10/12/2022

speaker
Operator

Ladies and gentlemen, good day and welcome to the Q2FI23 earnings call of Wipro Limited. 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. Should you need assistance during the conference call, please signal an operator by pressing star and then zero on your touchtone telephone. Please note that this conference is being recorded. I now hand the conference over to Ms. Aparna Iyer, Vice President and Corporate Treasurer. Thank you and over to you.

speaker
Aparna Iyer

Thank you, Inba. A very warm welcome to our Q2 FY23 earnings call. We will begin this call with business highlights and overview by Thierry Delaporte, our Chief Executive Officer and Managing Director, followed by a financial overview by our CFO, Jatin Dalla. Afterwards, the operator will open the bridge for Q&A with our management team. Before theory 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. WPRO 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, Thierry.

speaker
Thierry Delaporte

Thank you, Aparna. Hello, everyone. Good evening. Thank you for joining our Q2 earnings call. And for those of you joining us from the U.S., good afternoon, I guess, maybe good morning for some. Since the last time we spoke in July, we've seen the macroeconomic conditions across almost all markets and sectors have changed. In speaking to our clients every day, we're seeing a change in the level of optimism. As businesses around the world are dealing with inflation pressure, with geopolitical turmoil, with energy crisis, also rising interest rates. Almost every major economy is experiencing economic deterioration. And it's against this backdrop that we delivered a strong quarter. Our business strategy is sound, and our value proposition continues to resonate with clients across markets. This is reflected in robust bookings, healthy deal signings, growth in revenues, as well as operating margins. Let's start. Our bookings. Our bookings in total contract value terms grew 24% year-on-year in Q2. Two of the four markets, America's one and Europe, grew more than 30% year-on-year. It was said in the past that large transformative deals are a key pillar of our growth strategy. Indeed, they allow us to demonstrate the true power and scale of our services, talent, and operations. Large deals are where we deliver maximum value for our clients. So I'm pleased to share that large deal wins have continued to be really strong. In Q2, we signed 11 deals with a total contract value of $725 million. This actually follows an exceptional quarter in Q1, when we clocked over a billion dollars in deal signing. And this strong booking trajectory translates into a 42% year-on-year growth in our large deal bookings in the first half of this fiscal year. Over the last few years, we have steadily increased our win rate, improved the quality of our pipeline. As of today, our pipeline has what I would say, a well-balanced mix of transformation, growth, and cost takeouts engagements. Now, this mix may change in the coming quarters based on external conditions that I talked about earlier. But we expect continued strong demand for our comprehensive portfolio of services. We know that technology, in good times like, in bad, has become the underlying success factor for any business. Regardless of what the problem is, increasingly, technology is the solution. I believe we are better positioned than ever before to help our clients tap into the true power of technology, whether that's to drive growth and transformation or manage cost or build a sustainable future. Speaking of sustainability, we continue to build sustainability into everything we do, including across our tech stack. You'll see us leveraging our sector domain expertise and a strong partnership to develop new low-carbon impact solutions for our clients. Our enterprise scaling and sustainability process experience is helping us stand out in the market and leading to strong client demand. Overall, with our deep engineering expertise and comprehensive set of offerings, we are, I know, well positioned to be the partner of choice for our client as they face a growing set of headwinds. Now, turning to our revenue growth, we recorded 4.1% growth in constant currency terms sequentially and 13% on the year-on-year basis. That translate into double-digit growth across all markets. Business growth translates into growth for our colleagues. And I'm happy to share that we rolled out quarterly promotions to our employees in July, and salary increases effective September. And yet, we've achieved operating margins of 15.1%. As we continue to enhance our portfolio with the newer and more strategic service offerings, our clients are recognizing the value we deliver. This is increasingly reflected in our improved price realizations. These efforts, combined with operational excellence, automation, higher productivity, are the key levers for margin improvement. As every quarter, I'll now share some finer details on markets, service offerings, and sectors. Let's start with our markets. In America's one, we grew 15% year-on-year in the second quarter, with all sectors showing strong growth. During the quarter, the fastest-growing sector in the market was technology products and platforms, which grew 26% year-on-year. Order bookings in total contract value terms grew nearly 34% year-on-year in Q2. Now moving to Americas 2, we grew 12% year-on-year in Q2. Manufacturing and energy and utilities led the performance, recording a growth of more than 20% each year-on-year. Financial services actually grew 17% year-on-year. Moving on to Europe. Our European business delivered a year-on-year growth of 12% in Q2. Most of the markets recorded strong double-digit year-on-year growth with Benelux, UK and Ireland, and South and Europe leading the pack. Our order book in total contract value terms grew at 36% year-on-year, which is quite massive. Our Apmea