Wipro announced during the third quarter earnings that it expects a revenue growth of -0.6-1.0% sequentially for the fourth quarter ended March as deal ramp-ups and client decision-making are slowing down. Jatin Dalal, chief financial officer, Wipro, explains the reason behind the guidance, margin levers, and pricing, in an interview with Ayushman Baruah. Edited excerpts:
Can you give a broad sense of the demand environment in the US, UK and Europe?
We continue to do very well in all our geographies. And the reason for that is we have created a localised strategy in Europe where we are very focused on opportunities and challenges. I think we are definitely gaining market share in Europe. As far as the demand patterns are concerned, there is a little more uncertainty in the US than in Europe. You may have heard the opposite perspective, but that is the trend for us. I don’t think we are seeing the UK and Europe very differently. We consider Europe as one market and the US as another.
What is your outlook for Q4, given that you have forecast that revenue could decline?
So, what is happening is basically there is business in the market and we are winning it. There is also a certain amount of uncertainty, time lag, etc, on ramp-up of deals. For example, you get a business and you need to go through a transition with somebody and that customer wants to give it a certain period of duration before they can pull the plug on it. So, it takes a while before you can convert bookings into revenue. Overall, customers are spending, although the environment is uncertain. But there is a lag in revenue conversion and that is what is being reflected in our Q4 guidance.
Wipro’s margins have improved on a sequential basis. What’s your aspirational margin band and what are the margin levers you are using?
We aspire to be in the 17-17.5% margin band in the medium term. We moved up from 15.1% in Q2 to 16.3% in Q3 despite salary hikes. In terms of levers, we need to improve on our utilisation as well as automation initiatives. We are also very conscious about discretionary spending, not because we cannot afford it but because there has to be a certain amount of process in a large organisation like ours where people are able to see what is needed to spend. So, I think the overall mantra of winning in the market and then executing it in a disciplined manner is what we are trying to achieve.
How is the pricing environment? Do you see an opportunity to command higher pricing for digital deals?
Yes. Even in the current environment, we are able to command the right pricing for the right skillsets. What will continue to get commoditised will be the legacy maintenance projects, those that can be actively automated. If you are not ahead of the automation curve, you will get priced out in the market. There is pricing pressure commensurate with the technological shift in the work. Both capability-led pricing and brand-led pricing are seeing good improvement every quarter and we are perceived as players that are able to offer higher value-added services to our customers.
Do you see the large deals momentum to continue?
Of all the numbers, bookings are most unpredictable. So, I can’t come up with a number but certainly I feel good as I enter the quarter. We closed 11 large deals resulting in a TCV of over $1 billion in Q3. We should have a healthy deal activity in the fourth quarter as well