Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)

Wipro (NYSE:WIT)

Q4 2013 Earnings Call

April 19, 2013 9:15 am ET

Executives

Ramasubbu Sridharan - Chief Financial Officer of Americas & Europe

Suresh C. Senapaty - Chief Financial Officer, Executive Director and Member of Administrative/Shareholders & Investors Grievance Committee

T. K. Kurien - Chief Executive Officer of Information Technology Business, Executive Director and Member of Administrative/Shareholders & Investors Grievance Committee

Jatin Dalal - Chief Financial Officer of IT Business

B. M. Bhanumurthy - Chief Business Operations Officer

N. S. Bala - Senior Vice President of Manufacturing & Hi-Tech

Saurabh Govil - Senior Vice President of Human Resources

Anand Sankaran - Senior Vice President of Wipro Infotech & Global Infrastructure Services

Analysts

Joseph D. Foresi - Janney Montgomery Scott LLC, Research Division

Moshe Katri - Cowen and Company, LLC, Research Division

Trip Chowdhry - Global Equities Research, LLC

Jesse Hulsing - Pacific Crest Securities, Inc., Research Division

Richard Eskelsen - Wells Fargo Securities, LLC, Research Division

Swami Shanmugasundaram - Morningstar Inc., Research Division

Keith F. Bachman - BMO Capital Markets Canada

Avishai Kantor - Cowen and Company, LLC, Research Division

Shashi Bhusan - Prabhudas Lilladher Pvt Ltd., Research Division

Operator

Ladies and gentlemen, good day, and welcome to the Wipro Limited Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.

I would now like to hand the conference over to Mr. Sridhar Ramasubbu. Thank you, and over to you, sir.

Ramasubbu Sridharan

Thanks, Marina. Good day to all. This is Sridhar, and I'm joined by Manoj and Aravind from IR team in Bangalore. And on behalf of the entire Wipro team, they extend a very warm welcome to all of you. We are pleased to post Wipro's 4Q FY '13 earnings call. Hope you have received or seen the press release we issued yesterday, late night EST. And we'll have time for Q&A at the end.

On August 2, 2012, we announced our strategic intent regarding the Scheme of Arrangement for the demerger of the Diversified Business of Wipro. We are happy to inform you that the necessary court and regulatory approvals have been obtained, and the demerger process is now complete. The financials from April 1, 2013, for fiscal FY '14 for [indiscernible] company will be a pure-play IT business organization.

The format for today's earnings call is as follows: We have Suresh Senapaty, Corporate CFO; and T.K. Kurien, CEO of Wipro IT business with us. They are joined by [indiscernible], and other senior members of the Wipro management team will be happy to answer your questions.

As always, elements of this call and the management's view may be characterized as forward-looking under the Private Securities Litigation Reform Act 1995, and are based on management's current expectation and are associated with uncertainty and risks, which could cause actual results to differ materially from those expected. These uncertainties and risk factors have been explained in detail in our filings with Securities and Exchange Commission of the U.S. We do 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 4Q FY '13 results will be followed by Q&A. The operator will walk you through the Q&A process. The entire earnings call proceedings are being archived, and transcripts will be made available after the call at our company website. A replay of today's earnings call proceedings will also be available via telephone post the call.

During this call, I'm also available on e-mail and through mobile, as well to take any questions and statements of the Wipro team in case you're unable to ask questions for any technical reasons.

Ladies and gentlemen, over to Bangalore for management commentary.

Suresh C. Senapaty

A very good day to the ladies and gentlemen in the United States and Europe, and good evening to those of you in Asia. Before I delve into our financials, please note that for the convenience of readers, our IFRS financial statements have been translated into dollars at the noon buying rate in New York City on 31st March 2013, for cable transfers in Indian rupees, as certified by the Federal Reserve Board of New York, which was $1 equal to INR 54.52. Accordingly, revenues of our IT Services segment was $1,585 million or in rupee terms, INR 86 billion, appears in our earnings release as INR 1,569 million based on the convenience translation.

The Scheme of Arrangement for the demerger of Diversified Business is effective from 31st March 2013, with appointed date of 1st April 2012. Therefore, under IFRS, the Diversified Business will be shown as discontinued operation through 31st March 2013, while it is not considered under the Indian GAAP.

Total revenues for the quarter were INR 110 billion, an increase of 12% year-on-year. Total revenues for the year were INR 434 billion, an increase of 16% year-on-year. Total income for the quarter was INR 17.3 billion, an increase of 17% year-on-year. Total net income for this year was INR 66.4 billion, an increase of 19% year-on-year. In IT Services, our revenue for the quarter ending 31st March 2013, was $1,599 million on constant currency, a sequential growth of 1.4%, within our guidance range of $1,585 million to $1,625 million. For the full year, we delivered year-on-year growth at constant currency of 7.4%.

