U.S. Markets closed

Edited Transcript of WIPRO.NSE earnings conference call or presentation 14-Jan-20 1:45pm GMT

Q3 2020 Wipro Ltd Earnings Call

Bangalore, Karnataka Jan 17, 2020 (Thomson StreetEvents) -- Edited Transcript of Wipro Ltd earnings conference call or presentation Tuesday, January 14, 2020 at 1:45:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Abidali Z. Neemuchwala

Wipro Limited - CEO, MD & Executive Director

* Angan Arun Guha

Wipro Limited - SVP & Global BU Head of BFSI

* Aparna C. Iyer

Wipro Limited - VP & Corporate Treasurer

* Harmeet Chauhan

Wipro Limited - SVP of Industrial & Engineering Services

* Jatin Pravinchandra Dalal

Wipro Limited - CFO

* Rajan Kohli

Wipro Limited - President of Wipro Digital

* Srinivas Pallia

Wipro Limited - President of Consumer Business Unit

================================================================================

Conference Call Participants

================================================================================

* Abhinav Ganeshan;SBI Pension Funds (P) Ltd

* Harit Shah

IndiaNivesh Securities Limited, Research Division - Senior Research Analyst

* Madhu Babu

Centrum Broking Limited, Research Division - Research Analyst

* Nitin Padmanabhan

Investec Bank plc, Research Division - Analyst

* Parag Gupta

Morgan Stanley, Research Division - Executive Director

* Ruchi Burde

BOB Capital Markets Limited, Research Division - Research Analyst

* Sandeep Shah

CIMB Research - VP

* Sandip Kumar Agarwal

Edelweiss Securities Ltd., Research Division - VP

* Shashi Bhusan

Axis Capital Limited, Research Division - Executive Director of IT and Telecom

* Sudheer Guntupalli

Motilal Oswal Securities Limited, Research Division - Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Ladies and gentlemen, good day, and welcome to the Wipro Limited Q3 FY '20 Quarterly Investor Conference Call. (Operator Instructions) Please note that this conference is being recorded. I would now like to hand the conference over to Ms. Aparna Iyer, Vice President and Corporate Treasurer. Thank you, and over to you.

--------------------------------------------------------------------------------

Aparna C. Iyer, Wipro Limited - VP & Corporate Treasurer [2]

--------------------------------------------------------------------------------

Thank you, Stanford. A very warm welcome to our Q3 FY '20 earnings call. We will begin the call with business highlights and overview by Abid, our Chief Executive Officer and Managing Director, followed by financial overview from our CFO, Jatin Dalal. Afterwards, the operator will open the bridge for Q&A with our management team.

Before Abid starts, let me draw your attention to the fact that during this call, we may make certain forward-looking statements within the meaning of the 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 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 made available on our website. Over to you, Abid.

--------------------------------------------------------------------------------

Abidali Z. Neemuchwala, Wipro Limited - CEO, MD & Executive Director [3]

--------------------------------------------------------------------------------

Thank you, Aparna. Good evening, and good morning, ladies and gentlemen. First of all, wish you all a very happy new year. I'm joined over here with my leadership team -- by my leadership team, and it's a pleasure for us to speak to you all and share the results of the third quarter.

Let me quickly provide an update on Q3 performance, our view of the demand environment and progress on our strategy.

We had a strong quarter, both on revenues and margin, our revenues grew by 1.8% in constant currency terms, at the midpoint of our guidance.

On a YTD basis, we grew at 4.3% in constant currency terms. In Financial Services, we saw a slowdown in our growth rates due to continued softness driven by macroeconomic environment. We, however, remain confident on winning the new deals that we are participating in and leveraging our strong capabilities in Digital.

We are pleased with our performance in consumer, which grew 12.1% year-on-year constant currency this quarter and the sustained rhythm that we have built in this vertical on deal bids. ENU and communications continued to grow moderately. We continue to see recovery in manufacturing and are encouraged by the order book and pipeline. Health saw a seasonal uptick in HPS as Q3 has open enrollment period, while the technology business was impacted both by furloughs and slowdown in spend in the semiconductor verticals.

The overall demand environment has neither improved nor deteriorated from what I shared last quarter, but we see the same level of uncertainty due to the various geopolitical risks at play. We delivered a healthy operating margin of 18.4% in Q3 versus 18.1% last quarter, aided by the depreciation of the rupee and some favorable movement of the cross currency.

Now let me provide you a quick update on our strategy. Business transformation. In the past quarter, our customers across nearly every industry have chosen us to embed digital transformation within their business. It is no longer just about enabling new customer experience. It's about fundamentally changing a business. And I'm pleased to share our wins, which show how our customers are turning to us as trusted business transformation partner.

In Digital, our revenue grew 22.8% year-on-year and now contributes over 40% of our revenues. For example, we have won a service design engagement to define the future vision and established the strategic foundation for digital transformation at a bank in U.K. in the mid-market segment called Synergy Bank.

On modernization, we continue to help enterprises through their business-first strategy with an industrialized approach in enabling our customers to drive business acceleration, customer experience and connected insights.

Our investments in cloud studio is continuing to pay off. We have accelerated cloud journey for our customers by migrating more than 39,000 workloads and 2,900 applications.

