Wipro Ltd. ADR Earnings Call Nuggets: Discretionary Spending and Pricing Benefits

Wipro, Ltd. ADR (NYSE:WIT) recently reported its third quarter earnings and discussed the following topics in its earnings conference call.

Discretionary Spending

Joseph Foresi – Janney Montgomery Scott LLC: My first question here is that it seems like we are getting some feedback that perhaps the demand environment has improved a little bit or could improve heading into 2013 but it’s coming after a very soft December. I wondered, if you could talk about what you are seeing in the pipeline, why you feel a little bit better about this here and commentary about discretionary spending?

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T. K. Kurien – CEO, IT Business and Executive Director: Joseph this is T. K. Kurien. I’d just like to give you a sense of what we are seeing in our customers. In terms of just the environment and I will break up the question into environment, industry and if you would like to have, I will give you a geographic flavor it. But if I look at the environment, what we are seeing is we are seeing the environment kind of improve a little bit from a sentiment perspective. U.S. clearly what we are seeing is if we were sitting in the same place last year and we were 5 on 10 in terms of environment, right now I think we’ve gone up to 7. I guess from the U.S. perspective, the worry there would be the fiscal cliff issue will that (solve), which increasingly we hope it works. But if it doesn’t, then it means that you will end up with a shutdown in which case what the impact would be in terms of sentiment. I think that’s the whole issue. There’s a little bit of uncertainty there in that context. As far as Europe is concerned, we see Germany actually quite strong in terms of manufacturing. To an extent we see demand coming back; it is always there in Germany, but not necessary in the kind of demand that we could easily access, being opening up for us primarily because of skilled shortages. If you look at France, we think it’s a different game altogether. We think it’s going to take some more time. The U.K. continues to be fairly positive. I think it’s kind of tracking the U.S. As far as Asia is concerned, Asian economies which are dependent upon national resources will continue to do well primarily because of – the prices have recently kind of shot up. So, we see Australia doing well. We see the rest of Asia, Indonesia, those kind of countries doing fairly well. If you look at India, I think sentiment is positive in terms of steps that the government has taken, it has not yet been translated into buying that (these things). I think folks haven’t really opened up their purse strings. I think that’s the issue. Overall, if you look at demand itself, if I could break up demand into run and change, the run part of the business we see it under pressure. Discretionary spending we see it in pockets in specific industry. For example, in oil and gas, we see it. In parts of manufacturing, especially industrial manufacturing we see it. In the silicon part, which is a high tech part, I think it’s pretty stressed for us right now. I think in retail banking too we see demand especially discretionary demand, so it’s a little bit of mix effect. I think for us, our performance last quarter and the quarters to come is going to be reflective of, A, the market that we play, B, the portfolio that we have and C, our ability to win against competition. I think that’s a combination of all three.

Joseph Foresi – Janney Montgomery Scott LLC: Just looking at the guidance for next quarter, is that volume based guidance and what drove pricing this quarter and why don’t you expect it to continue just depending on what your answer is on the guidance side.

T. K. Kurien – CEO, IT Business and Executive Director: I’ll ask Jatin Dalal our CFO to talk to that.

Jatin Dalal – CFO, IT Business: For the guidance, guidance is expected both from volume and pricing, but I must say that we will not relent our efforts on getting more and more productivity from the fixed price projects and to that extent the dynamic to get the realizations up will continue. But the future growth not necessarily dynamic, the future growth will continue to be both volumes and pricing related.

Joseph Foresi – Janney Montgomery Scott LLC: What caused the pricing spike this quarter?

Jatin Dalal – CFO, IT Business: So, as you aware, Joseph, that there are two components to our pricing. One is the classic time and material rate cards that we charge to our customers whenever we deploy an IT resource for a customer. The second is the fixed price engagement where customer pays us let’s say $100 and we put 10 employees in our offices or 10 employees with customer to get that work done. When I do $100 divided by those 10 employees, I get the realization as a result. Our realizations are a combination of both the rate cards and utilization. What we have got in the current quarter is substantial benefit of introducing automation technology tools and productivity technique into our fixed price engagement whereby we have got same revenues by deployment of lower number of employees and to that extent that realization has increased. This is reflected in our price.

T. K. Kurien – CEO, IT Business and Executive Director: Joe, this is not a one quarter phenomena, this has been going for the past two quarters.

Joseph Foresi – Janney Montgomery Scott LLC: Just a last question for me. TK, maybe you could give us a general update on about how you feel, the turnaround, the restructuring, the realignment has gone and any thoughts about when you could return to maybe than industry growth rates?

