Wipro Limited F3Q08 (Qtr End 12/31/08) Earnings Call Transcript

| About: Wipro Limited (WIT)

Wipro Limited (NYSE:WIT)

F3Q08 (Qtr End 12/31/08) Earnings Call

January 21, 2009 8:15 am ET

Executives

Sridhar Ramasubbu - IR

Azim Premji - Chairman

Suresh Senapaty - Chief Financial Officer

Analysts

Ed Caso - Wachovia

Joseph Foresi - Janney Montgomery Scott

Julio Quinteros - Goldman Sachs

Ashish Thadhani - Gilford Securities

Operator

Good morning, ladies and gentlemen. At this time, I would like to welcome everyone to the Wipro third quarter Earnings Call for the period ending December 31, 2008.

At this time it is my pleasure to turn the conference over to Sridhar Ramasubbu. Please go ahead sir.

Sridhar Ramasubbu

Thanks Laurie. Good morning, ladies and gentlemen, and good evening to the participants across the globe. Rajendra, Lalit, Aravind join me from Bangalore in extending a very warm welcome to all the participants to Wipro's third quarter results and earnings call for the period ended December 31, 2008.

We have with us today, Mr. Azim Premji, Chairman, Mr. Suresh Senapaty; CFO, who will comment on the US GAAP results for the period ended December 31, 2008. They are joined by Joint CEOs of IT business Suresh Vaswani, Girish Paranjpe and other senior members of the Wipro Management team who will be happy to answer questions.

During the call we might make certain forward-looking statements within the meaning of the Private Securities Litigation Reforms Act 1995. These statements are based on Management's current expectations and are associated with uncertainty and risk, which could cause the actual results to differ materially from those expected. These uncertainties and risks factors have been explained in detail in our filings with Securities Exchange Commission in the USA.

Wipro does not undertake any obligations to update forward-looking statements to reflect events or circumstances after the date of filing thereof. The call is scheduled for an hour, the presentation of the third quarter results will be followed by a question-and-answer session. The operator will walk you through the procedure for asking questions.

The entire earnings call proceedings are being archived and transcripts would be made available after the call at our website www.wipro.com. I am available on email and through mobile as well to take any questions and table it to the Wipro team in case you are unable to ask questions for any technical reasons.

Ladies and gentlemen, over to Mr. Azim Premji, Chairman, Wipro.

Azim Premji

Good evening and good morning to all of you all depending on where in the world you are now. I wish all of you a very Happy New Year. Thank you for joining our call.

Wipro Limited recorded revenue growth of 25%. Revenues from our IT Services segment crossed Rupees 50 billion mark for the quarter, with strong year-on-year growth of 30%. 2008 saw a fragile global economy, a bristle domestic security environment and a phobic investor outlook on corporate governance practices; 2009 will be a tough year. Consumer profit is down significantly and leading indicators suggest the bottom is not in sight.

This will impact all economic activity, leading to capital conservation and OpEx reduction. IT budgets for the year are likely to get finalized this quarter. Customers will decide quarter-by-quarter till they get certainty on macro-environment.

In such tough times, all our stakeholders are impacted, be it customers, employees, investors or partners. Let me focus on customers first. Out customers are not looking for vendors, but for business partners, partners who know their priorities and collaborate with them. Challenging times differentiate great companies from good companies, and this is an opportunity that we want to take with both hands.

I believe customers want a business partner to have four key strengths, and Wipro is well placed in all the four areas. Customers first look for one-stop-shop to reduce their overheads and managing relationships. A wide service portfolio covers consulting, application development and maintenance, R&D engineering, technology infrastructure services, package implementation, testing services and business process outsourcing. Our ability to provide integrated solutions cutting across multiple service lines positions us well among our peer group.

Second, customers do not want fair weather friends who care only for their own interest. In 2001, we stood by our telecom and technology customers when some of our competitors looked elsewhere. We are in this business not just for this quarter or the next, but also for this decade and the next.

Three, customers are looking for partners who can address their current needs of capital conservation and operating expense reduction, we are addressing this with our suite of offerings under process optimization, application optimization, infrastructure consolidation and emerging business model.