On a vertical perspective, we had strong performance sequentially on constant currency terms in energy, natural resources and utility, manufacturing and high-tech, health care and life sciences. From the service line perspective, infrastructure services continued to perform well, growing 4% on a sequential basis. Volume growth in the quarter was 2.5% on the back of ramp-ups from new deal wins. Our realization declined, impacted by cost currency, low working days and change in business mix. The disconnect between the traditional way of looking at revenue both in terms of portion won and rate is increasingly becoming obsolete in the current environment. Hence, going forward, from next quarter, we will discontinue providing rates and volume growth data.

Margin declined by 50 basis points, primarily on account of ForEx, which had a negative impact of 70 basis points. Our realized rate for the quarter was INR 53.96 versus a rate of INR 54.54 realized for the last quarter. As of period end, we had about $2.1 billion of ForEx contracts. Our IT Products business grew by 15% on a year-on-year basis. Consumer Care and Lighting business was -- as a part of our discontinued operations, continues to see good momentum with revenue growth of 15% year-on-year and operating profit growth of 18% for the quarter. The effective tax rate for the quarter is 20.2% and 21.5% for the year.

For the quarter, we generated operating cash flow of INR 18 billion, which was 105% of the net income. And for the year, we generated INR 70 billion of operating cash flow, which is 196% of the net income for the year.

I now hand over to Kurien for the highlights on the IT business.

T. K. Kurien

Good morning, everyone. It's a pleasure to meet all of you on the floor. Our results for the fourth quarter and for the full year have been with you for some time. We have delivered our revenue guidance -- dollar revenue sequential growth of 1.4% in constant currency for the quarter, which is in line with our guidance.

Let me give you a sense of the demand environment as we see it. On one hand, we continue to see opportunity in the market, and there is more positive commentary on IT spend, particularly in the U.S. On the other hand, we have seen certain areas in our portfolio that have been impacted by delays in discretionary spend. These factors, coupled with seasonal weakness in our quarter 1 of our India and Middle East business, have resulted in our current outlook for quarter 1. However, we see the demand environment picking up from the next quarter. On the backdrop of this demand environment, we continue to focus on building associations and value creation at the customer end and driving operational efficiencies in core delivery functions. All our current initiatives on customer growth and execution are driven by this long-term approach.

On the customer front, we have done well in driving customer value and revenue growth of the technical account management. Our [indiscernible] customer count has increased 7 to 10. Our top 10 accounts have grown at 17% for the year, much higher than the company average. As mentioned earlier, while we see delays in discretionary spend in banking and financial services, we have seen good momentum in energy and utility, health care and manufacturing. From a service line perspective, we saw growth in infrastructure services and consulting. Infrastructure services continues to be the biggest driver of growth in the [indiscernible] we are focused on increasing our footprint and ensuring the availability of these deals. We've added 192 new customers in fiscal '13 as against 117 in fiscal '12. We've added 2 new logos in the last quarter, a reflection of our increased investment in IT. Our customers are also seeing increased value that we are delivering. We have seen significant improvement in Net Promoter Score, up 13.6%. And overall customer satisfaction score is up 7% over the year.

On the execution front, the focus is in dealing in revenue growth from headcount, while non-linear initiatives and leveraging processes and tools in order to raise the productivity, quality and capability. Our initiative on automation and standardization are allowing us to deliver greater customer value through faster execution cycles, increased productivity and more favorable cost data. Revenue productivity for the year increased 4.2% onshore and 2.7% offshore, driven primarily by proximity. We have focused in emerging areas and new technology paradigms to address the customer needs to optimize the technology spend and for driving better business outcome.

In the on-cloud space, Wipro has won multiple deals, including a multi-country cloud-based CRM rollout, covering 15,000 users in 50 countries, and a cloud-based human capital management solution, touching close to about 10,000 customers. We've also won an end-to-end cloud operations management deal from energy majors to be delivered from our Cloud Command Center. In the big data space, key engagements include buildup from machine learning-based recommendation engine to drive personalized recommendations and an architectural blueprint to drive realtime analytics in certain projects. We continue to score banks with significant work in customer analytics and asset pricing validation.

Finally, we recognize that we are the people's business, and our strategies will work only as well as the quality of the people, the training that we give them and the level of engagement. Volunteer attrition stood 13.7% for the year, a 3.7% drop from the last year and the annualized attrition of 12.5% for quarter 4 was the lowest rate in the last 2 years. Our wage hikes are based upon our annual compensation review, is conducted every June, and we will stick to it. The quantum of the increase is determined closer to the date.

We have shifted our R&D focus in these skills, both in domain and technology areas. On sales confirmation, we have followed up on the structured assessment process that I have mentioned last quarter with the creation of individual development plans and focused training.

I want to conclude by saying that we continue to focus on our execution, and we're confident that they are on the right track. Thank you.

Over to questions.

Question-and-Answer Session

Operator

[Operator Instructions] The first question is from Joseph Foresi from Janney Montgomery Scott.

Joseph D. Foresi - Janney Montgomery Scott LLC, Research Division

I wonder if you could talk a little bit about the June guidance or outlook, where are the puts and takes? I know you discussed discretionary spending and some of the other areas that are positive or negative. But it seems like we haven't hit an inflection point yet from an acceleration standpoint. So I'm just trying to understand what's causing that guidance from a macro perspective and a company-specific perspective.

