Wipro Limited (NYSE:WIT) Q1 2024 Earnings Call Transcript

Wipro Limited (NYSE:WIT) Q1 2024 Earnings Call Transcript July 13, 2023

Wipro Limited misses on earnings expectations. Reported EPS is $0.06 EPS, expectations were $0.07.

Operator: Ladies and gentlemen, good day, and welcome to Wipro Limited Q1 FY ’24 Earnings Call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Deepak Kumar Bohra, Senior Vice President, Corporate Treasurer and Investor Relations. Thank you, and over to you, sir.

Deepak Kumar Bohra: Thank you, Yashashri. A warm welcome to our quarter one financial year 2024 earnings call. We’ll begin the call with the business highlights and overview by Thierry Delaporte, our Chief Executive Officer and Managing Director, followed by a financial overview by our CFO, Jatin Dalal. Afterwards, the operator will open the bridge for Q&A with our management team. Before Thierry starts, let me draw your attention to the fact that during this call, we may make certain forward-looking statements within the meaning of Private Securities Litigation Reform Act 1995. These statements are based on management’s current expectations and are associated with uncertainties and risks, which may cause the actual results to differ materially from those expected.

The uncertainties and risk factors are explained in our detailed filings with the SEC. Wipro does not undertake any obligation to update the forward-looking statements to reflect events and circumstances after the date of filing. The conference call will be archived, and a transcript will be available on our website. Over to you, Thierry.

Thierry Delaporte: Deepak, thank you. Hello, everyone. Welcome to our first quarter earnings call. Joining Jatin and me today, we have our Chief Growth Officer, Stephanie Trautman. We have our Chief Human Resources Officer, Saurabh Govil; our Chief Operating Officer, Amit Choudhary; and our Chief Technology Officer, Subha Tatavarti. I’ll start today with an overview of our financials for the quarter, moving into some details of our business, the demand environment and some direction for the coming quarter, okay? Then Jatin will go into greater detail of our operational metrics. And of course, we’ll be happy to answer your questions after this. So Q1 was another quarter of robust deal closure for us. In total contract value terms, we closed large deals to the tune of $1.2 billion, which is a 9% year-on-year growth and actually the highest bookings in eight quarters.

During this quarter, we booked 10 deals in the greater than $30 million TCV range. Total bookings from a TCV standpoint stand at USD 3.7 billion. We added two new accounts in the greater than $100 million revenue bucket, taking into account of businesses that contributes more than $100 million in revenue to 21. So the number of $100 million accounts has more than doubled from 10 to 21 in the last 2.5 years since we started on this transformation. All around us in almost every industry, we see businesses that have been reducing discretionary spend in response to the weaker macro environment. That’s had an impact on our revenues as well. In constant currency terms, Q1 revenue grew 1.1% year-on-year. This translates into a growth of 6.1% year-on-year in rupee terms.

It is very much within the previously guided range. But yes, we are seeing some softness in revenues. Despite that, we have held margins steady. Operating margin for the first quarter was 16%. This is 112 basis points to be precise, higher than our operating margin in the first quarter of last year. We maintained margin by mostly 3 points, improving productivity in our fixed price project, a better utilization of talent and finally, by managing our fixed costs. At the same time, we continue to invest in people and in technology to build a more agile and efficient organization. This margin resiliency is especially significant. Wipro has undertaken one of the largest enterprise-wide transformations in the industry, starting November 2020. We’re proud of the progress we’ve made since.

The success of this transformation becomes clearer when you consider the magnitude of this change. And when you see that we have continued to perform while we continued to transform. On one hand, we were aligning to market needs and on the other, undergoing a deep internal transformation. Our focus on accelerating this transformation along with maintaining undivided attention on client experience and delivery excellence will progressively translate into improved growth and margins. We have recorded an 11.5% growth in earnings per share year-on-year. Cash flow has remained strong. Cash conversion stood at 130% of net income. And finally, this quarter, we closed our largest ever buyback, allowing us to return USD 1.5 billion to our shareholders.

