Wipro : Quarterly Results 2023-2024, Q4 Transcript Conference Call

"Wipro Limited Q4 FY'24 Earnings Conference Call"

April 19, 2024

MANAGEMENT: MR. SRINIVAS PALLIA - CHIEF EXECUTIVE OFFICER &

MANAGING DIRECTOR, WIPRO LIMITED

MS. APARNA IYER - CHIEF FINANCIAL OFFICER,

WIPRO LIMITED

MR. SAURABH GOVIL - CHIEF HUMAN RESOURCES

OFFICER, WIPRO LIMITED

MR. DIPAK BOHRA - SENIOR VICE PRESIDENT

(CORPORATE TREASURER & INVESTOR RELATIONS), ,

WIPRO LIMITED

Confiden�al-Internal

Confiden�al-Internal

Wipro Limited

April 19, 2024

my role. Despite my extensive experience as a business leader, stepping into the CEO's role for the first time feels profound especially when it comes to leading this iconic institution.

As I go through many emotions of this transition, one thing stays strong - My unwavering belief in Wipro, our values, our people, our clients and above all our resilience.

Last year posed big challenges for the whole industry. It has affected Wipro's performance too. The economic environment is still uncertain and there might be more challenges in the short- term.

However, the opportunity before us is limitless. We are on the brink of a major technological shift. Every client I talked to across all industries is eager to leverage AI to shape the future of their business.

And at Wipro, we have been gearing up for this moment. We have made substantial investments to strengthen our capabilities across the organization. We have a global and diverse team. We have made bold moves in M&A, acquiring companies like Capco and Rizing which have boosted our consulting capabilities and we have simplified our operating model.

The building blocks are firmly in place, and I am committed to expanding on this even more. While I remain optimistic about the long-term, it's important to be transparent, there's still a considerable amount of work ahead of us.

Our immediate priority is to accelerate growth. Before diving into the financial performance for Q4 and the full year, I want to discuss the "Five Focus Areas" we will concentrate to revitalize the company:

1. Accelerate large deal momentum by working closely with clients and partners.
2. Strengthen relationships with large clients and partners and further invest in accounts that have the potential to grow into large accounts.
3. Focus on industry-specific offerings and business solutions, led by consulting and infused with AI.
4. We will continue to build talented skill which is now AI-ready and able to deliver industry-specific business solutions.
5. Finally, continue to simplify our operating model and focus on execution rigor with speed.

As you see, the core tenants of our strategy remain unchanged. What's important is how we build on these five priorities and adapt as necessary to accommodate technological shifts and market conditions. By years of experience in the markets, have taught me that integrating strategy with rigorous execution yields tangible results. And that's where our focus will remain this year.

Confiden�al-Internal

Wipro Limited

April 19, 2024

Now, let me turn to our "Financial Performance for Q4 and the Financial Year ending March 2024":

In Q4, our IT services revenue grew sequentially by 0.1% in reported currency. If you recall, last quarter, we had talked about seeing green shoots in our consulting business. The traction continued in Q4, reflected in Capco's sequential revenue, growing by 6.6% and order bookings growing by 43.6%.

Talking of "Order Bookings," in Q4, total order booking stood at $3.6 billion and for the full year it was $14.9 billion.

Coming to "Large Deals," in Q4 we won 18 large deals against 14 large deals in the previous quarter. In TCV terms, our large deal bookings for Q4 was $1.2 billion. For financial year 2024, we recorded large deal bookings TCV of $4.6 billion. This was a growth of 17.4% as compared to the previous year.

For our FY'24, our revenue was $10.8 billion in reported currency. We continued to increase the percentage of revenue from our top five and top ten clients. Also, we added three more clients to the $100 million-plus bracket in FY'24. Six out of our top ten accounts grew on a sequential as well as on a year-on basis in Q4.

Moving on to "Margins," in Q4 we saw a further expansion to 16.4%. This is a 40 basis points improvement over last quarter. We closed FY'24 with a margin of 16.1%, an expansion of 50 basis points over FY'23.

Like I said earlier, we will continue to make investments in building capabilities and strategic acquisitions. In Q4, we took a majority share in Aggne, a leading consulting and managed services company, serving the insurance and insure tech industry. This allows us to strengthen our value proposition in a fast growing part of the insurance vertical.

Expanding on our substantial investments in AI, in Q4, we launched the Wipro Enterprise Artificial Intelligence-Ready Platform with IBM. It's a new service that will allow clients to create enterprise level, fully integrated and customized AI environments.

Let me share one example of a win in Q4 that came from an AI-powered solution tailored to our consumer business. A leading global apparel brand chose Wipro as its strategic partner to implement Gen AI solutions for driving their digital transformation. This actually involves implementing large language models to improve search, recommendation engines, and enable hyper personalization at scale. All done responsibly.

