Wipro Limited (507685) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Wipro Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded and the duration for today's call will be for 45 minutes. I now hand the conference over to Mr. Abhishek Jain, Vice President, Corporate Treasurer and Head of Investor Relations. Thank you, and over to you.

Thank you, Yashasvi. Good evening, and warm welcome to our Q1 FY '27 call. We'll begin the call with the business highlights and overview by Srinivas Pallia, our Chief Executive Officer and Managing Director; followed by updates on financial overview by our CFO, Aparna Iyer. We also have our CHRO, Saurabh Govil; and the Chief Strategist and Technology Officer, Hari Shetty on this call. Afterwards, the operator will open the bridge for Q&A with our management team. Before Srini starts, let me draw your attention to the fact that during this call, we may make certain forward-looking statements within the meaning of Private Securities Litigation Reform 19 -- these statements are based on management's current expectations and are associated with uncertainties and risks, which may cause the actual results to differ materially from those expected. The uncertainties and risk factors are explained in our detailed filings with the SEC. Wipro does not undertake any obligation to update the forward-looking statements to reflect events and circumstances after the date of filing. The conference call will be archived and a transcript will be available on our website. With that, I would like to turn over the call to Srini.

Thank you, Abhishek. Good evening, everyone. Thank you for joining us today. Let me start with a quick view of the broader market. The macro environment remains resilient but uncertainty continues to shape vision making. Technology investment has not slowed. They have become more focused. Clients continue to invest in AI, data, cloud, modernization, cybersecurity and productivity-led transformation. Spending today is measured with more regal and longer decision cycles. The AI disruption is expanding the market, not shrinking it. At the same time, conversations around AI are becoming more intense. As the tokenization landscape evolves, clients are focused on net productivity and require a tighter linkage between investment and outcomes. Despite selective client spending, our pipeline remains healthy. We continue to see strong engagement across our markets and industries. We are executing a consulting-led AI-powered strategy to help our clients reimagine and redesign their enterprise around intelligence. With that, I'll now share our financial performance. All numbers are in constant currency. Our IT Services revenue for quarter 1 was $2.61 billion, up 0.9% year-on-year and down 1.2% sequentially. Our IT Services margin was 16%, a 1.2% decline year-on-year. In our markets, Americas remained soft, declining both sequentially and on a year-on-year basis. We continue to see momentum in technology and communication sector and some good wins in the consumer sector. As we move into quarter 2, we're also seeing momentum build up in BFSI. APMEA's revenue grew sequentially and on a year-on-year basis. We are encouraged by the momentum we continue to see in this market particularly in the BFSI and consumer sectors. Our Europe SMU grew year-on-year with strong traction in BFSI, technology and communication. However, energy manufacturing and Resources remains soft. We see a healthy pipeline across various regions in Europe, such as U.K. and Nordics. During the quarter, order booking totaled $3.4 billion and large steel bookings totaled $1.6 billion. Our order booking includes 13 large deals this quarter. Let me highlight 2 of these deal wins. A leading global animal health care provider selected us to modernize and manage digital operations across the global network of hospitals and clinics. Using Wipro Intelligence, we will help transform service operations, improve productivity and enable predictive issue prevention. We are helping the client create a more autonomous technology environment. The goal is to improve experiences for clinical teams, employees and customers while increasing operational rigor. In our second deal win, a leading European specialty chemicals company chose us to run and transform the complex application landscape, leveraging AI-led capabilities through wings, part of our Wipro Intelligence. We will automate operations, improved delivery efficiency and provide greater visibility through an AI-powered digital command center. The outcome here will be elevated service quality, higher productivity and lower operating costs. Across markets and industries, we are helping clients reimagine operations by embedding AI at the core of their business spanning both physical and digital worlds. In this context, let me share some examples of the work we are already doing with clients. One, for a global industrial manufacturer, we are imagining finance and procurement through our wing platform, combining Agentic AI, intelligent orchestration, real-time analytics, and AI-powered knowledge management to create a highly automated operating model. In my second example with one of our health care clients, we are deploying multi-agent AI systems, reducing provider enrollment processing times up to 70% while automating their manual effort up to 90% for a leading global technology company. We are improving the quality, reasoning and safety of their next-generation AI models through expert-led data creation and AI evaluation. This is delivering significant gains in model accuracy and reasoning capability. With it, Life Sciences client our wings platform is transforming pharma covigilance from a document-centric, labor-intensive process into an AI-native safety operations. This is powered by autonomous agents and regulatory great workflows. For a global energy leader, we are defining their enterprise robotic strategy and road map for physical AI-enabled autonomous operations. Collectively, these engagements demonstrate the breadth of Wipro's AI capabilities from strategy and advisory to domain specific solutions. And the wins that I talked about also reflect a broader shift in enterprise priorities. In fact, interestingly, today, clients are looking beyond technology modernization alone. The focus is moving towards AI-enabled operating models that improve service quality, reduce operational complexity, strengthen resilience and unlock sustainable productivity gains. And this is where we are well positioned. Let me now share a few additional updates. During the quarter, we closed the acquisition of Mindsprint and quickly transition from integration planning to execution. While we continue to deepen our relationships with Olam Group, we have also started to see good opportunities in the food and agricultural sector. You may recall last quarter, we launched AI-native business and platforms unit. Since then, we have moved decisively from strategy to execution. We are building multiple AI-powered industry platforms developing new AI-native business models and forging strong partnerships across the AI ecosystem. We have laid the foundation, strengthened the team with specialized AI-native leadership talent, identified our road map to establish clear priorities for the next phase of growth. As you would have been aware, we recently launched Applied AI Center of Excellence for cloud models powered by Anthropics. This strengthens our ability to help clients rapidly adopt frontier AI capabilities while maintaining enterprise grade controls and governance. Capco, our BFSI consulting arm won the AI Governance and Risk Excellence Award at the OpenAI Auto Summit. And our U.K. AI lab won the OpenAI Codex Hatathon for an AI-powered banking solution. With that, let me shift focus to the next quarter. In quarter 2, we are guiding for a sequential growth of minus 1.5% to plus 0.5% in constant currency terms. As we continue to navigate macro uncertainty and geopolitical instability, our priority is to remain disciplined in execution helping clients navigate complexity and creating sustainable value for all our stakeholders. With that, let me hand it over to Aparna to share financial performance in more detail. Thank you..

