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Wipro Ltd. (NYSE:WIT)

F2Q11 (Qtr End 09/30/10) Earnings Call

October 22, 2010 09:15 am ET

Executives

Sridhar Ramasubbu - VP, IR

Azim Premji - Chairman

Suresh Senapaty - Chief Financial Officer

Girish Paranjpe - Joint CEO

Suresh Vaswani - Joint CEO

Martha Bejar - President, Global Sales and Operations

Rajendra Kumar Shreemal - VP, IR

Sambuddha Deb- Chief Global Delivery Officer

Manish Dugar - CFO

Saurabh Govil - Senior VP, Human Resources

Analysts

Trip Chowdhry - Global Equities

Joseph Foresi - Janney Montgomery Scott

Moshe Katri - Cowen and Company

Nabil Elsheshai - Pacific Crest

Ashish Thadani - Gilford Securities

Swami Shanmugasundaram - Morningstar

Mark Zgutowicz - Piper Jaffray

Operator

Good morning. My name is Steve and I will your conference operator today. At this time, I would like to welcome everyone to the Wipro Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions).

Mr. Sridhar Ramasubbu, you may begin your conference.

Sridhar Ramasubbu

Thanks, Steve. Good day to all of you. This is Sridhar Ramasubbu and I'm joined by Rajendra, Arvind and other team members from my team in Bangalore. We are pleased to extend a very warm welcome to all the participants and host the Wipro's Quarter Two FY'11 results and earnings call. Regarding the material for this call, we issued the press release yesterday late night EST and we will have time for Q&A at the end.

We have with us today Mr. Azim Premji, Chairman; Mr. Suresh Senapaty, CFO, who will comment on the IFRS results and on key takeaways for the quarter and year-ended September 30, 2010. They are joined by Joint CEOs of IT business, Suresh Vaswani, Girish Paranjpe and other senior members of the Wipro management team will be happy to answer questions.

As always, elements of this call and the management's view maybe characterized as forward-looking under the Private Securities Litigation Reform Act, 1995, and are based on management's current expectations and are associated with uncertainty and risk which could cause the actual results to differ materially from those expected. These uncertainties and risk factors have been explained in our filings.

We do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date of filing thereof. The call is scheduled for an hour. The presentation of the Q2 FY level 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's website. A replay our today's earnings call proceedings will also be available via telephone post the call.

During this call, I am also available on email and through mobile as well to take any questions and table it to the Wipro team, in case you are unable to ask questions for any technical reasons.

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

Azim Premji

Good day and good evening to all of you. Let me just first cover the key points of our IT business. We had a quarter in which we had a 6.6% sequential growth in volume and a 5.7% sequential growth in revenues. Despite the macro uncertainty in the major environments, the micro level customers are spending their budgets and demand environment is very strong. Discretionary spend is picking up. Pricing environment is stable with potential for price increases next year.

As was anticipated, our margins have dropped to 22.2% driven by RSUs and progressions to over 20,000 people, the impact of ForEx as well as increased spend on sales and marketing. We remain completely committed to driving operational excellence and margin improvements.

I want to highlight some of the specifics of our results. The retail and transportation, healthcare and services, telecom and energy and utilities led the growth among the verticals. Technology infrastructure services, product engineering services, consulting and package implementation contributed to our service line growth.

We had a strong growth in Europe and in the emerging markets. The industry has seen much stronger volume and revenue growth this quarter, and we recognize this and acknowledge this.

We want to assure you that we will rise to the challenge and ensure that we return to be among industry-leading profitable growth. We are putting the entire muscle of our organization behind this. In the past six months, Wipro EcoEnergy has moved from concept to reality. We have quite sharply narrowed our focus into areas where intellectual property can be leveraged to create a scalable business. We are leveraging Wipro's customer base to offer these services.

I now hand over to Suresh Senapaty, our CFO, to give you the financial highlights.

Suresh Senapaty

Good day to all of you in the United States, and good evening to all of you here in India. Before I delve into our financials, please also note that for the convenience of readers, our IFRS financial statement have been translated into dollars at the noon buying rates in New York City on September 30, 2010 for cable transfers in Indian rupee, as certified by the Federal Reserve Board of New York, which was $1 equal to 44.56 rupees.

