction with seven deals in this quarter. Designers have integrated in the current quarter and we have had two wins by taking an integrated proposition of the current digital in designing. Our industry-leading combination of design build capability, along with experience is unique and offers clients new and more effective way of working. For example, Chelsea Football Club and a tier-1 bank will leverage combined capability to design and deliver remarkable experience for our financial customers. What our digital business offers its clients a differentiated service; we expect the downstream business multiplier to be in the mid 5x 10x. Leveraging the traditional technologies of ServiceMax based upon the stage in which we get engaged. We've launched a focus program to train around 10,000 employees of digital technologies during the year. As Wipro digital training gains traction, it will drive greater impact through reshaping the performance scale of customer engagement. Our cognitive intelligence platform, HOLMES, have enabled us offer a suite of solutions to our customers. We are working on 12 engagements on the business critical areas like fraud detection, compliance and knowledge virtualization with marquee clients including leading marquee banks and a large manufacturing company. And for productivity improvements we have faced significant strides to our NextGen delivery programs through the deployment of HOLMES. A year back, we launched the NextGen delivery to achieve a step jump in building productivity, by relooking at traditionally delivery models. By deployment of NextGen in specified market accounts and leveraging hyper automation, we have been able to drive significant productivity gains and also customers with shorter cycle times. This has resulted in releasing over 3,000 employees from maintenance projects over the past six months who are now being trained and redeployed in traditional technology. Given the speed of innovation and whether it's a blueprint model, market leadership requires us to work closely with the broad ecosystem of customers, partners, and startups. On the customer side, we're partnering with a tier-1 automotive company in the development of the Connected Car technology. We have also increased focus on deepening partnerships with other leading technology players. Wipro was recognized as a premium consulting partner third time in a row and also a strategic partner under Think Big category at the AWS re

[Jatin Dalal:]

Thank you, TK. Good day, ladies and gentlemen, it is a pleasure to speak to you all again. Before I speak on the financial performance of the quarter, kindly note that for the convenience of readers, our IFRS financial statements released today have been translated into dollars at noon buying rate in New York City on September 30, 2015, for the cable transfers in Indian rupee as certified by the Federal Reserve Board of New York, this was one dollar equal to INR65.50. Accordingly, our Q2 revenues of our IT Services segment that was $1,831.9 million or in rupee terms INR120.04 billion appears in our earnings release as $1,838.6 million based on this convenience translation. At Wipro Limited level, gross revenues for the quarter ended September 30, 2015, grew by 7% volume-wise surpassing INR125 billion. Net Income for the quarter was INR22.4 billion, an increase of 7% YoY. Revenues in IT Services segment grew by 3.1% in constant currency which was in the top quartile of the guidance range. Revenues in dollar term for the quarter was $1,831.9 million, a sequential growth of 2.1% on a reported basis. Margins in IT Services segment was 20.7, 25 basis points lower than the margins in Q1. The headwinds were primarily due to impact of salary increases for two additional months in quarter two and slightly below utilization. This was significantly offset by the productivity gains driven by internal initiatives; the impact of cross-currency volatility on operating margin was squared off or offset by the gains that we received from Rupee depreciation. In Q2, the IT product segment delivered revenue of INR5.4 billion, a de-growth of 41% year-on-year. The lower revenue worked on account of extended holidays in the Middle East due to Ramzan and Hajj and delay in completion of milestones in certain customer projects. Let me talk about Forex and effective tax rate. On the forex front, our realized base for quarter two was INR65.74 versus a rate of INR64.53 which was realized for quarter one of this fiscal. As of period end, we had approximately $2.2 billion of forex derivative contracts and hedges excluding capital hedges. The effective tax rate for quarter two was marginally higher at 22.4% as against 21.2% in quarter one of this fiscal. We expect the effective tax rate to be plus or minus 100 basis points as we go forward. Let me talk about the cash flows. We generated operating cash flow of INR15.8 billion for the quarter, which was 71% of net income and free cash flow of INR11.7 billion which was 52% of net income. If you look at the first half of the current fiscal year, the operating cash flow was 85% of net income. This is comparable to the first half of the previous fiscal year. During quarter two, we paid out the final dividend for the fiscal 2014-15, net cash available at September 30, 2015, was INR184 billion or $2.8 billion. We will be happy to take questions from here. Operator, you may open the lines now.