Thank you, Srini. Good evening, everybody, and thank you for joining us. Let me share a quick update on the financial performance and then we can open up the Q4 question. Our IT service revenues grew 0.9% year-on-year in constant currency, while declining 1.2% sequentially. This is well within our guided range. Our operating margins for the quarter was 16%. We declined 1.2% year-on-year. The reasons are because of the incremental impact of agri increase, ramp-up of large deals won earlier and our ongoing investments in AI. This was partially offset by the rupee depreciation benefits and the other operational efficiencies. We remain focused on returning back to our previously stated narrowband. Net income for the quarter of $33.6 billion. Our EPS for the quarter was INR 3.2, both grew 0.6% year-on-year. Moving on to our SMU and sector performance. All the growth numbers that I will share will be on constant currency. A1 was flattish year-on-year, while declining 2.3% sequentially. Americas too declined 7.3% year-on-year and 2.5% decline sequentially. Europe grew 6% on a year-on-year basis, while declining 0.9% sequentially. [indiscernible] grew 13.5% on a year-on-year basis and grew 4.4% sequentially. Moving on to sector performance. BFSI grew 2.6% on a year-on-year basis, while declining 1.2% sequentially. Consumer grew 1.9% year-on-year and 0.7% growth sequentially. Technology and Communication grew 10.8% on a year-on-year basis and grew 0.2% sequentially. Health declined 2.6% sequentially and 3.0% year-on-year. EMR also declined 3.6% sequentially and 8.9% year-on-year. Our operating cash flow stood at 98% of net income for quarter 1. Our gross cash, including investments, was at $4.3 billion. Accounting yield for the average investment held in India was stable at 7.2%. Our ETR was at 22.6% for quarter 1 versus 21.6% in the same time last year. In terms of the guidance to reiterate what was stated by Srini our IT Services business segment was expected to be in the range of $2.574 billion to $2.627 billion. This translates to a sequential guidance of minus 1.5% to plus 0.5% in constant currency terms. Lastly, in the recently concluded Board meeting, our Board of Directors have declared an interim dividend of INR 2. Including this dividend, our payout in the last 1 year, we would be returning in excess of $3 billion in terms of the cash back to shareholders. With this, we can open up for Q&A.

[Operator Instructions] We'll take our first question from the line of Ravi Menon from Axis Capital.

Little surprised that you have added headcount despite the guidance that implies a sequential decline. Attrition still seems to be well under control. Utilizing also come off slightly quarter-on-quarter. So why add headcount now when you're still looking at a decline in revenue next quarter?

Our headcount also includes the people who joined us from the Mindsprint team, Ravi. If you exclude that, our head count has actually gone down quarter-on-quarter. And our guidance, of course, includes the revenues from Mindsprint completely in quarter 2.

Just to add outside of spend, the headcount has actually gone down by 2,500.

Yes, 2,500, that's right.