A U.S.-based semiconductor company has chosen Wipro to move its current engineering application infrastructure to the cloud. We will leverage our cloud studio offering to help the client become more agile, ensure faster time to market and lower the total cost of ownership for the client.

Our strategy on connected intelligence, which covers data analytics, artificial intelligence and engineering is delivering good results. The Engineering NXT set of offerings that I had talked about, we continue to invest in it and put the building blocks in place. We concluded the IPI acquisition this quarter, the acquisition will help us build momentum in Industry 4.0 and IoT offerings and will enable us to have a new set of clients to create differentiated value.

We have won a contract from the North American subsidiary of a global automobile company to deliver the NextGen in-vehicle infotainment software as part of our Engineering NXT proposition.

The fourth area is around trust, focusing on enhancing our cybersecurity offerings, we have created a dedicated oT and IoT security practice to address the changing threat landscape due to connected systems.

We recently launched our 15th Cyber Defense Center in Melbourne.

As an example, Wipro has won a strategic contract from a leading U.S.-based financial services institution to design and implement a more effective risk and compliance-management process for them leveraging artificial intelligence.

The rapid adoption of HOLMES continues, delivering significant service improvement in IT and services, testing as well as our digital operations business.

Our effort savings in fixed-price projects improved from 16.5% in Q2 to 17.8% in Q3. One of the large U.K.-based global provider of financial markets' data and infrastructure has selected Wipro for a data-migration contract, leveraging the contract intelligence capabilities of Wipro HOLMES.

We continue to drive localization and now our U.S. workforce is over 70% local, enhancing campus hiring, deepening employee engagement and making significant investments in training and skill development in all our markets. This is also reflected in the attrition rates, which have improved to 15.7% for the trailing 12 months.

In conclusion, we remain focused on deepening our customer relationships and converting our funnel, winning large deals that are due to close in this quarter.

I will now request Jatin to give the highlights of our financials.

--------------------------------------------------------------------------------

Jatin Pravinchandra Dalal, Wipro Limited - CFO [4]

--------------------------------------------------------------------------------

A very good evening, very good morning to the participants. As you know, we delivered at the midpoint of our guidance range. We also delivered sequentially 30 basis points higher operating margin.

Overall, we delivered 3.2% EPS growth year-on-year. Cash conversion remained very robust. We delivered -- our operating cash flow was 124% of net income and free cash flow was 101% of our net income. Our ForEx realizations remained very robust. Our realization rate for quarter 3 was INR 72.09 compared to INR 71.56 for quarter 2.

We have a very healthy cash position on our balance sheet. Our total cash on the balance sheet is $4.9 billion gross and $3.6 billion net. Our ETR is stable at 20%. We had a slightly lower ETR in quarter 2 because of the changes in the tax law, as all of you are aware.

Our guidance for quarter 4 is 0% to 2% sequentially in the constant currency that I've mentioned in our press release.

We'll be very happy to take your questions from here on.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) The first question is from the line of Sandip Agarwal from Edelweiss.

--------------------------------------------------------------------------------

Sandip Kumar Agarwal, Edelweiss Securities Ltd., Research Division - VP [2]

--------------------------------------------------------------------------------

I have just a couple of questions, Abid, as you've mentioned, that you're now over 70% of the workforce in U.S. is local. So which means that we have done extremely good job in terms of avoiding any business-related risk from a long-term perspective. And ideally, it should have given us a lot of advantage on the revenue growth side, number one.

Number two, the amount of work which we have done in last 4, 5 quarters in terms of deal wins and on the digital side, which is now like 40% of the revenue, our growth momentum should have now matched the industry level or at least closer to our competition. But we are still not seeing that in -- translating into numbers. So 2 things which I wanted to understand. One, are we very close to the point where we will start seeing that transitioning into numbers? And number two, how bad is our nondigital side which is taking away all the good work or good growth of the digital side?

--------------------------------------------------------------------------------

Abidali Z. Neemuchwala, Wipro Limited - CEO, MD & Executive Director [3]

--------------------------------------------------------------------------------

So Sandip, as you rightly mentioned, our ability to fulfill our order book that has been won and execute engagements in the market, especially in U.S. with 70% local workforce is clearly a differentiator. And especially in Digital, where a lot of work happens in agile scrum teams on site. It has been an advantage for us.

Clearly, in some of the segments, especially in the banking segment, this quarter, we saw a slight slowdown in digital simply because of furlough and has been the last quarter for a lot of banks. Some of the agile projects, which typically also have SOWs for a shorter term given out. Sometimes to save cost, you may not get those SOWs renewed in the last month or so, which may impact digital revenues.

But in general, I feel quite good about both our digital business as well as the banking segment coming back in the next year. And that's why I feel good about our pipeline, both -- it is -- especially with digital deals, becoming larger and coming across various verticals for us.

I think the overall business, which you mentioned as nondigital, the 60%, is also part of the modernization and other strategies that we talk about, where we are enabling that part of the business also. So that overall, that doesn't become a drag to our overall growth rate, and we've been able to rotate that business from the old to the new, relatively well.

Of course, there are still parts of the business which de-grow and there's a productivity that happens over there, but we feel quite good about it on an overall basis.