[Operator:]

Thank you very much, sir. [Operator Instructions]. Our first question is from the line of Sandeep Muthangi of IIFL. Please go ahead.

[Sandeep Muthangi:]

Hi, thanks for taking my question. I have a question on the guidance for 3Q. You mentioned furloughs and slower ramp ups being the key additional headwinds. Can you give us some more color on that, especially, what's leading to the slower ramp ups? And are you seeing these furloughs being across your clients in a vertical or are these limited to specific clients?

[T. K. Kurien:]

Sandeep, this is TK. Let me answer that in two parts, if I can. First, is if I look at slower ramp up, we have won quite a few consolidation deals, which we're right now in the cusp of this transition. So our own sense is that the revenue that we expect to see from that may not be in this quarter, we can probably see in the quarters to come. That's the first one. The second one is on furloughs itself. If I look at it last every year when October comes along, we do a poll of our customers to get a sense of what the furloughs will look like as they go towards the end of the quarter. We've seen some guidance from some of our manufacturing customers, some of our banking and financial services customers, and also some of our retailed customers they may have a furlough in defense. It's right now specific, but in cases where we've got D&M contracts it's very difficult for us to go out there and collect revenue especially when they're in holidays. So that's what we have built into our guidance. Actually right now, from our perspective the way we see it is that there is an opportunity out there depending upon how when the quarter progresses to see how we can kind of work on this number. But right now we've given you a top end and a bottom end and that's the range in which we expect our final results to kind of fall.

[Sandeep Muthangi:]

Right, fair enough. Just a quick question on the vendor consolidation bit. Usually, in these situations I understand that your wallet share would have increased significantly. But have you seen any erosion of your pricing or the margins in these deals?

[T.K. Kurien:]

So will pricing be under pressure? Absolutely, yes. On margins, we think we have enough levers to make sure that we're able to defend our margin.

[Sandeep Muthangi:]

Okay, thanks, T.K. All the best for the year ahead.

[T.K. Kurien:]

Thank you.

[Operator:]

Thank you. Our next question is from the line of Diviya Nagarajan of UBS. Please go ahead.

[Diviya Nagarajan:]

Hi. Thanks for taking my question. Two questions for you, Mr. Kurien. First, is on the furlough side. Typically, when we see customers coming back to us and talking about potential implemented furloughs over and above normal seasonality, how should we read this? Is this the time that everybody can see cost pressure at their end and that could most potentially impact budgeting season going forward? That's question number one. Number two, like you pointed out BPO has done very well this quarter. Could you just run us through what's contributed to the growth of segments within BPO that's contributed well? Thanks.

[T.K. Kurien:]

So Diviya, it's pretty simple. The way it works is that typically what happens is we look at our client base and typically we as of the beginning of October assess projects that are available to complete whatever projects that they may have as they go towards the end of the year. So what we see right now is that across some of the segments that I talked about there is clearly pressure on the ramp side of it, not necessarily in the chain side of it. But again, if they have furlough, right now it's a little uncertain to ask as to whether the furlough is going to extend to the chain side of the business which is typically programs driven by business or whether it's going to be only restricted to IT. And I think that’s where a little bit of uncertainty is coming in. As we change our business mix from selling purely to IT, to selling also the business frankly that's an area that we've not typically been used to this far and today we're guessing on what that might look like as we go into the quarter. So to that extent it's not a reflection of what's going to happen next year but it's really a question of a reflection of our lack of knowledge, if I may, to some extent.

[Diviya Nagarajan:]

Got that. And my question on what's causing BPO growth this quarter and or could you just also run us through how your BPO offering is evolving, which might be contributing to this growth?

[T.K. Kurien:]

So on the BPO side I think I hand it over to Abid. Abid, as you know, is our Group President & Chief Operating Officer and he can take the question on BPO and give you a sense of our prospect in this area and what we're doing to kind of make sure that we get growth there. Abid?

[Abid Ali Neemuchwala:]

Thank you, TK. So on BPO, let me talk about how we're executing on our strategy which is around increasing our penetration in what we call as the domain based business process services. We are increasing the level of robotic automation that we do. We've already touched over 20 clients in doing that and then we're investing in platform or business process as a service. And all of these elements of our strategy are delivering results. Primarily in Q2, we've also been able to drive higher volumes and a lot of our business is moving to a transaction based or rigid based pricing and then we're seeing a certain level of uptick in the volumes which have delivered higher revenue growth in Q2. So overall from a strategy perspective, we've been able to see results, at the same time, as the current quarter uptick in on higher volumes that we see from the transaction based pricing in business.

