Despite not meeting market expectations in its second-quarter financial performance, Wipro, the Bangalore-based information technology services company, is optimistic. Having posted 6.6 per cent volume growth despite a sequential decline in net profit, it says its focus has been on the medium and long term. Suresh Vaswani and Girish Paranjpe, joint CEOs of the company's IT services business, speak to Bibhu Ranjan Mishra on the strategy. Edited excerpts:
After two blockbusters (from Infosys and TCS), people expected much more from you and they seem disappointed.
Vaswani: We are clearly in the right track and growing in line with our expectations. We had volume growth of 6.6 per cent and the offshore volume growth was even higher, at 7.5 per cent. For several quarters, our volume growth has been over four per cent. Most of our strategic business unit verticals have shown strong growth. The sector that has shown some challenge is technology, which posted roughly one per cent sequential growth. Other than that, all sectors have grown.
But your competitors have seen much higher volume growth.
Vaswani: We are not aggressively going after the staff augmentation business. That gives quicker growth; we are consciously focusing on more value opportunities. The customers are looking at much more strategic value. So, we don't just want to be one of the populating bodies, but want to ensure our medium-term and long-term growth, which will come by proving more value to customers. Paranjpe: Our underline volume growth of 6.7 per cent is not very different from some of our competitors. Volume growth reflects the number of billable people added in a quarter. The revenue sometimes does not show the underline momentum; it is affected by the onsite-offshore ratio as well. If someone does a lot of onsite work, it is not difficult to have a volume growth of 10-11 per cent.
So, your focus is more offshore than onsite?
Paranjpe: That depends on how much work you do onsite versus offshore. This quarter, for example, we did more work in offshore than onsite, which moved our offshore ratio by one percentage point. We have always tried to do more work offshore and that will continue to be there. This is because we want to be selective over the types of business we pick up. This is something that can be done on a sustainable basis and add value to the clients.
Revenue from fixed-priced contracts seems to have gone up this quarter. Any reason?
Vaswani: In today's environment, it makes a lot of sense to go after fixed price contracts because it depends on our ability to drive productivity and deliver services to the customers. We can drive a lot more productivity by using tools and accelerators in the delivery process.
Your margin has also taken a hit of 250 basis points.
Vaswani: It is due to hedges and the people-related investments. We promoted 20,000 people last quarter. We gave 5.7 million shares to employees last quarter, which shows we are clearly investing in employees. We have been investing in sales and marketing, which impacted the margins. All these had a margin impact of about 3.5 per cent. But we were able to bring it down to 2.5 per cent ,through better operations and efficiency.
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After you gave promotions last year, did you go back to clients, asking for a pricing increase?
Paranjpe: We are going back to them now. We gave it (promotions and hikes) in July, when most of our clients had already finalised their budgets. So, as a part of their new year budget, we are telling them to help us. Because, when the slowdown was there, we helped them reduce cost. We are hoping we will get some lift in the pricing. Some clients have already agreed that effective from January 1, they will give us higher price.
Your growth in the US was muted, though you grew well in Europe and APAC (Asia-Pacific).
Vaswani: Yes, we have been challenged in the US, where we had a 3.2 per cent sequential growth. But if you peel the onion, you will see there are specific sectors in the US which are not growing and we have strong exposure to such sectors. For example, the technology sector, which contributes about eight per cent to our top line, is not growing much.
You added 29 new clients during the last quarter — some more light on the size of the deals.
Vaswani: We are seeing a rise in the number of medium-size deals. Our focus has been to grow such accounts so that they can become potentially large customers. This is why our number of $20-plus million and $50-plus million customers have gone up this quarter.