--------------------------------------------------------------------------------

Operator [4]

--------------------------------------------------------------------------------

The next question is from the line of Parag Gupta from Morgan Stanley.

--------------------------------------------------------------------------------

Parag Gupta, Morgan Stanley, Research Division - Executive Director [5]

--------------------------------------------------------------------------------

Just 2 questions from my side. So Abid, just wanted to understand, getting into 2020, how do you feel about the demand environment relative to what it was when you got into 2019? Are you seeing any sort of client pressures where deal conversions are taking time? Or projects are being broken up into smaller projects and just getting deferred? So I just wanted to understand that.

And the second question is, you talk -- you seem to be a little bit more confident on banking for the next 12 months. So just wanted to understand what subsegments within banking are making you feel more positive? And is there any risk that these projects also get pushed out, given the kind of pressures your customers may be seeing in their own business? So just wanted to get some sense qualitatively on both of these.

--------------------------------------------------------------------------------

Abidali Z. Neemuchwala, Wipro Limited - CEO, MD & Executive Director [6]

--------------------------------------------------------------------------------

Yes. On the second part of your question on banking and financial services, I'll have Angan Guha who heads that business, give you some color. And answering the first part of your question, compared to last year, we don't see a significant change in the demand environment, either positive or negative, level of macro uncertainties do continue. But from a Wipro perspective, we had a very robust order booking in Q3, and we are entering the calendar year with the biggest pipeline that we entered last year.

Deal closures, we are not seeing any extended time compared to last year. So the time that deal closures are taking is pretty much the same. Actually, the deals -- we have a larger component of large deals, so the deals are definitely getting larger, especially in digital, the deal sizes are bigger than last year. Angan.

--------------------------------------------------------------------------------

Angan Arun Guha, Wipro Limited - SVP & Global BU Head of BFSI [7]

--------------------------------------------------------------------------------

Yes. And Parag, this is Angan Guha. So as you know, Parag, over the last 3 years, BFSI has delivered industry-leading growth. Now this quarter, we had a challenge because of furloughs because of certain clients in the capital markets space and sourcing. And that is why we saw a little bit of headwind but I'm confident because our funnel is probably bigger than ever. And if we can close some large deals, like Abid mentioned, next year will be much better.

And the confidence comes in from the funnel size. I think our deal size has gone up and the funnel size is significantly higher than what it was in the same period last year.

--------------------------------------------------------------------------------

Parag Gupta, Morgan Stanley, Research Division - Executive Director [8]

--------------------------------------------------------------------------------

Got it. And maybe if I can just ask one more. I do remember you talking about digital work also being discretionary in nature, which potentially runs the risk of either getting pushed out or made smaller if there is an issue in the market or in the demand environment. So I just wanted to understand, is that still the case? Are you still seeing some sort of those conversations happening? Or do you think digital is lot more strategic right now, and hence, is likely to come through, even though there may be other challenges faced by your customers.

--------------------------------------------------------------------------------

Abidali Z. Neemuchwala, Wipro Limited - CEO, MD & Executive Director [9]

--------------------------------------------------------------------------------

We have Rajan who is the President of Wipro Digital, I'll let him throw some color at it.

--------------------------------------------------------------------------------

Rajan Kohli, Wipro Limited - President of Wipro Digital [10]

--------------------------------------------------------------------------------

This is Rajan. Actually, both the statements you made are sort of true. It is discretionary to the extent that it is up to the client to really spend it, but it is essential because this is the long-term future of the enterprises. So to that extent, change is becoming the new entity. So we feel that they have no option but to spend it. But as Abid said in the opening, certain segments have sort of this quarter, I think that -- but we believe that's a very short-term phenomenon. Because they will come back and spend the money on digital, because that's the only way out for them to optimize their overall estate. Thank you.

--------------------------------------------------------------------------------

Operator [11]

--------------------------------------------------------------------------------

The next question is from the line of Sudheer Guntupalli from Motilal Oswal.

--------------------------------------------------------------------------------

Sudheer Guntupalli, Motilal Oswal Securities Limited, Research Division - Research Analyst [12]

--------------------------------------------------------------------------------

Within the consumer BU, if I may ask, what are the subsequents driving growth because the reported -- strong reported growth seems to be at odds with commentary of some of our competitors, especially in the subsegment of, let's say, retail. So within the consumer BU, what are the areas where you are seeing strong growth? And what is your take on the specific segment of retail?

--------------------------------------------------------------------------------

Abidali Z. Neemuchwala, Wipro Limited - CEO, MD & Executive Director [13]

--------------------------------------------------------------------------------

Sudheer, I'll let Srini Pallia, who is the president for our consumer business, throw some color. But essentially, our growth in consumer is led by digital. And also we work with a lot of our customers in the e-commerce space, which is the part of consumer, which is growing, and we have a fair mix and share of that business where we are seeing growth, primarily through a lot of discretionary spending on project work. Srini can elaborate a little bit more by vertical.