T. K. Kurien

So here's what we see in the market, just to give you what's driving the quarter guidance. Typically, what happens is that in quarter 4 of our fiscal year, which is quarter 1 of the calendar year, we clearly see our India business kind of peaks, and India is a very substantial part of the overall Wipro services revenue. And then, there's a very sharp drop off in quarter 1. If you look at last year, last year our quarter 1, we had a negative 1.4% in terms of our reporting numbers. This year, we expect that the falloff in the numbers that we get from India would be compensated to some extent by our traditional outsourcing revenue that we get. But when we do our guidance, fundamentally, what we do is we take all the risks that we see, all the upside that we see, and we come to a specific judgment on what we should be guiding. The downside fundamentally reflects number one, the downturn that we see in the India business; to some extent, uncertainties around discretionary spend that may thicken; and third and most important will be our ability based upon both these risks to assume where we finally come up -- what number we finally come up with. So that's the basis of the – I think the whole guidance.

Joseph D. Foresi - Janney Montgomery Scott LLC, Research Division

Okay. On the discretionary spending side of things, it seems like as we go further through the quarter, that there seems to be different views and different performances within, particularly banking and financial services. Do you feel like -- maybe you could just talk a little bit about what's going on from a discretionary spending side in that vertical? And is this a customer-specific issues? Or do you think it's still broad-based that it remains to be muted?

T. K. Kurien

I think what we're seeing is this, on the retail banking side, they don't see too much of -- we see discretionary spending happening. But unfortunately, for us, from our portfolio, we don't have very many large retail banks. Our portfolio is all weighted towards investment banking. And investment banking, we still see and continue to see tracks in terms of discretionary spending which happen sporadically. Now I think that's been one of the biggest reasons why we cannot really estimate as to how much discretionary spending will come. On insurance, if you look at our business, our business is heavily all weighted towards discretionary spend. And large program which run more on a longer period of time, typically don't get cut, but smaller process, especially on the digital side, tend to come on and off depending upon what -- actually what we think. So from our perspective, you just look at banking and financial services, net-net, investment banking weak, retail banking decision spending is strong, but our client base is weak. Investment on insurance, we see deficient -- very deficient spend happening, but it's fundamentally -- in our customer base, it tends to be spotty. I think that's the real reason.

Joseph D. Foresi - Janney Montgomery Scott LLC, Research Division

Okay, that's very helpful. And then my last question here, and I think as I understand it, the pricing declined for a variety of reasons, but doesn't sound like it's related to the demand environment. Maybe if you walk us through a decision to stop giving volume and pricing numbers going forward and talk about what the pricing environment's like out there and how we should think about that in relation to what happened this quarter.

Jatin Dalal

Yes, this is Jatin. Let me talk to the current year numbers on pricing. While there is a quarterly volatility, if you take out the growing number of billing days and the impact of euro and pound depreciation, then the pricing volatility from Q3 to Q4 is approximately 1% both on-site and onshore -- on-site and offshore. And effectively, that is the nature of the business, 1% plus or minus every quarter you will get, depending upon the project. So this quarter, while the line number looks like it is largely driven by the cross-currency movement and number of days, they were available to bill on all this. Now coming to the second point on discontinuing to show volumes and pricing, moving forward, really, this is driven by the fact that earlier, our model was clearly about adding more and more and more volume. And in a stable pricing, that will be a great indicator of what the revenue is likely to be. But we are now where -- in the stage of industry where we are deploying a lot more automation tools and driving productivity in existing businesses, as well as pricing the new businesses, which are not linked with the number of people that we deploy, but really linked with outcomes that the customer wants us to address. Now in that environment, volume and pricing are very tightly integrated. And if quarterly reviews see volume up and pricing down, or vice versa, doesn't clearly tell the momentum or the quality of the revenue. And therefore, moving forward, we would give you our overall revenue number, which would be a good reflection of what we are working on, how we look at it internally, and we are making in volume trends realized.

T. K. Kurien

And Joe, very quickly, what happened was, in the last quarter, in the cost, we've got a lot of question, analysts saying that we're confusing them with these 2 numbers. And really, it was in response to that, that we decided that we would go ahead and stop it. But we didn't want to stop it at the end of the year. We wanted to make sure that we give everyone enough notice before we did it.

Operator

The next question is from Moshe Katri from Cowen and Company.

Moshe Katri - Cowen and Company, LLC, Research Division

[indiscernible] in terms of assumptions for volume curve [ph] and pricing in your quarterly guidance...

Ramasubbu Sridharan

Moshe, your voice is not really clear. Can you talk on the phone -- adjust your volume, please?

Moshe Katri - Cowen and Company, LLC, Research Division

Sure. What is embedded in your June quarter assumption -- June quarter guidance in terms of assumption for volume growth and pricing?

T. K. Kurien

So Moshe, as we just spoke and as we have disclosed, we won't be sharing volume and pricing going forward. But from an assumption standpoint, it is a reflection of typically volume with an annual range moment [ph] in pricing.