[Operator:]

Thank you. Our next question is from the line of Cliff Chaudhry of Global Equities Research. Please go ahead.

[Cliff Chaudhry:]

Thank you. The question I had was regarding consolidation deals. I was wondering we talked about vendor consolidation, are these deals when transferred and transformed would they have a technology consolidation piece to it also?

[T. K. Kurien:]

Yes, what happens is whenever people go to consolidation it's not just the rate consolidation, and the consolidation of vendors, they're just two things. I think clearly what happens is that there is a significant level of technology observation that happens because with more and more agile data coming in the fundamental infrastructure on how you run your development plan is also going to change. So clearly we see a technology effect also coming in, more in the infrastructure level, as well as in the platforms or application development.

[Cliff Chaudhry:]

Perfect. Another question on Cloud also. Like if we see read the popular press we are getting an impression that the whole world is probably going to run middle since, I think some of the workloads on AWS or others, do you think that is an accurate picture of really what's happening at the customer level or it could be something that is conceptual at this stage?

[T. K. Kurien:]

I think very real across customer base we are seeing hybrid cloud coming in at a very large way. We've seen dealings more and more workloads moving on to deals in the Cloud, in the [indiscernible - 003 01

[Cliff Chaudhry:]

Last question. This was really helpful. Last question I had was the regarding the applications have you seen say some category of application or some new application that customer you've been running say now or also say something that was never heard about say about the year or two-year back?

[T. K. Kurien:]

I'm not sure about the question which you asked.

[Cliff Chaudhry:]

The question is -- are you seeing the customer asking Nippo to create or develop a custom app that is completely in a new category that never existed before?

[T. K. Kurien:]

Again it's very difficult for me to answer that question but I've to tell you is that the focus on digital is becoming big enough data because fundamentally what's happening is that that really means the large -- the large companies like us which has got a very large application base. What really means is refilling the whole bunch of pieces. Because now for development of digital technologies and product activity what we need is deep sense to come together. Number one needs basic language skill, you need more database and other skills and you also require other big skills it's this combination that is to be really present in individuals for new developments to take place. But to answer your question I think the next big change is going to happen in the application taking up development, then you have context and locations and integrate into applications.

[Cliff Chaudhry:]

Excellent.

[T. K. Kurien:]

And lastly, you've to be at least an enterprise customer.

[Cliff Chaudhry:]

Beautiful, your answered it very well. Appreciate it. Thanks and all the best.

[Operator:]

Thank you. Our next question is from the like of Mukul Garg of Societe Generale. Please go ahead.

[Mukul Garg:]

Thanks for the opportunity. TK, I just wanted to ask some follow-up question on the furlongs impact. Can you help us understand, give that we've not heard similar commentary from any of your larger peers. Why is this becoming such a big issue this year, have you seen something similar in previous year's also or is the case that your changed side of business has become so significant that it's actually impacting your visibility.

[T. K. Kurien:]

I think, there are two reasons behind it. I think the changed side of business really has become significant, and that to some extent that's impact visibility. The second is that the furloughs, is one component. The second big component is that, I think I mentioned this pretty clearly that we've won a quite a few consolidation deals, which means right now in the process of consolidating the deal out of the existing data in that particular business. That transition, during the transition period we are not going to deduct deductibles. So if you're asking the reasons for the lower revenues this year, this quarter I think it's kind of evenly split between the two. So we did have a slightly higher impact of furloughs, but I don't want to take away the whole conversation only furloughs, it's not only furloughs.

[Mukul Garg:]

Okay, thanks for that. And if I can, maybe like if I can probe you something longer-term, maybe next year. And I'm not asking for guidance, because you don't provide one but given that even if you do have a good Q4, you will still come out with less than 5% YoY growth. And this has been the trend for last two years. So how do you see next year planning out, what are the steps, which you are taking to improve the growth rate and maybe get into double-digit growth?

