India’s third largest software exporter Wipro is confident of returning to industry growth rates but continued to maintain caution, which was reflected in its 0-2 per cent guidance for the third quarter. In the second quarter numbers, the software major is showing signs of getting back on track. Jatin Dalal, CFO, Wipro, spoke to BusinessLine on how it will get back to industry growth despite headwinds in some business areas and the way digital is shaping up for them. Excerpts:
Guidance for the December quarter suggests that growth will remain sluggish. How does this tie-in with Wipro’s stated vision of achieving $15 billion revenue by 2020 with 23 per cent margins?
If you see the trend since the last few quarters, we have been improving the trajectory of our outlook. In this (second) quarter, we have said that we can achieve industry growth this year. Beyond this, we cannot give a forward looking statement. Our confidence comes from the order book we have, client mining initiatives and additionally believe that there is a strong opportunity to gain wallet share in digital as clients look to evaluate vendors. If you plot it, we have made investments along all these areas to achieve the stated goal.
Analysts are not impressed with the guidance for Q3. What are the headwinds you see?
Overall, in a difficult industry, there is still some lumpiness owing to external macroeconomic conditions as well as the transitonary nature of deals. We believe that our recent acquisitions of companies like HealthPlan, Designit, Cooper will help. Already, we have stated that issues in healthcare related to the Affordable Care Act in the US, will start bottoming out after the next quarter.
We already are seeing positivity in banking, financial services and insurance. In energy and utilites, our performance dipped in the quarter due to slower growth from West Asia due to holidays in the region. The business is stable as oil prices have largely remained stable.
Why do you say healthcare will bottom out?
Some senators have signed an agreement to restore about $7 billion in annual payments to health insurers that the Trump administration recently halted. This means that for the next year, people will start enrolment. This would mandate that the people who are covered under Obamacare or others will again have to come under cover and would require IT systems to manage it all. In the past, for example when there is the uncertainty continuing that whether it will get replaced or not and when it will get replaced, clients were hesitant to invest in Obamacare again. Because it is not only the platform that we provide to do it, but customers also have to invest in their IT systems for integrating that with our platform and customers won’t make that investment.
It is a tough environment, and coupled with the kind of intense competition, are margins from traditional services continue to be under pressure?
We look at it differently. There is an uptick in new offering. The old work (of managing ERP software or monitoring technology networks of multinationals) is transforming itself to digital. This transformation will continue for the next few years.
You said that gains from automation have touched 250 customers, 2,500 engineers were redeployed due to automation. Do you have any metrics in mind?
For sure, automation provides a great platform to remain competitive in the market. It changes the software project delivery and transforms the business model of our client.
Now, digital is pervasive across all customers. We help customers design, deliver using different technologies. It is a way a project gets delivered now. Lot of digital growth is coming from transforming existing clients too. It plays a very critical role. One-fourth of our revenues come from digital and these clients will not go back to the old kind of systems. This also comes in with higher project margins. Currently, we use traditional levers like utilisation in combination with automation to help boost margins.
Is digital a part of a client’s discretionary technology spend?
The answer is yes and no. Digital has more discretionary spends. But in a sector like retail, we saw that they not spend in Q3. We can’t ascertain a clear trend line.
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