Moshe Katri - Cowen and Company, LLC, Research Division

Okay. And then can you comment on this currency in terms of the sequential growth rates that you have between your top 1 client, I think it was about 13%, and I believe your top 10 client and top 5 clients declined sequentially. Is there anything that we can kind of give us some more detail on that?

Suresh C. Senapaty

Yes. So Moshe, if you see our top client, as we mentioned, has grown handsomely between quarter 4 and -- quarter 3 and quarter 4. However, there are a number of customers in top 10 which are being impacted by the cross-currency movements which happened in [indiscernible] and euros. And to that extent, our -- all our top 10 customer growth is muted compared to what we have seen over previous quarters. But I must point out that for the full year, the top 10 customers in fiscal 2013 has grown at 17% [indiscernible] overall company growth rate. So we don't see -- I mean, we see that as a very positive indication of what we have been able to do with our account management factor, especially in the Mega/Gamma accounts.

Moshe Katri - Cowen and Company, LLC, Research Division

Okay. Now since your June quarterly guidance seems a bit conservative, typically just June quarter is strong for the industry, what is your -- and I know you don't provide guidance for the year, are you feeling better for the rest of the year? Do you feel -- what are your thoughts about growth rates vis-à-vis NASSCOM's expectation in terms of the industry? And then do you think that fiscal year 2013 will be a stronger year for you guys versus -- sorry, fiscal year 2014 will be stronger in terms of growth rates versus the year that you just closed?

T. K. Kurien

So Moshe, this is T.K. Very quickly, where we are sitting this year, I think we're sitting in a better position than the same time last year. I think that's important. We don't guide on a full year basis. I'm sure you know about this. So any comment about the NASSCOM guidance wouldn't be an appropriate comment given the circumstance. But all I can tell is that from a sentiment perspective, we're certainly feeling better right now than we were the same period last year.

Operator

The next question is from Trip Chowdhry from Global Equities Research.

Trip Chowdhry - Global Equities Research, LLC

A couple of questions here. First, in terms of new capabilities, of course, the market is changing, the new technologies are getting deployed. What is your sense, like what new capabilities does Wipro need to have in place? And what capabilities do you need to deemphasize?

T. K. Kurien

Well, broadly, if you look at our strategy, our strategy calls for differentiation in the brand and a significant level of standardization and automation at the bank. So the person who's driving our differentiation and driving from a technology perspective is Chagi [ph], who's sitting right next to me, and he can kind of give you a quick view of what's happening out there. On the standardization side, in terms of making sure that what we are doing in autonomics and everything else, Bhanu, who's the head of delivery can talk to that. And if you want a vertical color of what's happening in the industry, we can have N.S. Bala, who runs our manufacturing business to talk to it.

Unknown Executive

This is [indiscernible]. Just a comment on the work we are doing in terms of differentiation, the role of advanced technologies and the business cloud mobile and analytics and social. Actually, there are the real couple of plays, one is around technology transformation, which is optimizing client's IT investments; and then there is the second set of opportunities, which is really around disrupting and changing the way they do business. Combined, these technologies can create significant disruption, which is a positive for our clients. And we'll continue to focus in these areas, and we'll continue to focus in driving deals that will leverage, not just each of these areas as silos, but bring them all together.

B. M. Bhanumurthy

Trip, this Bhanu here. I can talk to you too about what we are doing in terms of standardizing the core of our operations. Two big elements, one is, as much as these technologies are revolutionizing the businesses of our customers, we're also using the same technologies to ensure that our billable operations become standardized. So for example, in very mature services such as both application management and infrastructure, we are adding significant amount of technology in eliminating the work for manual intervention there. We're also adding lot of analytics so that you can gain significant insights about customers' application of infrastructure environment and hence, build upon those insights to be ensured a standardization of service. So that's the one big element that we're doing. The second area is in terms of building additional competencies required for the organization. Again, we are using the technology to ensure that we impart the right level of training and the right amount of exposure to our teams, especially in the emerging technologies that Chagi talked about. So one is putting technology to use in the billable delivery service; two, putting technology to use in the way we get our people trained for getting ready for the marketplace. So both of that gets built in.

N. S. Bala

Trip, this is Bala, I head the manufacturing and the high-tech business, and it's good talking to you again. Just to give you an example of the differentiation to your question on how we're driving the changes upfront. I'll take one example of aftermarket services. We see a fair amount of interest in customers to drive a different level of engagement in the aftermarket post sale, warranty support, as well as connecting the customers. So for example, we have launched a platform wherein we are collecting data from products in the field and machines on the shop floor and combining that with transactional data to provide very different analytics to the enterprise. So there's a lot of interest in our customers, therefore, to use the platform for improved cloud efficiency, as well as an improved connect to customers for sale. So that's an example of what we're trying to do.

