Wipro Limited (507685) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Wipro Limited Q2 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, sir.

Thank you, Yasasri. Good evening. Warm welcome to our Q2 FY '27 earnings 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, 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 [indiscernible] that during this call, you may make certain forward-looking statements within the meaning of Private Securities Litigation Reform Act 1995. 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 these 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 the transcript will be available on our website. With that, I would like to turn over the call to Srini. Srini over to you.

Thank you, Abhishek. Good evening. Thank you all for joining us today. This quarter, demand environment has remained largely unchanged. Our clients remain focused on efficiency and productivity while increasingly looking to accelerate AI adoption and drive long-term value. This balance between efficiency and growth is shaping demand across industries. Let me begin with what we see in our priority sectors. In BFSI, we continue to see strong momentum. Clients are focused on cost optimization, legacy modernization and scaling agentic AI across their enterprise. Digital native and new age firms are driving demand in our technology sector, investments in custom silicon design to manufacture and physical AI are creating opportunities across the engineering value chain. We also see growth emerging across AI model ecosystems from model training and evaluation to execution. In EMR, Energy, Manufacturing and Resources sector, we have seen some good wins in previous quarters, and those deals are ramping up. This sector continues to gain traction across markets. Specifically, I would like to call out BPS and Engineering. In consumer sector, we are seeing good traction in CPG, travel and transportation. Our recent new wins and revenue from Olam deal have also supported our performance in this sector. However, health care in U.S. continues to be affected by policy changes. At the same time, cost pressures across payers and providers are creating new outlawing opportunities. This, along with our differentiated platform-based offerings and including rising regulatory requirements, we are shaping our pipeline. Moving to financial performance for the quarter. In quarter 2, our IT Services revenue stood at $2.61 billion, flat sequentially, and up 0.6% year-on-year in constant currency. Our operating margin for the quarter was 16.5%, an improvement of 0.5% compared to last [indiscernible]. Within our markets, 3 of our 4 SMUs strategic market unit, reported sequential growth. Americas 1 on declined sequentially due to client-specific issues and softness in health care. Americas 2 still grew sequentially, driven by EMR with encouraging momentum in BFSI. Europe grew sequentially and year-on-year, delivering broad-based growth led by BFSI, consumer and EMR. APMEA maintained strong traction, growing sequentially and year-on-year. Growth was filled by consumer tech and comps. Coming to deal wins and pipeline. This quarter, we closed $2.6 billion in total contract value and signed 9 large deals. Our bookings reflect a healthy mix of new businesses and expansion of existing engagement. Let me give you an example of a consulting-led AI-power transformation deal. A global financial institution engaged Wipro to accelerate its transformation towards an AI-enabled operating model. Through this engagement, we'll modernize software development, drive greater efficiency across the life cycle and scale AI-powered ways of working, resulting in faster execution, broader AI adoption and an agile operating model for our client. This win, among others, including [indiscernible] in Energy, last quarter reflects growing impact of our consulting-led strategy in originating larger opportunities. Beyond large enterprises, we also see strong traction in deal wins and pipeline in the mid-market segment. These organizations understand that AI can be a force multiplier in scaling capabilities and redefining their competitive landscape. As an example, a global mid-market consumer products company selected us to accelerate their technology transformation by establishing an AI capability center in India. Through this engagement, we will scale engineering and technology operations to support ER modernization, cloud native platforms and AI capabilities for our client. Outcome will drive innovation improve engineering productivity and strengthen global delivery model for our clients. We are beginning to see tangible returns from our strategic investments made in recent quarters. Mindsprint has strengthened our position in food and agriculture, opening new market opportunities. Harman DTS has boosted our engineering capabilities, helping us win new logos and deepening existing client engagements. We will continue to make these investments even when they create near-term margin headwinds. They enhance our strategic position expand addressable markets and build a stronger foundation for future growth. In April, if you recollect, we launched our AI Native Unit to help clients transition from traditional delivery models to AI-native enterprises. We are making rapid progress with over 2,000 engineers, including -- if the power deployed engineers, we are seeing growing success in outcome-based deals and driving nonlinear growth. This investment is already delivering results. Let me share a few examples: one, an SLM deployment for a major U.S. retail bank; two, implementation of an AI-powered digital plant for one of the largest petrochemical companies in the Middle East; and three, and enrollment and billing SLM deployment for a leading U.S. health care payer. In addition, we also built industry-specific for wealth management, insurance, health care, aviation and asset-intensive industries. Combined with our AI agent and orchestration platform. These capabilities enable us to transform virtually any business workflow into an AI-native workflow, helping our clients unlock new levels of productivity, speed and business value. Based on growing traction in AI, we also accelerated investments in AI services and solutions across 5 emerging AI growth teams: AI data centers, AI foundry services, physical AI, AI devices and design to manufacturing. In fact, these services and solutions position us well across the full AI value chain and help us capture opportunities that extend beyond traditional technology spend. With that, let me share our guidance for the next quarter. Q3 for us will remain impacted by seasonal furloughs. We are guiding for a sequential IT Services revenue growth of minus 1.5% to plus 0.5% in constant currency. Despite a challenging macro environment, our business remains resilient. We are very encouraged by emerging opportunities across markets. AI will expand new growth avenues and accelerate demand for higher value transformation. Signs of this are already evident in the momentum we are seeing across our new AI services. I will now invite Aparna, to share details on our financials. Thank you. Over to you Aparna.