T. K. Kurien – CEO, IT Business and Executive Director: Joe from my perspective I kind of laid it out in the opening remarks, which is really, if you look at it, we said our strategy was kind of laid out in couple stages. The first thing we said is, consolidate our base and start our account mining and make it effective. That has worked fairly well. So, when we started this journey, we had one $100 million account, now we have 10. On the hunting side, which is the other part of the strategy that we kicked in last year, because fundamentally we couldn’t invest in both simultaneously, we ramped up our hunting team and 20% of our large deals wins have come from (indiscernible). So the gold market side, if you ask me on a scale of 1 to 10, what would I rate myself internally? It would probably be in the region of what 5 or 6, I think we’ve plenty of more headspace to do more work effectively outside the focus account that we’ve called on, both in terms of services as well as in terms of the value proposition that we put in (financial). As far as the people are concerned, I think that the engagement model has worked fairly well. Our attrition numbers have dropped significantly. In fact the attrition that we have this quarter is probably one of the lowest we ever had in 12 quarters. I don’t know if you recollect, at one point of time, we used to have 24% attrition, and from there coming down to 12.9% is a big, big change. I think what we have to work on right now if you ask me, it’s really kind of going out there and getting breadth or coverage in terms of new customers and going into geographies where growth is currently happening. We are actually missing some geographies where growth is happening and that’s some that we need to fix.

Pricing Benefits

Keith Bachman – Bank of Montreal: I have a couple of questions please. Number one, on the previous question you mentioned that pricing was good for both the last two quarters certainly this quarter, why wouldn’t that continue what would be the circumstances that would suggest that you wouldn’t get pricing benefits over the next couple of quarters?

Jatin Dalal – CFO, IT Business: The expectation is that some of these gains will continue, but that would always be variations, which are quadrant specific, which could always creep in. There could be for example number of days impact in a particular quarter or the portfolio shares to that I’m told a particular service line, which has significantly more or less realization compared to the averages. So, those things will continue, and also the new deal could come at a different price point than the existing portfolio. So some of those things will continue to impact the realization that we report, but the productivity benefits that we have sort of achieved over last two quarters, our expectation is that we certainly sustain and improve on those.

T. K. Kurien – CEO, IT Business and Executive Director: So I would like to just to kind of add on to that. The idea that is that we would like to kind of hold on this pricing within narrowband and ultimately as we drive higher productivity and we get volume mix it could be a little bit of a trade-off to see where we would slightly end up, but a narrow range would be a fair kind of a guess.

Keith Bachman – Bank of Montreal: Along those same lines your utilization dropped a little bit this quarter what are your expectations for where you want to take utilization to? Do you have specific targets that you’re hoping to reach on utilization? What does that portend for your margins please?

Bhanumurthy B. M. – SVP and Chief Business Operations Officer: This is Bhanu. I manage the delivery and operations. With respect to utilization, this quarter specifically as you understand this is the end of year and it had a good number of holidays and (indiscernible). So that impacted the utilization. It also had to do with the fact that we continued to onboard freshers as well as certain specific skill sets specifically around program management, architecture, as well as domain consultings. These three areas we continue to build up for the deals that are likely to close. So that’s one of the reasons why you see a dip in the utilization levels and our belief going forward is that the utilization will move in a very narrow band.

Keith Bachman – Bank of Montreal: Would you expect utilization to go back up to the 66%, 68% level on the gross utilization?

Bhanumurthy B. M. – SVP and Chief Business Operations Officer: Yes. So that will be the intent in terms of taking it up to that levels without sacrificing the agility for serving the new deals that are likely to close.

Keith Bachman – Bank of Montreal: Well the final one for me then Americas had weaker growth. What would you anticipate both on a sequential and a year-over-year basis? What would you anticipate your revenue growth to be directionally at least over the next couple of quarters? Does that improve or what’s the trend line you see there from the Americas?

T. K. Kurien – CEO, IT Business and Executive Director: So from an Americas perspective the way we see it as – that market we presume will start kicking in this year. Because it’s been driven to some extent by the portfolio that we have and the growth that portfolio has had over the past couple of years that’s kind of linked to the same stage. Our own sense with the recovery is Americas would probably grow equal to or probably faster than the U.K. and the rest of continental Europe. That’s at least the expectation in the medium-term.

Keith Bachman – Bank of Montreal: Why is that again? Why do you think it improves better than those geographies?

T. K. Kurien – CEO, IT Business and Executive Director: It is very simple. Please look at our portfolio. Our portfolio in the U.S. was primarily investment banking, retail and to some extent and to a limited extent, the weight gets reported as that – in the oil and gas sector, companies that operate out of the U.S. are typically tax based upon the location from where our billing happens. So as I extended a little bit of the misnomer in classification. So it’s work done in the U.S. for U.S. companies. That’s the way we kind of classify it. So the way we expected it is that when that happens, when there is a demand pickup in the U.S., we expect that our worth automatically should go up and the percentage should probably go back.