business grew significantly. at 11% year-on-year in Q2. Regions that did particularly well during the quarter were Southeast Asia, Australia and New Zealand, and Middle East. So you can see across all markets, double legit growth. Strengthening client relationships remain a top priority for us. As a result, we're gaining share in our metal accounts. Our top five clients grew 19% year-on-year, Our top 10 clients grew 17% year-on-year, both in constant currency terms. Now moving to service offerings. You know we have two global business lines, Ideas and iCore. Let me go through each of these two business lines. Our Ideas global business line grew 15% year-on-year in Q2. This growth was led by cloud transformation first. which grew 26% year-on-year, by applications and data, which grew 21% year-on-year, and finally by engineering services, which grew 18% year-on-year. Now, looking at ICO, the other global business line, grew 9% year-on-year in Q2, but here, led by cybersecurity services, which grew 23% year-on-year in Q2. And as the speed of transformation accelerates, we are experiencing increased demand for our full suite of cyber offerings. We are leveraging internal methodologies, framework, intellectual property, in collaboration with our technology partners to help clients manage a dynamic and complex risk environment. In one recent example, we helped a global communications organization improve and automate their compliance processes leading to an enhanced risk posture. We now operate and execute this program globally and have driven significant cost reductions in their security and in their compliance program. Then talking about Wipro full-stride cloud services, which is more than one-third of our business today, continues to be a driver of our success, and partnerships are at the center of this growth. In fact, in the second quarter, bookings with hyper-gross partners grew 24% year-on-year. Working alongside our partners, we know we are creating industry solutions and leading major transformation efforts designed to help clients unlock the value of cloud, but also realize new efficiencies. In addition to modernizing applications, we see a great amount of interest in modernizing data operations. The organization realized the power of data in gleaning new insights into their business. For example, for a U.S.-based diversified financial services group, we are working on a digital transformation and data modernization effort, which actually involves building a next-generation cloud analytics platform. The goal here is to deliver omnichannel experiences that help our clients get better, real-time insights into their business. Ultimately, the transformation is helping our clients reduce time to market for new capabilities and deliver enhanced experiences. In another example, for a leading provider of industrial automation solutions, We are working on a transformation program that will help them become more client and relationship-centric. We are building a multi-cloud solution that will transform the firm's marketing, sales, and services around a single client definition, creating opportunities for more meaningful engagement with customers. And we continue to double down on strategic investments in areas that we know will drive long-term competitive edge for us and for our clients. For example, recently we launched Lab45, a new brand for our CTO organization. Lab45 is a new direction for our technology research and development units. The objective of Lab45 is to develop new assets, intellectual property, and products through client collaborations and partnerships. Lab45 will help our clients build new business models, enhance user experience, and drive growth through enterprise technologies. In fact, the opportunity to tap into our expertise and world-class talent through Lab45 is already factoring into client decisions and making an impact on how we win in the market. We're continuing to also expand our capabilities in strategic areas, such as artificial intelligence and data, but also 5G, metaverse, IoT, Industry 4.0 to help clients gain new competitive edge. I now share a view of the talent landscape. I'm first happy to share that our attrition has continued to moderate for the third quarter in a row. In Q2, attrition was down to 23% if you're looking at it on a trading 12-month basis. And our quarter annualized numbers are trending even lower than that. Expect a further moderation in Q3. And like I had shared last quarter, we are now offering promotions to our employees every quarter. And in Q2, we promoted about 10,000 colleagues. I'm also pleased to share that the annual salary increases were given to our colleagues across bands in Q2 was, as you know, is our philosophy, a steep differentiation in rewards for our top talent. We've also onboarded over 14,000 freshers in H1, which is over, imagine, 75% of what we added in the whole of last year. And finally, I'll share an outlook for the next quarter. We're guided for revenue growth of 0.5 to 2%, which will translate to growth of 10 to 12% year on year in constant currency terms. The guidance reflects current environment and the quarter and seasonality. For the full year, we are certain that we will report double-digit growth. Our margin in Q3 will have some headwinds. There's the impact of two incremental months of salary increase, and yet we expect to hold our margin in a narrow band. In a summary, we have delivered a strong performance against the backdrop of a mixed macroeconomic environment in Q2 Our order bookings and large deals reflect an improved market competitiveness and prove that our strategy is working. We are experiencing a real shift in the market as clients increasingly turn to us to realize their boldest ambitions. And based on all these factors, we remain confident of gaining market share in the coming quarters. With that, I will hand it over to Jatin now for his comments.