[T. K. Kurien:]

So I think if you look at the track we had for the last one year that's primarily been contributed by our energy and utilities business that's really contributed to our hard track in a big backdrop. This is a big drag for the past 18 years after many years of actually kind of having significantly higher average digit growth, specifically being in the teams adverse. So we expect that customers especially in that segment will go through this cycle and as they go through cycle we will have a reduction. However the good news is that as we go through [indiscernible] we have many more kind of fair share [indiscernible]. So in that extent, we're pretty confident when that market comes up which we expect will do so next year, we will do very well in that segment. HealthCare overall carries a very decent backlog in terms of order book and we expect that performance to continue next year too. As far as manufacturing is concerned we see an uptick. I think the one area which continues to be for us a little bit of a problem which we need to solve is really the insurance business that we've had because that business has grown very well for all of our competitors perhaps we need more of that. And that's something that we need to work on as we go into the next fiscal year.

[Jatin Dalal:]

So Mukul, TK answered that question at a strategic level. What really finally calls down to executing during every quarter and you will see how performance being quarter two where we have come towards the higher end of our guidance. I do only said to get every quarter right and not worry too much what it translates in terms of full year number for next year it's surprising if we get the quarter rates most significant.

[Operator:]

Thank you. Our next question is from the line of Sandip Agarwal of Edelweiss. Please go ahead.

[Sandip Agarwal:]

Yes, congrats on a decent quarter and thanks for the opportunity. Part of my question was, the previous question, which Mukul asked and T.K answered. Another question which I have T.K from you is that if you see our client category again it is a quarterly phenomena, I understand. But if you see our customers side distribution part of the datasheet which have been provided. We're not seeing big traction in the 100, 75, even INR50 million, INR20 million category. In fact we're seeing some traction, probably in the INR3 million that sit on the client side, other than that the whole distribution size of the customer remains quite muted. What is causing this and also, although we have added 67 new customers in the quarter, we are not possibly seeing any kind of significant traction on any of the areas where it has been reported. So I just understand -- I understand the part that you will not be able to get revenue in one quarter or two quarters from the client. But we are not seeing the traction in revenues in spite of having good numbers, even in the past. So can you please elaborate on that part?

[T. K. Kurien:]

So to that well three factors that play, Sandip, let me try. I think one thing which you most recognized is that these are problem numbers and as you are aware it's at least a drag this year versus last year of anywhere between 4% to 5% on constant currency growth versus dollar growth. And this market gap has really strong into dollar market. So there is some amount of what we would have crossed the buckets and moved up has not happened because of -- measures that we already said one. Number two there is a movement which is both up and down and we have heard some challenges that we had seen in previous quarters on energy business has held off revenues and that has also impacted some -- couple of customers that so -- there is movement down as well as movement up, I see both stable or improved. And finally I do want to draw your attention to the current quarter for some excess E&U which also we had shared at this bottoming out in a material way. These are these previous quarters. Although other finance we use in constant currency term have grown between 3% and 4% and some more than 4%. So effectively you're seeing the growth coming back and sooner or later that will reflect in buckets of -- in good bucket at this total.

[Sandip Agarwal:]

So, also one more follow-up question, if you see I want to understand that this top five customers contribution is down because of the top customers issue and is the same reason for even the top ten or there is something else is in the top five and top ten.

[T. K. Kurien:]

No, no, if you look at it, it equals top two, the first customer we had a decline that and I think we had mentioned that clearly that we expect to see recovery in the beginning of the New Year that's number one. As far as the second customer is concerned, we want a fairly significant consolidation deal and we expect to see that revenue is also coming back strongly. As far as the rest of the customer is concern if you look at in reported terms, our growth rate is running from the two to ten customer our growth, with three to ten customers our growth rate is running at 2.85% compared to a reported 2.1% in dollar terms. So overall if you look at it those top ten customers, these are ten customers that are doing better than average it's two which are being effective which is exactly the overall number down.

[Operator:]

Thank you. Our next question is from Aiswarya Capital. Please go ahead.

[Srivathsan Ramachandran:]

Hi Srivathsan here. Just wanted to get your comments on Europe. For almost now three quarters in a row we've been in YoY constant currency growth of 1% or 2%, I mean the last three quarters in a row. So I just wanted to understand is that some client specific issues or you're just not been able to win a fair share of deals. What's driving -- in a market which is I don’t know very broad they're pretty buoyant?