Fourth, customers expect the partners to be financially strong and sustainable. While the past is not indicative of the future, we do have the experience in riding economic waves in our last six decades' history and coming out the stronger. We are, therefore, unique as a company so far as this is concerned.

Finally, a relationship needs to be built on the foundation of the highest standards of integrity. This holds true not just for our customers, but for all our other stakeholders. We have always prided ourselves for setting the highest standards of business ethics in our dealings with all our stakeholders. We have built a strong culture which upholds compliance in letter and spirit.

Over the years we have proactively adopted governance and disclosure standard, long before they became mandatory, be it segment-wise and consolidated results in 1985, or voluntary compliance with Sox, CO2 certification requirements in 2002. Additionally, in 1998, we were the first Internal Audit Function of India to receive ISO 9002 certification.

Our partnership with customers is not at the cost of investors. Our focus on operational efficiency ensures that our customers are not short-changed, whether in the short or the long-term. Employees are the lifeline of any organization. I am confident that every Wiproite will stretch to the hills to squeeze every ounce of productivity, and provide concrete value to customers, to enable us to become partners of choice. Recessions do not last, resilient companies do. I am confident Wiproites are resilient to withstand the near-term challenges posed by an uncertain environment, and come out stronger than ever.

I will now request Suresh Senapaty, our CFO to share the financial highlights of the quarter, following which our Management team will be happy to take questions.

Suresh Senapaty

Good morning to all of you in the United States, and good evening to those of you in Asia. Prior to taking you through some of our performance highlights for the quarter, let me draw attention to the facts that for the convenience of readers, our US GAAP financial statements have been translated into dollars at the noon buying rates in New York City on 31 December, 2008, for cable transfers Indian rupee as certified by the Federal Reserve Bank of New York, which was $1 equal to Rs.48.58.

Accordingly, revenues of our IT Services segment that was $1100 million or in rupee terms 50.6 billion appears in our earnings release as $1,042 million based on the convenience translation. Our IT Services revenue for the quarter was $1100 million; a growth of 3.5% in constant currency and a decline of 0.9% sequentially on a reported basis.

Our guidance of $1121 million for quarter three was based on exchange rate as of 30th September, 2008. The quarter revenue restated for exchange rate of 30 September, 2008 is $1126 million, resulting in an actual delivery of about $5 million more than the guidance.

We had strong growth in retail and transportation verticals, with constant currency sequential growth of 11.4% and year-on-year growth of 38%. Our communications and media service providers grew 5.5% sequentially on constant currency terms. Our Financial Services vertical showed strong constant currency Y-o-Y growth of 28% in the quarter December '08.

Technology Infrastructure services and Testing services have shown strong growth of 20% and 24% on a year-on-year basis. Our package implementation services line exhibited sequential growth of 3.7%. From a geographic perspective, we saw strong growth in Europe on a constant currency basis of 7.5% sequential and 24% year-on-year.

India and Middle East business had another strong quarter, with sequential growth rate on constant currency terms of 5.5% and year-on-year growth rate of 52% on constant currency. We continue to win large deals. We won four multi-year multi-million dollar deals in the quarter of December. We added 31 new customers. Our accounts with revenues greater than $1 million increased from 426 in quarter ending 30 September to 436 in the quarter ending December.

Our accounts with revenues greater than $20 million increased from 50 in quarter ending September to 52. We have completed our acquisition of Citi Technology Services. As part of the deal, Wipro gets committed business from Citigroup of at least $500 million over a six years period apart from the exclusivity for all IT Infrastructure services for Citigroup out of India and preferred vendor status for application development and maintenance work delivered out of India. The revenues of Citi Technology Services will be consolidated with Wipro, beginning quarter ending March 2009.

We had volume growth of 2.2%; our mix of revenue from fixed price increased by 440 basis points, and offshore mix went up by 90 basis points in the quarter ending December. Our price realization improved 120 basis points sequentially in constant currency through higher productivity; however we are seeing significant price pressure as customers are pushing hard to save cost.

Excluding the one-time provision made in respect of receivables of the last customer; we were able to expand margins by 10 basis points. The impact of salary increase and drop in reported rate realization were made up by benefit from the currency and other operational parameters.