speaker
Lab45

Thank you, Siri, and good evening, good morning, good afternoon, everyone. We had a solid quarter. We delivered slightly above the midpoint of our guidance at 4.1% sequentially, which was 12.9% YOY growth. We delivered operating margins, which was slightly higher than quarter one, at 15.1%. an ETR of 22.5%, which was again 1% or so better than what we had for quarter one. And as a result, our net income grew 3.7% sequentially for quarter two. We had robust performance in cash collection and overall improvement in working capital cycle management. We therefore have posted a very robust 180% ratio of operating cash flow to net income. At the end of quarter 2, we had $4.3 billion of gross cash and $2.2 billion of net cash on our balance sheet. We had a good performance in Forex. Our realization rate was 79.93 and we had $3.8 billion of Forex hedges at the end of the quarter. Our guidance as theory remarked for quarter three is in the constant currency we have mentioned in our press release and it is 0.5 to 2%. We'll be very happy to take your questions from here.

speaker
Operator

Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may enter star and one on their touchstone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Anyone who has a question may enter star and one. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We'll take the first question from the line of Sandeep Agarwal from Edelweiss. Please go ahead.

speaker
spk05

Yeah, hi, good evening and thanks for the opportunity to ask the question and wish the whole management a happy festive season. So I have a small question from Theory Theory. In all your discussions with the client right now, are you hearing any kind of cautiousness from any of the clients in any of the vertical or geography regarding this macro or it is more a preventive step that they don't want to go aggressive right now or they want to also be careful and watch the environment how it plays out and what kind of restraints you are seeing whether it is a realistic pressure which is leading to some kind of cautiousness and it is more likely to get cut or you think that it is just a preventive step from them right now where they want to wait and watch the macro number one number two the guidance while you know I understand that the environment is very volatile and because of that probably you would have kept in some bit of conservatism while guiding but It still looks a little slower given the kind of demand environment, what we are hearing from the industry, what we are hearing from the competitors. So what is, you know, hurting us more than the others? Can you elaborate a little bit on that? Thank you.

speaker
Thierry Delaporte

Yes, Sandeep, thank you. Thank you for those questions. So let me take them one by one. One is talking about the market environment. You know, I think you – The answer was almost embedded into your question. The reality is that I think we all are connected with the market news. It's quite interesting to see every single day or hear every single day what's happening in the whole world. Macro environment, whether it's what's happening in Ukraine, what's happening with the oil, energy, sorry, what's happening with you know, market conditions in America or in most of the countries. I think, you know, people see that, people hear that, and there is a certain evolution of the climate that is certainly the confirmation that we have, the market has changed, the market share conditions has changed. We are no longer in the same market and condition that we were, you know, nine months ago or 12 months ago. That's a reality. But the big question is, is this context going to impact our industry? And frankly speaking, I'm not sure. That's why I see a certain level of uncertainty today. There's a bit of uncertainty because in talking to clients, they all are assuming that at some point in time, this will have some implications for them And I think that would be naive on our side to not hear what they are saying. So that's probably what is, and I'm moving to the question too, it's probably what's leading to our guidance. The business is good. I mean, we've been growing well over the last quarters. We've been performing well on booking. So there's no sign on our side of any particular slowdown. except that the market has changed, except that there are a certain environment of uncertainty that is impacting our clients. And then, you know, obviously, Q3 is also a quarter where there's, you know, furloughs. Do we have more furloughs than the previous years? I don't know. I don't know. But we know that there will be furloughs, and so... I realize that you might see a point of caution, and it's maybe the case, but I think we've tried to be cautiously optimistic. I want to also give a perspective in terms of the trajectory, the growth trajectory. If you look at Q2, we do 4.1% of growth, which is a sign of various trends. Strong performance. All our markets have grown double digits year on year. Not one grew less than 10%. So we see this trend. Now, if you take even more a step back and look at, you know, Wipro's trend, you know, last year where industry-leading growth, right, This year, double-digit growth, and we are only halfway through the year. We know that will be double-digit growth. This company will have grown 40% in two years. That's the reality. That's the reality. And then, again, the performance in bookings, the impact we have in the market gives us great confidence. that will continue to grow well, you know, and certainly gain market share in the next quarters. That's the mindset that we have right now.

speaker
Mukul Garg

Okay, thank you.

speaker
spk05

That's very helpful and wish you best of luck for the current quarter. Thank you.

speaker
spk08

Thank you. Thank you.

speaker
Operator

Thank you. Our next question is from the line of Abhishek Bhandari from Nomura. Please go ahead.

speaker
Abhishek Bhandari

Thank you for the opportunity. Theory, I have two questions. One is more from a near term and one is more medium term. The first one is, you know, in the backdrop of volatile macro, which you have been alluding to multiple times in your press conference and even in the recent last 20 minutes. How are some of your recent consulting acquisitions playing out, especially Capco and Rising? If you could share some trends over there and also from a pipeline perspective, do you see any kind of change, you know, coming through these two particular subsidiaries?

speaker
Thierry Delaporte

Okay, Abhishek, thanks for those two questions. So the first one about consulting. You know, consulting business has been a massive driver of growth for us over the last two years. We've, you know, I was, you know, talking about Capco. We've grown more than what we had in the plan every single quarter. Now, there's no doubt there's a slowdown, okay? And we see it. It was... It was actually forecasted for us, and we see a slowdown for this consulting business. We also know, because it's a reality in our industry, that consulting tends to be early cycle. So the first one to slow down, first one to accelerate, and extremely agile to adjust to market evolution. So that's for your first question. In terms of, as you said, looking at the pipeline, You know, a pipeline is stronger than ever. We have a solid, very solid pipeline, I think, you know, supporting our growth. If we look at the nature of the pipeline, yeah, there might be a certain evolution of the type of deals. One, they are definitive, significant driver of growth. We see it. Cloud is will continue to grow massively for us. And it's a third of our business. Security will continue to grow also, you know, large double digits. Engineering is growing very well as well. In terms of type of offerings, those are here. But I think even if we look at the cloud, I think it is the type of deals will possibly, and I'm being cautious in my assessment because, you know, trend is to be observed over a longer period of time but I think it's we should certainly expect that a lot of the investments that our clients need to do in technology will require a business case and therefore will have a stronger focus on cost optimization on productivity gains and so on. That's possibly where I see in evolution of the pipeline.

speaker
Abhishek Bhandari

Thanks, Thierry. And Thierry, my second question, which is more, you know, on the margin side, you know, more from a medium-term perspective, you know, while you understand in the current context, you know, there is, you know, around 200 basis point impact of the acquisition, which is continuing. But if I look at the gap between our margin and, you know, our peer-set margin, that gap has, you know, widened quite a bit. So maybe if you could elaborate some of the medium term steps you think you could take, you know, to go back to your own levels of margin, your older levels of margin of around 18 to 19%. And do you think the current, you know, softening of the supply side issues could help you achieve it faster than what you would have thought maybe six months ago?

speaker
Thierry Delaporte

Abhishek, so one in terms of margin, yeah, you said it. Certainly, you know, there was a, it's a strategic choice that we've made to make some significant investments in this business to make us stronger in the future. And you're right to not only look at short-term but also mid-term. Where are these investments? Clearly a strategic move with some of the acquisitions we've made, with all the acquisitions we've made. They've all been driven by a strategic objective. Then, you know, significant investment into talent, significant investment into our, you know, operating model and into our, you know, operational excellence, significant investment into, you know, our efficiency, our, you know, market impact. So we have been significant investment as well on freshers. You know, I think we spent more time explaining this a quarter or two ago, but We didn't have a fresher strategy until a few quarters ago at Wipro that was a par, if you like, with some of our colleagues in the market. And so we've decided to go ambitious and really build this fresher strategy. And it requires investment from, because as you know, freshers are, you know, an investment that delivers over time. And so we've made those conscious choices, knowing that that would knock down a little bit the margin. We also knew, Abhishek, that in a market where we are growing, you know, as I said, 40% of our, you know, headquarters, In a high-demand environment with cost of people being higher would have this impact, but that is also conscious. Now, what did we say? A quarter ago, we said 15% is our floor. We are building from here. and we are going to progress. We will not guide, as you know, beyond the current quarter, but it's clear that we do not see the end of the road where we are absolutely not. And so what are the levers? Continue to drive our fresh strategy. Continue to progress on the automation where we've also made some significant investments. Continue to go for larger deals. Continue to go for deals delivering more value and not only going after volume. And finally, I would say continue to work on our efficiency. We've made some significant progress. There's still more to do ahead of us. So I'm not worried at all about our ability to continue to improve margins and close the gap with some of our colleagues.

speaker
Abhishek Bhandari

Thank you, Sherry, and wish you a great end to 2022. I'll talk to you soon. Thank you. Thank you, Abhishek. Talk to you soon.

speaker
Operator

Thank you. Our next question is from the line of Nitin Padmanabhan from Investec. Please go ahead.

speaker
Eugene

Hi, good evening. I have two questions. The first is if you could throw some light on the restructuring cost that has impacted this quarter. I think it's around 136 crores. What does that pertain to? If you could give some color there. The second, just wanted your thoughts roughly from a vertical perspective in terms of how you see demand on a going forward basis. For instance, I think capital markets, specifically maybe capital markets, retail, and the high-tech side of things, and manufacturing. So some color on those as well.

speaker
Thierry Delaporte

Yeah, absolutely. So I'll take the first one, and I'll ask Jatin to build on it. Some restructuring. So this is, you know, it's a one-off, okay? So this is not something that, you know, is to be done repeatedly. It was needed, I think, hadn't been done for a long time, and it's absolutely quasi-exclusively focused on Europe. And that was really to address some, you know, inefficiency that we were carrying for a long time. Chatin, you want to say more?

speaker
Lab45

No, it's just that it's a reconciling item because it's a corporate action which we took at the company level. And as Thierry mentioned, it is a one-off. There could be probably a small deal spent there in quarter three, but nothing beyond that.

speaker
Thierry Delaporte

Now, your second question, Eugene, was about sectors, industries, and an outlook for the industries. You know, we are obviously observing the evolution of the market industry by industry, and certainly everyone has different kind of challenges. You know, you could imagine – I believe actually the banking sector should be holding pretty well, and they are, you know – One, it's a sector that is used to adjust rapidly to market changes, but also it's an industry where a lot of efforts will have to be done around driving simplification, alignment, streamlining, and compliance is also another important topic for banks going forward. Now, A sector that has been growing tremendously over the last year and certainly is slowing down is the sector of technologies. If you look at the large tech, look at what they're doing. Hiring has been slowing down. Sometimes they are even reducing headcount. And I think there's possibly more slowdown to expect in this industry going forward. another one where I could potentially see a potential slowdown if the economy worsens is a sector like retail. So we'll see. We'll see.

speaker
Eugene

Just a follow-up on the restructuring cost. Post the restructuring, do you think that improves the margin profile in Europe and should we anticipate that it should be a tailwind on margins from a European perspective after the restructuring?

speaker
Lab45

Yes. So, Nitin, it is right that we have done this to reflect what we need from technology standpoint of future. But I don't think it would be right to equate this number with the reduction in spend going forward because, as you know, in Europe, as some of this restructuring cost you many years of pay, So I would request you not to equate this with a reduction in spend, but there would certainly be a tailwind where we have reduced the employee spend.

speaker
Eugene

Thank you so much and all the very best.

speaker
Operator

Thank you. We'll take our next question from the line of Ravi Menon from Macquarie. Please go ahead.

speaker
Ravi Menon

Hi, thank you. Congrats on excellent revenue growth this quarter. Can you give us some color about how you're thinking about the demand environment in the U.S. and Europe? So when you called out macro uncertainty, does that apply equally in both geographies?

speaker
Thierry Delaporte

Yeah, that's an interesting question, Ravi. What should I say? I mean, what we observed in the past is that typically when there is a slowdown or recession, it's steeper in America, but it's quicker as well. In Europe, it tends to be coming a little later, but it takes more time to bounce back. We will see. Today, the performance, what's clear is if we look at our own business, the growth we see in America as in Europe are I don't know if the comparison helped, but I think they are in the ballpark. They're similar. So there's no market that is going faster than another. But if there is a slowdown, I'm guessing it could potentially come from America. Now, there's something that is specific to Europe, which is more this energy crisis. So here also, there's a bit of uncertainty here. It doesn't necessarily impact us directly, but certainly impacts some of our clients. I'm guessing, in industry like manufacturing, for example. It could have an impact on Europe, if not in Q3 and Q4, we'll see.

speaker
Ravi Menon

Thanks, Eric. And you spoke about how there is almost a sense of needing to accelerate the business transformations and continue on the journeys. So do you think that that makes... technology spending a little bit more resilient in this downturn compared to what we've seen in the past, like either the GFC or in 2001?

speaker
Thierry Delaporte

Ravi, I am convinced that indeed, you're right, technology services companies are a lot more resilient than they were. Absolutely, no doubt, because technology is not seen as a cost to reduce, but seen as a mean to transform organizations. And that is systematically what I'm hearing from clients. Systematically. I mean, the fact, Ravi, that when you are connecting with a CEO, he's talking about technology. It's part of his priorities. It was not the case in the last economic cycles. So it is definitely different, and there's no doubt that, you know, when you're working on, you know, topics like security, take the topic of security. I don't see this market slowing down. If you look at, you know, what we are doing in cloud, definitely not slowing down either. Now, for sure, it will have to be at the back of business cases, right? But I think it's... Clients are very natural, and they know what technology can bring to them, and they know why they are investing in technology. So to your questions, an absolute and frank yes.

speaker
Ravi Menon

Great. Thanks so much, and best of luck. You're welcome.

speaker
Operator

Thank you. Our next question is from the line of Mukul Garg from Motila Lozwal Financial Services. Please go ahead.

speaker
Mukul Garg

Thank you. I just wanted to follow up on the consulting business. It kind of sounded that you expect consulting to be a bit slow in the near term given the volatile demand environment. How do you think about the profitability of the business in the near term? Because this business usually has very high operating leverage and slowdown kind of impacts the profitability meaningfully. So how should we think about the profitability aspect and consulting in general? I'll have a follow-up question after this.

speaker
Thierry Delaporte

Okay. So first, talking about the consulting business, one point interesting to note, yes, consulting is slowing down from where we were growing some quarters ago. It's true. But what's interesting is that consulting continues to drive growth in our business. If you look at our banking sector, for example, while Capco's growth has been slowing down, the impact of Capco to us winning large deals in the financial service sector is higher than it was. We win more synergy deals. We win more deals that we wouldn't have won. And those deals drive, you know, more value. They are more strategic. And so from that standpoint, you know, They continue to drive positive impact for us. From a profitability standpoint, you're making a good point. Yes, you're absolutely right. They are agile. It's part of their DNA to react and adjust to the demand rapidly. And that's exactly what we are seeing, actually. As they are slowing down, margins are improving.

speaker
Mukul Garg

Oh, okay. So you expect consulting margins to improve as the growth moderates, not the other way around? Yeah, that's what I'm seeing for Q3. Understood. The second question was also on the profitability side. You know, if you look at the net ads this quarter and the company's decrease in utilization, can you just share some thoughts on how we should look at growth versus profitability trade-off over next few quarters while I understand you have scope and you will see improvements in both of them. Is there some point where you think you need to prioritize one over the other?

speaker
Thierry Delaporte

Well, Okay, so if I look at the situation from a client to another, you may have different situations where sometimes, you know, there's a bit of a trade-off to do between margin and volume. But I think as an organization, let's be clear on the margin side. You know, we will not go down from where we are, okay? So that is a clear... position on margins. Our objective is to continue to grow, certainly, and drive profitable growth. We are, no doubt, balancing growth and profitability. When you were referring to headcount, evolution, and so on, what we had said in Q1, if you remember, is we had made the conscious decision to make an quite a material amount or significant amount of hiring, knowing well that we could end up the quarter with a little more headcount and a bigger bench than expected, and I'm excluding freshers in my statement, because we needed to get ready for the demand that we were seeing in our business. But we also made the conscious decision to invest in our freshers. And so we've just followed this strategy. We haven't changed. We have hired in H1 as many freshers as, no, actually 75% of the total number of freshers we hired last year over 12 months. And those are investments because we knew we needed it. to continue to improve our operating model while being able to deliver and respond to the demand. This quarter, if you look at the utilization, part of the utilization is obviously impacted still by the volume of freshers, but we've continued to optimize our capacity and manage to deliver a significant increase of the revenue without having a significant increase of our rate count. It's actually the mirror of what we had said a quarter ago.

speaker
Lab45

Sure. I'll just add to the point which Thierry made, where he said we continue to utilize this talent that we hired earlier While it may not reflect in the numerical utilization number that you are seeing in data sheet, because it has effectively the more experience or lateral bench has got utilized, it has got replaced by a higher pressure bench. So economically, we have got an upside in quarter to out of utilization, but it is not reflecting yet in the numerical number.

speaker
Mukul Garg

Ernesto? Jatin, if I may ask one question on capital allocation. You have in past mentioned about focus kind of moving towards acquisitions. Given the environment in which we are Do you think we need to take a step back from an acquisition point of view, from an organic growth point of view and kind of move to more cash return to shareholders or is this the time to press accelerator on that puzzle?

speaker
Lab45

So Mukul, we have always mentioned that acquisition remains the core part of our strategy. So there is no change in that position. We also mentioned that 50% of the cash that we generate, net income that we generate, we will return back to shareholders and that also we will consistently maintain. We had one of our special dividends that we announced in Q4 FY22 as you are very much aware. Acquisition decisions are a factor of many things, especially apart from the attractiveness of the asset, it's also a factor of you know, willingness to sell, price correction in the market, and so on and so forth. But overall, our position remains on the acquisition as well as on cash distribution back to shareholders consistent with what we have said before, too. Terry, if you would like to add.

speaker
Thierry Delaporte

No, I think you said it. What I would remind is – What we've always said is that acquisitions, we do them for strategic reasons. So we do not have a number like we need to do X number of acquisitions in a given year. What is driving a decision? Does it make sense? Is it a sound decision from a strategic standpoint? And so that approach doesn't change for us. Now, acquisition will never be used to offset organic focus. Organic focus is what's driving our day-to-day. The acquisition is really more to get us to reinforce our position in a place where we have already a strong position of strength, but we believe we can accelerate and have a bigger impact. or actually acquire a new capability or a set of new technology or new relation with clients. So clearly, strategic drive the decision. It's never tactical. And second point, Mukul, is we do not have a number to fill, so there's no such thing as we have to do an acquisition. We do it when it means. when it's right for us.

speaker
Mukul Garg

Understood. Thanks a lot for answering my question. You're welcome.

speaker
Operator

Thank you. Our next question is from the line of Manik Daneja from GM Financial. Please go ahead.

speaker
Eugene

Hi, thank you for the question, Kheri. I wanted to pick your brains about the aspect that while you mentioned that we've been investing in our talent supply chain, but generally for the Indian origin or the Indian heritage IT services players we have seen margins now being at least if not on par but being lower than pre-COVID level and that's the case for us as well. While for some of our global competition both from the European heritage players as well as as well as US in their case we haven't seen any margin deterioration. So if you could help us understand what do you think essentially explains the disconnect in terms of the margin profile or the impact on margins for Indian companies versus the global peers.