Accordingly, revenues of our IT Services segment that was $1,273 million or in rupee terms INR57.47 billion appears in our earnings release as $1,290 million based on the convenient translation. Our IT Services revenue for the quarter ending 30th September was $1,273 million on a reported basis, a sequential growth of 5.7% and a year-on-year growth of 19.5 %. On a constant currency basis, our IT Services revenue was $1,251 million.

We have had a good quarter for growth driven by specific verticals and service lines. Among the verticals, retail has led the growth with 9.7%, healthcare with 8.8%, telecom with 7.7% and energy and utilities with 6.5% on a sequential basis. BFSI had an in-line quarter with 5.7% sequential growth.

Package implementation and product engineering solutions have driven growth in the quarter with 6.8% and 15% growth, respectively. Technology Infrastructure services is continuing to seek strong traction with 6.6% sequential growth and 23% year-on-year growth. Among these yields, Europe saw a surge with growth of 10.3% on a sequential basis. Our investment in emerging markets are continuing to pay-off with strong growth in India and Middle East business and APAC and other emerging markets of 5.3% and 11.1%.

We have 20 customers with revenue greater than $50 million on a trailing 12 months basis, up from 17 in the previous quarter. We saw another quarter of strong volume growth of 6.6%, our highest volume growth in the 12 quarters. Offshore mix went up by 50 basis points on the back of the 7.4% volume growth in offshore. Pricing increased in the current quarter by 1.1% onsite and 1.2% offshore. It is driven by the benefit of cross currencies. Our proportion of revenues from fixed price projects dropped by 0.6% to 44% in current quarter.

Attrition on a quarter annualized basis went up by 50 basis points to 20.5%, but we are starting to see our employee's related initiatives yielding results. September attrition was the lowest in the last six months.

Our operating margin for IT services dropped 250 basis points sequentially impacted primarily in the account of ForEx realization, progression to employee, residual grants and investment in sales and marketing. This was partially offset by improvement in (inaudible).

As of September 30, 2010, our DSO was at 69 days, up from 65 days in the previous quarter, 84% of our debtors are less than 30 days old. Our IT products business showed sequential growth of 29% in revenue in the current quarter. We grew EBIT sequentially by 58% in the current quarter.

Wipro Consumer Care and Lighting business continued to see good momentum with revenue growth of 20% year-on-year and EBIT growth of 13% on a year-on-year basis.

On the ForEx front, our realized rate for the quarter was 45.15 versus the rate of 45.69 realized for the quarter ended 30th June. On a quarter-on-quarter basis, ForEx gave us a negative impact to margins including the benefit of cross currency of 1.2%. As at period end, we had about $1.5 billion of ForEx contracts. Our OCI losses reduced by 268 crores in the current quarter to 359 crores.

The effective tax rate for the quarter is 14.55 and effective tax rate at normalized level is about 16.95%. Net cash balance on the balance sheet was INR44 billion. We generated free cash flow of 4.3 billion during the quarter.

We'll be glad to take questions from you.

Sridhar Ramasubbu

Steve, we can go to the Q&A.

Question-and-Answer Section

Operator

(Operator Instructions). Your first question comes from the line of Trip Chowdhry from Global Equities. Your line is now open.

Trip Chowdhry - Global Equities

Two quick questions. First, regarding the macro conditions, I was wondering, if you guys can provide some color on what kind of services you think are more in demand say in US versus Europe, say versus Asia-Pac region? Any color about where certain economies are with new project deployments? That would be helpful. I have a follow-up question.

Girish Paranjpe

This is Girish here. The way I understood is that you really want to understand how the – what is the nature of business emanating for the United States versus some of the other geographies?

Trip Chowdhry - Global Equities

That's correct.

Girish Paranjpe

The way we have seen the business shaping up, actually there is been a significant jump in discretionary spend with new development, new application development work that has come up in the United States. To that extent it is more different in other geographies, but much more noticeable in the United States.

Relatively speaking, I would say business process outsourcing has been neutral and we are waiting to see how that (inaudible) shapes up quickly in the United States. It is fairly robust in the other geographies. I would say, broadly that's the difference which I have seen United States versus other geographies.

Sridhar Ramasubbu

The second question was for Girish on the economy in different geographies.

Girish Paranjpe

Trip, is that right? You want a broad view of the economy? Trip?

Trip Chowdhry - Global Equities

Yes, that is correct.

Girish Paranjpe

At least the way it affects us, we see not that much difference because in the various geographies we see independent of the level of economic activity. The real issue is the level of the firm, where we don't see that much difference because the firms are fairly lean and haven't over-borrowed or over-spent or over-hired. To that extent, they have the capacity to invest in the future.