--------------------------------------------------------------------------------

Srinivas Pallia, Wipro Limited - President of Consumer Business Unit [14]

--------------------------------------------------------------------------------

Sure. Thanks, Abid. Sudheer, this is Srini Pallia here. So there are 2 parts to the -- this industry that we see. So specifically on the retailers, obviously, you would have seen the news that they had a good holiday season in the U.S., thanks to the consumer confidence. And if you look at overall retail, last quarter grew 3.4% during the holiday season. And of course, like Abid mentioned, e-commerce grew almost 19%. While e-commerce still contributes only 15% of the overall retail, and -- however, brick-and-mortar actually declined 1.8%. So net debt, what we are seeing is retailers investing in technology to, kind of, create the core differentiation of -- about context, which is e-commerce picking up quite a bit. And whoever is investing in technology are doing well. We also see a traction in modernization and the digital transformation that again, Abid and I talked about. Overall, retail market, from my point of view, will continue to be choppy and volatile. I

(technical difficulty)

with our customers and specifically focus on executing to their strategic priorities. Now the other part of retail

(technical difficulty)

behavior of consumers, right? And if you look at -- there's a lot of dynamics around that. And specifically on the consumer business, in addition to digital transformation, the brand companies are looking at going direct D2C, which is direct-to-consumer. And they're also investing significantly on their supply-chain modernization. So both retail companies and CPG companies, to my point, but in my mind, will continue to invest significantly on technology. And if you look at the growth of some of the CPG companies that we have seen, they are actually growing in emerging markets and they continue to invest in that, which is their next way of growth.

And our presence outside of the U.S. is also helping us to go after that part of the business. So net-net, the industry will continue to be volatile and choppy, we'll stay focused on where the customers are investing, especially on the technology transformation. I think that's the right way to go, in my point of view, Sudheer.

--------------------------------------------------------------------------------

Sudheer Guntupalli, Motilal Oswal Securities Limited, Research Division - Research Analyst [15]

--------------------------------------------------------------------------------

Sure. That's very helpful. And the other question is, there seems to be a sharp improvement in the vertical margins in communications, almost 450 basis points or so. And this came despite revenue remaining more or less the same. So any color on the same will be helpful.

--------------------------------------------------------------------------------

Jatin Pravinchandra Dalal, Wipro Limited - CFO [16]

--------------------------------------------------------------------------------

Yes. So I wouldn't see too much into the quarterly variation. We had a onetime collection, which reversed the provision for doubtful debt, and that has improved the quarterly operating margin. I would look at a 4-quarter trend for a normalized sustainable margins.

--------------------------------------------------------------------------------

Sudheer Guntupalli, Motilal Oswal Securities Limited, Research Division - Research Analyst [17]

--------------------------------------------------------------------------------

Okay. So this quarter, if I adjust for that provision, what would be the normalized margin -- adjusted margins?

--------------------------------------------------------------------------------

Jatin Pravinchandra Dalal, Wipro Limited - CFO [18]

--------------------------------------------------------------------------------

Well, that would be difficult to break out, but if you see the trend, you should be able to see that additional which is sitting there.

--------------------------------------------------------------------------------

Operator [19]

--------------------------------------------------------------------------------

The next question is from the line of Sandeep Shah from CGS-CIMB.

--------------------------------------------------------------------------------

Sandeep Shah, CIMB Research - VP [20]

--------------------------------------------------------------------------------

Congrats on good execution. Just a bit wanted to understand if you can throw some light in terms of -- is it fair to say, most of the portfolio-specific issue in the global markets outside of India is largely behind? Because last quarter, we called out manufacturing. Now you are foreseeing some amount of green shoots and tailwinds also coming out of manufacturing. So is it fair to say outside India, most of the client-specific or portfolio-specific issues are behind for Wipro?

--------------------------------------------------------------------------------

Abidali Z. Neemuchwala, Wipro Limited - CEO, MD & Executive Director [21]

--------------------------------------------------------------------------------

Yes. Sandeep, I would say, including India [PRE], most of the portfolio issues that we had that we were working on the turnaround are behind us. Of course, the state-run enterprises, which is a segment outside, still has restructuring work to do, and they're also making a lot of progress. Having said that, obviously, in our health business, we -- again, based on some of the -- our portfolio mix of higher exposure to

ACA does continue to be an area of uncertainty, and that will drive volatility. But otherwise, overall, if you look at the portfolio, I do feel good that things that we had set out to both reengineer our portfolio and address Wipro-specific issues as well as a lot of the investment in capability that we have been doing, where we get the mind share and traction with customers with a very robust set of deal wins gives me confidence that those issues are behind us.

--------------------------------------------------------------------------------

Sandeep Shah, CIMB Research - VP [22]

--------------------------------------------------------------------------------

Okay. And just to follow-up, Abid. Around 3, 4 quarters back, we said that the growth outperformance in the Banking and Financial Service, is largely driven through higher penetration of digital offerings in the banking as a vertical. So if you need to put that number in terms of penetration, are we able to replicate that success, which we have done in terms of digital penetration in banking in other segments or still that's a work in progress?

--------------------------------------------------------------------------------

Abidali Z. Neemuchwala, Wipro Limited - CEO, MD & Executive Director [23]

--------------------------------------------------------------------------------

I think, learning from what we did in the Banking and Financial Services segment, you see the evidence of replicating that in the consumer segment. Also, it's a function of both the horizontal capabilities that go with digital as well as the vertical capabilities that each one of the business units are building to be able to contextualize digital to their own vertical. And the second part of that is also the uptick in spend that these companies, in particular industry verticals, have in terms of investment on digital. So I feel good. For example, we are seeing good deal traction in the health care piece outside of HPS in our health business, where health care companies are investing in patient experience, which essentially is part of digital. And we are winning a fair share of our business.

