In an environment where there is no rush of large deals in the market, IT major Wipro’s focus has been on “smaller sized value” deals. Wipro chief financial officer (CFO) Jatin Dalal in an interview with FE’s P P Thimmaya says automation is now embedded into every service the company sells and it is helping them keep the costs down. Excerpts:
How do you see the overall demand for both in the traditional IT services business and the new age segment like digital or cloud?
It is improving. On an absolute basis it has been better and in the first quarter we have got ahead of our guidance for the first time since December 2011. This reflects the underlying demand which shows that it is certainly not worsening but improving. The deal sizes are smaller but we are able to concentrate and win a lot of small pieces of work. Overall the rhythm of the business is shifting from very large deals to sort of incremental flow of business. There are large deals in the market but the customer preference on spend today is on the change side of the business, which is lot more quick, value release kind of projects. Nobody wants to do a seven-year or two-year IT transformation journey.
Has Wipro been able to quantify the benefit from automation now?
I will put it differently. It provides great balance to pricing in the market. For example, if there is `X amount of pricing pressure in the market, automation allows me keep the cost curve beneath the price curve so that I still make profit. Right now it is a great tool to be competitive. I do not think we are selling any project which are without automation benefits embedded into it. It is very central to our delivery to be cost competitive.
What was the rationale for a share buyback one year after the previous one?
There are certain restrictions around buyback as we can do it once a year. Through this buyback of Rs 11,000 crore which will get completed by November this year, we would have bunched up a little bit of payout of both FY17 and FY18. We have $3.5 billion net cash on our balance sheet. There is enough liquidity and therefore we feel we have what is needed from an acquisition standpoint. Having looked at our capex and M&A plan, we feel comfortable with the quantum of the buyback.
How is the pricing environment?
In our legacy or traditional business we will always have pricing pressure but we have grown because we continue to improve and invest. There are quarters when the price pressure is high then we sort of tighten our belt, work harder on automation and other cost levers to work our way back to profitability. However, we certainly get the right pricing in the newer kind of services.
Will Wipro continue to look at acquisitions having spent close to $1 billion on buying companies in 2016?
We continue to look at good prospects. Some of these are not long drawn decisions. Our M&A team chases opportunity every quarter where some of them convert into reality others don’t. It is very rhythmic. At any given point of time there are 12-15 names in the pipeline. We will buy something which will help us grow better. We will not buy something which will be a turnaround case but that helps our business in growth and profitability.
What levers does Wipro have to improve the margins?
We certainly have automation and higher pricing on digital projects (as levers). The utilisation can go up, and lastly there is a continuing focus on improving the shape of our employee pyramid.