Trip Chowdhry - Global Equities

I have a follow-up question regarding the large deals. It seems like they are coming back in vogue. I was wondering if you can compare and contrast the current large deals, which are coming for renewal, how are they different than say what the large deal that you saw before recession? That's all for me. Thanks and again, very good execution.

Suresh Vaswani

Trip, this is Suresh Vaswani here. What has fundamentally changed pre-recession to, if I may call it, post-recession is much more emphasis in terms of [instrumentalization], much more emphasis in terms of more strategic value impact, as against just off-shoring.

So, customers are not looking at only short-term benefits or short-term cost takeout, but are really looking at engaging much more meaningfully in terms of service providers like us partnering with them in terms of creating an impact on their business. So, we see a lot of integrated deals. We see a lot of BPO-IT integrated deals. We see a lot of deals which are not only offshore into India or outsourced, but it is offshore and transform. So that is something fundamentally that has changed.

Operator

Your next question comes from the line of Joseph Foresi with Janney Montgomery Scott. Your line is now open.

Joseph Foresi - Janney Montgomery Scott

I was curious you talked about discretionary spending accelerating, maybe you could talk about what clients' thought process is in spending and what's really driving the growth, if you can give us maybe some examples around that?

Girish Paranjpe

Hi Joseph, this is Girish here. First of all these discretionary spending is not in a big chunks, it is in relevantly smaller bites. It is again a function of all the pent-up demand, things that were not done over the last 18 months or from 2008 and 2009 which needs to be done either for compliance reasons or for integration and M&A or for the purpose of streamlining operations or launch of products. That's the type of new developments work that we have seen. Lot of it is actually front office type of work and not only the back office types.

Joseph Foresi - Janney Montgomery Scott

You said just in your comments right there that there is some pent-up demand. Does that flush through the system or is that continuing? Are you seeing in newer projects that are more proactive, or is this just something that's been held over for the last 18 months?

Girish Paranjpe

Martha, let me just say something and then you can jump in. The 2010 trend as we're seeing with parts of the bankruptcy but it's also to do with, as I said, the fact that the trend that is there today is driven mostly by the comps to that is the next level and go pass this order.

Martha Bejar

If I can just add, this is Martha. One of the things that we're hearing from our customers today is a lot of that discretionary that has been driven by the business in itself. So, the IT organization has become a huge enabler of that growth that they are seeing in their business. So we see a much tighter connection between the IT organization and the business units within the companies that are driving a lot of these transformational initiatives.

Joseph Foresi - Janney Montgomery Scott

Looking into next year 2011, any early indications on what IT budgets look like and any expectations for that going forward? Clearly, your hiring guidance would imply that you're expecting things to continue to be healthy.

Martha Bejar

So, I'll tell you what. In general, we're going to see a lot more of what we are seeing this year. What our customers are doing is even if their budgets are flat or may be a little bit higher 2 to 3% increase but not by much, in the savings that are able to do they are reinvesting in transformational opportunities for them within their companies. So, that we will still continue to see a bit of that trend.

Unidentified Company Speaker

The basic thrust is to save to spend, or save to invest.

Martha Bejar

That's exactly right.

Joseph Foresi - Janney Montgomery Scott

Lastly, I wonder if you could remind us on where you're hedged? Obviously, the rupee has moved a little bit here at the end of the quarter. I assume that's probably the major concern right now. Maybe you can remind us how you're hedged and how that would affect the numbers if the currency stays where it is?

Rajendra Kumar Shreemal

Joe, this is Rajendra here. As of the quarter end our total hedge book was close to $1.5 billion and we have maintained the hedge book which gives us coverage for 50 to 75% of the net inflows for the next four quarters. In fact for the last one year the hedge book that we carried which was approximately this amount has stayed in a good stead, because we have been able to deliver a consistent performance. In this particular quarter, we did have long-term hedges that were taken earlier which had matured and hence led to a low realization this quarter.

Joseph Foresi - Janney Montgomery Scott

If the currency stays where it is, or I mean what was the original guidance given out for what currency rate?

Rajendra Kumar Shreemal

If you look at the guidance that we provide with respect to the constant currency guidance of the 3.5% to 5.5%, the currencies that we assume is part of the press release where it is based on the average rate for the quarter two, which was at the 46.32 and then we have got other currencies which is also stated over there.