In the ENU business, in the energy space, there's a lot of investment happening in digital and cloud, and we are winning a fair share of our business. So I can go vertical by vertical, but essentially, to answer your question, yes, we've been able to take our expertise, our horizontal capability in banking led because banks was the first to invest, but we are able to translate those capabilities in each one of the verticals. And each vertical, I would say is at a different level of readiness as well as industry uptick to be able to take [digitally].

--------------------------------------------------------------------------------

Sandeep Shah, CIMB Research - VP [24]

--------------------------------------------------------------------------------

Okay. And just last 2 questions. If I look at the commentary on the funnel, looks really positive, especially on the Banking and Financial Service. So can you throw some light in terms of the sale cycle here? And where are we standing in terms of the number of competitors? Is it more proactive? Reactive?

And the last question to Jatin. This is the fourth quarter the EBIT margin on IT service has been close to 18% despite the headwinds on the margins. So do you believe that this is sustainable levels to look for and there could be a further improvement of the growth pickups?

--------------------------------------------------------------------------------

Abidali Z. Neemuchwala, Wipro Limited - CEO, MD & Executive Director [25]

--------------------------------------------------------------------------------

So Sandeep, the funnel looks good. It has a combination of both, what I would call as, deals of large size as well as average-sized deals. We've not seen any change in the time it takes to close a deal. But typically, a large deal takes almost 6 to 8 months to close, small deals obviously close faster. So that pace continues.

And we see a good share. We've been -- we are getting our fair share of deals in terms of both in our funnel as well as getting into the last 2 or 3 where we then really have a chance to win the deal. Jatin?

--------------------------------------------------------------------------------

Sandeep Shah, CIMB Research - VP [26]

--------------------------------------------------------------------------------

Okay. Okay. And the question on margin.

--------------------------------------------------------------------------------

Jatin Pravinchandra Dalal, Wipro Limited - CFO [27]

--------------------------------------------------------------------------------

Yes. So Sandeep, Jatin here. So as you know, we have delivered for this fiscal 18.4% in first quarter, 18.1% in second and 18.4% in third quarter. So that we have demonstrated the discipline of execution, even as we have continued to invest incrementally in our big bets through the course of the year. As we always maintain our priority is to get a superior growth trajectory for the organization because we believe that is the source of margin expansion or margin sustenance in medium term. And therefore, we'll remain always committed to initiatives and investments that we need to do to get the growth trajectory up. So far, we have been quite successful at finding those dollars by squeezing the costs that we believe we can squeeze out. And that would be our endeavor going forward. We are not guiding on margins. As I said, we will remain committed on getting the growth trajectory further improved from where we are.

--------------------------------------------------------------------------------

Operator [28]

--------------------------------------------------------------------------------

The next question is from the line of Madhu Babu from Centrum Broking.

--------------------------------------------------------------------------------

Madhu Babu, Centrum Broking Limited, Research Division - Research Analyst [29]

--------------------------------------------------------------------------------

So last 1 year we have been going slow on acquisitions. So currently, around INR 25,000 crore is the net cash on balance sheet, and we generate almost INR 10,000 crore of free cash flow per year. So would we start looking to increase the payout ratio, more of interim dividends because anyway, -- the buyback for the next buyback would be only post September of this year. So with such a high cash [confident] on the balance sheet, would you look for more interim dividends from here on?

--------------------------------------------------------------------------------

Jatin Pravinchandra Dalal, Wipro Limited - CFO [30]

--------------------------------------------------------------------------------

So as you know, we have had 2 cash events in the year, and I think that's optimal. We have declared an interim dividend in this quarter. We will -- the Board will continue to evaluate as we move forward on what should be the way of returning cash to the shareholders. For last 2 years, if you see, we have gone significantly ahead of our commentary of paying 45% to 50% of net income in -- over a block of years. And therefore, our philosophy has been around what we don't need for our growth, we will certainly look at returning but in the guided range that we have spoken about.

So we will continue to look at opportunity and Board will make decisions as it deems fit based on our requirement of funds.

--------------------------------------------------------------------------------

Madhu Babu, Centrum Broking Limited, Research Division - Research Analyst [31]

--------------------------------------------------------------------------------

And one more on the top 2 clients in the banking. I think the top accounts have been weak and one of that is a banking account. And even within the top side, there are 2 banking accounts. So what are the outlook on those 2 accounts for next year?

--------------------------------------------------------------------------------

Jatin Pravinchandra Dalal, Wipro Limited - CFO [32]

--------------------------------------------------------------------------------

Well, we cannot talk specifically about which 2 because your 2 could be different now in this quarter compared to the 2 that we had in previous quarter. But overall, I wouldn't worry about the commentary specific to consumer. Abid and Angan had spoken about our overall outlook on BFSI space. And I would see that as a -- as an important step forward from our side because individual clients can always go up or down, but what I'm sure you're looking at is the portfolio outcome from the BFSI.

