Wipro Limited (NYSE:WIT) Q3 2023 Earnings Call Transcript January 13, 2023

Operator: Ladies and gentlemen, good day, and welcome to the Wipro Limited Q3 FY '23 Earnings Conference Call. Please note that this conference is being recorded. I now hand the conference over to Mr. Dipak Kumar Bohra, Senior Vice President, Corporate Treasurer and Investor Relations. Thank you, and over to you, sir.

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Dipak Kumar Bohra: Thank you, Inba. Warm welcome to our Q3 FY '23 earnings call and wish you all a happy new year. We will begin the call with our 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 question and answers 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. Inba, you can open the call now. Over to you, Thierry.

Thierry Delaporte: Thank you, Dipak, and thank you, everyone. Hello. Good morning, good afternoon, good evening to you all. Thank you for joining our third quarter results. From our entire leadership team, I'd like to wish you, first, a fantastic year ahead. We are optimistic about 2023 to deliver groundbreaking work for our clients and continue on a growth trajectory. We will talk about some of the opportunities that are ahead of us. Joining me today is our CFO, Jatin, you know him well; our Chief Growth Officer, Stephanie; our Chief HRO, Saurabh; and I'm pleased to introduce you to our new Chief Operating Officer, Amit Choudhary. Earlier today, we reported our third quarter results, as you know, I'm pleased to share that we have delivered: one, another quarter of double-digit revenue growth; second, record order bookings of over $4.3 billion, led by large deals signing of over $1 billion, a margin expansion of 120 basis points, a huge surge in cash conversion and the fourth straight quarter of lower attrition.

Looking at the macroeconomic environment, the macroeconomic uncertainty, we had discussed last quarter continues, there's no doubt. However, tax spending remained robust, it's a reality. Our clients are looking for value-driven transformation, tighter governance, and improved return on investments. Cloud transformation continues to be a priority even as we see a higher focus on returns. It's against this backdrop that we have delivered our highest ever bookings in total contract value terms. Clearly, the investments we've been making in our clients are thought to bring about a shift in our portfolio and productive deal shaping are all paying off now. On a year-on-year basis, our bookings in total contract value terms grew 26% in Q3. We signed 11 large deals with a total contract value of over $1 billion.

This strong booking trajectory translates into a 50%, year-on-year growth in our large deal bookings on a year-to-date basis. And by the way, our pipeline of large deals is both strong and diversified. Looking at the market, 3 of our 4 markets grew more than 20% year-on-year in total contract value terms as well. Some interesting insights worth mentioning here. One, our strong bookings were driven by Wipro's FullStride Cloud Services and Engineering Services. This grew at 25% and 45% year-on-year, respectively. Second, our large deals include new and existing clients seeking a transformation partner or going through vendor consolidation. Renewals with existing clients are often accompanied by services expansion, taking market share from others and, frankly, expanding into new areas of our clients' businesses.

The deepening of our relationships with our clients is driven by our innovative solutions is improved by improved delivery execution, by higher customer satisfaction scores and finally by strong ecosystem partnerships. In fact, our customer satisfaction score has improved versus the previous subsidy by 10 percentage points. Strong order booking proves, frankly, that our business strategy is working. Third point, our expertise in business transformation, coupled with decades of experience in delivering cost optimal solutions is the combination our clients are seeking in this market. A good example of this is a recent deal we signed with a U.S.-based financial information, analytics and rating agency. The project involves integration and management of their infrastructure and security estate.

Transformation partner, we will help them improve their future readiness at a lower cost. Now let's turn to revenue growth. And first, I'd like to note that over the last 10 quarters, we have grown at a very rapid pace. Our revenues have grown 45% and headcount has grown by 40%. We are now much bigger in scale in size with the breadth of service offerings and deeper client relationships. In Q3, we recorded our seventh straight quarter of double-digit revenue growth. We grew 10.4% on a year-on-year basis and 0.6% sequentially in constant currency term. Our sequential growth was impacted by follows as expected, and lower discretionary spending by clients. We have continued to turn the tide on margins, the hard work we've put in to improve our supply chain into delivery excellence, operations, automation has actually resulted in greater efficiencies.

All this has contributed to a margin expansion of 120 basis points quarter-on-quarter. Our operating margin, therefore, is now at 16.3% versus last quarter. A little later, I'll ask Jatin to talk to you in more details about margin, but I do want to mention that this margin expansion is after absorbing the impact of 3 full months of salary increases that we've offered to our colleagues. It also factors quarterly promotions as well as the restricted stock units we've granted to our senior employees. Another good news has been on the cash conversation side. We saw robust cash conversion for the third quarter at 143% of net income. I will now share some details on our service offerings and sectors and how we are continuing to increase market share market by market.

One, our market, our Americas 1 business grew 11% year-on-year in Q3. And inside the fastest-growing sector in that market was Communication, Media and Information Services, which grew at 14% year-on-year. Looking now at Americas 2 business, grew 9% year-on-year in Q3. And they are manufacturing led the pack with more than 18% year-on-year growth. But besides energy utilities, securities, capital markets and insurance also recorded good growth of more than 12% each. Order bookings grew 40% year-on-year. Our business in Europe also has continued to be a strong growth , double-digit growth for 7 quarters in a row. Europe delivered a year-on-year growth of 12% in this quarter. Almost all the markets in Europe grew double digits, led by the Nordics, by U.K. and Ireland, by Germany and Southern Europe.