Operator

Your next question comes from line of Moshe Katri from Cowen and Company. Your line is now open.

Moshe Katri - Cowen and Company

Suresh, can you go over some of the different moving parts that impacted or benefited EBIT margins during the quarter?

Suresh Senapaty

The EBIT was dropped, as we had stated in the beginning of the quarter, primarily for two reasons: A, the headwind that we had in the ForEx and B, was the compensation increase and with the stock grants that we granted on the 1st of July. So a combination of this was about 2.5%. For example, in terms of compensation was about 1.3% and on the foreign exchange it was about 1.2%.

There were other elements like there was an increase investment in sales and marketing, some improvement in the acquisition area, some improvement in the [bulb] area. So all that netted off. These were the two big tickets based on which dips happened so far as quarter two over quarter one is concerned.

The good news about that on the other comprehensive loss that we are carrying that has come down by about $60 million. So while because of the ForEx we got a operating margin hit of about $15 million, on the balance sheet other comprehensive loss came down by $60 million.

Moshe Katri - Cowen and Company

Mr. Premji at his opening remarks was indicating that the company aspires obviously to continue to lead in terms of being able to expand margins or at least sustain margins. May be you can talk, Suresh, about some of the levers in the model and how could we down the road see a margin that's either sustainable or even expanding? What are the levers in the model that you can talk in details on that? Thanks.

Suresh Senapaty

For us the biggest area is with respect to our people cost, where compared to the best we are behind on that and that is the particular lever that we want to work on in the next four to six quarters to be able to get a substantial part of that disadvantage that we are currently having or the headroom that we have. Apart from that the loan linearity initiatives, which was at 8% level has already increased to 11% and we continue to work on that in a much more aggressive manner.

We told you that today we have about 44% of our revenue coming from fixed price project. So we will stay focused on enhancing productivity here and drive that more. Particularly the last quarter has not been so good. Going forward there is lot of headroom for us to be able to work on that. So similarly with the outlook on the volume growth looking good, there could be lever on the growth parameters, so far as G&A is concerned. So net-net, we have multiple levers to work on in terms of the people cost, as well as price utilization improvement to be able to get back the lost ground on margin.

Moshe Katri - Cowen and Company

Final question, pretty big sequential growth in Europe, maybe kind of by sector by the UK and the Continental Europe, and talk about some of the drivers for that very, very significant growth?

Suresh Senapaty

This is Suresh responding here. Yes, our Europe growth is driven, first of all, its growth standing well at 10% plus sequential growth, and a lot of the growth is driven by specific sectors. Energy and utilities, for example, is a strong sector for us in Europe and we've had significant deal wins in that sector in the past. Even in this current quarter, we've had very significant deal wins in the energy and utilities sector. So that is one vertical which one could single out that is driving growth for us in energy and utilities in Europe.

On a broader basis, the difference between US and Europe is a lot of Europe is going in for outsourcing deals, virtually for the first time, but it will be Continental Europe. So we are seeing a lot of the first time outsourcing coming from Continental Europe, which is not so in the case of US which is probably a bit more advanced, a bit more mature as it relates to outsourcing. So, new potential, first time potential and certain sectors investing heavily in terms of transforming their operations and, therefore, creating the set of opportunity which is resulting in our growth in Europe.

Girish Paranjpe

Just to get a data point, the 10.5% growth in Europe is virtually the same, whether it is the way you take UK or you take Continental Europe.

Operator

Your next question comes from the line of Nabil Elsheshai from Pacific Crest. Your line is now open.

Nabil Elsheshai - Pacific Crest

You mentioned in your commentary that you see the potential for price increases next year. We heard from one of the competitors last week that they weren't sure that (inaudible) we're going to be willing to accept that. So what gives you confidence that you could see that next year? Are you having these conversations with your clients at this point? What kind of feedback have you gotten?

Girish Paranjpe

Nabil, Girish here. The confidence is really based on two factors. One is on basis, some early conversations that we have with client and kind of relatively less of trends, reaction to those (inaudible) and in some cases we actually have almost time that you'll agree on (inaudible). So, I think, those are kind of first indications from the conversations we are having.

The other is if you kind of go back in terms of this feedback, when this financial meltdown happened. We work flexible with clients when they wanted us to help them reduce cost, even at the cost of our margins. So given the fact that we are above, given that point of time, so as you've said for us to go back and these costs are rising, relative to inflation and (inaudible).