--------------------------------------------------------------------------------

Madhu Babu, Centrum Broking Limited, Research Division - Research Analyst [33]

--------------------------------------------------------------------------------

And last one on the engineering side. Sir, I think we brought in a new team and also, could you elaborate more on the next year, what is the target growth? Because that segment actually, some of the [pure play] vendors are growing at a much faster pace.

--------------------------------------------------------------------------------

Abidali Z. Neemuchwala, Wipro Limited - CEO, MD & Executive Director [34]

--------------------------------------------------------------------------------

Yes. So we -- as I mentioned in my opening remarks, we are making significant investments. We just closed an acquisition. Also over there, I'll let Harmeet Chauhan, who heads our engineering business, give a little more detailed color on how we feel about our engineering business.

--------------------------------------------------------------------------------

Harmeet Chauhan, Wipro Limited - SVP of Industrial & Engineering Services [35]

--------------------------------------------------------------------------------

This is Harmeet here. As you know, we've been operationalizing our new strategy for last 2 to 3 quarters, including the acquisition of IPI, which we completed in Q3. We also rolled out our new Engineering NXT offerings, which is to truly enable innovation for clients across 11 different industries for both accelerating time-to- market and also delivering efficiencies. So based on where we sit, based on where we are, we believe that we are heading into sales where we have a complete stack of engineering offerings to really sharpen our value creation for our customers, and that should position us in the industry-leading growth.

Even if you see in quarter 3 we have delivered Q-on-Q growth, and we believe that momentum to continue going forward. And of course, the other data point I would like to share as far as our [operational] strategy is, customers are really engaging us across 5G, across IoT, across Industry 4.0, across connected products, across software products. So the breadth and depth we are seeing in terms of addressing, and we are winning against competition. We have seen in Q3 as well a significant traction of growth across geographies, North America, Europe and in Japan as well. So we -- I remain bullish. My team remains bullish to deliver on industry-leading growth going forward.

--------------------------------------------------------------------------------

Operator [36]

--------------------------------------------------------------------------------

The next question is from the line of Abhinav G from SBI Pension Funds.

--------------------------------------------------------------------------------

Abhinav Ganeshan;SBI Pension Funds (P) Ltd, [37]

--------------------------------------------------------------------------------

I just wanted to -- a couple of things. First one is that our digital and platforms are doing better. So is there any tailwind coming from HOLMES? And the second part is, can we give more color on how are our capabilities because of our peers, are we doing some work on cognitive area as such?

--------------------------------------------------------------------------------

Abidali Z. Neemuchwala, Wipro Limited - CEO, MD & Executive Director [38]

--------------------------------------------------------------------------------

Yes. So HOLMES -- both -- as part of a lot of the run deals that we bid for becomes an essential part of our solution, and it is a differentiator for us. If you remember a couple of years back as the engineered HOLMES, we had picked up some of our large accounts and run engagements in those accounts to deploy HOLMES, to build use cases, to build interfaces so that they can be deployed at an enterprise level. Those deployments as well as that IP along with the overall HOLMES framework has helped us win a large number of run deals and deliver productivity and margin within those deals.

As AI technology has become available primarily also from the cloud providers, we've identified use cases where we can inherit technology from each one of the cloud providers, whether it is Azure, whether it is AWS or GCP, and we've created use cases across platforms, so that we can deploy HOLMES in a cloud environment in the work that we do for them. So I feel pretty good. Over 280 customers now have HOLMES deployed with use cases. We have about 17.8% of our work being done in FTE-equivalent terms through automation, which is primarily driven by HOLMES.

The second area where we see attraction with HOLMES is what we call as HOLMES for business. One of the examples that I gave in my opening remarks is an example of home store business. We've identified about 12 industry use cases where the applicability of artificial intelligence and cognitive technologies delivers business transformation, and we have deployed one or more instances of those use cases with our customers. A lot of those deals are also proactive. They are also part of our business transformation offerings. And including change management, we are able to do those deployments. Although the size of those deals are small right now, but we see quite a lot of traction, and we are building more accelerators leveraging HOLMES across different industry verticals.

--------------------------------------------------------------------------------

Operator [39]

--------------------------------------------------------------------------------

(Operator Instructions) The next question is from the line of Harit Shah from IndiaNivesh Shares and Securities.

--------------------------------------------------------------------------------

Harit Shah, IndiaNivesh Securities Limited, Research Division - Senior Research Analyst [40]

--------------------------------------------------------------------------------

I just wanted to get a sense what is happening on your top clients? The revenue in dollar terms is down at its lowest level, more than 2 years. So some sort of color on what is happening over there? The trends are [outplaying] out in that space? That would be helpful.

--------------------------------------------------------------------------------

Abidali Z. Neemuchwala, Wipro Limited - CEO, MD & Executive Director [41]

--------------------------------------------------------------------------------

So Harit Shah, we've been talking about the cross-sell and client mining across our top clients for the last many quarters. And as you saw, we saw double-digit growth in the last 2 or 3 years, which we've seen as a little bit of slowdown in the last couple of quarters. If you -- if I give some color on the mix of the top clients for Wipro, our top clients are primarily from Banking and Financial Services industry and Technology industry vertical. And both of these, as we have discussed, financial services -- last year because of the -- as you guys know better than anybody else because of the interest rate change, a lot of banks did curtail their spend. We had some challenges at a macro level in the capital market space, and that has impacted because they form part of our top 10 clients.