Trip Chowdhry - Global Equities Research, LLC

Beautiful. Something that we have observed in our research, and this is more of a comment, but I would like to see how you as a company would like to react to it. Like there are new-generation companies coming up like Waldb, which is providing in-memory database. And the business model is all about pretty much keeping the database free, but making money on the applications that can be created on top of which [indiscernible] are creating, whereas their partners are also creating. The value migration is literally moving up through the application layer more as self-contained applications. So what I was thinking is -- and this is not just Waldb, it's across the industry, where the lower level of stack, even like open stack is going to be given free, whereas the value is going to be created at the application level. For example, the companies like Pivotal is -- the business -- which has just forked out or spun out from EMC and VMware. The business model is changing. And I was thinking, like from a Wipro perspective, do you think it makes sense for you to create your own app store on various platforms like OpenStack, Waldb, Pivotal and market it as a product versus as a service? And of course, when I say service here, the business model is more like an amazon.com's model where you are going to -- it's a machine or a technology service, which is based on utility pricing rather than human time spent. Any thoughts on that?

T. K. Kurien

Well, Trip, we have a very simple approach to this, especially around the whole DB space. Because our own sense is that what happens -- today, with the way technology is coming into us, we can have only limited levels of innovation to the extent it relates specifically to our customers and our customers' issues. Clearly, given the environment that we sit in, we have a hard time kind of running our own business. And the minute you're getting to newer areas like this, it tends to kind of defocus it. So we haven't experimented like that [ph] in terms of creating an app store, and all we have done is create an app store around mobile application. That's all that we have done. We have not taken it down one level at all. And frankly, I think, for us, it's going to be hard to do it.

Trip Chowdhry - Global Equities Research, LLC

Very good. Last question on a strategic front. I was wondering, like the traditional IT Services model is going through a major overhaul. And I was thinking like when industry goes through these shifts, many companies make a mistake and they think that the only way to grow is through acquisitions. I was – one thing you guys are doing good is you are doing some divestitures, which is good. But I was also thinking in terms of your IT Services business, if we have a mother ship, whichever name you can give, which is just going and capturing deals, whether it makes economic sense or not, but go for market share? And then spin off the companies whose interest could be just profitability and go for a segment of the deals that the mother ship gives you. Have you thought more on those lines also?

T. K. Kurien

Trip, no, we haven't. And what we should probably do is that -- [indiscernible], our head of business strategy, come and talk to you. And it might be a worthwhile experience, and we should take this offline.

Operator

The next question is from Jesse Hulsing from Pacific Crest.

Jesse Hulsing - Pacific Crest Securities, Inc., Research Division

T.K., when you came onboard, one of your goals was to mine your top accounts and have more success mining your top accounts. And in this year, you've done a pretty good job of that. By my assessment, you're up about mid-teens within your top 10 customers. But given the growth and expansion that you've seen, which is unusual amongst your peers within the large customer base, what gives you confidence that, that pace of expansion can continue in '14 and '15?

T. K. Kurien

Jesse, very quickly, what we're seeing is, if you look at what we've done around the Mega/Gamma account, it is a pretty well-thought-out strategy, except that it took a little more time than we expected for it to work. So initially, what we did was we took our top 15 accounts and we said let's drive growth in those accounts, and let's prove them wrong. And that has paid off this year, because if you look at our top 10 accounts, the top 10 accounts have actually grown 17%. What we have done is that we have focused on the next set of 25 accounts, which we started focusing on that last year. And we expect to see some of that growth flattening out on our top accounts and that growth moving to the next set of accounts. That's what we see. And as we go through it with identifying a total of 125 accounts where we're putting a structure in place, whereby we expect to see growth happening, across the next 2 years, in various times, whereby we can get the high growth in specific segments, segments that we have decided to kind of focus on. The only problem that we've seen is that we originally estimated that it will take about 6 months to do this, now it seems like before the account actually starts producing results, it takes between 12 to 18 months.

Jesse Hulsing - Pacific Crest Securities, Inc., Research Division

Got you. That's perfect. You're decoupling -- or you're, I guess, recoupling pricing and volume, and not going to disclose that, and you mentioned partly because outcome-based pricing and fixed-base pricing kind of distort those numbers. When you look at your portfolio, I know 48% is fixed price, what percent is outcome-based within your portfolio right now?

Suresh C. Senapaty

Yes, so we don't break out that number right now, so I am unable to share. But I can share that within 48%, especially in the area of our technology services and the multi-application, directionally, we are moving towards more and more and more outcome-based development, as well as the BPO.

T. K. Kurien

So if you look at -- I mean, basically we're seeing -- we don't break that out technically in terms of what is outcome-based and what isn't. But we do measure internally what's nonlinear and what is a nonlinear opportunity and what isn't, and that number we typically don't share.

Jesse Hulsing - Pacific Crest Securities, Inc., Research Division

Great. And industry-wide, looking at the deal flow that you saw, what was your sense on pace of activity in the quarter? Did you feel like there's more or less activity that you saw, both wins and losses on the Wipro side? And when you look forward, how does your pipeline look? And what percent of those deals that are in your pipeline would you say are RFP-based type bake-offs and what percent would say are sole-sourced?