Nabil Elsheshai - Pacific Crest

Furthermore detail on next year particularly for budgets and within financial services. In the US, there is obviously lot of regulatory changes coming down the pipe. Have you guys gotten a sense what that means in that vertical with your clients? Whether it's going to be something that requires a lot of help and it's something like takeaway from IT investments, what kind of feedback you are getting there?

Girish Paranjpe

Again early indications and last quarter and perhaps you will have trading on budget and you still don't know what the impact of that will be, but at least early indication and we are going to do (inaudible) flattish type of budget is what they are expecting for 2011.

Nabil Elsheshai - Pacific Crest

I was wondering if you could draw down a little bit more on the non-linearity you said 1 to 11% in this quarter, is that correct?

Unidentified Company Speaker

Yes, you are right.

Nabil Elsheshai - Pacific Crest

Could you be maybe a little more specific on what's driving that are there certain packages, templates, verticals where you having the most success with that and where were the traction come from it in the future?

Sambuddha Deb

Nabil, this is Deb. I look after the non-linear initiatives. There are three or four key components that we have adopted as our nominal strategy. One of them is a flexible delivery model which is more from (inaudible) productivity and it's been somewhat around share services which has an IP (inaudible). So that's one block. That's progressed the maximum and that is today almost more than 50% of our non-linear revenue. I would say over 6% comes from there, 6 of the 11 that we have.

Of the balance, we have IT mix, we also have differentiated services and we have, what we call, common platform based sales. Some of them are in various periods like some of the IPs are doing well some of the IPs are in nascent stage. So I guess all of them are going through various points in their life cycle depending on how and which shape they are. Going forward, we see a larger conformance coming from the IT-led sales or the platform oriented sales, as compared to the shared services value.

Suresh Vaswani

In the terms of specific service lines, we have been able to drive a lot of success in this model, as a non-linear model, it is our package implementation support business. So, as it relates to application support or SAP support or Oracle support, we have been able to drive a lot of volume there.

Nabil Elsheshai - Pacific Crest

Lastly, you guys have been making significant investments in both building out near shore or onshore resources, that’s from a go-to-market and a delivery center perspective. In terms of investment going forward in the out years, are you comfortable with where you are? Do you see significant investments that need to take place? I guess, separating the two, one in local go-to-market capabilities and that type of thing and then be on the local delivery centers?

Unidentified Company Speaker

I'll answer the delivery part first. You know, most of the centers are starting to reach critical mass, and most of the centers have become sort of self-sustaining and self-funding, in the sense that their billing is finding their own growth. Rather then the go-to-market side, Suresh can add some color there.

Suresh Senapaty

Clearly our delivery model is transforming, is moving towards less on site, moving near shore, and then the offshore model or the global delivery model that trends you all are familiar with. We see that as an integral part of our go-to-market approach and our differentiation with respect to what we offer our customers. At the end of the day you need all those three components seamlessly tied and strongly executed to be able to get the best value proposition to customers.

Girish Paranjpe

Nabil, Girish. Just to add, on the go-to-market side for local markets, especially markets in South America and in China, we are at the beginning of the investment side. It will require significant multi-year investment before we can declare success as far go-to-market investment.

Operator

Your next question comes from line Ashish Thadani with Gilford Securities. Your line is now open.

Ashish Thadani - Gilford Securities

The constant currency sequential growth at Wipro has approximated 4 to 5% for the last couple of quarters compared with 7 to 8% or perhaps even higher for some of your competitors. So to what would you attribute this recent loss of market share?

Girish Paranjpe

Ashish, Girish here. I would say primarily two or three factors. One is that we have a certain basket of, I would say, client and industry experience. That is the great thing when it comes to resilience and being able to handle upside as well as downside. In a high growth situation, it tends to little bit like (inaudible) more focused on a few verticals.

The second thing is to some extend we under invested or under anticipated in responding to the discretionary spend. So to that extent while we have got a significant chunk, but we could have got more as far as discretionary spending is concerned. So I would say that, if we not have captured all the discretionary spend that it could have gone up. So I wish to do the same (inaudible).

Ashish Thadani - Gilford Securities

A couple of clarifications from some of your recent questions. Your response to the pricing question, this excludes the impact of non-linear initiatives, in other words you are anticipating next year an increase in like-for-like pricing, is that correct?

Unidentified Company Speaker

Yes, it is (inaudible) price line.