Similarly, in the technology space, of course, Q3 always is a difficult quarter for technology because of furloughs. But apart from that, we are seeing, again, due to macro issues, challenges in the silicon segment of our tech business unit. Primarily driven by the U.S.-China trade and the slowness of the uptick of 5G with telecommunication service providers, which has an impact on the network equipment providers, which -- both of which in Banking and Financial Services as well as in the tech BU, I see our midterm or short term temporary. And next year, we feel that there will -- it will be back to growth, and there'll be uptick in both of these. So the relationships with our top clients are very robust. We are gaining market share even when sometimes our revenue goes down as they consolidate, as they renew. So we feel quite good about our overall top client portfolio.

--------------------------------------------------------------------------------

Harit Shah, IndiaNivesh Securities Limited, Research Division - Senior Research Analyst [42]

--------------------------------------------------------------------------------

Sure. That's helpful. You had mentioned last quarter that you do a lot of the new digital-related work your top clients. So I knew you had mentioned that some digital projects had ended and renewal is taking a little bit of time. So is that -- have you seen that trend continue this quarter also? And any kind of new renewals taking time maybe because of budget -- the new budgets being decided or any other reason?

--------------------------------------------------------------------------------

Abidali Z. Neemuchwala, Wipro Limited - CEO, MD & Executive Director [43]

--------------------------------------------------------------------------------

Yes. So specifically, our Q3, which was the last quarter for a lot of banks, we did see customers holding their spend back sometimes to address their own internal budget challenges because as you rightly mentioned, digital work is also a lot of discretionary spend, and they may decide to pause work and not renew their SOWs and we did see that. Coming into January, we are starting to see that demand coming back, but it's too early to call right now. So we will -- we have built that uncertainty in our 0% to 2% guidance that we have given.

--------------------------------------------------------------------------------

Harit Shah, IndiaNivesh Securities Limited, Research Division - Senior Research Analyst [44]

--------------------------------------------------------------------------------

Okay, fair enough. And my last question, a bookkeeping question. What are the outstanding ForEx hedges that you have at the end of -- around the quarter?

--------------------------------------------------------------------------------

Jatin Pravinchandra Dalal, Wipro Limited - CFO [45]

--------------------------------------------------------------------------------

Yes. So we have $2.6 billion of outstanding hedges as of December.

--------------------------------------------------------------------------------

Harit Shah, IndiaNivesh Securities Limited, Research Division - Senior Research Analyst [46]

--------------------------------------------------------------------------------

And then at what rate would that be on an average?

--------------------------------------------------------------------------------

Jatin Pravinchandra Dalal, Wipro Limited - CFO [47]

--------------------------------------------------------------------------------

As you know, we have stopped sharing those rates, but we typically hedge at any point in time for next -- 50% of our next 4 quarters' net inflow, and you can gauge what rates we would have booked those at.

--------------------------------------------------------------------------------

Operator [48]

--------------------------------------------------------------------------------

The next question is from the line of Nitin Padmanabhan from Investec.

--------------------------------------------------------------------------------

Nitin Padmanabhan, Investec Bank plc, Research Division - Analyst [49]

--------------------------------------------------------------------------------

Abid, you clearly highlighted that there's an improved funnel that's driving confidence of growth sort of improving going forward. And also the fact that there's a potential deceleration of headwinds from the existing client buckets and at some point, you would actually start spending. So I just wanted your thoughts on 2 things. One is, in terms of the funnel, are these more cost takeout kind of spends? Or are these higher on the digital side of spend? And second, something that's at loggerheads with the broader thought process, if you could clarify is that the broader market environment appears to be -- continues to be weak at least if you look at banks and their own profitability and so on and so forth. So what in your mind is sort of changing that they'll actually come back in the early spend? And what's the confidence of that really happening?

--------------------------------------------------------------------------------

Abidali Z. Neemuchwala, Wipro Limited - CEO, MD & Executive Director [50]

--------------------------------------------------------------------------------

So there are 3 areas that I would kind of like to touch upon. One is banks and all other industries but especially banks continue to invest in digital. So that gives us optimism because as that digital spend happens, we are able to participate in that.

The second is, as you rightly mentioned, there are challenges as the macro economy slows down, and it impacts banks, banks would normally lead some of these areas of slowdown and cost efficiency as well. And we have a significant play in the area of helping banks deliver a better revenue-to-cost ratio, and we participate in that. And those deals are cost-takeout deals, consolidation deals, those deals have a component of large deals, but none of them come without a transformation component.

So to answer your third question or the third part of my answer is that, invariably, those deals are digital in nature. In some cases, they may be more on the business transformation and experience front. In some cases, it may be more of automation and AI-led business transformation. So digital is essentially a part of all of that. I wouldn't imagine a pipeline, which is not 60%, 70% digital in today's IT services environment.

--------------------------------------------------------------------------------

Nitin Padmanabhan, Investec Bank plc, Research Division - Analyst [51]

--------------------------------------------------------------------------------

Sure. That's helpful. Just one follow-up there is, do you think, looking at the funnel that customers -- do customers really expect vendors to really invest upfront on -- for them, considering what they're going through? Is that something that's sort of there out in the landscape? Or that's not really the case?