[T. K. Kurien:]

Pretty much, if you look at our growth in our EMEA segment and as you compare that with the dropped Europe growth you will find a fairly good correlation. So while our energy was dropped significantly that number reflects itself in also the EMEA growth because [indiscernible] out of Europe in some ways contributes to the total number.

[Srivathsan Ramachandran:]

Sure, sure. Also, wanted to get your thoughts on healthcare I think was a good growth engine. We’ve seen quite few M&As on the health insurance market, wanted to get your thoughts in terms of are you seeing any signs some of the discretionary spend put in abeyance because of the corporate actions that we've seen, wanted your thoughts on the same.

[T. K. Kurien:]

So before that I just wanted to add one more point. I think it's kind of interesting which I don’t think have been communicated very well. The decline that we have had in the energy segment has been made up by the growth that we had in manufacturing especially Europe. So in spite of that we're seeing probably I would say epic growth across Europe for the past couple of quarters. I just want to give you a sense of the hit that we've taken in the energy business. And with that let me hand over to Sangita Singh.

[Sangita Singh:]

Srivathsan, good evening. So your question was about the industry as I will add to that the reason behind the momentum that we're seeing. So clearly we have seen in the last [indiscernible] industries continuing to see significant traction largely met by the Affordable Care Act. Also enabled through the whole digitization that's taking place. We've been able to leverage that momentum really through the execution of our three-pronged strategy that I have mentioned before many times. One is our ability to get more relevant with our customers to be able to address the here and now bread and butter business by giving them the price as well as the cost and operational efficiencies that they need. Our low cost is enabled through our investments that we have made in artificial intelligence, our ability to deliver cognitive computing into the platforms that they would have as well as something around infrastructure solution. The second that we've -- that we're seeing is really our ability to open new marquee logo and we've had a considerably good quarter with our ability to open five new logos. Both of these two have been enabled through the investments that we've made over the last four years around differentiated domain solution, three of them being very key; one is patient sensitivity, second is around compliance, and third is around product development, all of them lend itself very well to the new big digital focus that we're seeing with our clients both around process digitization as well as user experience. So those are some of the things that have really helped us and needless to add, a fantastic theme that I've been working to make this possible.

[Operator:]

Thank you. The next question is from Sandeep Shah of CIMB. Please go ahead.

[Sandeep Shah:]

Yes, thanks for the opportunity. Just TK your explanation about the growth within the top 10 for this quarter is quite fair. But if I sift through that the last eight to nine quarters and absolute revenue base of top two to five and top six to ten, either it has on a quarterly run rate basis remained the same or it has declined. While the last several quarters, each quarter we see that the client satisfaction scores are being moving up but the same is not being percolating in terms of the revenue growth. So we do agree that energy would be one of the culprits but apart from that what are the issues, according to you, either is it more a work in progress regarding sales where cross-selling, up-selling needs to be picked up or its more regarding in terms of delivery issues?

[Jatin Dalal:]

So Sandeep, this is Jatin, and we shared the details of how these fees are current quarter and our performance. And I think you will have to see it in the light of some earlier comments that we made in terms of the impact that we had taken during the course of earlier quarters. As we see forward, and I think that’s what matters the most, we have to be -- we continue to invest in terms of mining effort with an additional layer of service delivery which integrates all service clients. We have taken certain other internal measures which we think will help mining. And therefore, we remain quite optimistic that as we go forward you would see that overall mining in the company will improve from where we are today and that will sooner than later should reflect in the client bucket as well as top 10 client performance.

[Sandeep Shah:]

Okay, fair enough. And just the second question in terms of order book in this quarter, is has picked up versus -- because across most large cap peers as well as midcap peers we have been hearing that the order book is one of the best in the last several quarters, even Wipro has declared the same.

[Jatin Dalal:]

Yes, our quarter two order booking has been better than quarter one order booking, Sandeep, certainly, and we continue to see good traction in the market.

[Operator:]

Thank you. Our next question is from the line of Nitin Padmanaban of Investec. Please go ahead.

[Nitin Padmanaban:]

Yes, hi, thanks for taking my question. TK, this was with reference to two specific comments on the guide and last question of H2 being better than H1, and you also mentioned that transition revenues should come later. So I was just wondering whether is it the transition revenue shifting to Q4 that gives comfort of the aspiration of H2 being better than H1.