Now our industry, like every other is undergoing a seismic shift with the advancement of artificial intelligence. AI can and will fundamentally change every aspect of business. Anticipating this revolution, Wipro had started investing and building AI capabilities over a decade ago already. We have delivered over 2,000 global AI engagements during this time. In fact, today, we are using generative AI for multiple use cases like enterprise knowledge mining, virtual assistance, content creation, automation software development life cycle and for synthetic data generation. But to accelerate innovations in this space. Yesterday, we announced a $1 billion investment in AI and launched a new AI first innovation ecosystem called Wipro ai360. This ecosystem basically will bring together Wipro’s full range of capabilities, including solutions, services, platforms, research and intellectual property as well as partnerships and talent under one umbrella with additional funding and resources to fuel our growth in this area, also placing a responsible AI operations at the heart of all our AI work.

Wipro ai360 is meant to empower our talent pool and be ubiquitous across all our operations and processes and our solutioning for clients. This AI first approach will unlock more value, productivity and commercial opportunities for our employees as well as our clients. But first, we need to train our people in this fast-moving field. Over the next 12 months, we will train our entire workforce, nearly 250,000 employees in AI. From arctan [ph] to challenges on our talent crowd platform Topcoder to dedicated trainings, we will leverage our blockchain-based DICE ID platform to become the industry standard for AI skills credentialing. Demand for AI specialized talent will grow exponentially over the coming years we know that and we’ll be prepared.

Subha is here with us today to share more on this. Now I’d like to talk through our strategic market unit performances as always. In Americas one, order bookings in terms of total contract value grew 37% year-on-year. Revenues for the quarter grew 1.5% year-on-year in constant currency terms. This revenue growth was led by health care and medical devices at 9%, followed by consumer goods and life sciences at 7% each. High-Tech and BFSI are the two sectors that were impacted the most due to softer discretionary spends. As a result, our Americas to market declined 2.7% year-on-year in Q1. Our European business unit delivered a year-on-year revenue growth of 4% in Q1. This revenue growth was led by Southern Europe and Nordics, which grew 26% and 14%, respectively, in the first quarter.

In our APMEA business, bookings in total contract value terms are looking healthy with a 23% quarter-on-quarter growth. Revenues for the quarter grew at 3% year-on-year. Within this SMU, our Indian business grew 7%, and our Middle East business grew 6.4% year-on-year. In Q1, we also completed the transition to the four global business line model that we had announced earlier in the year. This evolution of our business model is actually already showing up as faster time to market but also more inclusive one Wipro customer and delivery wins. Whatever challenges our clients may have, the solution exists within our global ecosystem, and we are tapping into the talent, the capabilities and the solutions from every corner of our firm. We are increasingly able to build bespoke solutions for clients, and that’s what is setting us apart.

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Ultimately, our focus is and always will be on serving our clients with greater innovation with attention to detail and with excellence. Great example of this is our recent win with a global digital interactive entertainment leader. Wipro will modernize their network infrastructure, delivering improved responsiveness and user experience. We will drive scalability to handle increased workloads and reinforce end-user security, all the while creating a platform that supports the clients’ expansion plans. This project brings together Wipro’s architecture, consulting, cloud migration, implementation and managed services capabilities. The swing [ph] is also a good example of how Wipro can bundle solutions from multiple partners to deliver a wide range of capabilities that are tailored to our clients’ needs.

In terms of the demand environment, in some ways, we are seeing tech investments normalize after the sharp acceleration in spending during the second part of the pandemic. More and more clients are expecting faster return on investments and optimizing costs through increased use of automation and vendor consolidation. In parallel, we continue to see solid demand in high-growth areas like cloud transformation. Clients are seeking out Wipro’s FullStride Cloud capabilities for the next phase of their cloud strategy. We are helping them run more efficient and agile businesses and capitalize on the emerging opportunities presented by artificial intelligence. For example, a large global medical device and health care company has selected Wipro to transform their operations infrastructure into a modern, cost-effective and cloud-first model.

Wipro FullStride Cloud will deliver a consistent and omnichannel workplace for 120,000 employees in 160 countries. We will help this client achieve 40% automation, cost optimization and while simplifying the global operations. Now, we are able to do all of this and more, thanks to our 250,000 associates around the world. We want to see them succeed in their roles and their career. As part of our transformation, we’ve continued to work on various aspects of employee experience with several new initiatives to streamline policies to streamline processes, talent support and training and development opportunities. We also want to make sure employee’s voice and concerns are heard. Our 2023 employee engagement survey showed an overall engagement of 88%, which is higher than before and now benchmarks us to global standards on employee experience.