Before I hand it over to Aparna, let me share our "Guidance for Q1":

Confiden�al-Internal

Wipro Limited

April 19, 2024

We are guiding for a sequential growth of (-1.5%) to (+0.5%) in constant currency for Q1'25.

We expect margins to stay range-bound like in the last few quarters.

The next few months will be crucial as we steer the company towards growth. As a passionate hiker, I deeply connect with these words from Junko Tabei, the first woman to climb Mount Everest. She said, "Even it was hard, you can reach the peak if you climb step-by-step." Of course, I seek the trust and continued support of all of you, our clients, our associates, partners and media as we move forward.

Thank you. Let me now hand it over to "Aparna to Share More Details on our Financial

Performance. Over to you, Aparna.

Aparna Iyer:Thank you, Srini. Good evening and good morning, everyone.

Let me highlight to you our "Financial Performance for Q4 and Full Year-ending March 31st, 2024":

On IT services revenue for Q4, we delivered a reported currency growth of 0.1% sequentially and (-0.3%) in constant currency terms. For the financial year '24 IT services revenue declined 3.8% year-on-year in reported currency terms and 4.4% year-on-year in constant currency terms.

Let me also give you some color on our "Market Unit Performance":

Please note that all revenue growth numbers are in constant currency terms.

In Americas-I, we continued our momentum of strong booking in Q4. We booked eight large deals in Q4, adding up to a total contract value of 587 million. For the full year, order bookings in TCV terms in A-1 grew by 24.9%. Q4 revenue for this market declined 1.8% on sequential basis, while the full year revenues grew 0.2% year-on-year. Our healthcare sector grew by 18% in full year in FY'24 year-on-year.

Americas-II market unit grew 1.9% quarter-on-quarter on the back of strong performance in Capco, BFSI, Hi-Tech in Canada. On a full year basis, the revenue in this market declined by 6.1% year-on-year. Almost 60% of our revenues in this market comes from the BFSI sector and as Srini mentioned in his speech, we are starting to see a return to stability in the sector led by Capco.

In Europe, revenue decreased 0.1% sequentially in Q4 and decreased by 7% on a full year basis. While Germany and UK continue to remain impacted due to slowdown in demand environment, we are seeing a recovery in sectors like Switzerland and Southern Europe that grew 1.7% and 1.6% in Q4. Southern Europe, as a sector, grew 14.6% year-on-year in FY'24.

Confiden�al-Internal

Wipro Limited

April 19, 2024

We also continue to see strong traction on the order booking side in Europe. In Q4, we've won five large deals adding to a TCV of more than $300 million.

APMEA revenues declined 2.2% quarter-on-quarter and 4.5% for the full year. Our strategy in APMEA has been to move towards high value transformation projects and reduce low margin accounts. The success of our strategy is reflecting in our margin improvement of 235 basis points for the full year.

In terms of "IT Services Operating Margins," our continued rigor on improving operational excellence has helped us expand our operating margins by 40 basis points in Q4. This is after absorbing the impact of two additional months of salary increase in Q4. On a full year basis, our margins are at 16.1%; they have improved by 50 basis points year-on-year.

Our net income and EPS for the quarter increased by 5.2%. Despite being impacted by a challenging macroeconomic environment, it is encouraging to know that our EPS for the full year grew by 0.8%. The increase in EPS was after absorbing the one-time restructuring charges of INR6,814 million during the year.

We generated cash flow of $626 million in Q4 and $2.1 billion for the full year, which is at 182.6% of our net income in Q4 and 159% of our net income on a full year basis. This is our highest cash flow in recent years. Our gross cash as a result is at $4.9 billion and net cash was at $3.2 billion. Both have increased year-on-year despite completing our largest buyback in July of 2023. In terms of some other important metrics that we've always shared, our ETR is at 24.5% for FY'24 versus 23% in FY'23. Our hedges continue to be in line with our policy; we had about $3.1 billion of FOREX derivative contracts as hedges at the end of Q4.

Finally, I would like to reiterate the guidance for Q1'25 stated by Srini; we expect our revenues from IT services business segment to be in the range of $2.617 billion to $2.670 billion. This translates through a sequential guidance of (-1.5%) sequential to a (+0.5%) in constant currency terms.

With that, I now hand over to the operator for questions.

Moderator:We will now begin the question-and-answer session. We will take our first question from the line of Moshe Katri from Wedbush Securities. Please go ahead.

Moshe Katri:Looking at the five focus areas that you mentioned, I am going to look maybe at three of them. Large deal momentum, what needs to get done to get there? Are you talking about restructuring sales, sector-specific offerings led by consulting in AI? Are we talking about more strategically using Capco given their expertise? And then you talk about simplifying the operating model. Are we planning a restructuring in terms of the various segments of the business?