Ashish Thadani - Gilford Securities

Any magnitude that you can share?

Unidentified Company Speaker

It's tough, because there are wide diversions and it depends a lot on the market situation and different clients. Also depends on what history has been and how accommodating we were in the past and to what extent that (inaudible).

Ashish Thadani - Gilford Securities

A further clarification with respect to the reference to pent-up demand. For how many quarters do you expect this pent-up demand to be a significant driver of growth as opposed to a more normal and sustainable rate?

Unidentified Company Speaker

So this is again early. We will have to see how the 2011budget get set. I would say that 2011 spend would more or less be a kind of normal spend.

Ashish Thadani - Gilford Securities

A question for Mr. Senapaty. The very near term margin outlook, would you expect a quick bounce back or are we expecting the next few quarters to be closer to this level?

Manish Dugar

Ashish, Manish Dugar here. I'll respond on behalf of Senapaty. As we articulated earlier, the primary reasons for why we had softness on margin in this quarter is investment on the people side, the investment on the sales and marketing side and the hedges, which had an impact from a currency perspective.

Currency is something, which is still unknown, so we were to leave that aside. I think rest of the other things are investments planned with a certain return and certain time for us to recover. So we at least see a bias towards positivity in the medium to short-term. Since we don't give a guidance, I would refrain from mentioning that there it would be in how many quarters from now.

Ashish Thadani - Gilford Securities

It would be safe to say that the bias is clearly on the upside from here?

Manish Dugar

That is right.

Operator

Your next question comes from the line of Rick [Estofen] with Wells Fargo. Your line is now open.

Unidentified Analyst

Just a couple of quick questions around protectionism and then also on attrition. First with protectionism. What are your thoughts on sort of the increases in protectionism, especially the visa increases and some of the more negative outsourcing comment coming out of Washington?

Unidentified Company Speaker

I think first its fact of life here to deal with what happened in the environment if there is – our performance is negative. It's business; it creates anxiety. I think the good news on that quarter is that most of it is more in the environment than the minds of the clients. So, as long as clients are open minded and see the benefit of globalization and free trade, I think we'll have mitigate a lot of the risk.

Suresh Vaswani

I would say from a customer perspective, we don't see the comments on the protectionism really coming into it. Clearly customers are looking at their business, what is good for their business and looking at saving cost to invest. What you've seen, manifestation of all that clearly, it is the demand pick up that we are seeing for IT services which are based on global delivery. So we could say that the overall IT services market globally demand is flat or demand is 2 to 3% growth. As it relates to global delivery type of services, the growth is significantly higher than that. So that gives you a sense of the acceptability and the desire for customers to do what is right for their business in terms of their future.

Unidentified Analyst

Just sort of to follow up on that. Do you anticipate continuing to add local employees and doing anything like that to come back? Any more negative sentiment for off shoring? Is that part of your strategy? What would that mean for margin profile going forward?

Suresh Vaswani

I didn’t pick up your question.

Unidentified Company Speaker

We have a globalization strategy for our workforce and already 36% of our workforce outside India is local. That is independent of what is happening on the production side, it is simply that we feel that if we are a global organization with global client base then we need to have a global workforce as well, and that's not simply at the entry level or at the workers level, but at the management level as well. So I think that is simply what we want to be as far as we are kind of progressing on that.

As far as the impact on commercial is concerned, we anyway if we hire locally or we assign people from here our endeavor is to have for the same pay scale and where being depending on the location of people working. So commercially that is no major disadvantage in terms of hiring local versus spending assigning.

There are some other issues on flexibility and rotation and integration. So, apart from that is verging (ph) on that much difference between local hires versus (inaudible).

Unidentified Company Speaker

On broad basis, think our entire strategy of near shore, entire strategy of driving globalization of our workforce. We also have non-inventory strategy (inaudible) eventually we'll make our business much less people dependent than what it is today. Sort of (inaudible) to some of the professionalism way that could be there. So just to give you an example, if my non-linear model is able to give higher margin and reduced the dependence of people, I could be implementing or I could be delivering services from anywhere in the world and the people cost would be much lesser impactful than what it is today by driving non-linearity.

Unidentified Analyst

Just a last thing on the attrition, you mentioned in the opening comments that September was the lowest attrition quarter, or months for you guys and referred others in the industry saying that they think attrition has peaked, do you agree? What's your outlook for attrition going forward?