And in BFSI, most of your peers seem to be doing well, and you also spoke of how things seem to be looking up there. But this quarter then, we had a decline clients issue and is this something that you expect to maybe hold back a little bit in Q2 as well? Or do you think BFSI comes back to growth?

Hi Ravi, Srini here. So as far as the BFSI sector is concerned, specifically for us, Ravi, if you've seen, we did see a year-on-year growth of 2.6% in constant terms. However, the sector declined 1.2% sequentially. Now if I were to give a little bit of color in terms of how the sector has performed. Europe and APMEA, Ravi actually Year-on-year, we have seen a growth. In fact, Europe BFSI growth was led by a ramp-up of the large deal we had announced earlier. And if I were to look at APMEA we continue to see very good traction with both in terms of ramp-ups and also existing deals and the new deal wins that we have seen. I also want to call out that we see good momentum in the BFSI in Americas as well. So net-net, yes, I agree with your comment. And having said that, we are also seeing good traction for us as well, Ravi.

Appreciate that. So we can look at this as maybe a one-off client incident, something like that. Is there any cutback or did you lose out a inventeconsolidation? Could you comment on what cost to decline this.

There are 2 aspects. I mean 1 is clearly, some of the larger that we have on have taken a lot more time for us to scale a ramp up. I think now the clients are moving. That's the reason why I said BFSI Americas because we have won a couple of deals out large deals out there. Some of them are coming back. The second one is the nature of the demand. Discretionary spend has been slower and some of the decision-making has been slower, but we think it will come back. One thing that we are seeing, while from a customer perspective in the BFSI sector, there are a couple of opportunities that we see, Ravi. One is on the cost optimization and vendor consolidation, that remains the key drivers for our clients, right? And this is very similar to the commentary that we gave in the last few quarters. However, Ravi, what we are now seeing is that these savings are getting reinvested by some of our clients into AI capabilities. And that's where I think the new transformation projects and discretionary spend will come back. That's how we see it, Ravi.

One last question, if I may. On AI, your couple of peers have announced very different strategies on setting up a very big, large data centers, somewhere else looking at small capacity data center, which they think they will own the entire hardware stack. Anything that you're thinking along those lines?

So Ravi, one is, I think at a macro level, the way we see is that AI is a structural opportunity for us and for the industry in general, Ravi. Having said that, the success in AI, to be honest, is not just driven by models, right? For us, having the client context, understanding the domain and the industry aspect of it, understanding the process, right, and driving the data for an AI implementation becomes very critical and also clients are looking at security and change management, organization change management in this context. So that is where I would say that the direction that AI is moving on. And for us, Ravi, very clearly, we have pivoted to AI and we are doing an AI-first approach, and our consulting-led AI power strategy is all about that. So when you are doing a run aspect of it, which is application management, infrastructure or in a process, we are doing with AI first approach, and we have clearly built a strong platform around wings, which we are getting very good traction, which is our delivery platform. And the second thing, Ravin obviously, you'd be listening to a lot of commentary around that, the software development life cycle, there's a dramatic improvement in productivity. Now that's -- we have to have the context of if it's a pure-play greenfield project, which is like a tool like let's say, Python, the productivity is significantly higher but at the other end of the spectrum, it is a complex code. And if you don't have the right target environment, which is a lot more legacy, deployment and production also becomes difficult. There, the productivity comes down significantly. And so that's how we see it. But for us, the biggest opportunity is all the new AI services that we are seeing in the market. Now we call that as reimagine. Now I think it's very important also what we are trying to do. Maybe I'll double click later, but we have clearly created the AI-native unit, which I talked about where we are building the industry and cross-industry platforms. In fact, some of the margin dilution that you -- the question that was asked, we are investing in this. I think it's very important for us to invest for the future. So that's number one. AI-native unit. Second, we have the $0.5 million Wipro Ventures. And now we're very specifically focusedly targeting those AI and data and security startups, which will also enhance our overall Wipro Intelligence platform. Three, we invested in our Wipro innovation network. We actually launched 10 innovation networks for our clients, and that's actually picking up. The clients are co-innovating with us in those innovation network and finally, ecosystem partnering with the frontier AI company. So this is how we are driving AI across our industries, and each industry are different in terms of adoption, but everyone wants to be in the AI journey, Ravi.

I have 1 more thing, when you said that the stock price product benefit in the old complex pod. So then can we say that there are all of the investor concern about significant erosion of the existing book of business. Can we say that this is really unfounded?

