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Wipro Limited (NYSE:WIT)

F4Q08 (Qtr End 03/31/09) Earnings Call Transcript

April 22, 2009 4:30 am ET

Executives

Rajendra Shreemal – Head of IR

Azim Premji – Chairman and CEO

Suresh Senapaty – CFO

Girish Paranjpe – Joint-CEO, IT Business

Suresh Vaswani – Joint-CEO, IT Business

Analysts

Divya Nagarajan – JM Financial

Rishi Maheshwari – Enam EMC

Viju George – Edelweiss

Ashwin Mehta – Mangal Keshav Securities

Vihang Naik – Motilal Oswal

Anthony Miller – TechMarket

Shadda Varma [ph] – Viddharth Advisors [ph]

Subhashini Gurumurthy – JM Financial

Yogesh Aggarwal – HSBC Securities

Mithali Gosh – Merrill Lynch

Darmendra Gandhi [ph] – Nomura

Yogesh Pari [ph] – Alchemcy Shares

Pankaj Kapoor – ABN Amro

Dinesh Mehta [ph] – Convella Securities [ph]

Deepsha [ph] – ICICI Securities

Desh Yadav [ph] – UTI Mutual Fund

Operator

Good afternoon, ladies and gentlemen. I am Sandhya [ph], the moderator for this conference. Welcome to the Wipro Q4 quarterly results conference call. For the duration of the presentation, all participants’ lines will be in a listen-only mode. I will be standing by for the question-and-answer session. Now I would like to hand over to Mr. Rajendra Shreemal. Thank you. And over to you, sir.

Rajendra Shreemal

Thank you, Sandhya. And thanks everyone for joining us today. Good morning and good afternoon from Team Wipro to all people joining in from different parts of the world. As the operator just mentioned, I’m Rajendra Shreemal, Head of Investor Relations. Along with Sridhar in US, Aravind and Lalith in Bangalore, we handle the investor interface for Wipro. We thank you for your interest in Wipro. It is with great pleasure I welcome you to Wipro’s teleconference post our results for the fiscal quarter and fiscal year ended March 31, 2009.

We will begin with a short address by Mr. Azim Premji, Chairman, followed by the financial highlights from Mr. Suresh Senapaty, CFO of Wipro Limited, and follow it up with the Q&A session with the management team. We have Mr. Girish Paranjpe and Mr. Suresh Vaswani, joint CEOs, and other senior leadership team of Wipro.

Before Mr. Premji starts his address, let me draw your attention to the fact that during the call, we might make certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the management’s current expectations and are associated with the uncertainty and risk, which could cause the actual results to differ materially from those expected. These uncertainties and risk factors have been explained in detail in our filings with the Securities and Exchange Commission of USA.

Wipro does not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date of filing thereof. This conference call will be archived and a transcript will be available in our website www.wipro.com. Ladies and gentlemen, let me now hand over the floor to Mr. Azim Premji, Chairman.

Azim Premji

Good evening and good morning to all of you depending on where you are located. Thank you for joining our call. Financial year ’09 ending March 31 saw the most severe economic meltdown the world has seen in this generation, unlike both in the geographical set as well as in its reality. The crisis battered the financial services sector and moved on to the real sector of the economy with a total freeze in the credit market, significant downturn in corporate profitability, lots of confidential business prospects, and tapering of consumer spending, which resulted in the world economy and create almost coming to a sense [ph]. Coordinated Central Bank action and fiscal stimulus by key nations helped bring back some confidence in the last quarter. But emerging economic indicators, they don’t believe that the world economy will take some time to recover from the after mark of this crisis.

Our customers across geographies and industries have been affected. They want cost takeouts, capital conservation and optimizing business processes. This should lead to increase engagements with us in the transformational journey. Despite of all this, it has not been all gloom and doom. In these turbulent times, our results have been robust, resulting in Wipro Limited posting 29% growth in revenue and 19% growth in profits for the year.

We’ve had good deal wins and generated robust pipeline. IT Services business delivered a strong year on year-on-year dollars. Revenue growth of 18.5% and PBIT growth of 59% is a considerable achievement in these soft times. In crisis like this come opportunities to refuel and revitalize for the next phase of growth. We have taken a close assessment of customer requirement and have focused on operational excellence in delivering more than promise to customers.

Successful organizations use these strategy [ph] times to give them sales for the future, and this year has been one of internal (inaudible) as external world became unpredictable. Beginning early in the year we identified and made changes in three key focus areas. We reconfigured our sales engine to better align it to development in business environment and we continue to strengthen the sales engine with focus on deal conversion and demand generation.

Second, customers are looking for partners with consultative approach with competencies in program management, transition management, and systems integration. We have created the global program scheme beginning of last year with these capabilities and we saw some excellent deal wins in the current year. We are confident that our capabilities here is a unique differentiator and self convert our large deal pipeline to win.

Thirdly, we streamlined our operations. Financial year ’09 has been a year of operational excellence. We had solid operational performance with increased focus on productivity and realignment of cost structures in our global delivery model. We moved the lever on fixed price projects, moved the lever on productivity, utilization, and (inaudible) significantly over the past one year, which has given us operational flexibility to offer multiple levels to give better price to customers and least impact on realization forward [ph], which also sets us for in the past performance going forward.

The lack of overdependence on either a consumer, a customer, or a vertical or a service line or a deal [ph] has also come as a great advantage for us. This further reinforces our view for the business portfolio to deliver both in good and bad times and not just in one environment. Overall, where the demand generation looks good, emerging to win remains challenging. We will continue to invest in our content and retail customer proximity.

As part of global delivery model, we have also been investing in near shore centers, including in the US, UK, and we have plan to scaling them. It is a strong push to higher and deploy locally where competitive local talents rises. It globalizes (inaudible) and localize the talent. We have expanded our service portfolio to tackle situational concerns. This slowdown in (inaudible) several service lines such as consulting, technology infrastructure services, package implementation, testing services, business process outsourcing, and product engineering services, which have been our key endears for growth and now accounting for 55% of our revenue.

We will be investing and strengthening current offering and also incubating new verticals, penetrating new markets, focus on new technology, which will give us a sustainable competitive edge. Our engagement level and the CXO levels have increased significantly giving near insights to their business problem and how we can partner in the transformational journey in addition to establishing a much stronger brand with presence in the customer sets.