[Jatin Dalal:]

So Nitin, Jatin here. So let me start with where you made the first comment last quarter and as we see momentum improving and in that context we had stated we see H2 better than H1. If you see our quarter two performance we have come at towards the higher end of our guidance and that was in a way what we were thinking of what we're seeing has actually resulted in a outcome in terms of the numbers that we are seeing. Now quarter three is what we have guided and that range is also visible to you. And we cannot guide for quarter four, we do not guide for quarter four. So beyond the point we are not guiding for H2 but we maintain that our aspiration would be to do better in terms of the sequential growth that we have achieved but it is not a guidance.

[Nitin Padmanaban:]

I understand that. I'm just trying to get a qualitative feeler in terms of is that comfort coming from those transition revenues which possibly will not be there next quarter which is impacting next quarter possibly coming through Q4. Is that qualitatively something should drive constant or --

[Jatin Dalal:]

Nitin, there are two aspects, there are of course transition revenue for the larger deals but more critically what we spoken is that we have one consolidation deal with ramp up in those deal is taking time. And typically end of the year is not good time especially in December to see the trend up and we do expect that some of that consolidation gain will reflect in our numbers in quarter four and that of course is something that we need to.

[Nitin Padmanaban:]

Sure. The other thing was from a margin perspective with this transition sort of going on is that sort of a headwind for margins in the near term, in the next quarter or so? Or should that be perceived as a headwind on margin?

[Jatin Dalal:]

No, the way to look at it is that we have already taken the full impact of suddenly increased, impact of this year in quarter one. And therefore, all the plan additional to cost is behind [indiscernible]. From here on we need to I think we do well and we have shared that there are many levers that remain underexplored, and we will focus on that and execute better to be able to keep margin stable and that’s the end of it.

[Operator:]

Thank you. Our next question is from Raj Kantawala from Equirus Securities. Please go ahead.

[Raj Kantawala:]

Yes, thank you for the opportunity. Just following up from what you said earlier that we are facing some strategies in insurance segment in the past 12 to 18 months, so what are these challenges and what steps are we taking to handle the challenges?

[T. K. Kurien:]

The answer to this is [indiscernible] study the challenges. I accept that we are not a big player actually today and that not something which is going on for the past 12, 13 months, it's going on for past five to seven years. So we really need a big push in terms of growing the insurance market.

[Raj Kantawala:]

Okay, understood. And sir, just a question on the wage hikes, what is the wage hike that you have given this year and what is last year? And so what are these increase number of startups in our sector, impacting, how it is impacting our wage hike?

[T. K. Kurien:]

Let me ask Saurabh Govil to answer that.

[Saurabh Govil:]

Hi Raj, Saurabh here. Our wage hikes were effective June 1 this year and it was average 7% increase and 2% on site, similar range were given last year. As for the impact of startups, yes, some pockets we're seeing people but that has not impacted because the set of profile of people who are wanting to pursue that exist right now across startups, people going for startups are in the single digits. So from that perspective, we don’t see a immediate concern on that.

[Raj Kantawala:]

Okay. Just following up on that, the hiring that we are doing, so is it that most of that is a fresh talent or is it a mix talent?

[T. K. Kurien:]

For this year, if you see this quarter it is 1,000 plus hire, mainly the larger percentage of people are freshers they've acquired and the intent of hiring these freshers have been we look into digital training ready we get probably around 10,000 people to get ready before the end of this fiscal and with that intent. And these people will go through three kinds of training, digital site, engineering site, coding algorithm and digital and these three would be there. So that’s the investment we are making on the freshers right now.

[Raj Kantawala:]

Okay, got it. And sir, if we just look back most of our peers are also into digital space and most of our larger peers are investing heavily into digital space. So how are you differentiating in the digital space and how do you see the percentage of digital revenues going forward in the next two or three years?

[T. K. Kurien:]

If I -- that's a long question to answer.

[Raj Kantawala:]

Yes.

[T. K. Kurien:]

I can give you a one minute color to it. The way we see this is whatever what we do in this content integrating engineering and design which is really what design acquisition time for us and that piece of revenue that we get, we get at least 2x revenue in the back end in terms of local, in some cases it would be five. So to that extent what happens is that we see significant follow-through revenue currently and that's the opportunity. So the opportunity really comes in and not doing market growth but doing the backend growth and customer heavy lifting. At the end of day for companies like us scale is important and our objective would be to get scale whenever we can.