So the way I see it, Ravi, is that I'm looking at for the industry and for Wipro, right? What are like I said, structural, what are the structural opportunities? Today, if you look at the traction that we have on the reimagine AI services, that's how I call it new AI services. One, yes, advisory and change management. That's something that for example, Capco is leading it to OpenAI gave us an award around that. Second is data pricing for AI, right? If you don't have -- enterprises are struggling with data, we have to be honest about that. Some enterprises have told us we've got too much of data. We don't know whether this -- do we need all this data out to get the AI right. Third is agent implementation and managing agents. Every organization is building tremendous number of agents, how do you deploy them, how do you orchestrate, deploy and manage them. And Ravi, the tokenization, token economics, whatever we call it, it's going -- it's actually skyrocketing right now. So then especially the CFOs are saying, "Hey, what's my ROI? So do I use a high-end LMM for a particular process or a workflow why use an open source model. So that's a conversation that's going on. We're having the deep tech, we are able to actually have that conversation with the client. So there are multiple new opportunities, whether it's model ops, IDC is something that's picking up with enterprises, you would have heard of sovereign AI. So that's another one picking up. And finally, every client want us to make a very secure and responsible. So to me, net debt is a positive in terms of new services that are coming in. Yes, short-term SDLC life cycle will continue to bring in higher productivity and sort of a development life cycle. But I just want to call out, even the -- it is going to be human plus AI always because in a software development life cycle, the business requirement, user stories, you need humans. At the same time, when you are deploying and the productivity and taking into production unit, human intervention, of course AI can throw million lines of code, but we need to make sure that code is optimized. So that's how I see it, Ravi.

Next question is from the line of Nitin Padmanabhan from Investec.

Yes. Good evening. Thank you for the opportunity.First, I wanted your thoughts on how should we see margins recovering to the band that we stated? Do you think it will be gradual through the year? Or do you think there's any element that can help a faster sort of recovery, considering we don't have rate increases and has done and behind. And the second is from an overall business perspective, when do you think the headwinds sort of received where we can start showing some level of growth as a business? And do you think these headwinds are largely over in Q2? Or do you see any specific things that could linger.

Hi, Srini here. On the margin aspect, Nitin, Aparna talked about it as well in our commentary. The reason why we had a drop of 120 basis points is number one, the impact of MSI we had is coming into this quarter. Second, the investments that we are making in AI and in deals, that's the second part. Third is -- some of the acquisitions that we made, they're actually coming to -- into execution mode right now. So that's the impact of the impact we had on the margin. Having said that, it is our mission is clearly to go back to the narrow band that we've been talking about 17% to 17.5%. Now the question that you're asking is what is the time frame? Right now, in the context of the volatility that we see in the context of the revenue situation that we see, right, I do not want to predict exactly when we will get there. But the point is that we want to get there. If you noticed in the last 2 years also written, now despite the challenges with the revenue, we continue to stay focused on margin improvements, you can be rest assured, we will continue that path. However, I want to clearly articulate that we want to invest in our new native business. We want to -- because when you're doing an AI-native net business, you also need to have the right talent, and you need to have the right infrastructure to build the new products, new platforms and solutions as well. So it's a combination of all these Nitin.

Yes. qualitatively, do you think it's fair to assume that it's gradual rather than quicker? Just a qualitative thought is this fine.

Yes. The endeavor is to reach where we want to reach. And if you look at it, there are multiple levers for us from an operational perspective, but that's how you can take the cost out and SAP, both in terms of automation, AI and productivity. We have other levers, including G&A and so on and so forth. The bench utilization has been higher. That's another lever that we have. How do you restructure the pyramid right, in the context of AI and how much of the projects and programs we can run it through agents and how many of our current existing programs we can identify. So these are all the levers that we are looking at it in, and we'll stay focused on that. But the point -- the message I wanted to give you is that despite all this, we will also want to continue to invest in our future, which is very, very critical because the world has pivoting to AI, and we have already pivoted to AI. And we will continue our journey around consulting it and a forward and we will stay focused on that. Wipro Intelligence platform, both delivery platforms and the industry across industry platforms, we are seeing good traction with them. And in the future, the consumption will be platform plus service, not just pure-play service.

Sure. And from a growth perspective, when you think of headwinds that you're seeing sort of received?

Yes. So if you look at it from a growth perspective, typically, we give just a 1-quarter view of our guidance, right? Like I said, the demand environment remains soft, and that has reflected in our quarter 2 guidance. Having said that, Nitin, I just want to call out the point that I made that we are seeing good traction building up in Americas in the BFSI segment, right, which was ethic was the question that in the Ravi has asked. Second, EMR, which is energy manufacturing resources sector, which was very soft in Europe and APMEA. We have won a couple of deals in Europe in this segment. We will see that coming into delivery, right? So to me, also the way the customer takes the cost out, then they start shifting their budgets to AI. We are ready for that. That's how I see it. So I can't give a commentary in terms of how our quarters will go because I want to stay within our -- the quarter 2 guidance.