--------------------------------------------------------------------------------

Abidali Z. Neemuchwala, Wipro Limited - CEO, MD & Executive Director [52]

--------------------------------------------------------------------------------

Actually nothing has changed much, even if I look at some of the large deals we've done in the last 8, 10 years. Invariably large deals have a component of skin in the game. They have a component of upfront capital investment on transformation and the gains coming over a few years. And invariably, those deals sometimes require a deal structuring, depending on the customer's cash flow needs as well as the ability for us to leverage our balance sheet if it makes sense.

As you would remember, as part of our strategy, we have sharpened our ability to do gain share deals, element-based pricing deals, where we take the risk of transformation upfront and commit to a certain amount of savings, which does give us -- given our balance sheet, it gives us the ability to structure the deal. But I would answer that question on a deal-by-deal basis. I wouldn't generalize it. And the large deals that we have done, in some of those deals, we had to do some kind of an upfront investment, in others we did not have to. And wherever we have to do that upfront investment, it is priced in. The cost of that capital is priced in to the deal financials. If you look at our unbilled revenues over the past few quarters, it has shown a steady improvement. So we have maintained a lot of discipline in how we leverage our balance sheet. So that our quality of revenues are not impacted in the near term.

--------------------------------------------------------------------------------

Nitin Padmanabhan, Investec Bank plc, Research Division - Analyst [53]

--------------------------------------------------------------------------------

Sure. That's very helpful. Just one data point, if I may. Is -- what was the contribution from [ITS] this quarter?

--------------------------------------------------------------------------------

Jatin Pravinchandra Dalal, Wipro Limited - CFO [54]

--------------------------------------------------------------------------------

Nitin, this is Jatin. 0.3% of our 1.8% sequential growth came from [ITS].

--------------------------------------------------------------------------------

Operator [55]

--------------------------------------------------------------------------------

(Operator Instructions) The next question is from the line of Shashi Bhusan from Axis Capital.

--------------------------------------------------------------------------------

Shashi Bhusan, Axis Capital Limited, Research Division - Executive Director of IT and Telecom [56]

--------------------------------------------------------------------------------

Our margin performance, despite growth volatility, has been very stable. And we have invested in building localized talent pool despite any major impact on the same. So shall we assume that margin gains through automation or high-margin digital deals would be reinvested in the business for growth going forward. And we are comfortable at the current level of margin profile and not eyeing for expenses?

--------------------------------------------------------------------------------

Jatin Pravinchandra Dalal, Wipro Limited - CFO [57]

--------------------------------------------------------------------------------

Look, Shashi, you articulated well how we have delivered first 3 quarters of this fiscal where we have continued to invest it, especially in our articulated big bets to get a superior growth trajectory, and we have been able to find those dollars from automation, AI and our traditional operating levers. However, we will remain very focused on growth. The priority #1 for us is growth. And for that, we will continue to invest. So we don't want to guide forward, but our effort is to not -- is to go ahead and invest and also squeeze that dollars out of the other cost levers that we have.

--------------------------------------------------------------------------------

Operator [58]

--------------------------------------------------------------------------------

The next question is from the line of Ruchi Burde from Bank of Baroda.

--------------------------------------------------------------------------------

Ruchi Burde, BOB Capital Markets Limited, Research Division - Research Analyst [59]

--------------------------------------------------------------------------------

My question is on your retail and consumer vertical, you identified the growth in vertical was led largely by your association with the e-commerce name. So what I'm trying to understand here is, was this a function of more seasonality -- strong seasonality of the e-commerce period that one witnessed? Or this is more structural growth uptick that will [prove witness] and can sustain in the future?

--------------------------------------------------------------------------------

Abidali Z. Neemuchwala, Wipro Limited - CEO, MD & Executive Director [60]

--------------------------------------------------------------------------------

I'll let Srini address that.

--------------------------------------------------------------------------------

Srinivas Pallia, Wipro Limited - President of Consumer Business Unit [61]

--------------------------------------------------------------------------------

So thanks, Abid. Now if you look at the last few quarters of where we were with the consumer BU. I think one of the -- and the point that I made in the previous question as well as, retail CPG companies are definitely going through turbulence, transition and transformation at the same time. What's important is, look at those customers who are trying to transition and look at those customers who are trying to transform themselves and be part of that journey. And if then you are part of their strategic priorities, and that actually has been helping us. So in the context of the industry itself, yes, it's going to be choppy and volatile. But from our point of view, trying to focus on those investment areas and executing to the -- their priorities, I think, is what will sustain the growth and momentum in the few quarters ahead as well.

--------------------------------------------------------------------------------

Operator [62]

--------------------------------------------------------------------------------

Ladies and gentlemen, as there are no further questions from the participants, I would now like to hand the conference over to Ms. Aparna Iyer for closing comments.

--------------------------------------------------------------------------------

Aparna C. Iyer, Wipro Limited - VP & Corporate Treasurer [63]

--------------------------------------------------------------------------------

Hi. Thank you all for joining the call. In case we could not take your questions due to time constraints, please free to reach out to the Investor Relations team. Have a nice day.

--------------------------------------------------------------------------------

Operator [64]

--------------------------------------------------------------------------------

Ladies and gentlemen, on behalf of Wipro Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.