Due to changed economic reality since September, there is a considerable uncertainty in decision making by our customers. The Financial services and the Technology, Media and Telecom (inaudible) are most impacted by this change in environment. Our IT Product business showed strong year-on-year growth of 26% in the quarter of December 2008, and the margins improved the business by about 100 basis points and EBIT growth therefore on a year-on-year basis was 17%.

Wipro Consumer Care and Lighting business continued to see good momentum, with industry leading growth rate. Overall business grew 20% on a year-on-year basis.

On the forex front, our realized rate for the quarter was 46.03 versus a rate of 42.65 realized for the quarter ended September 2008. On a quarter-on-quarter basis, forex gave us positive impact to margins, net of cross currency of 0.3%. As that period ends after assigning to the assets on the balance sheet, we had about $1.8 billion in contract, 2.35 on a gross basis, total contract at the rate between 39.50 and 49.91. As of December 31, 2008, our net cash balance in the balance sheet was 11,044 million rupees. We generated free cash flow of 6,522 million rupees during the quarter under US GAAP. In light of issues on financials reporting we have decided to enhance the disclosure level.

We are starting to give breakup of investments and cash bank balances by bank funds in the balance sheet. I will also take a minute to highlight that our internal control processes are very robust and we have sufficient checks and balances in the system. Our cash-bank confirmations are done by our external auditors directly with the banks and this process has been going on for many years.

For the quarter ended March 2009 we expect the margins to be within a narrow range. We'll be glad to take questions from here.

Sridhar Ramasubbu

Laurie you can start with Q&A.

Question-And-Answer Session

Operator

(Operator Instructions). Our first question today comes from Ed Caso with Wachovia.

Ed Caso - Wachovia

Good evening. Ed Caso, Wachovia. I was wondering if you can give us an update on your BPO business, pricing turnover tone of business?

Suresh Senapaty

This is Suresh responding here. Let me just give you a broad perspective in terms of some new initiatives that we've taken on our BPO business. We've really got the BPO business and the IT business working much closer together and, therefore, creating quite a few BPO-IT-type of opportunities, or integrated BPO-IT type of opportunities. Our focus has been to drive transaction processing business as against voice business and there has been substantial movement so far as that is concerned.

While the BPO business in terms of revenue may not look exciting in context of the growth that we have had across some of the other service lines, but in terms of order booking it has been fairly healthy. We finalized quite a few, specifically for fairly substantial BPO deals, which are transaction processing deals this quarter and the order booking has been significantly ahead of what we achieved last year, despite this year being much more economically challenged.

Ed Caso - Wachovia

I noticed that your number of active clients has trended down similar to the other two firms that have reported already. Is there a movement to sort of send your customer base to just the better customers?

Suresh Senapaty

I think we've added as many as 31 new customers this quarter. There has also been customer attrition, but that is not attrition in context, that means more attrition in context of our finishing projects with customers or completing our projects with customers and really that is it. Most of the customer attrition has been in the context of projects that we were executing having being completed.

Azim Premji

Was your about BPO?

Ed Caso - Wachovia

No, it's more general than that. Last two quick questions. The impact of Nortel in the quarter and the impact of the Gallagher acquisition on revenue?

Azim Premji

Sorry. Could you repeat the question, please?

Ed Caso - Wachovia

I'm looking for the impact that the bankruptcy of Nortel may have had in the FQ3 or FQ4, and the impact that the Gallagher acquisition had for revenues in FQ3.

Azim Premji

Right. As far as the first item is concerned, based on discussions that we had with the customers, the bulk of the revenue run rate that we have with them continues to hold good going forward. However, so far as the receivables, as per the date of filing is concerned, there is some uncertainty in terms of how that is to be dealt with, because they have filed Chapter 11 so far as the US is concerned and their restructuring plans so far as Canada is concerned, and many other entities, nothing has been filed. From that perspective, there is a little bit of uncertainty.

We have reserved about 50% of the outstanding we had on the date of filing and that has reduced the margin so far as December '08 quarter is concerned by about 60 basis points. As far as Gallagher is concerned, can I ask Girish to answer this?

Girish, why don't you answer this one.

Girish Paranjpe

Yes, thanks. I was just trying to understand the question. It seems to concern client selection given the challenge that we have with Nortel bankruptcy and maybe potential clients of Gallagher.

Ed Caso - Wachovia

Yes, I was trying to get a sense for whether the leading offshore providers may be targeting down on a narrower higher quality group of clients?