T. K. Kurien

So again, we don't break out the sole-sourced and the RFP-based separately. But just to give you a little bit of color, between 31st of March 2012 and 31st of March 2013, our pipeline has remained more or less stable. Fundamentally, what we are doing is, the pipeline churn is pretty high, but what we were trying to do is try to make sure that our win rates improve significantly from where we are. We've seen an interesting trend in that existing accounts, we have seen significant win rates in terms of percentages. But in our hunting accounts, typically what we've seen is that we've seen fairly low win rates, especially around [indiscernible]. So whenever the customer is looking for value, there we seem to do better. When the customer is looking for a commoditized approach to a certain problem, that gets a little tougher for us to kind of go in there and sell.

Operator

The next question is from Edward Caso from Wells Fargo.

Richard Eskelsen - Wells Fargo Securities, LLC, Research Division

It's actually Rick Eskelsen on for Ed. First question here is on visas. Curious to see what Wipro and the...

T. K. Kurien

We can't hear you very well.

Richard Eskelsen - Wells Fargo Securities, LLC, Research Division

Sorry about that. Is that better?

T. K. Kurien

Yes, it is better.

Richard Eskelsen - Wells Fargo Securities, LLC, Research Division

It's Rick Eskelsen on for Ed. The first question here is on visas. I'm just curious to see what Wipro and the industry are doing to respond to the proposed visa legislation both to change the law potentially and how to respond if it goes into effect [indiscernible]?

Suresh C. Senapaty

I do know the bond presented only yesterday, which is something like 800 pages. So at this point in time, although we're looking at this, trying to analyze it and understanding, so I think we took initiative to be able to respond to this. But at this point in time, looks like there are some good features, and there are some features which perhaps are not so good from the point of view of some of the restrictions or some of the economics that is involved. But I'm sure the overall purpose this particular bill is expected to achieve this quite key as far as U.S. is concerned. And if there are any issues which have economic or restrictiveness in ability -- in our ability to serve the U.S. clients, I'm sure bringing that to the notice of the legislators will help change -- bring out appropriate changes to be able to deal with it. And we can only talk about so much because the analysis is incomplete and work in progress.

Richard Eskelsen - Wells Fargo Securities, LLC, Research Division

My next question is on the hiring, I wonder if you could give some hiring expectations for this year. And also, on potential wage increases, did you indicate or could you indicate the size of the wage increase that you're currently looking at?

Suresh C. Senapaty

What is the hiring potential and...

Saurabh Govil

This is Saurabh here, the head of human resources. As T.K. mentioned, we are looking at a wage increase effective 1st of June. We haven't decided on the exact quantum of the increase, both onshore and offshore, but it will be in the single digits is what we expect, in line with what is happening in the market. From a hiring perspective, we don't give a full year guidance on the hiring, but we have absorbed all our fishes [ph] on campus for the last fiscal, and we have gone on campus for this fiscal. That's on plan. And we'll continue to hire people, technical, lateral hiring based on demand, both onshore and offshore, and build an inventory of highly skilled people like consultants and business architects and architects. I hope this answers your question.

Richard Eskelsen - Wells Fargo Securities, LLC, Research Division

Yes. Just to follow up on the hiring. Is your hiring right now more skewed to the campus hiring or to laterals? Any sense on that?

Saurabh Govil

Well, I think our hiring is 2/3 on campus and 1/3 from laterals, so I think that's the ratio there.

Richard Eskelsen - Wells Fargo Securities, LLC, Research Division

Last question for me, just a follow-up on the earlier question on pricing. Curious if you could give some comments on like-for-like pricing so not impacted by cross-currency or any billing days, but what you're seeing on a like-for-like basis?

Suresh C. Senapaty

[indiscernible] the business mix? Yes. So these are the 3 impacts: Number of days, cross currency and business mix. Other than these 3, the impact is very marginal.

Operator

The next question is from Swami Shanmugasundaram from Morningstar.

Swami Shanmugasundaram - Morningstar Inc., Research Division

I think my first question is, how much of a revenue visibility do you have when you get into the quarter? And what is the [indiscernible] between the lower and upper end of the guidance?

Jatin Dalal

Yes. So Swami, this is Jatin. As we take a decision on our guidance, we look at all the risks that could potentially crop up and also look at all the opportunities that we would be able to convert during the quarter. Then there are certain specific factors such as the current quarter, which is Q1, seasonality of our India and Middle East business, where we know for sure that the revenues would be lower compared to Q4, which typically is a bumper [ph] quarter for that business. And then we make adjustment on the lower end and the higher end of the guidance. For the quarter, as we walk in, we have a fair visibility of the numbers where we're going, but it is also, there is that last mile of uncertainty on specific details of revenue that we work through as we progress the quarter.

Swami Shanmugasundaram - Morningstar Inc., Research Division

So I mean -- and the reason for the question is, I mean, if – does deal closures any way play a part in determining whether it's going to be on the upper end or the lower end? Because I think in the third -- when you entered the fourth quarter, the guidance was between 0.5% and 3%, but I think you guys came in at the lower end. And Kurien mentioned that there were some delays in the deal closures. So did that have any impact? And because if I look at the next quarter guidance, it's again flat, does that mean that those deals get pushed out again? I mean, that's the reason behind my first question.