The order book in total contract value terms grew also at 25% on a year-on-year basis. Finally, our APMEA, which stands for our Asia Pac, Middle East and Africa region grew at 7% year-on-year in the third quarter, regions that did, I must say, particularly well during the quarter were Southeast Asia, but also the Middle East. Our transformation efforts in this region have started yielding results. It is very visible this quarter. We closed one of our largest deals in this market, the order bookings, they grew 22%. And looking forward, the pipeline is strong. Overall, I would say we've continued to strengthen existing client relationships. And I'm pleased to share that our top 10 clients grew 15% year-on-year, which also here confirm our strategy around growing large accounts.

Now let's look at the service offerings, iDEAS, iCORE. First, our iDEAS global business line grew 12% year-on-year in Q3. This growth was led by; one, cloud, the cloud transformation part, which grew 27% year-on-year; absent data, which grew 18% year-on-year; digital experience, which grew 16% year-on-year; and finally, Engineering Services, which grew 12% year-on-year. Now looking at the iCORE part of the house, this global business line grew 8% year-on-year in Q3. Cybersecurity led the growth at 16% year-on-year followed by digital operations and platform growing at 9% year-on-year for Q3. From a total contract value standpoint, cloud infrastructure, our CIS business line grew over 50% year-on-year. CIS revenues now are lower as we continue to rotate our existing portfolio and move towards the cloud, which is very in line with our strategy, as you know.

At the same time, we are signing long-term deals with clients in this business. We are continuing to evolve our FullStride Cloud Services business, creating new industry offerings, working together with partners, which is, in fact, helping expand our market coverage. FullStride Cloud Services continue to be a high-growth area for us, contributing over 1/3 of our total revenues today. Our cloud expertise spans the entire spectrum of cloud services from cloud strategy, migration, modernization to full stack industry solutions and running and optimizing cloud. Partnerships continue to be a source of growth as well. Bookings with hyper growth partners in Q3 continued to be strong, nearly $2 billion. That's a 35% year-on-year growth. Bookings through hyperscalers today stand at 44% of Wipro's overall booking in terms of total contract value.

Besides cloud, we are expanding capabilities in artificial intelligence, in data and engineering, increasingly going to market as 1 Wipro. And these investments are getting noticed. A U.S.-based energy company has selected us to build an end-to-end greenfield fully automated warehouse in Europe. The project will allow the client to manage large sums of chemical storage while maintaining strict health and security requirements. This winning, if we look at it, brings together our domain, our engineering, digital, cybersecurity and health and safety capabilities. But it also underscores how our advisory capabilities technical and engineering expertise are differentiators for us in the market. Let me now turn to our most important asset, our people.

I am pleased to share that attrition continues to drop for the fourth straight quarter. In Q3, attrition dropped to 21% on a trailing 12-month basis. Our quarterly annualized number, which dropped 360 basis points quarter-on-quarter are now at 17.5%. And we are confident that our focused talent strategy will result in continued moderation of attrition in the coming quarters as well, frankly. Second, we are recognizing and rewarding our talent, promoting a record number of colleagues in FY '23, the highest ever, in fact, with numerically 30% more promotions than in FY '22. Our leadership teams, brights of expense, high performance standards and strong collaboration continues to fuel our growth and our transformation. And finally, I'm encouraged to see more diversity in our leadership ranks, which has been a focus for the past several years.

And definitely, we have more work to do here, we know that. But one promising change we're sharing with you is that we have more than doubled the number of women senior leaderships roles at Wipro. As this visible impactful leaders progressed their career, they demonstrate the impact diversity has on our clients on our business and on our people. We've been strict about maintaining the focus on talent quality, high performance segmentation and inclusion in our graduate hiring as well. Year-to-date, we have hired and onboarded more recent graduates than the whole of previous years and actually ever before. Now as always, I'll close with an outlook for the full year. We expect full year revenue growth to be at 11.5% to 12% in constant currency terms.

On margins, our Q3 number is now the new base, and we will look to improve it further. In summary, I'll say that we had an excellent quarter with record bookings, sustained growth and delivery excellence. Our strategy continues to pay off, and we will remain on cost. With that, I will hand it over to Jatin now for his comments.

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Jatin Dalal: Thank you very much, Thierry. I will quickly summarize the financial highlights for the quarter. We grew 10.4% year-on-year on constant currency terms. Our margins expanded 120 basis points to 16.3 percentage points. If you see our ETR, it was 22.9% compared to 21.5% last year. So that impacted a little bit net income conversion. But despite that, sequentially, we delivered 14.8% growth in net income and 2.8% on a year-on-year basis. Cash flow remained strong at 143.5% of operating cash flow as a percentage of our net income. Our cash at the end of the quarter was $4.6 billion gross and $2.7 billion net. This is a volatile year and quarter on ForEx. We had about $4 billion of ForEx hedges. And our realized rate for quarter 3 was 82.24.

As Thierry mentioned, we have guided for 11.5% to 12% growth in constant currency terms for the full year '22, '23 at the exchange rates, which are mentioned in our PR. Thank you very much for joining, and we'll be very happy to take your questions from here on.

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