Girish Paranjpe

That's right. Clearly in the current downturn of things, we are using this as a test for qualifying clients; namely, their survivability during the downturn. Not all choices are painless, and clearly none of them are faultless, but that certainly is the feeling that we use while qualifying clients.

Ed Caso - Wachovia

Thank you.

Operator

We will take our next question from Joseph Foresi with Janney Montgomery Scott.

Joseph Foresi - Janney Montgomery Scott

Hello. My first question here is just on the Citigroup; I know the deal closed. Given what Citigroup is going through in the news, I wondered if there were any breakup provisions included in the deal. I know there is a minimum value commitment and whether there are any changes in the deal based on what we saw as far as that company is concerned?

Suresh Senapaty

Girish, you want to answer that?

Girish Paranjpe

I am sorry. The line is not so good. Can you just summarize some of the points?

Joseph Foresi - Janney Montgomery Scott

Just real quickly, Citigroup has been in the news lately and I just was wondering if there are any changes or amendments to the deal based on what has been going on with that particular company?

Girish Paranjpe

No, I think we kind of had a chance to look at that before we finally closed, and fortunately the deal only closed after the restructuring was announced. We reassessed and looked at what was there and we felt comfortable that what was there was sufficient for us to build a long-term relationship, and that the promise that is held out on the acquisition actually has a chance of being delivered.

Joseph Foresi - Janney Montgomery Scott

So, there were no changes post-Citigroup news?

Girish Paranjpe

No, that's right. Because that's what I said, that we actually closed yesterday and by that time, the restructuring has been announced. Actually, we did a call with Citigroup management and did our own assessment about what was still left and what was put into the bank, and we felt sufficiently comfortable that what we had was still valuable.

Joseph Foresi - Janney Montgomery Scott

Okay.

Suresh Senapaty

Joseph, regarding the run rate that entity has with Citi; almost more than 90% of that comes from the Citicorp. A very small component goes to Citi Holdings. It is our belief that even if it is a very small component, it creates an opportunity going forward.

Joseph Foresi - Janney Montgomery Scott

On the budget side. Are you starting to get more visibility of what budgets are going to look like next year, maybe the timing of the visibility and any comparison, compared to where last year by just look?

Suresh Vaswani

Okay. This is Suresh Vaswani here. Now, clearly the budgets are going to be challenged next year and our feedback is that the CEOs want to do more for less. There is budget pressure, but it will probably be less than what we had planned for last year. I don't think there is going to be any substantial reduction in terms of the quantum of jobs, quantum of transformation initiatives that the CEOs would expect.

The other perspective I would like to give is, you know while budgets are frozen for the year, people will relook at the budgets quarter-on-quarter. Typically, how well you've done in the quarter will determine how much you spend in the subsequent quarter. Therefore, it's going to be budgets which are lower, budgets which are challenged, and budgets which will be reviewed quarter-on-quarter.

Joseph Foresi - Janney Montgomery Scott

It looked like in the press release you guys talked about taking a charge than affected margins. Is that charge associated with Nortel?

Suresh Senapaty

That's correct.

Joseph Foresi - Janney Montgomery Scott

Okay. One last question here on the Satyam point. Obviously, we see the overlap in the clients, I think the most recent one was Cigna also client you got. I wonder if you can just talk about any discussions you are having on that front and maybe put some numbers around anything that you think you might be able to benefit from?

Suresh Vaswani

Okay. This is Suresh Vaswani here again. Yes, you are right. There are customers that are common to Satyam and us. There are customers who have large programs, who would be looking at business continuity and it's pretty much natural to expect that and those customers are also in touch with us in terms of their own business continuity plans.

From our perspective, we are really not soliciting for the Satyam customer base, but you know where there are common customers, where there are crucial programs and where they are looking for alternatives and where they are looking for business continuity, but we are certainly are in talks with them.

Joseph Foresi - Janney Montgomery Scott

Can just give us some color about this: Are there a certain number of top 10 customers that you guys share or a certain total number of customers?

Suresh Vaswani

We find it difficult to do that, so we won't be able to talk too much about it.

Suresh Senapaty

We can't be very customer specific though.

Suresh Vaswani

Yes.