[Raj Kantawala:]

Okay. Got it. Thank you so much and all the best.

[T. K. Kurien:]

Thank you.

[Operator:]

Thank you. [Operator Instructions] Our next question is from [indiscernible]. Please go ahead.

[Unidentified Analyst:]

Yes, hi, thanks for taking the question. I had two questions from me and the first one with three parts I guess. It's around the product engineering service line, can you kind of give us some color over the sort of type of offerings and projects that you are offering on product engineering? And what is riding the question essentially that different IT vendors basically categorize different types of projects on the product engineering. Just to make sure that we are having a like for like comparison.

[T. K. Kurien:]

George, maybe I should kind of give you quick update on what we do in the product engineering space. So I think the first thing is that our product engineering business spans everything from product design to actually building product and intellectual property stacked around custom products. That's one component of it. The second component of it is around specific software products that we build for third parties. Those are broadly the two areas that we focus on.

[Unidentified Analyst:]

Got you. Clear. And essentially, which geographies are you mainly targeting?

[T. K. Kurien:]

Primarily U.S. and Europe and we have talked about, for example, in our press release we have talked about how we are working with a very large car company and building a connected car for them, that's typically example of what we would do in the product engineering side.

[Unidentified Analyst:]

Got you and whom would you typically compete against in the space?

[T. K. Kurien:]

So it is a mix of internal engineering teams, it is a mix of people who got face to face IPs and some components. One or two Indian players but that is pretty much what it is. There aren't too many players in this space.

[Unidentified Analyst:]

Okay, clear. The next question I had is around the application development maintenance or ADM service line, if I’m not mistaken a while back you sort of consolidated that with BAS services which at the time you indicated that was little bit of divergence type of underlying performance i.e., the BAS growing and as ADM having dynamic growth rate. Just hoping if you could give us a bit of color around that essentially how is the ABN versus the BAS business essentially evolving from a growth rate perspective.

[T. K. Kurien:]

I think clearly BAS business is growing a far ahead of the ADM business; there is no question about that. And typically what we have seen as we have seen in the BAS segment, the old BAS segment we've seen growth rate above the company average.

[Unidentified Analyst:]

And what’s driving essentially, what’s structural -- is it structural or cyclical, I'm not, essentially what’s your thinking around the ADM essentially losing ground versus the BAS?

[T. K. Kurien:]

I think it's pretty simple. If you look at the ADM business, the ADM business is till it’s a very routine business which slowly getting business to mediate it by used machines and more and more have to deployed Holmes and other platforms which are our AI platform, the revenue that we'll get out of that traditional segment is going away.

[Unidentified Analyst:]

That’s essentially you're saying as of the cases get moved to cloud structure essentially there is a less type of maintenance work going on the back of that.

[T. K. Kurien:]

That’s a part of the response what happened but more than that if you look at it, the way we classify application support on the SAP platform it could be under BAS, it would not be under ADM. ADM really refers to mainframe platform, mid-range platform, application platform and around that segment. So it is really legacy systems and are classified on ADM, but under the old ADM but you know the reason why we kind of but both these together was to make sure that we remove any kind of noise in the system, otherwise in most cases what's happened was you really have to see these segments together, you can’t see them as distinct.

[Unidentified Analyst:]

Understood, clear. And the final quick one for me. In terms of digital and this is sort of popular type of question, in terms of people essentially asking what proportion of digital exposure IT vendors have as we're gaining momentum in terms of digital demand from corporate, is this essentially you're already splitting digital and I know you can you feel comfortable sharing?

[T. K. Kurien:]

We will not share number this year but towards the latter half of this year as we close our books we may think about readjusting numbers from next year. Right now, we have no time to –

[Unidentified Analyst:]

Okay, thank you very much. That’s all from me.

[T. K. Kurien:]

Thanks.

[Operator:]

Thank you. Our next question is from Ravi Menon of Elara Securities. Please go ahead.

[Ravi Menon:]

Thank you for opportunity. I have a question on energy first and I may follow up on healthcare. The question I had is like you have spoken in the [indiscernible] you have two deals that you had won in energy. Despite this energy has been barely growing. So did these wins ramp up or have these been deferred by the clients due to issues in the sector? And second, like in this energy have you started seeing large outsourcing deals that are in fee stage now or is that still some corners away?

