Conference Commentary Q1 FY24
Wipro Q1 Earnings Summary: 5 Key Points
Financials:
- Strong Deals: $1.2 billion TCV bookings, highest in 8 quarters (9% YoY growth). Revenue grew modestly (1.1% YoY CC, 6.1% YoY INR).
- Resilient Margins: Maintained 16% margin, 112 bps higher than Q1’23. Improved fixed price project efficiency and managed costs.
- Profitability & Cash Flow: EPS grew 11.5% YoY, strong cash flow (130% of net income).
Transformation & Future:
- Making Progress: Ongoing transformation since Nov 2020 shows improvement. Focus on accelerating while maintaining client experience.
- AI Focus: Invested in AI for over a decade, 2,000+ engagements delivered. $1 billion AI investment, launched Wipro ai360 ecosystem. Training entire workforce in AI.
Regional Performance:
- Americas: Strong bookings (37% YoY TCV), revenue stable (1.5% YoY CC). Healthcare & Medical devices led growth.
- Europe: Revenue growth 4% YoY, led by Southern Europe (26%) and Nordics (14%).
- APMEA: Healthy bookings (23% QoQ TCV), revenue 3% YoY. India grew 7% YoY, Middle East 6.4% YoY.
Global Business Line Model:
- Successful Transition: 4 global business lines enable faster time-to-market and personalized client service. Bespoke solutions and global talent pool differentiate Wipro.
Employee Focus & Guidance:
- Investing in Employees: Improved employee experience with streamlined policies, training, and development. 88% employee engagement exceeding benchmarks. Attrition down to 14%, lowest in 8 quarters.
- Confident in Strategy: Long-term strategy seen as key to future success and resilience in the changing industry.
- Q2 Guidance: Constant currency revenue growth of -2% to +1% expected. Margins anticipated to be similar to previous quarters.
Overall:
Wipro delivered a solid Q1 with strong deal closures, resilient margins, and progress on its transformation journey. The company’s focus on employee experience, AI, and its new business model positions it well for future growth. While Q2 revenue guidance is modest, Wipro remains confident in its long-term strategy.
Important Questions and Answers
- Question: Based on client conversations, what is the key concern or key variable that is being gathered? Could it be the end of the rate hike cycle or what else could drive a return of the spends?
Answer: Thierry Delaporte responded by acknowledging the critical role of technology in the success of companies across industries. He mentioned the recognition of massive investments made in technology over the years and highlighted the mixed messages from the macroeconomy as a factor affecting industries and their leaders. - Question: How quick could the return of the spends be?
Answer: The specific timeframe for the return of spends was not directly addressed in the provided transcript. However, the discussion emphasized the company’s strategy execution and the growth in large accounts, indicating a proactive approach to addressing the return on spending. - Question: Could you provide an update about the Global Account Executive Program and empowerment, which was earlier suggested as a key focus area?
Answer: Thierry Delaporte mentioned the visible growth in large accounts, indicating the success of the account strategy and the company’s ability to grow when focused on accounts, sectors, or markets. - Question: Regarding the investment committed for generative AI, how are we going to fund this investment, and would it have any implications on our longer-term margin aspirations?Answer: Thierry Delaporte clarified that the funding for generative AI is from the operations and is baked into the company’s plan. He also highlighted ongoing efforts to improve operational efficiency and operational excellence.
- Question: How do you expect the EBIT margin journey to play out?
Answer: Jatin Dalal mentioned the medium-term outlook of 17-17.5% for EBIT margin and emphasized the company’s continued work towards that goal while managing short-term market volatility.
Guidance
The guidance for the next quarter indicated a slight improvement over the previous quarter, with a cautious approach due to uncertainty in the market. The company emphasized staying prepared for potential client investments while remaining cautious about the market’s evolution. Thierry Delaporte mentioned that the market observed was not dramatically different from the one seen three months ago.
Conference Commentary Q2 FY24
Wipro Q2 Earnings Call Summary:
Financials:
- Revenue declined 2% QoQ in constant currency.
- Deal bookings strong – $1.3 billion, up 79% YoY, 14 deals > $30 million TCV.
- Operating margin steady at 16.1%, 100 bps expansion YoY.
- Strong cash flow: Rs.38.6 billion operating cash flow (145% of net income).
- Guidance for Q3: IT services revenue $2.617 billion – $2.672 billion (-3.5% to -1.5% QoQ).
Strategy and Operations:
- New four global business line model driving “One Wipro” service excellence.
- Customer satisfaction survey: NPS expanded by 840 basis points.
- Operational efficiency focus: utilization up to 84.5%.
- Talent focus: 180,000 employees took first GenAI course, upskilling initiatives underway.
Challenges:
- Macroeconomic slowdown – lower discretionary spending, slower order book conversion.
- Top line growth impacted (down 2% QoQ).
Opportunities:
- Strong bookings pipeline.
- Increasing partnership business (53% of bookings in Q2).
- Growing demand for full-stride cloud services and GenAI solutions.
Overall:
- Wipro remains optimistic despite near-term headwinds.
- Transformation efforts driving margin expansion and customer satisfaction.
- Investing in GenAI talent and future-proof skillsets.
Q&A Summary
Challenges:
- Wipro is facing a challenging macroeconomic environment with cautious client spending and discretionary project delays.