Our other business units have not been (inaudible) for the challenge caused by the current crisis. They are surely increasing resilience. Our early focus and investments in emerging economy, which have been relatively less effective to organic and inorganic models [ph] have held us in good state. Wipro brand continues its journey of increasing market share and in January and February ’09 became the biggest brand in rural South India as measured by AC Nielsen. (inaudible) continues to grow end of the month, the Southeast Asian market.

Our financial stability coupled with our highest order of corporate governance and our commitment to ethics and transparency gives us tremendous confidence in our ability to write down this range of uncertainty and emerging much stronger than this. In line with our commitment to the idea of bottom line focusing on two parameters of people, planet and corporate, as a mean of sustainable profitability, we adopted GRI, Global Reporting Initiative framework, for reporting on these three aspects, ecological, (inaudible) and economic performance for the year 2008.

Our first sustainability report was released recently after detailed internal exercise over nearly nine months. We see this initiative as part of a continuous process of organizational development that reinforces sustainability into every aspect of our operations and which commits us to a five-year timeline for becoming probably neutral by the end of 2030. We, as an organization, are aware of our responsibilities to the environment, are on our way to becoming an ecologically surplus organization.

We are entering uncharted territory in the global economy and the IT sector. While environment is challenging, the value proposition of outsourcing in terms of an off-shoring in particular is only stringent. Our anchor in such times is routed to employ the strong business value for customers. We are confident we are making the right investments for a bright future.

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

Suresh Senapaty

Good afternoon, ladies and gentlemen. Let me take you through some of our performance highlights for the quarter. Our IT Services revenue was based on constant currency for quarter ending 31st December 2008 – for 31st March 2009, was $1,058 million, ahead of our guidance of $1,045 million. On a reported basis, our IT Services revenue was $1,046 million.

We had strong growth in challenging times in manufacturing and (inaudible) constant currency sequential growth. Retail and transportation continues to have strong action and exhibited YoY growth in constant currency, which is a differentiated (inaudible) package implementation and financial services, showed strong growth in the quarter with year-on-year growth of 19% and 15% respectively.

We have always identified opportunities in emerging markets and aggressively invested in them. Our India and Middle East [ph] business grew strongly in the quarter with 21% year-on-year growth on a constant currency basis. Our engineering emerging markets also showed robust growth of 33.5% on a constant currency term, and we will continue to invest in near geographies.

Our customer relationships continue to be strong. Our accounts with revenues greater than $20 million increased from 52 in quarter December to 53 in this current – in quarter March ’09. Our accounts were greater than $50 million and increased to 17 in the last quarter compared to 16 in the previous year quarter.

We have few accounts with revenues greater than $100 million of the year ending March 31, 2009. This was a quarter of strong operational performance. And mix of revenues from fixed price projects increased further by 210 basis points sequentially, 38.1%. Over the last four quarters, we have moved the lever on fixed price projects by 8.9%. The productivity benefit from fixed price projects sets the movement of our debt realization.

Our onsite rates have moved up 2.6% on a year-on-year basis, while offshore rates have moved up 3.1% on a year-on-year basis. We have been able to mitigate the impact of pricing pressure of strategy [ph] in the current quarter. Sequentially our onsite rate moved up by 0.9%, while offshore rates declined marginally by 0.1%. The offshore mix moved up 195 basis points sequentially in the quarter. The strong operational fulfillment has resulted in a good performance on margins this quarter.

We have sequentially improved margins by 120 basis points. Adjusted for one time (inaudible) impact in the last quarter, margins have moved up by 60 basis points. (inaudible) keeps volumes up. Our IT Products business showed year-on-year growth of 11% in the quarter despite the reduction of capital expenditures and investments by Indian GAAP rates.

Wipro Consumer Care and Lighting business continued to move with momentum with a year-on-year growth rate of 7% in the quarter. We have improved margins sequentially by 1 to 2 basis points and our PBIT growth sequentially is 11% [ph]. On the foreign exchange front, our realized rate for the quarter was 47.3 (inaudible) realized for the quarter ended December 2008. On a quarter-on-quarter basis, Forex delivered positive in spite of margin of 0.4% net of cost currency.

As of year end, after the timing to the assets on the balance sheet, we had about $1.3 billion of Forex content, $1.9 billion (inaudible). As of 31st March 2009, our DSO was 50 days [ph] for IT Services business and again 57 days in the same period of this year. And our net cash balance on the balance sheet was 12.8 billion [ph]. We benefited free cash flow of 5.4 billion rupees during the quarter, YoY increase of 151%. For the full year, we generated free cash flows of 19.7 billion rupees, YoY increase of 112%.

Around June ’09, we will migrate into (inaudible) accelerated treatment of (inaudible) compensation charge. For the benefit of investors and analysts, we will provide the US GAAP numbers as well for the quarter for sequential and YoY comparisons. For the quarter ended June 2009, we expect to maintain – we are focused with the short-term stability on margins. And we will be glad to take questions from you.

Question-and-Answer Session

Operator

Thank you very much, sir. (Operator instructions) First question comes from Ms. Divya Nagarajan from JM Financial. Over to you, ma'am.

Divya Nagarajan – JM Financial

Hi. I wanted to understand what (inaudible) for the first quarter, whether we are looking at something –? Do you expect –?

Suresh Senapaty

Could you be louder, Divya?

Divya Nagarajan – JM Financial

Hello? Can you me hear me better?

Suresh Senapaty

Yes, it’s better.

Divya Nagarajan – JM Financial

Yes. I was just trying to see if you could decompose the quarter guidance 1Q into the sectors where you see some kind of growth or stability and the sectors where you see some continued trouble, please?

Girish Paranjpe

Hi, Girish Paranjpe here. The sectors where we think there is little kind of continued momentum and positive growth are in consumer product and manufacturing. Those are the sectors which are still kind of positive. Where we think (inaudible) quarter to start looking positive is in financial services, technology and telecom.

Divya Nagarajan – JM Financial

Right. We’ve also done very well on the pricing front this quarter. We have actually – the reported realizations have an uptick on the onsites. What – then how have we been able to achieve this? Are we looking at some kind of an innovative pricing scenario where we’re able to get better realizations? Could you just throw some color there, please?

Suresh Vaswani

This is Suresh Vaswani here, Divya. What we’ve clearly driven in this year is higher percentage of fixed price project focus. So in terms of shifts – the shift in terms of fixed price project has been as much as 650 basis points for the year. The more fixed price projects you have, the more flexibility you have in terms of having operating efficiency and having non-linearity in terms of delivery. And by having fixed price projects, so a larger percentage of fixed price projects, you are able to achieve two things. One is, you have more flexibility in terms of giving a better cost (inaudible). And two, you have more flexibility in terms of driving your operating efficiency. And that really has been the single and one of the key reasons as to why we have been able to show significant price evaluation this year over the previous year. It is 3% onsite and 3% off.

Divya Nagarajan – JM Financial

Does the reported price realization include the impact of cost currency Forex movements then?

Suresh Vaswani

Yes, it does.

Divya Nagarajan – JM Financial

All right. And lastly, what will you expect to do as CapEx for the full year FY ’10? Are we looking at the substantially lower CapEx number this year?

Suresh Senapaty

That is correct.

Divya Nagarajan – JM Financial

Could you give me a sense on the kind of CapEx you would expect to do?

Girish Paranjpe

So – Girish here. The primary CapEx that we had was in building out new facilities and acquiring land for building out new facilities. So we think based on the land acquisition that we have done so far, we are going to be well kind of positioned there. If the construction we want to start building depending on how the demand (inaudible).

Divya Nagarajan – JM Financial

Thanks and all the best.

Operator

Thank you very much, ma’am. Next in line we have Mr. Rishi Maheshwari from Enam EMC. Over to you, sir.

Rishi Maheshwari – Enam EMC

Hi, congratulations, good quarter. A little while ago on air you had indicated that consulting can be a lead indicator to showcase the business growth in other practices. So my question is, have you observed this trend as recent as end March or April?

Girish Paranjpe

Yes. This is Girish Paranjpe here. Rishi, we have integrated based on what we saw relative movement from every month last quarter versus every month this quarter. Things which are looking pretty bleak by the end of last year when lot of contracts acquired got cancelled, we have [ph] started looking at some pickup and conversation happening on new consulting projects, which is the first time we think of some turn off [ph].

Rishi Maheshwari – Enam EMC

Right. But if you – I have looked at the reported numbers of the consulting. They are actually showing 13% quarter-on-quarter decline. And this is on the back of Q2, which has also shown quite a reasonable decline. So, is there some kind of reconciliation which is not showing in the numbers so far?

Girish Paranjpe

Yes, because those are build revenues, right? So typically a consulting engagement will take two to six months to deliver. I think Kurian [ph], my colleague, who made this comment earlier was based on the engagement that we have kind of standing up or close to standing.

Rishi Maheshwari – Enam EMC

The benefit of which can be seen in the next three to six quarters – sorry, three to six months. Right, right. Also on the ADM services, a sharp decline there. If you could also bifurcate revenue from the application development and maintenance since where exactly are we looking at this decline?

Suresh Vaswani

This is Suresh Vaswani here, Rishi. If you really look at all our IT Services business in terms of service lines, including any of the service line, really the growth over the last couple of years has been much more in the package implementation side, much from DI [ph] side, the BPO side and the technical services side, while ADM has been traditionally neutral in terms of growth. And that’s really logical because customers are moving on from legacy systems to package implementation. Customers are moving on from new areas of opportunity like the IS. Customers are looking at stronger cost transformation have to start looking (inaudible) area as well. So what you are seeing is the trend which has really nothing to do with last year, and as much as it is with the broad industry trend in terms of more new generation application.

Rishi Maheshwari – Enam EMC

Right. And just broadly if you could break up between what could be the development portion of, say, if you are down around $420 million in the last quarter, what could be the development portion, what could be the maintenance portion out of it?

Suresh Vaswani

I would say that on packaging implementation, development versus support tends to be your implementation versus support, tends to be roughly 60. But I’m talking about package implementation. On ADS it was more maintenance, substantially more maintenance and transformation and development.

Rishi Maheshwari – Enam EMC

Great. Right. And what is the Forex loss, say, the rupee had to stay at the same level today? What could be the extent of the loss that we could assume for this entire year?

Suresh Senapaty

Based on the OCA that we have, I think for the year ’09, ’10, it would be about one-third.

Rishi Maheshwari – Enam EMC

One-third of the total OCA that we have in the balance sheet?

Suresh Senapaty

Yes.

Rishi Maheshwari – Enam EMC

All right. Thank you. Thanks so much and all the best.

Operator

Thank you very much, sir. Next in line we have Mr. Viju George from Edelweiss. Over to you, sir.

Viju George – Edelweiss

Thanks for taking my question. I’m just confused a little bit about the commentary on pricing. You attributed it to fixed price. But even some of your peers are also noticeably showing an uptick in fixed price in this environment. Yet they don’t seem to be showing these quarterly pricing trends that you are showing, particularly in this quarter? Is there any other factor behind this beyond fixed price?

Suresh Senapaty

We were at very low rate earlier. Eventually many kind of value of the productivity that you do (inaudible) as a result of the realization has been lower. But all it means is that when you have a lot full of such projects, you have a complete free hand to be able to walk on it. And I think the biggest change that we have done in the current reorganization was global delivery being a little more coming under one leadership and therefore sort of on the best practices, the way (inaudible) monitored. And some of those things have really seen results as you have in the last few quarters.

Suresh Vaswani

Let me just sort of – let me elaborate on this a little bit. This is Suresh Vaswani here. The fixed price project gives you the flexibility. What’s really driving price realization up in fixed price projects is completely a factor of how you execute. If you execute when your price realization was up and if you execute quarterly [ph], you sign to lose up. And what Senapaty (inaudible) is that we have strengthened that delivery engine substantially, strengthened our quality engine substantially. And therefore we’ve been able to back productivity, which has given us raise [ph].

Viju George – Edelweiss

Just one more question here on the verticals. Do you think the financial services could be one problem area for you as you look out into FY ’10? But manufacturing is also – but the manufacturing is an area of growth. Again, I just want to (inaudible) financial services may be sort of stabilizing, but manufacturing could continue to be a problem vertical.

Suresh Vaswani

This is Suresh Vaswani here. Normally looking at the sectors going forward, looking at our pipeline which we’ve already indicated was robust, it is really not necessarily very sectorially contemplated. So our pipeline is good and our pipeline is good across all the sectors. What – in fact, the revenue in terms of growth relative to last year would help quickly (inaudible) as you were talking about, vis-à-vis any of the other sectors. So the broad outlook is in terms of demand, in terms of pipeline, it is consistent right across. We have worked with customers very closely to generate demand. And I think that is holding us in good shape. And this is the situation we find ourselves in. So what is really wanted to determine the performance of one sector versus another sector is faster decision making and how much we win in that sector really.

Viju George – Edelweiss

Thanks so much.

Operator

Thank you very much, sir. Next in line we have Mr. Ashwin Mehta from Mangal Keshav Securities. Over to you, sir.

Ashwin Mehta – Mangal Keshav Securities

I had a question related to cash flows. We have an item for deferred cancellation losses relating to rollover hedging, which is of 1,220 crores and shown an increase of almost 467 crore in this particular quarter. What’s this item related to? And for which quarters have the hedges been cancelled?

Suresh Senapaty

It is for future periods designated for – I'm sorry. The hedges sort of matured during the current year, but they were designated for future periods. Consequently when they come up for renewals, if you go to paint in differential and that particular amount would just get added to and from part of the OCS.

Ashwin Mehta – Mangal Keshav Securities

Okay. So this is largely for FY ’10, the one that we are saying that one-third of ROCI would come in if you were to stay at these levels?

Suresh Senapaty

That is correct.

Ashwin Mehta – Mangal Keshav Securities

Just another thing in terms of – what has been the contribution from Citos in this particular quarter?

Suresh Senapaty

Citos for the quarter $20 million, which was a rate (inaudible).

Ashwin Mehta – Mangal Keshav Securities

Okay. And last thing, in terms of revenue from others continues to decline for us of the order of in excess of 20% sequentially, when do we think that particular business will start to move again?

Suresh Senapaty

There are two pieces there. One is the India piece and the other is Middle East. So as the quarter one was good for both, quarter two we saw softness in one. Quarter three and four we saw (inaudible). As you have seen, we hoped for the quarter one to be failure in India, which means hopefully now on India would look good in relative terms on (inaudible). So Europe will be (inaudible) quarters.

Ashwin Mehta – Mangal Keshav Securities

Okay. Thanks a lot.

Operator

Thank you very much, sir. Next in line we have (inaudible). Over to you, sir.

Unidentified Analyst

Hi. I just wanted to understand on the re-fixing of the costs that have been measured and that have been taken. To what extent is the potential for further cost reductions leveling the company, number one? And number two, could we get some sense of in terms of employee cost? What is the position of the total employee cost which would be given as variable component?

Girish Paranjpe

Hi. This is Girish Paranjpe.

Unidentified Analyst

Hi, Girish.

Girish Paranjpe

I think the opportunity for being more efficient in cost is in (inaudible). One is with some of the acquisitions that we had made that was opportunity to kind of minimize cost there. There is also opportunity to be more efficient if some of our G&A related activities. So – another is operational that’s (inaudible) onsite, offshore or the utilization percentage that we have (inaudible). So that’s what we’re going to work on. As far as the variable fee is concerned, it actually varies by grade. At junior levels, it is much lower, around 10%, 15%. And at very senior levels, it is as high as 40%.

Unidentified Analyst

As high as?

Girish Paranjpe

40%.

Unidentified Analyst

Okay, thank you very much.

Operator

Thank you very much, sir. Next in line we have Mr. Vihang Naik from Motilal Oswal. Over to you, sir.

Vihang Naik – Motilal Oswal

Hello. Yes, thanks for taking my question. I was just intrigued about why you had such a high volume growth in this particular quarter at about 6.3%.

Girish Paranjpe

Yes, Girish Paranjpe again. So the volume growth is particularly severe and it was really led by declines in two various sectors. One is in hi-tech and the other was in financial services where we had more or less (inaudible) and you will see a relative performance against competition. We have done – overall we have done better and we were able to hold out much stronger for the first yearly [ph] quarter. But at the end of ’08, end of the calendar year, we had to wind down some projects, which is what led to that volume decline.

Vihang Naik – Motilal Oswal

Okay. So, is the effect of this winding down of these projects, I mean, could it be seen in the next year quarter or also or couple of quarters?

Girish Paranjpe

I think if further decline happened, is that what you are asking?

Vihang Naik – Motilal Oswal

Yes.

Girish Paranjpe

So, clearly what – at the beginning of ’08, ’09, we will be putting plans in the field [ph] of our projects. It was not as if everybody wants to shop on January 1. It was done in a phase manner. So some of it got kind of stopped immediately. Some of the other projects that we get wound up over the next one or two quarters. So we would not rule out decline in volume in [ph] this quarter or maybe somewhat in the next quarter.

Vihang Naik – Motilal Oswal

Okay. And secondly, we seem to be quite positive about things – our expectations for FY ’10. I mean, are we seeing markedly different pricing performance than what some of our peers have commented, namely TCS had set a single-digit pricing decline and INFY expecting about 6.0% to 6.5% decline? Are we seeing pricing holding up for us in a much better way than these companies?

Suresh Vaswani

This is Suresh Vaswani here. Maybe we are not seeing it as low as they are seeing it, but we are certainly seeing challenges so far as pricing is concerned. And we would roughly estimate price realization challenges so to speak in the band of 0% to 5%. We’ve been able to – like I covered earlier, we’ve been able to hold up, actually increase our pricing in the last year. And broadly we would guide the same strategy in terms of (inaudible) by moving them towards fixed price project and therefore giving them a lower cost (inaudible), at the same time, driving our efficiency so that we are able to sustain margins. But just broadly, the quick single point answer to your question, we would not anticipate it to be anything lower than 5%, so in a band of 0% to 5%.

Vihang Naik – Motilal Oswal

Okay, that was helpful. And lastly, just however assumptions FY ’10 and FY ’11, as well as the tax rate is concerned to you because of the lower growth assumption or something?

Suresh Senapaty

Well, we think based on what we’ve seen and how the projects are picking up (inaudible) the delta which are really ETR, effective tax rate, will be within 100 to 200 basis points.

Vihang Naik – Motilal Oswal

For FY ’10?

Suresh Senapaty

Yes.

Vihang Naik – Motilal Oswal

Okay. And post the sunset clause?

Suresh Senapaty

On that, it’s difficult to predict it now. But obviously we used to be around the similar ranges and thereafter.