[T. K. Kurien:]

So as far as the consolidation deals that we had in energy business there were two of them and frankly we have one both. So Anand Padmanabhan who runs our energy and utility segment is here and he can talk through it, but fundamentally the result of that's been positive. AP?

[Anand Padmanabhan:]

So thanks a lot Ravi. So as TK mentioned we have done well in the recent deals which we have some of the large deals in front of you because of the lead we have and doesn't that we had in energy segment; it's easier for larger customers to consolidate with us. So that’s one. Now having said that in terms of revenue it will take once -- these are consolidating sites, I mean consolidating across multiple vendors to a fewer number of vendors. So these will take anywhere within three to six months for transition. So that’s the timeframe on this thing in terms of getting the real revenue in to reflect at other outcomes. So we are really looking at anywhere between a quarter to two quarter to start showing those revenues in all.

[Ravi Menon:]

Great, thanks. And about the RFPs have you started seeing large RFPs come out of these come out in energy for outsourcing?

[Anand Padmanabhan:]

Oh yeah, absolutely, I’m telling as fundamentally the industry has been growing through a huge amount of challenges one would imagine because of the prices, volatility of the prices, et cetera, et cetera. So the industry is sort of been looking at a large transformation both in their own industry in terms of production as well as in terms in IT. So we are seeing some amount of RFPs coming in. We would think it will take around three months to six months for them to decide on those RFPs and that we will see a lot more traction in that timeframe but we are seeing a lot of RFPs as we speak. I mean we’re also seeing RFPs from oil companies which I have never come across are to do any sort of outsourcing before.

[Ravi Menon:]

Great, that’s good, thank you, I appreciate the color. And secondly, I have a question on healthcare. This is an area that most companies most of your peers have actually been doing really well and it’s a vertical where you have done well too before, but looking at the year-on-year growth rate it seems to have underperformed your peer group's growth quite significant and most of them have grown by at least 20% of more in dollar terms. So are you focused on a different sub segment compared to your peers and healthcare or is that something that I am missing here?

[T. K. Kurien:]

Let me ask Sangita to answer this. If you can repeat your question once again.

[Ravi Menon:]

And so most of your peer group have done really well in healthcare growing at least 20% in dollar terms, so are you in a different sub-segment compared to your peers or what has really hampered you, you have done well in the segment in the past?

[Sangita Singh:]

Hi, Ravi, good evening. Hoping you are in India. Good question so if you recollect our last quarter was a decline and that has some pressure on the year-on-year numbers this quarter. And as you have heard from TK and as you have heard some Jatin and me before I think the look strong momentum that we have been able to build through the deal when in the last quarter that got us the sequential growth this quarter should help us continue the momentum. We are operating in the same playing field as our competition and we're seeing good traction come up in life sciences a lot of that enabled through our customers wanting to move beyond the frills into services that is something that we refresh through the investments that we have made in Designit and Wipro Digital. I see enough momentum that we can build through our bread and butter business around being able to drive operational efficiencies for both our healthcare & our life sciences and medical devices customers. So overall, I say positive we stay confident of the momentum that we could and I hope the blip that we had in the last quarter we should be able to cover full ground. I hope that helps, Ravi.

[Ravi Menon:]

That's great. If I could ask a follow up there. I mean is there any sub-segment you think that you are not really well covered in healthcare where you see potential you don’t really have a strong portfolio or credentials right now?

[Sangita Singh:]

There used to be one which is the peer segment but, Ravi, what happened and what is happening today is the Affordable Care Act is that there are new emerging opportunities that are coming up largely because of the trends in the market. One such particular one is the whole individual mandate that has been enabled by Obamacare that allows us to participate in a whole set of new engagement that is a level playing field of others. So I would not be too worried about the fact that we weren’t present earlier, I think there is huge area for us to participate and do well.

[Ravi Menon:]

Great, thanks on that. I appreciate it. Best of luck.

[Sangita Singh:]

And last year was 18% year-on-year which was good and among the higher end of what we saw from the industry. Thank you, Ravi.

[Operator:]

Thank you. Ladies and gentlemen, that was the last question. I would now like to hand the floor back to Mr. Aravind Viswanathan for closing comments.

[Aravind Viswanathan:]

Thank you. 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 us. Have a good day and wish you all of you a very Happy Dussehra.

[Operator:]

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