Thank you, Srini. Good evening, everybody, and thank you for joining us. I'll share a quick update on the financial performance for quarter 2. And after that, we can open it up for Q&A. Our IT Services revenue grew 0.6% year-on-year in constant currency terms. Revenue was flat sequentially in constant currency terms. Our operating margin for the quarter was 16.5% and expansion of 0.5% sequentially. Operational improvements, UP depreciation, offset by our continuing investments in business have been the underlying factors driving this improvement. We will work towards improving the margins even as we create headspace for growth. In terms of the SMU performance and sector performance, I'll share a few numbers. All of them are in constant currency terms. Americas 2 grew 0.9% sequentially declined 4.7% on a year-on-year basis. Europe grew 0.6% sequentially and grew 5.1% on a year-on-year basis. APMEA grew 3.1% sequentially and 13% on a year-on-year basis. Our Americas 1 business was soft and declined 2.1% sequentially and 2.7% on a year-on-year basis. From a secular standpoint, BFSI grew 1% sequentially and 1.3% on a year-on-year basis. Consumer grew 2.6% sequentially and 6% on a year-on-year basis. Energy, Manufacturing and Resources grew 1% sequentially, while declining 6% year-on-year. Technology & Communications declined 2.6% sequentially, while they continue to grow on a year-on-year basis at 7%. Health declined 3.8% sequentially and declined 6.5% on a year-on-year basis. In terms of other key financial parameters, our net other income which includes the interest income, declined 68% sequentially, primarily because the investable surplus reduced quarter-on-quarter owing to completion of a buyback in June 2026. As a result of the lower other income, our net income was reported at INR 32 billion for the quarter. It declined sequentially by 5%. However, the EPS, which is the right metric, given that we completed a buyback for the quarter 2 at INR 3.23, which it increased 0.9% sequentially and 4.2% on a year-on-year basis. We remain relentless in our cash flow generation. Quarter 2 was yet another quarter of robust operating cash flows. We generated 166% of net income. With this, our gross cash as of 30th September at [ 4.6 billion ]. Our effective tax rate was at 23.9%, flattish compared to same quarter last year. Accounting yield for the average investment held in India was at 7.1%. In terms of the guidance, like Srini said, we expect our revenues to be in the range of $2.571 billion to $2.625 billion. The strong [indiscernible] so sequential guidance of negative 1.5% to positive 0.5% in constant currency terms. We can now open the line up for Q&A. Thank you.

[Operator Instructions] We'll take our first question from the line of Girish Pai from BOB Capital Markets.

I would ask about the TCV number, which is down quarter-on-quarter quite a bit, both from a large deal and a total TCV perspective. Were these numbers up to your expectations? If not, what exactly turns [indiscernible] in the quarter?

Girish, Srini here. As far as our TCV of quarter 2 is concerned, we had a few deals where the contract could not be signed on time because of which they are slipping to this quarter. And both the deals that we could not sign will get signed. As far as we are concerned, the pipeline is very robust. And in addition to these 2 deals, we have a very strong pipeline for quarter 3 itself, and we're very optimistic of better closure in quarter 3 as far as TCV is concerned, Girish.

Okay. The other thing I want to ask you is regarding GCCs, there seems to be a tendency of some customers won't selling off their GCCs to vendors like you and I've seen this happen with HCLTech and TCS and all that. Are there many more such deals in the pipeline? I mean, are there many more customers wanting to sell out the GCC for whatever reason?

So Girish, if you look at the GCC, there are 4 opportunity areas. One is the greenfield, where the client has already has GCC and looks at companies like us to come and help them to enhance and bring in AI transformation to that. Second, there are brownfield where we actually help the clients enhance their capabilities. And then there are some clients who would want to monetize their [ TTC ]. As far as we are concerned, we partner with our clients in all, whether it's greenfield, brownfield or any monetization opportunities.

Okay. Lastly, when is the salary increase going to happen?

Girish, you would note, we just gave a salary increase effective first March 2025 -- sorry, 2026. So it's been just a few months since we rolled out. So right now, if not under consideration.

We'll take our next question from the line of Sudheer Guntupalli from Kotak Mahindra AMC.