Jatin Dalal

Yes. So if you see our guidance for last quarter, I just said foreign currency was between $1,572 million and $1,612 million, and we came at $1,585 million. So we came between the $2 marker and not, as you say, exactly at the lower end. The next quarter guidance is what we see today as a fair band of expectations that we should have. And of course, there are deal wins during the quarter which impact the quarter revenues, because if you win a deal in the first month of the quarter, you do have an ability to start transitioning in second month and book a bit of revenue as you work through the quarter. So there are -- it's not a very large impact, but it does measure in the last month as we look at the large number.

Suresh C. Senapaty

Also, we're talking about the India business, which should be declining between quarter 4 and quarter 1. So that has been also factored into this minus 0.6 to 1.7 plus.

Swami Shanmugasundaram - Morningstar Inc., Research Division

Sure, okay. My next question is related to your ADM business. My assumption is that, that typically includes your bread-and-butter outsourcing. But if I look at the recent trend, that hasn't been doing well. I mean, the revenue contribution from ADM has come down and as well as the growth. So I just wanted to understand, I mean could you throw some light on what's going on over there, whether there is any shift in the profile of the projects that you're looking at or...

Suresh C. Senapaty

Yes. So Swami, what is included in our ADM makes it also a classic R&D work that we do for our technical OEM customers. And unfortunately, that has been industry challenges and that has been steadily declining, and that has an impact on the ADM piece. Also, ADM is a service line which we started our outsourcing business with. So that is, to that extent, one of the oldest service lines. And the growth rates there are -- compared to the rates of the newer service lines are muted. And to that extent, it continues to lose its share among the order pipe. So they are both factors which contribute further reduction in the revenue contribution from ADM.

Swami Shanmugasundaram - Morningstar Inc., Research Division

Sure. My next question is on your client mining efforts. I mean you guys have done a good job. But if I look at the recent trend or, say, over the last 3, 4 quarters, you kind of hit a plateau, as such. I mean, I don't see too much improvements, whether it's the number of $100 million accounts or there's only $5 million, I mean, all the way to $10 million. So does that mean you don't need to change your strategy again? Or what exactly is...

Suresh C. Senapaty

Yes. So if you see, we have been steadily increasing our greater than $100 million customer. In fact, between quarter 1 and quarter 2, we added 1; and in quarter 2 and quarter 3, we added 1. This quarter, we have remained stable and despite -- we lost close to 1% in terms of the revenue on account of cross-currency impact. So I would say that we have made a substantial improvement in the top 10 customers, because like revenue YoY, full year at '12, '13 versus '11, '12, has grown at 18% in terms of total revenues. We certainly need to make more improvement in the accounts which are between less than $20 million to $50 million or $75 million, and there is an ongoing focus of the organization as we start the new financial year to make a meaningful difference in the growth momentum in those accounts too.

T. K. Kurien

So Swami, if you look at our numbers, as compared to the competition, the biggest gap that we have is the $50 million to $75 million range, and that's what we need to fix. That's where the focus will be. How to bring the guidance below $50 million to $50 million and above, and how do you move the guidance beneath that back into the high category. So that's a big push, because business is very important there too.

Swami Shanmugasundaram - Morningstar Inc., Research Division

Yes, sure. I think my last question is on the infrastructure outsourcing business. Would you be able to give us a clue as to how much of it is the infrastructure as a service as well as a legacy outsourcing? And what's driving the growth there?

T. K. Kurien

So Anand Sankaran runs our global infrastructure business and [indiscernible].

Anand Sankaran

So Swami, this is Anand here. Over the last 18 months, we have seen an enhanced momentum towards customers looking at infrastructure as a service. Nevertheless, it still constitutes to a small percentage of our overall business. In infrastructure outsourcing, even today, we have a large percentage of the business, which is the traditional outsourcing model. But as I look ahead, I feel that the infrastructure as a service business, the opportunity of our overall business will keep going up in the next few years. But as of now, it's still small, it's lower than 10% of our overall infrastructure management.

Operator

The next question is from Keith Bachman from Bank of Montréal.

Keith F. Bachman - BMO Capital Markets Canada

I was wondering if you could talk a little bit about your margin expectations over the next number of quarters, at least directionally, and delve into mix, pricing, utilization and any other factors that would be pros -- helps or hurts as it relates to anticipated direction of margins. That's my first question.

Jatin Dalal

Yes. So this is Jatin Dalal here. Our medium- to long-term expectation on margin is definitely that of sustenance and improvement from where we are. Because clearly, other players in the industry will submit a higher margin and therefore, it offers us the head space to move on. However, in the short term, there will be quarter-to-quarter variation that would flow in especially in the next quarter. There would be salary increase that we would give from 1st June, and then -- and we will put our best foot forward with the operations improvement to mitigate as much as we can of the salary increase. So that is on the short-term margin expectation that's as of Q1. The key drivers for our margins are definitely, the one is pricing, as to how much we are able to generate for every person that we deploy to deliver to our customer. Second is the on-site option mix, which is, again, an indicator of the work that we are doing in a global delivery location, what is from a client [indiscernible]. And arguably, the work that we do from a global delivery location is more profitable. The third, of course, is the cost of the people, which is reflected in the -- which is published in the financials and is also reflected in the metrics such as utilization of the results.