Joseph Foresi - Janney Montgomery Scott

Okay, fair enough. Thank you, guys.

Suresh Vaswani

Thank you.

Operator

Our next question comes from Julio Quinteros with Goldman Sachs.

Julio Quinteros - Goldman Sachs

Great. Hey, guys. For the subsequent quarter that you guys are guiding to on the IT services side, I believe the target is $1.045 billion in revenues. What is the contribution from Citi expected next quarter?

Suresh Senapaty

Julio, they had a revenue run rate of little under $80 million so far as calendar 2008 is concerned and that is more or less in line with the guaranteed revenue, committed revenue that is part of the transaction, and we would expect similar numbers going forward.

Julio Quinteros - Goldman Sachs

Okay. What about the revenue growth?

Suresh Senapaty

We just quoted the revenue for the year. For the quarter, it will probably be one fourth of that.

Julio Quinteros - Goldman Sachs

When we look at the guidance and I compare it to the revenue relative to the revenue item that you guys report in your company data spreadsheet, if I look at IT services revenue in that line item, which you've always looked at, at 1.1 going to 1.045 less the contribution from Citi, it looks like on a reported basis revenue growth will be down about 7%. What is the currency impact that you guys are factoring in there?

Suresh Senapaty

No, that is a constant currency.

Julio Quinteros - Goldman Sachs

Correct. So, the constant currency number is negative 7%?

Suresh Senapaty

Yeah.

Suresh Vaswani

Yes.

Julio Quinteros - Goldman Sachs

Okay. So your guidance is actually changing to constant currency now?

Suresh Senapaty

Yes, because we have seen how the volatility has been and, therefore, there are enough confusions in the marketplace till we get into some stability on this currency, we thought that will be a most appropriate way to communicate and articulate in the environment of high volatility.

Suresh Senapaty

Okay. So this is actually the first quarter that you guys are now providing guidance on a constant currency basis?

Suresh Vaswani

This is the first quarter.

Suresh Senapaty

That is correct. Even last quarter we did have not constant currency, and we had talked about that based on the closing currency on 30th September. This is the upper stand we're giving on the constant currency basis.

Julio Quinteros - Goldman Sachs

Yeah, okay. I did notice the change in the language this press release. I guess on the margin front, I understand that there is a 60 basis point drag from the AR provision that you guys ended up having to take for this contract. Was there any other additional reserves taken for doubtful accounts at this point of time?

Suresh Senapaty

No, there's nothing exceptional. They'll be given normal stuff.

Julio Quinteros - Goldman Sachs

Okay. Can you just walk us through the components impacting the margins relative to our expectations? They came in a little bit lower, so just trying to understand what are the puts and takes in margins given that I think you would have had some currency benefits in the quarter, at least you've seen two other companies report significant currency benefits; can you walk us through what the offsets were to currency and just give us each one on a basis-point perspective?

Suresh Senapaty

Yes. On the exchange front there is a benefit of about 30 basis points. As far as PDD is concerned, which excludes that one-time, is about 30 basis points up ahead. Overall it was, but for that component, and you'll see there are pluses and minuses which even out.

Julio Quinteros - Goldman Sachs

I'm sorry. What on a basis point perspective, can you give us those pluses and minuses?

Suresh Senapaty

What I'm saying is that we have an exchange benefit of about 30 basis points, while the PDD is about minus 30 basis points and, but for the Nortel the reserves that you talk about, the margins are flattish.

Julio Quinteros - Goldman Sachs

Right.

Suresh Senapaty

Overall there is a negative utilization, negative with respect to that compensation increase in terms of the BPO salary that we effected so far as the quarter three is concern, and also the IT services offshore salary increase that was done in August, that in additional one-month period; those have been negatives. The pluses were offshore mix and the pluses were on the foreign exchange gain and that's it. So that almost utilizes the other impact.

Julio Quinteros - Goldman Sachs

Okay. Just going back to the Infocrossing acquisition, any color that you guys can provide on how that business is trending to your expectations? Obviously last night we saw IBM has some pretty decent numbers on the IT outsourcing side. Can you comment on how the Infocrossing business is tracking today?