- Growth has slowed down, with Q3 guidance indicating a potential decline compared to the previous year.
- Margins are under pressure due to wage hikes and slower growth.
Strategies:
- Wipro is focusing on winning large deals and building strategic partnerships with key clients.
- They are exiting smaller accounts to improve efficiency and invest in more profitable relationships.
- They are investing in transformation initiatives such as AI, cloud, and security to stay ahead of the curve.
- They are confident in their long-term growth prospects and expect a rebound when the market recovers.
Specifics:
- Win rates are improving across all regions, with US performance also strong.
- The decline in Europe is attributed to specific sectors like financial services and manufacturing.
- The pipeline remains strong in all regions, particularly in Europe.
- Wipro is optimistic about the BFSI vertical but did not elaborate further in the excerpt.
Guidance
The guidance given for the next quarter from Wipro’s IT services business segment is expected to be in the range of $2.617 billion to $2.672 billion, translating to a sequential guidance of -3.5% to -1.5% in constant currency terms. However, it’s important to note that Wipro is not providing guidance beyond the current quarter.
Conference Call Q3 FY24
Revenue and Deals:
IT services revenue for the quarter is at the top end of guidance, standing at $2.66 billion. Order booking total contract value is $3.8 billion, with large deals TCV over $900 million. Year-to-date, there is a 20% growth in large deals.
Margins and Efficiency:
Net income margin expands by 1.8% sequentially, standing at 16%. The year-to-date margin has improved by more than 60 basis points. Investments in people, processes, and organizational efficiencies are paying off, making Wipro more streamlined and efficient.
Strategic Initiatives:
The company is benefiting from vendor consolidation and adding new clients. Acquired firms like Capco, Rizing, and Designit contribute significantly. Consulting business, particularly with Capco, reports double-digit sequential growth in order bookings.
Geographical Performance:
Americas 1 unit shows strong performance with a 2% sequential growth in revenue, led by a 9% growth in healthcare.
Americas 2 unit experiences softness, resulting in a 1.3% drop in revenue QoQ.
Europe wins four large deals, but revenue decreases by 4.3% sequentially.
APMEA strategic unit sees a 5.4% decline in revenue, but margins rise by 240 basis points to 13.8%.
Market Environment:
Demand environment remains cautious, with clients making conservative investments. The focus is on efficiency, ROI, and optimization of existing investments. However, there are positive indicators for growth, particularly in the consulting business.
Operational Changes:
Growth office functions are integrated into strategic market units for faster response to market needs. Operations are streamlined, leveraging AI and automation for efficiency. Continuous learning, development, and re-skilling of the talent base are ongoing.
AI Integration:
AI is becoming vital to business strategy, with every long-term large deal now having an AI component. Gen AI is embedded across solutions, and new offerings leveraging AI are being launched. Examples include digital workplace services and AI-powered solutions for various industries.
Partnerships:
Collaborations with NVIDIA and IBM strengthen the company’s position in AI. Partnerships contribute to the ai360 strategy, emphasizing responsible and sustainable AI development
Guidance for Q4:
Revenue from IT Services business segment expected in the range of $2.615 billion to $2.669 billion.
Sequential guidance of minus 1.5% to plus 0.5% in constant currency terms.
In summary, Wipro has demonstrated strong execution in delivering top-end revenue, maintaining resilient margins, and implementing transformative initiatives. The financial performance remains robust, and the guidance for Q4 reflects a strategic focus on sustainable growth and profitability.
Q&A Discussions
- Market Outlook:
- Thierry Delaporte emphasized cautious optimism in response to questions about the industry’s prospects for the next 6 to 12 months.
- Mentioned green shoots and signs of stabilization in the market, particularly a pickup in discretionary spend.
- Acknowledged the traditionally slow and uncertain market conditions over the past few quarters, especially in financial services.
- Performance and Growth:
- Recognition of a market slowdown impacting various industries.
- Positive performance in sales and bookings, contributing to a backlog for upcoming quarters.
- Specific mention of the consulting business, with strong growth in Capco contributing significantly.
- Capco:
- Capco’s double-digit growth in order bookings was highlighted.
- Thierry Delaporte discussed the unique value of Capco, its broad-based growth, and its role in various aspects of business transformation, from advisory discussions to technology implementation.
- Margins and Efficiency:
- Acknowledgment of the resilience of margin profiles despite challenges like a weak demand environment and salary increases.
- Aparna Iyer emphasized the need for ongoing investments in people, processes, and AI even as growth returns.
- Confirmation that efficiency and automation initiatives launched a few years ago have contributed to the margin resilience.
- Guidance and Caution:
- The guidance for the next quarter reflects a cautious level of optimism, considering the dynamic market conditions.
- Emphasis on the evolving nature of market trends and the need to observe client budgets and priorities in the coming months.
- Sector-specific Queries:
- Discussion on the Energy & Utilities (E&U) sector, highlighting healthy demand and investments.
- Acknowledgment of mixed performance in manufacturing but optimism about growth in areas like automotive.
- Headcount and Hiring:
- Assurance that the current environment allows for hiring, with low attrition and a sufficient talent pool available.
- As demand picks up, the company plans to consider hiring in larger numbers.
- Deal Wins:
- While specific details about net new versus renewals were not disclosed, it was mentioned that the majority of large deals are not new.