Keith F. Bachman - BMO Capital Markets Canada

And how about in terms of if BPO continues to grow faster than some of the other parts of the business? I assume that would negatively impact margins.

Jatin Dalal

Well, we don't break out the margins of individual business lines or mix. It is a mix of portfolio that we run. We invest in a particular piece for higher growth. And at the same time, we have pieces of business, which under this [indiscernible] higher profitability. So far as BPO is concerned, definitely, I can add a color that it's definitely not a drag to the overall company margin.

Keith F. Bachman - BMO Capital Markets Canada

Okay. The next question is, do you think Europe growth was weaker than the company average? Would you anticipate -- on a sequential basis, would you anticipate that you'll get positive growth in Europe this year? Or to say it a different way, would you anticipate that Europe will grow at, above or below whatever the year-over-year growth would be in, say, calendar year '13 or FY '14?

T. K. Kurien

Yes. So if you see quarter for a loan, why you're seeing the negative 3.4% sequential growth in Europe is largely the currency. And if I back out the currency, that number is sub-1%, which is more of a reflection of -- from the projects getting over there and not being replenished by new projects. So I wouldn't read too much into the quarter 4 on sequential number of Europe. We see Europe as clearly a destination for IT Services business via [indiscernible] in the countries like Germany and France, and we see that there is a vast amount of potential there for us to grow. So certainly, for medium to long term, we expect Europe to grow and lead the company growth rate, because here, penetration is something that has an enormous potential.

Keith F. Bachman - BMO Capital Markets Canada

Yes, fair enough. Okay, my last one is I want to go back to ADM. Are you guys losing deals in ADM that are causing that business to grow materially slower than the company average?

T. K. Kurien

Really, that is a reflection of 2 things as we spoke about. One is our original R&D work that we use, that we continue to do for our telecom equipment measures, that business is under structural challenge and that business is coming down. So I think there, there is a reduction in overall industry spend, which is reflected into the gross revenue too. And the second is that it's one of the oldest service lines of the industry, and therefore, the growth rate is certainly more muted than any other newer service lines such as analytics or technology infrastructure services. And therefore, its share as part of the overall pie continues to reduce, and I wouldn't see a wallet share or a market share gain there too much.

Operator

The next question is from Avishai Kantor from Cowen and Company.

Avishai Kantor - Cowen and Company, LLC, Research Division

It's Avishai Kantor on behalf of Moshe Katri. Can you talk a little bit about the pipeline and more of a long-term outlook on potential large contracts that could open up for re-compete?

T. K. Kurien

So the biggest area of opportunity for us in terms of re-compete is our global infrastructure business, and Anand Sankaran can do that and talk to it.

Anand Sankaran

This is Anand here. So we've been closely tracking all the opportunities that are coming up for renewal in the next 12 to 18 months. And having -- making proactive investments, both in terms of business development, as well as having solution architects associated with the business development managers to be able to re-architect the solution for those upcoming renewal deals. So we are closely focusing on that. We have to find the deals that are coming up in the next 12 to 18 months, and our team that's focus on guiding us towards those opportunities. So that's where it is, Avishai.

Operator

The next question is from Shashi Bhusan from Prabhudas Lilladher.

Shashi Bhusan - Prabhudas Lilladher Pvt Ltd., Research Division

So you talked about a weaker win rate with our hunting compared to farming, and we have made good investments in the hunting team. How important is macro uncertainty, in fact, in weaker win rate for hunting? And what are the steps we are taking to improve our vendor [ph] hunting?

T. K. Kurien

So very quickly, I think by the very nature of hunting, our win rates would be lower. That's fundamentally the nature of the business. So what we are doing is we're clearly tracking down the qualification process on the deals that we chase. But in hunting, when you have strong account relationships [indiscernible] benefit. But fundamentally, what we have noticed in this business is that before you start hunting, you really have to be, in some way or the other, at least 6 months into the account for you to make it fast [ph]. And so right now, before we start hunting [indiscernible], our entire focus is making sure that we have -- we are there proactively with architects, with the sales team, building relationships and technical solutions so that customers, when the actual deal comes up, the customer is ready for that.

Shashi Bhusan - Prabhudas Lilladher Pvt Ltd., Research Division

Sure. Just if I may squeeze in one. T.K., you also talked about few larger deal decision got post to Q1 and that were certain to sign in Q4. How critical those deals closure would be to return back to positive growth in Q2?

T. K. Kurien

It'll largely give you this nice bump-up effect quarter-on-quarter, so it's important; while farming can give you a certain base rate that's extremely critical for us to get to that growth.

B. M. Bhanumurthy

Okay. I will now close the call. I appreciate your interest in Wipro and for your active participation. The IR team is available offline for any follow-up questions you may have. Thanks, and have a good day.

Operator

Thank you very much, sir. Ladies and gentlemen, on behalf of Wipro Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines. Thank you.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Wipro Management Discusses Q4 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts