Wipro Limited Q2 FY2025 earnings call

• Focused on growing large accounts in profitable markets and six priority sectors, with the top account, top five accounts, and top 10 accounts showing sequential growth.
• Booked 19 large deals in Q2 with a TCV of $1,489 million, representing a 29% sequential growth and 16.8% year-on-year growth. These deals covered various themes like cost reduction, vendor consolidation, application modernization, and cloud operations.
• Highlighted two significant large deals: one with a transportation and logistics company for a SAP S/4HANA transformation program and another with a software technology company for end-to-end product development and IT operations.
• Trained and certified over 44,000 employees on advanced AI and established account-specific academies to build capabilities relevant to clients' business needs.
• Conducted the annual employee engagement survey, implemented a merit salary increase effective September 1, and hosted a leadership summit.

The IT services revenue for Q2 was $2.66 billion, showing a sequential growth of 0.6% in constant currency. Operating margins stood at 16.8%, expanding by 35 basis points quarter-on-quarter and 71 basis points year-on-year. Total bookings in the quarter reached $3.6 billion, a 8.4% quarter-on-quarter increase. The Capco business grew 3.2% quarter-on-quarter and 6.9% year-on-year. In terms of strategic market units: Americas 1 had a sequential growth of 1.2% driven by strong performances in healthcare, technology, and communication sectors; Americas 2 recorded a sequential growth of 0.8% supported by robust demand in the BFSI sector; APMEA grew by 0.3% due to traction in Capco; Europe experienced a sequential decline of 0.1% because of overall weak demand and client-specific issues in some accounts. For industry sectors, BFSI continued to accelerate with a 2.7% sequential growth, marking the third consecutive quarter of growth; Technology and communications saw a 1.6% sequential growth; Manufacturing faced a sequential decline of 2%; Energy and utilities had a sequential decline of 3.7%.

• The IT Services business segment revenue is expected to be in the range of $2.607 billion to $2.660 billion, translating to a sequential guidance of -2% to 0% in constant currency terms for Q3.
• The Q3 guidance takes into account furloughs, fewer working days, and client-specific challenges in Europe.
• Hopeful of building on the momentum once past the seasonality of Q3, with quarter four potentially benefiting from reduced furloughs and deal momentum.

• Uncertainties related to forward-looking statements where actual results may differ materially from expectations. Specific risks include client-specific issues in Europe, soft demand in sectors like manufacturing and energy/utilities, and the impact of economic uncertainties on business performance.

Q: Is the Q3 guidance only due to furloughs or also client specific challenges?

A: The Q3 guidance factors in furloughs, fewer working days, and client specific challenges in Europe. However, there is good momentum in the deal pipeline across Americas 1, Americas 2, and APMEA.

Q: Are there continuing ramp downs in some clients affecting Wipro and when will they be behind us?

A: The Q3 guidance incorporates certain client specific challenges. Performance across market units and sectors has improved and is becoming more secular, and there is hope of building on momentum once past the Q3 seasonality.

Q: What are the drivers helping margins and offsetting wage increase impact and revenue headwinds?

A: Levers such as improving utilization, offshoring, fixed price projects, pyramid improvements, G&A optimization, and realizing synergy benefits from acquired entities are at play. SMU wise profitability metrics show improvements in Europe, APMEA, and Americas 2 outside EMR.

Q: When will return to growth happen?

A: There has been growth in Q2, but sustainable growth is a work in progress. Parts of the business like Capco, BFSI, Americas 1, and Americas 2 outside EMR are performing well. Europe and APMEA need to contribute for deterministic growth.

Q: Are seeing an increase in smaller deals within the pipeline?

A: The pipeline includes large, mid-sized, and smaller deals. In Q2, $1.5 billion of bookings came from large deals, with the balance from mid-sized and smaller deals. There is optimism about the pipeline.

Q: What drove the large deal momentum increase and its sustainability?

A: Proactive approach with clients, leading with consulting and AI powered solutions, and discipline in building and qualifying the pipeline. Sustainability is seen as consistent above $1 billion in large deals every quarter.

Q: Internal factors affecting demand for sustainable growth?

A: Focus on five strategic priorities including large accounts in priority sectors and markets, proactive large deal approach, consulting led and AI powered industry solutions, building talent at scale, and customer centricity.

Q: Assessment on manufacturing and E&U verticals correction and timeline?

A: Manufacturing and E&U are important sectors. Focus is on specific segments and pipeline. There is no specific timeline, but execution of pipeline deals will aid in improvement. Quarter four may have reduced headwinds.

Q: View on buyback vs dividend post tax ruling change?

A: Considering the benefits of buyback, but the revised capital allocation policy is work in progress and will be shared in detail later.

Q: M&A strategy?

A: Look for strategic M&A opportunities in specific white spaces, markets, or sectors as part of the strategy.

Q: BFSI momentum in Q3 and impact of U.S. election?

A: BFSI momentum is strong, including Capco. The impact of U.S. election on deals is not significant as the U.S. economy continues to grow.

Q: Positioning in vendor consolidation exercises?

A: Excited about opportunities in vendor consolidation, winning deals, and combining expertise for growth. Opportunities exist across various vendors.

Q: Expenses and margin analysis?

A: The SG&A bucket has no change. Operating margin improvement comes from gross margin improvement. There are one-off credits and hits, but broader direction is gross margin improvement driving margins.