Wipro Limited Q4 2006 Earnings Conference Call Transcript (WIT)

Wipro Limited (WIT)
Q4 2006 Earnings Conference Call
April 19, 2006, 2:15 a.m. EST

Executives:

Azim H. Premji, Chairman and Managing Director
Suresh Senapaty, Chief Financial Officer
Girish S. Paranjpe, President, Finance Solutions
Sudip Banerjee, President, Enterprise Solutions
Dr. A. L. Rao, Chief Operating Officer
Suresh Vaswani, President, TIS & Interops
Ramesh Emani, President, Product Engineering Solutions
T. K. Kurien, Head BPO Unit
Pratik Kumar, Corporate Vice President, Human Resources
K. R. Laxminarayan, Investor Relations

Analysts:

Mahesh Vaze, BRICS Securities
Sameer Goel, Albany
Divya, Motilal Oswal
Mithali Gosh, DSP Merrill Lynch
Sudip Bhattacharya, UBS
Ananthanarayan, JM Morgan Stanley
Pratik Gupta, Citigroup
Bhuvanesh Singh, CSFB
Anthony Miller, IS Research
Hitesh Zaveri, Edelweiss Securities
Priya Rohira, Enam Securities
Girish Pai, East India Securities
Nitin Jain, Bank of America
Shekhar Singh, ICICI Securities

Presentation

Operator

I’m Prathiba, the moderator for this conference. Welcome to the Wipro Conference Call. For the duration of the presentation, all participants’ lines will be in the listen-only mode. I will be standing by for the question and answer session. I would now like to hand over the call to the Wipro Management. Thank you, and over to Wipro.

K. R. Laxminarayan, Investor Relations

Thank you Prathiba. Good afternoon ladies and gentlemen. The Investor Relations team at Wipro comprising of Sridhar in US and Jatin and me, Laxminarayan in Bangalore, welcome you all to this call. We’re delighted that you’re with us today. Today, we discuss Wipro’s performance of the fourth quarter in the year ended March 31, 2006, and to do that we have Mr. Azim Premji, Mr. Suresh Senapaty, and other members of Wipro Senior Management. We will as usual begin the call with Mr. Premji and Mr. Senapaty commenting on our results, and after that we will have adequate time to take your questions.

As a reminder, some of the statements we make on this call maybe forward looking within the meaning of the Private Securities Litigation Reforms Act of 1995. These statements are based on our best view of the world today and our businesses, and these elements can change as the world changes. These are also subject to known and unknown risks and uncertainties that can cause the actual results to differ materially from those expressed or implied in our discussion. Such risks and uncertainties include but are not limited to the risk factors explained in detail in our filings with the SEC of USA. Wipro assumes obligation to update the information presented on this call. The conference is being recorded and will be archived, and a transcript will be available on our website at www.wipro.com. With these brief introductory remarks, let me hand over the call to Mr. Azim Premji, Chairman, Wipro.

Azim H. Premji, Chairman and Managing Director

Good morning ladies and gentlemen. By now you would have seen our results for the year and quarter ended March 31, 2006. As the management team would be happy to answer your queries, I’d like to take some time before that to share some thoughts on our performance and our prospects.

The results of 2005-2006 were immensely satisfying on many fronts. During the year, we made strategic acquisitions, made several organic investments for accelerating growth, drew up an aggressive strategic plan, added the highest ever number of people to our team, and streamlined and patterned our organization structure. Through all of this, we deliver industrial-leading revenue growth in all our business. It has recorded strong profit growth, stabilized margins, and crossed several landmarks in the process. I believe that our solid performance is yet another pointer to the resilience of our business models and more importantly the unflinching spirit of Wipro’ites.

The results also proved yet again that to reap benefits tomorrow you need to sow the seeds today. In the past, we invested in incubating newer services such as technology infrastructure services, testing services, and total outsourcing, and in new geographies such as Europe and the Middle East. Notably, our R&D services business and Europe bureau crossed milestone of $0.5 billion in revenues this year in each of them. It is very heartening to note that the strong growth in our global IT business last year was driven by areas where we have invested proactively in the past. Similarly, our investments in innovation initiatives are beginning to pay off well. Innovation initiatives contributed 5% of our revenue for the fiscal. Many of our strategic customer wins including some key ones in the recent quarter remain possible because of the breadth of our services and because of our innovation initiatives.