Suresh Vaswani

Okay, let me take that this is Suresh Vaswani here. From a strategic perspective, we had acquired Infocrossing to really enhance our total outsourcing proposition and our infrastructure services proposition globally and particularly in the US, and I think it is pretty much in course and so far is achieving that objective is concerned. The good news this quarter about Infocrossing or the good news last quarter about Infocrossing is the fairly large opportunity that we won in the US for business services provider, which is in excess of $100 million in terms of total contract value and let me cover our taking over and managing 10,000 mix of mainframe capacity, 600 servers which the customer was earlier managing on his own, that is now being transition to us and we will be doing managerial center services for all these server capacity and mainframe capacity that I spoke about. Therefore, it's a breakthrough win. We have a fairly healthy pipeline on the intersection of our infrastructure services practice and Infocrossing managerial center services front.

Julio Quinteros - Goldman Sachs

Great, thanks guys.

Operator

Our next question will come from Mark Marostica - Piper Jaffray.

Unidentified Analyst

Hi, it's actually Mark [Schitovitz] for Marostica. I just was looking for a utilization clarification. I just noticed that despite the declines in headcount and utilization, which utilization as far as I can tell remained relatively flat, that you increased the total person months and billed person months. I'm just curious what that implies; are you increasing existing working hours or did attrition come in towards the end of the quarter? If you could provide some clarification there, it would be helpful, thanks.

Manish Dugar

Mark, this is Manish here. I am CFO for the IT business. Just to ensure I understand; your question concerns the movement in utilization, and what the reason for the utilization increase is in spite of a decrease in headcount? Is that a correct understanding of the question?

Unidentified Analyst

Yes. I know you said person-months and billed person-months are increasing, so I am just curious how that works?

Manish Dugar

Typically what happens is that the billed person-months is a reflection of what is the number of people that have got billed on a monthly basis, and it also gets impacted by how much is generated from fixed price projects, and how much is from T&M. Like-to-like co-relation of headcount is not going to be easy, because what you see as a utilization number is basically number of people billed against the total headcount, versus what you see as a headcount number, meaning not necessarily all of that gets billed.

So, you have a training component, and if you see our reported numbers, the utilization, net of training has increased which reflects the increase in volume, while utilization net, including training actually, you will see a drop, which will be the explanation for how we are saying the volumes have increased, while utilization is not necessarily reflecting the same.

Suresh Senapaty

Regarding the changing of working hours, there hasn't been any change that we have done in quarter three.

Unidentified Analyst

Okay. Regarding attrition in the quarter; did it fall more towards the end of the quarter or was that linear to the quarter?

Pratik Kumar

Mark, this is Pratik here. No. we didn't see any specific distinct pattern to the attrition going through the three months which is October, November, December, it was fairly evenly spread.

Unidentified Analyst

Okay. In terms of the fixed price contract job, can you give us some trajectory going forward? Where do you see fixed price ending over the next six to 12 months, and if you can quantify what contribution that you are seeing to margins with that?

Suresh Senapaty

The current approach to the go-to-market has been; what we call about is PACE, which is process optimization, application optimization, consolidation, and emerging business model. And when you go to the customers on this particular program, more and more [Technical Difficulty] have gone with the solution, which has suppose to have helped them, conserve cash, help them manage cost better, help them get better productivity.

It is this particular environment which allows both of us to get into a business model and in an engagement model, where driving of the productivity can be much better and much more optimized. And consequently, we have seen some increase in the fixed price projects and going forward, you would see even more, maybe another 5 to 10 percentage points in terms of, whether you call it as a fixed price or a outcome base pricing et cetera, et cetera. The combination of that another 5% to 10% could go up in terms of next four quarters.

Unidentified Analyst

Did you say, 5 to 10 over the next four quarters?

Suresh Senapaty

That's correct.

Unidentified Analyst

Okay, thanks. One final question; could you give us some direction in terms of headcount, net headcount over the next couple of quarters. Are we going to see that similar to what we saw this quarter? I am speaking of net headcount.

Manish Dugar

It will be clearly a function of the business that we are going to have and you have seen the guidance of quarter four, so consequently that clearly reflects what the headcount we had in the current quarter or we will have in the next quarter. So it will clearly, because, as you have seen the demand and supply equation has changed. So consequently it is possible to operate on a model where you can get resources on requirements, and therefore we will definitely be trying and using that model more and more as we go forward.