Saurabh Govil

This is Saurabh here. So attrition as you see compared to Q1 and Q2 is voluntary attrition as more or less being similar, but clearly during the quarter we had seen a downward trend. The outlook as we moved forward was very clearly we have seen that entire attrition stabilizing going forward and coming down.

Operator

Your next question comes from the line Swami Shanmugasundaram from Morningstar. Your line is now open.

Swami Shanmugasundaram - Morningstar

I have a question on manufacturing sector, if you look at it in terms of beginning of the recession manufacturing has been one of success stories. Off late it is losing its steam, but if I look at the performance of spends versus and other, you have actually relatively done better. So I just wanted to get your understanding, your opinion on manufacturing, what kind of demand are you are seeing and what's your outlook in the industry sector?

Unidentified Company Speaker

Compared to relationship we have got, like we would believe that manufacturing would be a part of the Wipro average (inaudible) lower than the Wipro average of growth, energy and utilities, for example, looks much more robust in terms of demand, healthcare and services sector looks much more robust in terms of demand. Manufacturing is challenged and result for this quarter point up was 4% sequential growth. So it is below (inaudible) average.

The growth with our manufacturing sector is more stronger than the European markets where there is higher growth than currently that we are getting from US market. So, in a nutshell, it is a challenge but it would be growth sector for us, and hopefully we'll be in line with the Wipro average growth.

Swami Shanmugasundaram - Morningstar

The other one is technology media and telecom and of late its performance has been not as great as it used to be. The industry has been impacted. So just wanted to get your take on that aspect. What kind of pipeline are you guys seeing and any idea how its -- how going to pan out in the future?

Unidentified Company Speaker

Certainly a mixed picture there. We have seen good traction after several quarters in the telecom equipment vendor segment. This quarter we grew 7% sequentially on that area. On the other two sides of the media, service provider side (inaudible) our view is that it's probably quarter-to-quarter average longer term view on that is much more positive.

Operator

Your next question comes from the line of Moshe Katri from Cowen & Company. Your line is now open.

Moshe Katri - Cowen and Company

You had a pretty significant growth on the discretionary stuff there in the quarter, the package implementation piece et cetera. May be you can talk about what's driving the spending there in that area? Are you planning to expand investments even more there down the road?

Suresh Vaswani

The package implementation business has been doing very well for us and has been high in terms of growth quadrant consistently over the last few quarters. There is a lot more business transformation type implementation that are happening there as against operation transformation, so that is one thing. There are a lot more I would say smaller projects, but many impacts in terms of the results, and a lot of that is happening with many, many small projects against big heavy implementations.

Third is, there is a lot more, I would say, action happening on the cloud services front or software-as-a-service front in terms of customers adopted to that model. That creates opportunity for us in terms of implementation of this software-as-a-service model for customers. One example of that is the uptick we are seeing in the SAP implementation that we are doing on salesforce.com, and also the uptick that we are seeing in terms of the emerging markets and the SAP by design implementations.

Moshe Katri - Cowen and Company

Can you talk a bit about some of your initiatives that you have in France and Germany as well?

Suresh Vaswani

I will have Martha Bejar, our Global Sales Head to cover it in a bit more detail. Clearly, France and Germany, this is roughly planned to 15 months back, where we took a conscious decision that we will invest in those markets. One of first steps that we did was we really get strong country heads into those geographies. Then build a structure, which is you need to be able to address those markets effectively.

So whether it is in terms of program management, whether it is in terms of business development, whether it is in terms of the legal framework or for Germany and France we sort of created a super-structure to be able to effectively address those markets strategically than tactically.

We've had good success in both of those markets. One of the reasons for a higher growth in Europe in terms of sequential growth, and our growth has been consistently higher, has been the (inaudible) investments that we've made in these markets. The demand here is more on applications, more of package implementation, and I would also say the BPO services business is beginning to see opportunities there in that market.

Martha Bejar

The only thing that I would add is that we also see those markets opening more from a global sourcing perspective. So, the opportunity now is becoming very interesting. A lot of the customer drivers has to do around process efficiencies and taking cost out to reinvest a new IT-led services for their customers, a lot of driver on customer experience. So we see that market really opening up in that sense. So, we've invested and we're in place, and we are beginning now to reap the fruits and based on the work that we've been doing in those two markets.

Sridhar Ramasubbu

Martha, you can talk about our Meerbusch data center as well.

