Wipro posted a dismal Q1 performance with profits falling 8 per cent and margins coming under pressure. The management has guided for a soft second quarter as well. Speaking to Bloomberg TV India, Wipro CEO Abidali Neemuchwala said in the long term the company does not see any signs of slowdown or headwinds, specifically due to Brexit. Wirpo’s digital story, which is very differentiated, will continue to drive growth, he said. Excerpts:

Although your dollar revenues are in line with expectations, your margins have been low in Q1. What factors were responsible for the decline in profit? What is the outlook going ahead?

The margins’ walk from Q4 to Q1 has 4-5 components. One definitely is that we give merit salary increases, which has almost a 50 per cent impact in Q1 and another 50 per cent impact in Q2. That is about 1 per cent impact in margins due to manpower cost increase.

There is another, roughly, 1 per cent impact due to accounting policy change wherein amortisation now shows part of the operating margin of the IT service business, as well as the impact of the margin itself on our HPS acquisition, whose two months’ revenue has come within this quarter.

There is some positive impact on forex as well, as there is certain positive impact of utilisation improvement, which has been offset partly by certain investments that we have been doing in our key clients in terms of mining and consolidating our position with those clients. That is the broad distribution of how the margins have moved from Q4 to Q1.

And, there is certain headwind in Q2 on a salary increase, and then there are certain operational improvements, both in our core business as well as in the inorganic piece that we are executing, which will offset a large portion of the merit salary increase headwind in the margin term that we see in Q2.

The guidance for the next quarter is lower than the previous one. Will this continue in the second half, too?

We foresee a very stable demand environment as we will execute our strategy across all the six strategic themes — whether it is digital, non-linear IP-based growth, localisation, hyper automation, or inducting artificial intelligence in our homes platform. We are executing quite well in all of these themes.

But the guidance we give on a quarterly basis is the reflection of the forecast we have when we provide the guidance and that right now looks pretty much the numbers we talked about. At a macro level, we do have certain headwinds in our India-West Asia business, which we are restructuring and hence creating certain headwinds. There has been an absence of large deals within the India and West Asia geography. West Asia being a significant part of that unit, the oil price and Ramadan both have impacted new deals in the last quarter, which creates certain headwinds for Q2 and which has been incorporated in our guidelines.

Can you tell us more about the possible impact of Brexit? Or is it too early?

We didn’t see any immediate impact of Brexit except for the forex movement on the GBP (pound sterling). But in the medium term, we do see certain impact, especially in the European financial services business, because in any time of uncertainty, typically, there is a slight pause or rethink on the discretionary spend, and that might have an impact. Otherwise, right now we do not see any signs of slowdown or headwinds in the long term.

Which segment is expected to drive growth going ahead?

Our digital story, which is very differentiated, will continue to drive growth. Mining improvement in some of our top accounts will drive growth. From a sector perspective, North America continues to be robust. Our investment in Latin America and continental Europe will continue to drive growth. Across verticals, I think banking and financial services, communication, and the consumer segment continue to look good. We do see certain headwinds in E&U (energy and utilities). And from a service line perspective, we continue to see good growth in our global infrastructure practice. We see a stable demand in engineering services. And, we continue to see robust demand in digital.

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