With your IT service margins holding steady at 17.5%, your PAT exceeds expectations. What financial strategies are you implementing to maintain or for that matter even improve profitability amidst all these revenue pressures?Aparna Iyer: We have been improving our operating margins through the last eight quarters quite consistently and that has been possible because of excellence in operational rigor that we are bringing in, the excellence in execution and if you just look at the kind of productivity that we have been driving in our fixed-price programmes, our acquired entities have been improving their margins consistently.
We have been rationalising non-client facing roles in high-cost countries. We have been optimising our overheads. It has been a very collective effort that reflects in the margin performance that we have delivered. It is challenging to continue to sustain these margins given the weaker revenue environment and the fact that a large part of our pipeline actually consists of cost takeout deals and vendor consolidation that puts substantial pressure on the margins.
We will have to continue to go ahead and flex the levers that I spoke about. We have dropped our utilisation a bit compared to where we were three or four quarters ago and that again becomes the lever that we will be closely monitoring especially given our revenue guidance. So, those will be the levers. We have to go back and use more and more AI in our fixed-price programme for productivity and that will be a lever for us. What about the currency fluctuations? How did they impact your numbers and what measures are you taking to mitigate this risk?Aparna Iyer: Currency has been a positive in this quarter. The rupee depreciated against the dollar, but there were also crosses that moved on the other side. So, rupee depreciation offset by the movement in crosses has actually been a favourable impact to margins during the quarter. As we look ahead, currency continues to be very volatile. We have a very strong risk management framework which has continued to help us during these kinds of volatile moments. We stay on course with that policy and I am pretty confident that our hedging strategy will reduce the volatility of such movements. The silver lining is the large deal bookings which are showing a significant growth, an uptick of almost 83% on a sequential basis. What strategies are you putting in place to ensure that these translate into long-term revenue for you?Srini Pallia: We are coming out of two mega deal wins this financial year. Overall, large deal bookings have grown significantly like you said and this also reflects on the fact that we have a large deal engine within Wipro and we can actually scale and scope these kinds of large deals. Having said that, it is also important if some of these deals take their own time in terms of the ramp up. For example, the large Phoenix deal is going to take us a few more months before we actually ramp up where the revenue will start kicking for us in terms of the quarterly performance. Also, most of the deals that we are right now looking at, are a lot more on the cost side rather than the business transformation side. So, those could be deals that if we book this quarter maybe we can realise the revenue much faster because the client is also looking to optimise their cost as quickly as possible. It is a balance between the two.
Last but not the least, in business transformation deals, clients are taking a little bit more time because they want some level of certainty in terms of how this macroeconomic environment is going to continue going forward. So, if there is stability in that aspect, the clients will start spending on that and those also are opportunities for us to go after.
Tell me more about the two deal wins that you had and what kind of potential do they hold?Srini Pallia: At this point in time, from a deal perspective, we have a confidentiality agreement with our clients, and so I cannot disclose too many details about this particular deal and whatever you have seen and heard and we made a press release as well on that particular deal. But the point is that this particular deal is going to take a few more months for us to ramp up because there is a lot of work that we have to do before we start execution. This is something that we are having the conversation with the client and this is also the part of the solution and the approach how we want to take this deal.
So, I will not be able to disclose that aspect of the deal. Second, we have a very robust pipeline whether in the Americas or Europe or in APMEA. What is more important is what kind of deals we are shaping, how we are shaping these deals and depending on that, how quickly we can realise the revenue benefits kicking into next quarter and the quarters ahead. That is where we are staying focused.
Reports are suggesting that you are planning for global capability centres or GCCs as well and a service line via BOT model. What exactly is the plan here and what is the potential?Srini Pallia: GCCs have been strategic to Wipro and I have been talking about it for the last four quarters. Second, this also helps us build a strategic partnership with our clients because one is the clients are doing the BOT model but even if the transfer happens, the client wants to partner with us because they want us to be their extension of the GCC if you will.
They want to leverage the scale and scope of work that we do in terms of skilling our people, the capabilities where we are built around industry and cross-industry solutions that a GCC can quickly benefit from and also the innovation network that we have created. So, to me GCC is not new. GCC has been there for a very long time and we have had many GCC clients for many years as partnerships and we work with them jointly here in India and in other parts of the world.
Given your financial performance and the uncertain market conditions, what are your priorities for capital allocation and investment in the coming quarters?Aparna Iyer: In January of this year, we revised our capital allocation policy to say that we will return 70% or more of the cumulative net income over a block of three years and we remain committed to that. As a first step towards increasing the capital allocation, we have substantially increased the dividend payout that we completed in January.
We gave a dividend of $800 million in value terms which was Rs 6 per share which is quite significant compared to the dividend history of Wipro. We are sitting on $6.4 billion of cash and we are committed to seeing the most efficient way of returning that back to our shareholders after keeping enough for our investments.
Attrition stands at about 15% versus 15.3%. What levels are you targeting for Q1? Saurabh Govil: Very clearly we just need to stay focused on what we need to do. I repeat myself, we have to upskill, deploy, and grow our people and we will maximise that in the coming quarter.
Given the Q1 guidance of a potential revenue decline, what key strategic initiatives are you undertaking to drive growth and counteract this trend?Srini Pallia: We will continue to stay focused on the five strategic priorities we called out. One, focus on large accounts in our priority sectors and markets. Two, we will continue to build on large deals and we talked about that. Three, we are going to build industry and cross-industry solutions which are consulting and AI powered. We will continue on that journey. We have had good success in the last few quarters. Four, Saurabh talked about talent. That is something that we have to upskill because Gen AI continues to change. We need to have more and more of our employees move on to advanced training programmes and certification programmes in Gen AI and also they have to have the industry in the process context as we do it. The last one is client centricity, we had a very good third-party survey that happened and our NPS scores, CSAT scores have improved and we have to continue to stay focused on that.
So those are the five things that we will do. But here and now we got a sense and response to the clients as they are doing scenario planning because it varies from sector to sector. For example, within manufacturing, automotive and industrial have had a much bigger impact, so they are looking at how to save cost and save cash. But sectors like BFSI are waiting and watching before they want to do the new discretionary spend. I think we have to continue to stay focused on clients and sense and respond to their needs and be very proactive with them.