Confiden�al-Internal

Confiden�al-Internal

Confiden�al-Internal

Wipro Limited

April 19, 2024

ENU (Energy and Utilities) and Manufacturing, we do believe that has been soft for Wipro and there is some muscle to be built. We have a good pipeline, we have interesting deals in the fray and We will see how they convert, more hopeful of getting back to growth in the second half in these sectors. Consumer and life sciences, again, it continues to be impacted by the overall spend environment going to higher inflation. Those are the broad colors that we wanted to share with you from a sector perspective. And therefore it's a little bit of a mixed bag. So, yes, we are seeing green shoots and we're seeing early signs of stability because now we've had two quarters where we've consistently seen… not just consulting, but other parts of BFSI coming around, but very early to say whether this is deterministically shifting, right, so we continue to remain cautious in that space. We've shared with you an outlook that basically has components of everything that I've just taken you through.

Ravi Menon:The utilization number is at 84.8%. This exclude all the acquisitions, right? So, how should we think about where say for example Capco's utilization might be, should that be a margin lever if the BFSI demand comes back?

Aparna Iyer:Certainly, we don't share our utilization including some of the acquired entities that is current. Overall utilization even outside of the acquired entities, we've seen a very remarkable progress that we've made over the last four to five quarters in that lever. We're very happy with where we are and we hope to sustain it even as the demand comes back and maybe we will have to invest for growth at some point in time, but for now, we will try and hold to that utilization. In Capco, certainly that is a lever and we've got an incredible asset, like Srini said, we have to drive more synergy wins and basically press on the revenue acceleration in Capco and that should do a lot of good to the margins as well.

Moderator:Thank you. We have a next question from the line of Kawaljeet Saluja from Kotak. Please go ahead.

Kawaljeet Saluja: Hey, Srini. Many congratulations on your elevation to the CEO role. I have three questions for you, Srini. The first one is the fact that you have been with the organization for more than three decades, and you have been quite a remarkable performer. However, you cannot say the same thing for Wipro organization as a whole. So, what is your view or what is your assessment for the reasons for Wipro's challenges and aspects of Wipro's business that require a fix?

Srinivas Pallia: Thanks, Kawaljeet. I think, thanks for the compliment as well. Having been here for three decades, all I can say is that if we continue to focus on those five key priority areas that I called out just now, and definitely execute that with the speed and the rigor that we need to bring in, I think we can make a difference. So, to me, strategy with a combination of execution is what can give us the outcomes that we are looking for.

Confiden�al-Internal

Wipro Limited

April 19, 2024

The second part, Kawaljeet, in the recent past, as Wipro is an organization, we have high exposure to discretionary spending. And hence, we have sometimes the softness on BFSI during those periods, and that could be another factor that you would have seen as grow a little slower.

Kawaljeet Saluja: So, you basically think that there is nothing wrong with just those portfolio challenges, etc. Those are tactical challenges which are there, you know. And just a simple focus on execution would do the trick.

Srinivas Pallia: So, Kawaljeet, if you look at it the way we are structured, we have got the four markets, right? And each of the markets are different. They have different responses to the macro environment that we are looking at. So, that's number one. Second is, if you look at Wipro as a company, in the last few years, we have gone through significant transformation. And for a transformation like this, sometimes we have to make some adjustments across the organization, and this can lead to different views.

I think from my perspective, my vantage point, my knowledge of our clients and our business, and of course the point that you made, having lifelong connections across our company should help us move us into actually tractions quickly, Kawaljeet. That's what I am looking for.

Kawaljeet Saluja: That's fair. The second question that I had, Srini, is that your organization has seen plenty of churn, senior executive churn. So, what are the measures that you will put in place to reduce the churn levels?

Srinivas Pallia: Sure, Kawaljeet. Maybe I will ask Saurabh to respond to that.

Saurabh Govil: So, Kawal, I must tell you that over the last two weeks Srini has taken over and the general euphoria among employees that somebody who started his career in the company has reached the very top. So, I generally believe that if growth comes back, opportunities are there for people to grow. They are seeing people growing. Aparna is another example for us who started a career here. People will be keen to continue to see that this is the place for them to make their careers. So, that's what they will.

Having said that, as Srini called out that structures and strategies are not changing. But leadership will evolve. There is a living organization. There will be some people who would move one kind of stuff. But there is no major disruption in the way we are going to work, organize ourselves. So, I don't see that much of a challenge as we move forward.

Srinivas Pallia: And Kawaljeet, we want to develop talent internally, right, and also have a strong line of leaders

in our pipeline. And that's another focus area for us going forward.

Kawaljeet Saluja: The final question that I have for you, Srini, is that I remember some time in 2020 you had a magic wand. You actually struck fairly nice lucrative two mega deals in the retail vertical. But

Confiden�al-Internal