Similarly, in our India, Middle East, and Asia-Pacific IT business, we delivered strong revenue growth of 22% and profit growth of 40% in 2005-2006. But more importantly, by winning five total outsourcing contracts, we have set the platform for sustaining our heights. The more recent win of Rs. 360 crores, equivalent of $80 million, total outsourcing contract from HDFC Bank, is an indication not only of India’s maturing IT market but also Wipro’s growing competence in this unique, specialized service line.

With the strategic as well as operational success of 2005-2006 behind us, we look forward to 2006-2007 and beyond with excitement and with enthusiasm. The offshore IT industry is evolving from a simple service provision mode to a more complex and higher value-added knowledge creation mode. Delivering value to our customers in the emerging scenario will require a comprehensive for timeliness combinations of the domain expertise, integrated service offerings, innovative solution structuring, and deep technical expertise. We have identified and ruled out initiatives in our strategic and operational plans in this direction. We are confident that this will be a significant differentiator for us that will enable us to continue to lead industry growth rates.

Additionally, inorganic initiatives can help accelerate this process and supplement organic growth rates. Our experience with acquisitions so far has been quite satisfactory. This has given us confidence to pursue this strategy more aggressively in the future. We will similarly pursue strategic initiatives identified in our strategic plan to deliver strong growth in future in all our businesses. Clearly, Wipro businesses are all in the sweet spot of strong growth. We have the baseline to leverage the opportunities and realize our growth potential. At the same time, we will continue to invest to build the next set of growth engines that will help Wipro deliver sustainable and profitable growth in the future too.

I would now request Suresh Senapaty, our CFO, to comment on financial results before we take questions.

Suresh Senapaty, Chief Financial Officer

A very good morning to all of you ladies and gentlemen. Before we take on the questions, I’ll touch upon areas in our performance and financials that would be of interest to you all. Let me start with beginning the composition of our growth.

During the quarter ended March 31, 2006, we had sequential revenue growth of 8.2% in our Global IT Services Business, which comprised of 8.2% revenue growth in the IT services and 8.5% growth in the BPO services. The 8.2% growth in the services component was driven by 7.4% growth in the volume of business and an increase of 3% in realization for work account one side and 0.2% increase in price realization of our offshore projects. Revenues from acquisition of NewLogic and mPower contributed 1.8% to revenue growth of global IT segments.

On the Forex front, our realized rates for the quarter was totally Rs. 5.23 versus the rate of Rs. 44.83 realized for the quarter ended December 2005, and at the period end, we had about $600 million of ADS that ranged between Rs. 44.60 and Rs. 45.50. We had effected an increase of approximately 3% in compensation for our onsite staff, effective January 1, 2006. We also saw the full impact of salary hikes given to our offshore staff during the quarter. The impact of this competition revision was 1.4% on our operating margins. Operating margins were also affected by losses in Wipro NewLogic, which was in line with our expectation. On the other hand, we saw better price realization improvement in utilization, increase in proportion of offshore projects, and better Forex realization.

Our BPO business continues on the right track by delivering yet another quarter of operating margin expansion apart from improved revenue growth. These factors helped us not only to absorb the download pressure but also improve our operating margins by 30 basis points on Indian GAAP. For the quarter ended June 2006, we expect quarter led growth to broadly stable price realizations. While lower profitability from acquisitions would continue to impact the profitability, we will endeavor to maintain our operating margins in a narrow range. We’ll now be glad to take questions.

Operator

Thank you very much sir. We will now begin the Q&A interactive session. Participants who wish to ask questions may please press “*

Comments

[Newlogic:]

On the 22nd of June 2009 Wipro-NewLogic announced to the employees that Wipro would stop all of its IP semiconductors activities in France and close the facility: 61 engineers fired. More details on: wireless.leader.free.f...

Sep 09 03:02 PM