speaker
Thierry Delaporte

Mamek, you asked me to comment the margin trends of my colleagues, is it what you're asking me to do? I have too much respect for them to do that.

speaker
Eugene

I'll just repeat my question. while all the players have been challenged.

speaker
Thierry Delaporte

Yeah, I get that. I'll try my best, okay? But don't hold me against that. Okay, I'll try. So what happens is that why have the costs gone? Why has the margin been impacted? Because of the evolution of the cost of employees. Why the cost of the employees have gone up? Because in a high demand market, attrition has gone up. And attrition needed to be backfilled. And backfilled was with more expensive resources. I think it's what anybody in our industry has experienced, but also our clients have experienced in the last 12 months. Now, it is a reality that is uneven from one market to another. One market where it's been extremely true, is India. And so the companies that have, you know, the biggest part of their headcount in India have been most impacted. I think it's a reality. That would be my explanation. Jatin, you have anything else to add? No? Okay. All right. Are you okay with that, Manek?

speaker
Eugene

Sure, thank you, Thierry, but I also wanted to get a sense on how do we think about price increases over the next six to nine months, given the macro volatility. Do you think price increases still continues to be a margin lever for the industry over the next six to nine months?

speaker
Thierry Delaporte

You know, over the last quarters, it has been the case. We've been able to raise prices with a lot of our clients, and we've really developed driven and conscious focus on that just to make sure that, you know, obviously our client understood that given the reality of the supply pressure, if you like, you know, it was the same way, you know, they see inflation, you know, we also were exposed to the same situation. Most of our clients want us, do not want us to be, you know, pressure from that standpoint. So I think we've been able to work on it pretty well quarter after quarter. Will it continue? We are assuming for the time being that yes, it should continue. But market can change to a point at some point in time where it becomes more difficult. I don't see it. For the time being, I believe that we should continue to expect price increase from our clients. certainly our view.

speaker
Eugene

Thank you and all the best in the future.

speaker
Operator

Thank you. Our next question is from the line of Sudhir Guntapalli from Kotak Mahindra AMC. Please go ahead.

speaker
Eugene

Hi, thanks for the opportunity. And Jatin, apologies if this question has already been asked, but net utilization X trainees, it has dropped almost 400 basis points. Any client drop-off or any project drop-off that is causing this reduction?

speaker
Lab45

Thanks for asking that question. No, there is no such drop-off. Please, I will just define it well. I don't think the net utilization excluding trainees The trainees are the freshers who are getting trained in the organization. So there's a very limited period for that. It is not utilization excluding freshers who have come on board. So it's for a very limited period that they are in training for a couple of months where we exclude it. So as they have completed the training and they have gone on projects and they are becoming productive, during that period of time, They come in this definition of overall bench, and that's why you are seeing a reduction. However, as I mentioned before, the economic utilization of quarter two has very clearly improved compared to quarter one, and that has given us benefit. So I would request you for this quarter not worry about the numerical aspect of utilization.

speaker
Eugene

Sure, Jatin. Just to follow up, so as these resources start getting built into the projects, we should see a sharp increase in the utilization in the coming quarters. Is that a correct understanding?

speaker
Lab45

Yes, we will see an improvement in utilization as we move forward as they become more and more revenue generative.

speaker
Abhishek Bhandari

I'm certain that's the message.

speaker
Operator

Thank you. As there are no further questions, I would now like to hand the conference back to Ms. Aparna Iyer for closing comments.

speaker
Lab45

Before Aparna goes, on behalf of Theory, myself, Saurabh, Stephanie, and the entire Wipro team, we wish you a happy Diwali and a brilliant new year for those who take it as new year. And over to Aparna.

speaker
Aparna Iyer

Thank you all for joining the call. In case we couldn't take any of your questions, please do feel free to reach out to the Investor Relations team. Have a nice day and happy Diwali again. Bye.

speaker
Operator

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

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