My question is, as the AI tech decision happens from the hardware layer downstream into consulting and services...

Sudheer, sorry to interrupt you. We could not hear you properly, Sudheer. Hello?

Yes. I hope, I'm here now?

Yes, much better.

Yes, yes. My question is, as the AI tech decision happens from hardware layer downstream into consulting and services. and the fact that most of the players are now look to be excessively leveraged in the overall ecosystem. Any thoughts on using your cash rich balance sheet to make very big-bang acquisitions like we had done in the [indiscernible], they beat the likes of Capco, Rising, et cetera. So any thoughts of using our net cash, balance sheet this time around, which could be a source of your competitive advantage?

So Sudheer, if you look at broadly, our growth strategy is both organic and inorganic. As far as inorganic play is concerned, we look for opportunities which can enhance our strategy, which is consulting-led and AI-powered -- within the sectors of priority sectors and the markets that we go after. As far as acquisitions are concerned, our strategy will continue to be the same. We will look at opportunities that can enhance our value. Just to give you a context here, if you look at the acquisition that we made with the Harman DTS, it actually gave us capabilities around design to manufacture and connected services. If you look at as for the Olam deal, we actually acquired Mindsprint, and that has given us capabilities around food and agri sector, supply chain and also form to for process. So we will look at those opportunities to it and constantly look out for that.

We'll take our next question from the line of Ravi Menon from Axis Capital.

Srini, you have the downturn in spending so an you guys were the first to impacted because of the high exposure to consulting. Now when the spending is starting to pick up, at least it seems like from the results of your peers, BFSI seems to be doing well. You're not going to get the full benefit of that. Is there anything that's holding us back or any client-specific issues, anything like that in BFSI? Or this consulting not really picking up and these are vendor consultant deals that others have seen.

So Ravi, if you look at BFSI from a Wipro perspective, we grew 1% sequentially and 1.3% on a year-on-year basis. We had some good wins in this quarter, that is quarter 2, and we actually won a consulting-led transmission deal that I covered in my opening remarks. One of the mega deals we had announced earlier where ramp-up was delayed is now starting to ramp up. Additionally, if you remember, specific customer in BFSI in Europe had earlier, decided to move part of the work to the captive, which impacted our revenue. The good news is that we are now seeing good momentum building up with this customer and it is reflecting in the growth numbers in the current quarter and going forward. Also Capco, which is our consulting arm for BFSI has done a very good performance including growth across continents, APMEA, Continental Europe and U.K. So that's where we are. As far as the BFSI segment, if you were to look at from a market perspective, Ravi, technology spending in BFSI remains resilient and AI and data investments are growing meaningfully. And some of them are through relocation and some of them are through productivity takeout. And again, across bank, in BFSI segment, starting with the banking, a lot of work, a lot of opportunities for us in our core application and data modernization, like, it also includes all this cloud migration. Some of the clients are looking for application rationalization, creating AI-ready data foundation. And to me, BFSI is -- we have a very strong pipeline and BFSI as a sector remains very resilient for us.

I appreciate that. The last, I would say ever 2, 3 years, we have seen growth in 1 or 2 quarters when we have a large deal, maybe when the consolidation deal, and I guess since the overall spending in [indiscernible] was muted, we've seen declines in other quarters? And do you think now we have a clear trend where at least in BFSI we see consistent growth in the coming quarters?

Like I said, I'm very optimistic about BFSI as a sector for us and for the industry as well.

So would you expect this to lead growth for you in the coming year?

Sorry?

Would you expect this vertical to lead growth for you in the coming year? Or would you expect one of the other verticals to actually be the growth leader within your portfolio?

So Ravi, I'll let my team compete, it is between BFSI and tech.

[Operator Instructions] Next question is from the line of Sandeep Shah from Equirus Securities.

Just some clarification Sir, you -- Srini, earlier alluded in the earlier quarter earnings there are some client-specific issues. So any status update on the same? Do you believe largely behind or may have some impact in the second half? Second, the guidance for this quarter will have some inorganic acquisition-led growth would have been built through Alpha. So can you quantify that? And even for the 2Q, what was the organic growth.

So Sandeep, I just wanted to reiterate the client-specific issues that we had highlighted are largely behind us and effective QD, we should be -- a large part of it should be done. I think your second question was around acquisition and inorganic growth. We have referred to this in the past when we spoke of mind strength. It was actually an acquisition that we did in the context of a deal because we found the capabilities to be something that could add value to without an overall basis as well. And that was the reason why we did it as a part of a structured large deal with Olam. We did have 1 month revenue that came through. The other 1 that you're referring to in terms of Alpha net is more of like a tuck-in within a large client where we are looking at consolidating vendors out we're not calling out the impact of that specifically. It was not very material.