Vihang Naik – Motilal Oswal

Okay, thanks. (inaudible)

Operator

Thank you very much, sir. Next in line we have Mr. Anthony Miller from TechMarket. Over to you, sir.

Anthony Miller – TechMarket

Hi, gentlemen. I’ve got a couple of questions around Europe if I may, please. Firstly, if you were to look at Europe in constant currency terms, can you let me know what the growth was in the quarter, please, and indeed over the year?

Suresh Senapaty

The growth in Europe on a constant currency basis has been close to 20%. On a (inaudible) but you factor into – account for constant currency, it’s significantly high.

Anthony Miller – TechMarket

Is that for the year or for the quarter?

Suresh Senapaty

I was talking about the year. I was talking about the full year. So full year –

Anthony Miller – TechMarket

If we just – if you could just tell me for the quarter –

Suresh Senapaty

I’m sorry, let me just correct myself. Constant currency growth in Europe year-on-year is (inaudible).

Anthony Miller – TechMarket

And for the quarter?

Unidentified Speaker

Sequentially, on a quarter-on-quarter basis, on a constant currency, it is minus 0.4 – minus 4%. And year-on-year, that is quarter four of the current year versus quarter four of last year is 11.3%.

Anthony Miller – TechMarket

So it’s – was that minus 4% or minus 0.4%?

Unidentified Speaker

It is minus 4% sequentially.

Anthony Miller – TechMarket

Got it, thank you. And then just looking at the UK in particular, can you remind me roughly how much of your European business comes from the UK and also whether you are seeing any different demand trends in the UK versus the US?

Suresh Vaswani

See, the business that comes from UK versus Europe is 60%. 60% of our business comes from UK versus Europe. So then the 40% comes from (inaudible). And your question was in context for demand between US and –

Anthony Miller – TechMarket

Yes. Sorry, in terms of whether the trend is really different between UK and US, either by vertical or service line demand?

Suresh Vaswani

I would say that the demand terms [ph] are pretty similar. So if one looks at the former going forward, on an overall basis, it is broadly similar in terms of the growth that we would expect in US and Europe going forward. So it’s not that Europe is significantly higher or significantly lower.

Anthony Miller – TechMarket

Okay. And finally, in Continental Europe, are there any sort of bright spots for you? Are you finding that you are able to make any headway in some of the major markets?

Suresh Vaswani

Well, we’ve certainly enhanced our focus this year – or last year and we will continue to do that in France and Germany. So we are investing in these areas – we are investing in these areas because we see more openness in so far as outsourcing is concerned (inaudible) in terms of our model. And therefore that is a drag from our side.

Anthony Miller – TechMarket

Great. Thank you very much.

Operator

Thank you very much, sir. Next question comes from Ms. Shadda Varma [ph] with Viddharth Advisors [ph]. Over to you, Ma’am.

Shadda Varma – Viddharth Advisors

Yes, hi. I just have one question to ask, that – what proportion of our cash reserves would be available for acquisition in the future?

Suresh Senapaty

Well, we already have about $350 million of (inaudible). We have free cash of about $150 million. We have cash in hand [ph] that we keep delivering every quarter (inaudible). We have enough in terms of what we have planned for from an acquisition perspective.

Shadda Varma – Viddharth Advisors

Okay. But what – could you just give me an idea of what proportion would be utilized for – or available for acquisition roughly?

Suresh Senapaty

Like I said, we have cash within more than $1 billion. But based on the long-term (inaudible) because the cash that we have and the external commercial borrowing, which we have, because they are the long-term sources, and therefore they would be available when we need for acquisitions.

Shadda Varma – Viddharth Advisors

Okay, are we planning for some acquisition in the near future?

Suresh Senapaty

Well, we haven't stopped or acquisition. We are currently focused on definitely trying to see how we can generate more value for ourselves on the acquisitions we have done, and we are pretty selective, and our filters have been more tightened, particularly during the current environment, and we have done through the last few years, and so far the results have been good. We will continue to look for our own niches in terms of what we are looking at establishing (inaudible) in terms of fulfillment of (inaudible) or any kind of specialization.

Shadda Varma – Viddharth Advisors

Okay, thank you so much.

Operator

Thank you very much ma'am. Next in line we have Ms. Subhashini Gurumurthy from JM Financial. Over to you, ma'am.

Subhashini Gurumurthy – JM Financial

Hi, most of my questions have been answered. Just wanted to know whether there has been –

Suresh Senapaty

Louder please.

Subhashini Gurumurthy – JM Financial

Yes. Just wanted to know if there has been any change in the variable pay during this quarter?

Suresh Senapaty

There is no change because the variable pay we described in the beginning of the year, and there is no change now.

Subhashini Gurumurthy – JM Financial

So it has not been lowered as compared to the last quarter?

Suresh Senapaty

No, because it is – the pay is not being lowered. What we will get paid depends on how they perform against the plans.

Subhashini Gurumurthy – JM Financial

Okay sure. That is all from my side. Thanks.

Operator

Thank you very much ma'am. Next in line we have Mr. Yogesh from HSBC Securities. Over to you, sir.

Yogesh Aggarwal – HSBC Securities

Hi guys, I just have one quick question, if I may, just following up from one previous question where for global IT services volumes are down 6%. I would assume that would mean there is a good strength Infocrossing and BPO segment. Just trying to understand what is driving the strength in BPO, and secondly what is the current capacity utilization in Infocrossing?

Suresh Vaswani

Okay this is Suresh Vaswani here. I will comment both on BPO and Infocrossing. So our BPO business has done well this year. We've had a growth of around 20% year-on-year on BPO, and order of bookings so to speak, this year also has been significantly above what it was in the previous year. So that is one trend we see. Clearly, as customers are looking for some serious cost transformation, they have to look beyond IT, they have to look at process, and start looking at process transformation. And given our thrust is really on the Infocrossing side, we're seeing some good activity, some great activity on our BPO business.

Moving to Infocrossing, Infocrossing again similar to BPO has had a fairly healthy (inaudible) this year. We had one significant deal of significant magnitude. And the order booking just to give you an indication has been three fourths [ph] of what it was in the previous year. So, we see a good backline coming in. We see good integration with our infrastructure services (inaudible), and everything looks good going forward as far as our Infocrossing businesses is concerned. On capacity utilization, I'm just giving you a broad number, we will reconfirm that, but it will be in excess of 60%. It will be in excess of 60% of capacity utilization of (inaudible).