Unidentified Analyst

Sure, I understand that, but maybe can you draw some correlation between fixed price contract, the concentration there increasing and sort of what that implies for headcount or your needs for headcount. Can you give some correlation there?

Suresh Vaswani

Let me address this maybe a little differently. Certainly fixed price contracts do give us flexibility in terms of optimizing manpower and we certainly will do that. As Senapaty covered some aspects of forecasting and basically recruiting based on what your need is. The other perspective is a lot of our businesses are truly non-linear in nature. So the Infocrossing win that I spoke about is managed data centre services contract which is fairly substantial in terms of annuity business, but does not add too much of headcount.

Likewise we are driving non-linearity across our businesses. So if I look at the package implementation and support business, we have got a [Reflex] delivery model, which enables us to do a lot more tool-based managed services and application support for customers. So the revenue growth is not in proportion to be headcount growth. We have several other initiatives across the company. A significant part of our services business also comes from the domestic market, and I'll just give an example of managed services in context of India, where we've really driven a nonlinear models.

So this year or actually speaking about a broad-based year, we've been able to increase revenue to the extent of 30% plus without a single addition in terms of headcount, and that's because we have consolidated service delivery, we have centralized it, we've used a lot of tools and lots of automation in terms of service delivery to customers.

So really the correlation between revenue growth and headcount growth as it used to appear in the past is changing significantly as we go forward, based on some of the delivery models and the business models that we now have.

Unidentified Analyst

Okay, great. Thanks very much.

Operator

For our next question, we'll go to Ashish Thadhani with Gilford Securities.

Ashish Thadhani - Gilford Securities

Yes I have a couple of questions. Just to pick up on the HR discussion, attrition seems to be at about 20%, and is there any reason why this is proving to be difficult to manage. The second one is on SG&A. It seems to be claiming at a time when growth is slowing, and the rupee is depreciating as a percentage of total revenue. It would be helpful if you could share some light on that as well?

Suresh Senapaty

Okay. Let me just take the first one on attrition. As we would have shared in the fact sheet which got circulated through the quarter starting from quarter one. Voluntary attrition has been moving downwards. So in Q1 when we reported 14.7, in Q2 it was at 11. This quarter it has marginally gone up to about 11.9. I think what you're also looking simultaneously is the involuntary portion, and involuntary portion which was 2% for the quarter, which effectively is 8% for the year. So that makes it 20%.

The simple reason is, that yes, we have looked at some of the performance parameters more closely over the last two quarters. And as a result of that we have had people exiting due to that. In addition, we also have had some more exits which fall in the bucket of involuntary. What is it which we see going forward? We think that at least over the next two quarters, we'll continue to see us remaining focused on exits related to performance parameters, and we think that will play out pretty much till first quarter of the next fiscal.

As far as voluntary attrition is concerned, I think our own assessment is that going forward we would see the downward trend on voluntary attrition, and at least our guess is that it should be in high single digits very soon.

Manish Dugar

Ashish, the other activity in terms of SG&A. If you look at the IT services under the US GAAP, the SG&A which was 12.2% in September '08 has gone up to 12.7% on December '08, which is an increase of about 50 basis points, but we just talked about one particular reserving that we did in one and got large customer filing of bankruptcy that was about 60 basis points.

Ashish Thadhani - Gilford Securities

Okay.

Manish Dugar

If you correct for that, it is actually a 10 basis points improvement.

Ashish Thadhani - Gilford Securities

Okay. Finally, this has to do with currency. In the notes to your US GAAP financial statements, you have broken out a hedging component. Could you clarify how this is likely to impact reported results in future periods?

Suresh Senapaty

That's a normal hedging Ashish. There is no change in that.

Ashish Thadhani - Gilford Securities

Okay, thank you.

Suresh Senapaty

Thank you, Ashish.

Operator

(Operator Instructions). We'll pause a moment to see if there are additional questions.

Sridhar Ramasubbu

If there are no additional questions, let's close the call. Thank you very much for your participation. The IR team in India and US are available offline for any questions, and the digitized replay is available for the call. Thank you.

Operator

Thank you very much ladies and gentlemen for joining today's Wipro Conference Call. This concludes your conference call. You may now disconnect.

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