Martha Bejar

So along with (inaudible) costing plans as you know, we just open our first data center in Germany as well to be able to service our customers in a way that is integrated from a BPO, IT perspective. So that's all playing well to our strategy in Europe.

Operator

Your next question comes from Mark Zgutowicz with Piper Jaffray. Your line is now open.

Mark Zgutowicz - Piper Jaffray

I was just hoping, if you could provide a little more color on your comment about and investment on the discretionary side. You said that you will be working on that over the next four to six quarters, and I am just curious why it might take that period of time to sort of get back in balance here?

On the consulting side, I am curios where your head count levels are today and where you expect them or need them to be to meet strategic value that your clients are demanding, which you mentioned? Thanks.

Girish Paranjpe

Mark, Girish here. Let me start with the consulting and then I'll come back to the first question. On the consulting side, we have about 1,000 people who are with Wipro Consulting Group. These are spread, I would say fairly, proportionately in the three geographies, it is North America, Europe as well as in India.

We have consciously invested in the last two years in bringing senior folks, who have consulting background into our team. So this quarter, we added about 18 consulting partners, as we already had a team of consulting partner before that. That really, kind of, bulk up core consulting, client seeking capabilities.

What we expect to achieve from this once we see consulting business, which was nicely at 14% sequential growth. To create both involvement in upstream growth as well as potential to do downstream IT or BPO work. We do measure that in the form of what we think is value engineering, which is kind to creates some leverage, which is what we had achieved from the Wipro Consulting Group.

Suresh Senapaty

This is Suresh, here. On the discretionary spending per se and I just like to throw some sort of color on that. There are two types of discretionary spending. One is customers investing in projects or more value-adding investments which in tougher times they probably wouldn't have, but they want to do that in context of driving business transformation in future. So those type of opportunities will be very, very well geared to enhance that and a lot of the contracts and lot of the work that we've got across the board across all vertical service lines has been in that space.

The other type of discretionary spending is when customers have some projects to execute and give it to service providers for 50 resources or 100 resources of a particular profile and of a particular skill set. Now, (inaudible) traditionally back that sort of requirements from customer is to address it only on a very selective basis, address it on a very strategic basis, but not necessarily go after that market. Yes, you can get quick growth and you can get quick ramp-ups but both from our perspective and a customer perspective it is not where the strategic value adds that we are delivering to customer. We have not been able to address that demand, which has come up in the market over the last couple of quarters effectively.

Going-forward we certainly want to look at some of our strategic accounts whether we can leverage on that opportunity and whether eventually we can take on such call (inaudible) contracts but converted into more fixed priced engagements on a steady state basis. So I thought I would give that perspective in terms of discretionary spending.

Operator

(Operator Instructions)

Your next question comes from the line of Joseph Foresi with Janney Montgomery Scott. Your line is now open.

Joseph Foresi - Janney Montgomery Scott

Just one quick follow up. I wanted to ask about the in-client base. Maybe can you just talk about how spending is trending in your top client base? Any additions that you're seeing in recent quarters maybe what vertical or geography those are coming from?

Suresh Vaswani

This is Suresh Vaswani here. The client base positions that we had pretty much stand across sectors and across geographies, so it is not that 50% of the client activation is in US or Europe, it's roughly evenly setout across the most geographies. One comment I would like to make on our client base is very, very clearly a top 25 account growth, our top 25 account growth is coming out strong, it is coming out higher than the average Wipro growth rate. So, if you look at last quarter's data, the growth (inaudible) as against the Wipro's growth of 5.7% in terms of top 25 accounts.

The other fact that I'd like to bring your attention to is, how we've been able to grow the number of $50 million customers, there's been an uptick in that, the number of $20 million customers and the number of $10 million customers, and this is evenly annuity revenue, which also give you a sense of how our customer base is developing our customer base is growing, both from a the medium term and long-term perspective.

In terms of very specific data on the 29 customers that we acquired this quarter, 14 was from the US, 7 were from the India and Middle-East, 4 from Europe and 4 were from Asia-Pac and other emerging markets. So it is roughly spend across the geographies in terms of our revenues on these markets.

Sridhar Ramasubbu

If there are no questions, we can close the call. Just check if there're any questions and I will give my concluding comments.

Operator

There are no further questions at this time.

Sridhar Ramasubbu

Thank you very much for your participation. We'll post the transcripts of this call on our website and replay is also available. The IR team is available for any calls and I'll speak to each one of you. Thank you very much.

Operator

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.

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