Suresh Senapaty

And Yogesh, when we talked about volume, we talked about 60%, which is exclusive of (inaudible), the acquisition that we did in the last quarter. Consequently when you (inaudible) at the IT services level that gets added. This is a gross number, exclusive of Infocrossing, exclusion of the acquisition that we did in the quarter 4, and exclusive of BPO. (inaudible) Infocrossing and BPO, I like to do that (inaudible).

Yogesh Aggarwal – HSBC Securities

Perfect. Thanks.

Operator

Thank you very much sir. Next in line, we have Mr. Kunal Dayal from Merrill Lynch. Over to you sir.

Mithali Gosh – Merrill Lynch

Hi good afternoon. This is Mithali. I'm just trying to get a sense of what the visibility is at this point in terms of the demand environment, and in that context it would be very helpful if you could share, you know, maybe what proportion of your customers have actually closed their budgets, what they are looking in terms of, you know, sort of growth and spend including the growth in offshore. And is there commitment of work taking place, and yes, what is the nature of work that is being discussed?

Suresh Vaswani

Mithali, this is Suresh Vaswani here. Like we commented earlier, we do certainly see a lot of customer activity with us. We see a fairly heavy, robust funnel going forward into this year, let us say compared to what we saw last year. We see it across all the sectors. So it is not sector restricted to one or the other. Even in some of what – even in some of our slower sectors last year like telecom and technology, we're seeing a good healthy (inaudible), and that is the rough paintbrush, so to speak, on the demand side. Now mind you, we have worked very closely with customers, (inaudible) last year to generate demand. So we have invested in consulting resources, we have invested (inaudible). We have enhanced our client engagement capability. So all of the investments have broadened, and we're beginning to see a manifestation of that in terms of our funnel looking forward.

Mithali Gosh – Merrill Lynch

Suresh, if I can just follow up on that, you know, just in terms of the customers you have spoken to, what is the situation on whether they have closed budgets and how many have closed budgets and what is the growth they are looking at. Do you have any data on that?

Suresh Vaswani

Well, I will tell you. One broad answer could be as customers are looking at budget cuts, and therefore they are looking at let us say between a 0% to 10% budget cut, which will be what they would have planned for last year. So they started cutting budgets on a quarter-on-quarter basis as we finished last year. But broadly the mood is slightly different from what it was say six months back. I mean they have to get ahead with business. They have to get ahead with implementing IT systems. They have to get ahead with newer business models. So the sense that one is getting is the requirement is, look I want more for less. So many, many customers I have met, they have kept their budgets flat, and they want more work done for the same budgets. Some customers I have met, who have actually enhanced their budgets, because they want to invest in a lot more customer facing systems, you know, a system that enhances customer experience, CRM and so on and so forth. So people are beginning to look at more demand generation systems from their perspectives then they were otherwise looking at. There is no consistent pattern. Some customers are talking about enhanced budgets. Some customers flat, but want more for less, and there are a segment of customers, who are looking at budget declines. But that is anywhere between 0% to 10%. (inaudible) more than that, particularly talking about IT services. I'm not talking about the hardware budgets and the (inaudible) budgets, which tend to get a sharper of the – we tend to get back to the sharper (inaudible). If you talk to Girish Paranjpe my colleague, and if you ask him about his IT budgets, he has probably cut down the hardware budgets a lot more than you would be cutting down the services budgets.

Mithali Gosh – Merrill Lynch

Sure, are you seeing your offshore spend actually increasing within that in absolute terms?

Suresh Vaswani

You know, we have been able to drive, if you look at our last year numbers in terms of operating metrics, the offshore mix–

Mithali Gosh – Merrill Lynch

Sir, sorry to interrupt. I mean in terms of offshore spending by the customers.

Suresh Vaswani

Yes, you know, let me try and answer that question. I'm not sure that is completely understood. But the drive is towards reducing cost, and logically therefore the drive is towards driving more business offshore. And you know, when customers come to us with a fixed sized project, and they talk about (inaudible), then one of the parameters that we have or one of the levers that we have is really driving more business offshore.

Mithali Gosh – Merrill Lynch

Right. Okay, and just in terms of the kind of work that is being discussed, I think you sort of briefly touched, but is there any trends we can talk of in terms of, are you seeing more interest in, for instance, in infrastructure related work or maintenance related work, and you know, anything at all to take away that?

Suresh Vaswani

You know, as one looks at our deal and flow last year, you know, one significant change is (inaudible) system integration type of deals that we have got has been significantly higher than what we are won in the previous years. So for example (inaudible). It is an end-to-end deal. It is all about implementing a (inaudible), which transforms the customer experience as well as implementing a full-fledged back-office with SAP for them. (inaudible) was a similar deal. If you talk about the deal that we won on the R&D side, (inaudible), again that was a lot more correlation on the R&D side. So basically customers are beginning to look at just much more beyond outsourcing to India, outsourcing to India and paying them more. They are really looking at much more value. And then therefore looking at players who can give that sort of value to them. So it is much more about value driven change rather than just driving offshore to India, and therefore getting cost benefits on (inaudible). Customers are looking for much beyond that.

Mithali Gosh – Merrill Lynch

Right, and just I guess one quick question because I probably almost stretched but –

Suresh Vaswani

Go ahead with that question.

Mithali Gosh – Merrill Lynch

I was just quickly wanting to check that for fiscal ’10 how much work as a proportion of revenues is covered, and what is the rough realized rate that one should look at?

Suresh Vaswani

If you can repeat that question Mithali. I haven't completely heard that.

Mithali Gosh – Merrill Lynch

This is for Suresh. Just what proportion of revenue is hedged for FY 10, and what is the sort of average sort of realized rate that one should look at?

Suresh Vaswani

We said that, (inaudible) 31st March. But one-third of that OTI will flow into (inaudible).

Mithali Gosh – Merrill Lynch

Okay, thank you so much.

Operator

Thank you very much ma'am. Next in line we have Mr. Darmendra Gandhi [ph] from Nomura. Over to you sir.

Darmendra Gandhi – Nomura

Hi, I just wanted to ask you to what extent we can increase the fixed price projects, and based on your vast experience is there, what is the quantification of margin or pricing lever you get for every hundred business points of revenue shift from T&M to fixed price.