We also named one of India’s best companies to work for by the Great Place to Work Institute for the second year in a row, but that [ph] to me, stable stakes. We must and we will continue to improve how we produce experienced by our employees. Because all of these efforts, attrition has continued to moderate quarter-on-quarter, coming in at an eight quarter low of 14% in the first quarter. I’m confident that our long-term business strategy is correct and well suited to ride the changes we predict in the industry. Most importantly, I believe our business strategy will keep us competitive and resilient in the future. Final word as always, on our guidance before I close. For the next quarter, we are guiding for a sequential growth of minus 2% to plus 1% in constant currency terms.

We expect margins to be in a similar range as in the last few quarters. With that, let me turn it over to Jatin for his comments.

Jatin Dalal: Thank you, Thierry, and good evening, good morning, everyone. I’ll summarize our performance for quarter 1. We grew 6% year-on-year in revenue terms. We kept – we improved our operating margin by 112 basis points year-on-year result, as a result, we grew 14% on operating profit terms. Our other income was one of the highest in recent quarters, we grew at 110% year-on-year. Our tax rate went up slightly higher and effective tax rate was 24%. As a result, our net profit year-on-year grew 12%. Let me talk about cash flows and ForEx. We continue to convert our profits into healthy cash flows. Our operating cash flow for the quarter was 130% of our net income and free cash flow at 126%. We had, after completion of buyback, $3.5 billion of gross cash and $1.7 billion of net cash in the beginning of this quarter.

Our ForEx, the realization rate was quite healthy and improved at 81.90 for quarter 1, and we had $3.6 billion [ph] of ForEx hedges at the end of the quarter. We’ll be very happy to take your questions from here.

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Q&A Session

Operator: Thank you very much. [Operator Instructions] We have our first question from the line of Sudheer Guntupalli from Kotak Mahindra AMC. Please go ahead.

Sudheer Guntupalli: Yes. Thanks for the opportunity. Clearly, just a bit on the macro one like during some of the previous downturns, this time around many of the macro variables are continuing to be surprisingly resilient, both in U.S. and in Europe, except for a brief period of panic around the regional banking crisis. So based on your client conversations, what is the key concern or key variable that you’re gathering? Could it be the end of the rate hike cycle? Or what else could drive a return of the spends? And if you were to second guess how quick that could be?

Thierry Delaporte: Sudheer, I really like the question you just asked. I think it’s a real one. And so let me try to respond to that. Interactions with clients have more or less, I would say, a similar pattern, which is that on one hand, there is no one question, the fact that technology is critical to the success of the evolution of the company, whatever the industry is, by the way. Second, I think it’s the recognition of the fact that over the last years, there has been massive investment made in technology. Now – and third is certainly the fact that macro economy continues to shed a little bit of mixed messages to those industries and to the leaders across those industries. And so at the end of the day, I’ve always been very confident on the fact that technology was on top of each of these leaders agenda and that they have a lot of transformation programs in mind to drive.

And at the same time, they are a little influenced, and I think it’s even more than influence. They are very aware of the fact that this climate of uncertainty is weighing on some potential decisions for company to continue the same volume of investment. So they have made some choices. And I think there’s a certain level of cautiousness driven by the fact that the macro environment is still – is still a little uncertain. So that’s what I’m hearing. And that’s probably – what we’re observing is actually a reflection of that, Sudheer. I think that when we look at the type of deals we are winning. We are winning more deals than ever before. And that has been consistent for the last 3 or 4 quarters. Every quarter, when we look at our TCV, performance is actually solid.

And I think you all have this question about the conversion to revenue. The answer is – the reality is that while we close all these deals, and they respond to ambition from clients, there is a reduction of what I would – what we all call the discretionary spend, which are typically smaller deals, shorter period and where it’s probably easier for less strategic for clients to put a stop to it for some time. And so that’s what we are seeing. Second question is about is there perspective, what about the second half of the year? Again, really reflecting on my discussion with clients. There could be a point in time where they feel okay, we have this budget that we haven’t spent yet. The year has unfolding being possibly better than feared. So it’s time for us to resume the investments or the spend.

And we are getting prepared for that. And whenever it happens, we’ll be ready for that. But knowing if it is going to happen in a month or 2 or 3 or 4 that I don’t know. I am being – I’m staying cautious in the way I’m projecting an evolution of this market in which we’ve been for the last 6 months. And obviously, keeping a very, very close focus on it, we’ll see. But for the time being, I would say the market we see is not dramatically different from the market we saw 3 months ago. Back to you, Sudheer.