Suresh Senapaty

I think (inaudible) is the indicator, because fixed price (inaudible). We do development type of work on fixed-price basis, and we do application management type of work on a fixed cost basis. When we do application management type of work and that too where we have managed to get the clients to do it on our platform are on (inaudible) business model. The margins are significantly superior to what we do on a (inaudible). When it comes to development projects, on fixed-price there the margin is there, but it is really at a premium rather than (inaudible).

Suresh Vaswani

The bottom-line here is in the fixed-price you negotiate pricing with a particular productivity, which is what you actually deliver. So just because it is the fixed-price not necessarily that it could be good, because there is a risk there. It could be worse. So all what I'm saying is that (inaudible) particular process, and therefore some amount of benefit is flowing through.

Darmendra Gandhi – Nomura

So what you see is existing projects getting changed to – investing T&M projects getting changed to fixed-price, not the new projects, that is contributing to the increase in fixed-price projects for the company?

Suresh Senapaty

You should understand it. It is not only the existing T&M engagement getting into fixed-price, but winning new deals on a full fixed-price basis on a totally outsourced manner. So that is contributing to fixed-price. The percentage in some cases where it was T&M conversion, where we have refactored the work. So instead of having (inaudible), we have pulled it all together and made into a managed service, and then sold it on a fixed-price basis. So whichever way you look at it, if you do application management on a fixed-price basis, and it is sold and exhibited in the right way it is margin.

Suresh Vaswani

You know, I just wanted to give one clarification really Antony has raised that question on growth in Europe in terms of constant currency versus reported currency. So the growth in Europe on a reported currency basis is 12.7%. The growth in Europe on a constant currency basis is 20% is what I had indicated earlier. So Europe is growing 20% on a constant currency basis. I just thought I would clarify that because that has to do with Europe demand and so on. And I had commented that the markets in both US and Europe are quite similar.

Darmendra Gandhi – Nomura

Okay, I just wanted to ask you one more question, is there – are you done with the price negotiation for the majority of your top clients or do you think there could be negative for some clients may be busy whatever they did, they have some problems in their business, and in some point of time they may come back to you without asking you price cuts, which you are not seeing right now and may happen later?

Suresh Senapaty

Yes, you can never predict these things because the economic pain [ph] really gets worse, clients will look all around to see who can help them share it. So you cannot say like this (inaudible) for the next 12 months. But broadly speaking, and that is why we are a little bit more optimistic that since in the affected sectors much of the pain has already been kind of weathered, and we have kind of either done with (inaudible), we think the uncertainty is little lower in this respect for ’09 or ’10.

Darmendra Gandhi – Nomura

Thank you.

Operator

Thank you very much sir. Next in line we have Mr. Yogesh Pari [ph] from Alchemcy Shares. Over to you sir.

Yogesh Pari – Alchemcy Shares

Sir, can you elaborate based on the number of the Infocrossing, because there are now something like 7 to 8 quarters into the acquisition of that?

Suresh Senapaty

(inaudible)

Yogesh Pari – Alchemcy Shares

Sir, can you elaborate based on the numbers of the Infocrossing?

Suresh Senapaty

You know, Infocrossing we have integrated into our overall IT infrastructure business, so it is no more a separate kind of thing. We pick up an order, whether it is here or there. So as you have seen in the organizational change that we have done, the healthcare piece gets done separately, but otherwise the IPO piece is now part and parcel of the IT infrastructure.

Girish Paranjpe

So (inaudible) that we reported, technology infrastructure services revenue, includes our India infrastructure services business, and includes our global infrastructure services business. So we are looking at that segment as one integrated service. We have reported revenue of around 8.7% [ph] there with the global 35% year-on-year last year.

Yogesh Pari – Alchemcy Shares

Okay. Thank you.

Operator

Thank you very much sir. Next in line we have Mr. Pankaj Kapoor from ABN Amro. Over to you sir.

Pankaj Kapoor – ABN Amro

Yes. Hi sir. Congratulation on good numbers. Just a question on the next quarter guidance, can you just elaborate what kind of a pricing and volume assumption that you have built-in in the next quarter guidance please?

Suresh Senapaty

All we are saying is that we’ve seen the impact of both in quarter one.

Pankaj Kapoor – ABN Amro

Hello. Sir, if you can repeat that please. I was not able to understand.

Suresh Senapaty

We will have the impact of both in quarter one because like Girish stated, we have seen some of the ramp down particularly in the fixed sector as well as in the financial services in quarter 4, where the full impact of that has not come through (inaudible). Therefore, we will see a full impact of that in quarter 1 from a volume perspective. And pricing perspective, we haven't got impacted so far, but we will get some impact of that in quarter 1.

Pankaj Kapoor – ABN Amro

Is it possible to quantify that?

Suresh Senapaty

It would be part of that overall decline that we have.

Pankaj Kapoor – ABN Amro

Okay, and any revenue buildup is there from the small Nokia acquisition that we did, and if you can just give us a sense on what you would be paid for that if possible?

Suresh Senapaty

Yes. So first of all I think there is some misunderstanding. We have not paid any. It is not an acquisition. What is the kind of (inaudible) that Nokia was developing a technology platform for streaming TV on mobile handset and other mobile devices. They felt that we would – somebody like us, who is not aligned to any particular vendor or industry would be in a better position to develop and sell this, because they would not be able to resell it to any of their competitors, which is why we have agreed to take over some of the people that they had working on this platform. We had our own team. So jointly the team is going to do development of this technology, and then license it to multiple people including service providers as well as equipment vendors. So that broadly is the agreement. If our revenues from that business exceed a certain threshold, then Nokia is entitled to some royalty from this business.

Pankaj Kapoor – ABN Amro

Is there any kind of upfront payment for the IT that you have purchased?

Suresh Senapaty

No.

Pankaj Kapoor – ABN Amro

Okay. Thank you and all the best.

Operator

Thank you very much sir. Next in line we have Mr. Dinesh Mehta [ph] from Convella Securities [ph]. Over to you sir.

Dinesh Mehta – Convella Securities

Thanks. My question has been answered.

Operator

Thank you very much sir. Next in line we have Mr. Deepsha [ph] from ICICI Securities. Over to you sir.

Deepsha – ICICI Securities

Yes. Just in the FY 09, if you look at the growth in the India and Middle East and the BPO –

Suresh Senapaty

Could you speak little louder. We can’t hear you.

Deepsha – ICICI Securities

Yes. In the FY 09, if you look at the BPO and the India and Middle East, the growth is in upwards of 20%, and Infocrossing consolidation is also for additional of two quarters. So just looking at the global IT excluding Infocrossing, the growth according to me should be around 13%,14%. So do you believe that now in entering into FY 10 with some more optimistic view, this growth in the global IT also likely to be in line with the others?

Suresh Senapaty

See, 18.5% was our year-on-year dollar growth, and if we correct for the acquisition in quarter 4, and also part of the (inaudible) Infocrossing for the previous year, just for that the growth comes to 15%.

Deepsha – ICICI Securities

Okay, and because the BPO and also the Middle East and India the growth numbers are much higher. So what I'm asking is the all global IT business. You believe that growth is likely to under perform even in FY 10?

Suresh Senapaty

No. If you look at the industry perspective, global IT includes almost the Indian IT services. It is not the product that we were talking about. It includes Indian IT services, Middle East, as well as AsiaPac, which is for most of us rather than only us.

Suresh Vaswani

So, we’ve given, this is Suresh Vaswani here. We’ve given segment reporting on the (inaudible). US has grown 20% year-on-year. Europe, we just had a discussion on that. It is 12.7% or 20% in terms of constant currency, and India and Middle East has grown higher at 28.5%, other emerging markets have grown (inaudible).

Deepsha – ICICI Securities

Great. Just on the cost of revenue there is an absolute decline for the IT services, despite adding (inaudible) employees also. So can you elaborate on this?

Suresh Senapaty

Well, there has been some reduction in the headcount on-site with the combination of that. We are seeing significant shift that we have brought in terms of (inaudible).

Deepsha – ICICI Securities

Okay. Just the last thing is, like our comments are more optimistic, and we are seeing an up-tick in FY10 versus our peers, who doesn’t have much clarity in terms of the FY10 growth. So can you elaborate one or two USPs, where Wipro is gaining versus peers, is it like BPO with a higher relative weightage as well as Infocrossing, and the remote infrastructure management is giving us more entry dose in the new deals versus peers.

Suresh Senapaty

A few things actually, so can’t single out one thing, but broadly we have invested in our customers last year. We had invested in demand generation. So that (inaudible). Two, we certainly have a more wider, more comprehensive service line so to speak compared to most of our peers. So we have BPO fairly strong. We have infrastructure services, Infocrossing that (inaudible). We have security, we have phishing, we have package implementation, we have (inaudible), and that coupled with all the (inaudible) that is domain capability and the solution integration capability that we built up sort of puts us in a good position to drive, you know the type of business that we’ve spoken about, system integration as well as (inaudible), as well as application support.

The third factor, which sort of works in our favor is the geography effect. So, we gave you an indication that US is 20% growth, Europe is 12% growth, but some of our geographies like India and Middle East, and that's now no longer on a very small base, has grown 28.5%. Our other emerging markets like Australia and ASEAN, where we have continuously invested over the last three or four years have shown a, you know, fairly strong fillip in terms of growth at 22%. I think they are very well balanced in terms of service portfolio, in terms of SBU strength, in terms of geography spread, and that is making us feel a lot more confident I guess in terms of what we see as the outlook right now.

Deepsha – ICICI Securities

Okay. Thanks and congrats on a good quarter.

Rajendra Shreemal

Thank you. Can we have a last question operator?

Operator

Sure sir. The last question comes from Mr. Desh Yadav [ph] from UTI Mutual Fund. Over to you sir.

Desh Yadav – UTI Mutual Fund

Sir this question is regarding cash balance on quarter-on-quarter. I believe, we have increased debt by 1000 crores quarter-on-quarter. Any specific reason for that in spite of we generating 1500 crores cash flow from operation?

Suresh Senapaty

No, they are normal short-term debt, so we keep picking it, and returning it at the best so that (inaudible).

Desh Yadav – UTI Mutual Fund

But on the counter side like the cash balance if you see current account of Wells Fargo Bank has increased by 1000 crores from the quarter-on-quarter. So are we planning some onsite – doing some acquisition or we are planning some on-site CapEx or something?

Suresh Senapaty

Beginning 31st March, there is an extra accumulation of (inaudible).

Desh Yadav – UTI Mutual Fund

Okay, regarding fixed price project as it is increasing, are clients demanding some sort of guarantee or performance guarantee and are you giving those – such kind of guarantees to clients?

Suresh Senapaty

No performance guarantees but there are SLAs, and there are kind of bonuses and penalties treating SLAs.

Desh Yadav – UTI Mutual Fund

And have those kind of penalties have been get more strict over a period of time in last one year, like as things have –

Suresh Senapaty

No, I think more or less they are in the same ball park, and typically, we tend to do better on the SLAs than what they are. So we tend to be more (inaudible).

Desh Yadav – UTI Mutual Fund

And another question regarding the OCI loss, we have some 1500 crores (inaudible). How much would we do cash outgo of that OCL like, as a similar kind of cash outgo of some 1400 crores this year?

Suresh Senapaty

That’s already happened.

Desh Yadav – UTI Mutual Fund

1200 crores [ph]. So how much would have happened in next year?

Suresh Senapaty

No, most of it has happened, but if rupee were to depreciate more –

Desh Yadav – UTI Mutual Fund

Yes.

Suresh Senapaty

On those hedges, then well, I think most of it is a spread out. So it may not, I don’t think in ’09, ‘10 there will be any significant amount.

Desh Yadav – UTI Mutual Fund

Okay. Yes. Hello?

Suresh Senapaty

Yes. So 2009-2010 there will be no significant effect.

Desh Yadav – UTI Mutual Fund

Okay. That’s on my side. Thanks.

Suresh Senapaty

All right, thank you.

Operator

Thank you very much, sir. At this moment –

Suresh Senapaty

Thank you, Sandhya.

Operator

Sure sir. At this moment, I would like to hand over the flow back to Mr. Rajendra Shreemal for final remarks. Ladies and gentlemen, thank you for choosing WebEx conferencing service. That concludes this conference call. Thank you for your participation. You may now disconnect your lines. Thank you and have a nice day.

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Source: Wipro Limited F4Q08 (Qtr End 03/31/09) Earnings Call Transcript
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