Wipro Ltd Q1 FY2023 Concall Summary

Key Takeaways

• Demand defies macro fears: No slowdown or pullback observed; overall pipeline at an all-time high and bookings TCV grew 30%+ YoY, with large deal bookings nearly \$1.5B, almost 3x the prior quarter.
• Margin bottom declared, recovery path set: Operating margin fell to 15% as planned due to investments and acquisition dilution, but management states it has bottomed and will calibrate upward quarterly, targeting a return to the 17–17.5% range.
• Growth broad-based and accelerating: Constant-currency revenue grew 17.2% YoY, all markets grew 15%+ YoY, and Q2 guidance of 3–5% QoQ growth puts the company on track to “comfortably grow in double digits” for the full fiscal year.
• Strategic rotation is working: More than half of bookings came from cloud, digital, engineering, and cyber; cloud bookings rose 35% YoY and engineering services bookings doubled YoY, validating the accelerated portfolio shift.
• What to watch next quarter: Whether the 3–5% Q2 guidance proves conservative as some analysts suspect, the pace of margin recovery as operational gains are reinvested into promotions and salary hikes, and any early signs that the macro environment is beginning to affect client decision-making.

Demand Environment

• No slowdown in sight: Despite macroeconomic uncertainties, management saw no pullback of spends; the overall pipeline is at an all-time high and bookings TCV grew over 30% YoY, with ACV up 18% YoY.
• Large deals surge: 18 large deals were closed in Q1, nearly 3x the prior quarter’s performance, with the majority being new wins; win rates improved due to deliberate investment in the large deal team.
• Client conversations are outcome-focused: Clients are not discussing reducing technology spend; instead, they are shifting focus to productivity gains and cost reduction, which feeds directly into Wipro’s capabilities.
• Consulting demand intact: No slowdown seen in consulting; Capco’s growth has been extremely strong quarter after quarter, and management expressed comfort in sustaining that growth even as YoY comps moderate.
• Europe strength underappreciated: Europe’s 16% YoY growth appears muted only because of an extraordinarily strong base in the prior year; the Europe Head reported no signs of slowdown and sequential outlook for Q2 is solid.

Delaporte: “Despite the uncertainties of the macroeconomic environment, if I look at the pipeline, order bookings and the discussions we are having with our customers, there has been no slowdown or pullback of spends for us.”

Revenue Growth & Market Performance

• Broad-based double-digit growth: All markets grew 15%+ YoY; Americas 1 grew 20% YoY led by technology products and platforms at 37% YoY, while Americas 2 grew 17% YoY with financial services and manufacturing each near 30% YoY.
• Europe and APMEA momentum: Europe grew 16% YoY with UK, Ireland, Southern Europe, and Benelux all at or above 20% YoY; APMEA grew 15% YoY, with Australia and Southeast Asia performing particularly well and order bookings TCV up 60% YoY.
• Client concentration deepening: Top 5 clients grew 26% YoY and top 10 grew 22% YoY; the company doubled its >\$100M clients to 20 in 24 months and added 8 clients in the >\$50M segment in the last 12 months.
• Strategic areas driving bookings: More than half of bookings came from cloud, digital, engineering, and cyber; cloud bookings rose 35% YoY and engineering services bookings doubled YoY, while iDEAS grew 21% YoY led by digital experience and domain and consulting.
• iCORE flattish on seasonal moderation: iCORE revenue was flattish QoQ because the digital operations business had a seasonal moderation after strong open-enrollment activity in Q4, partially offsetting continued strength in cybersecurity and infrastructure.
• Organic growth normalizes: Organic growth was ~1% in Q1, which management attributed to normal quarterly variation after six quarters above 3%, not a deeper trend; Q1 bookings were strong across markets and sectors.

Margins & Operational Levers

• Margin bottom declared: Operating margin fell to 15%, lower as anticipated because of investments in solutions and capabilities, accelerated structural transformation investments in freshers and IT, and inorganic dilution of 2.3 percentage points from acquisitions.
• The 2-point gap explained: The gap to the 17–17.5% range was driven by planned investments: ~1.3 percentage points from utilization, subcontractors, and internal IT investments, plus 20 bps from Rizing acquisition dilution.
• Q2 margins flat by design: Operational efficiency gains in Q2 will be fully reinvested into promotions and the 1 September salary increase, so no net margin expansion is expected in the immediate quarter.
• Six levers identified: Utilization improvement (~5% below peak), subcontractor moderation, pyramid improvement through fresher hiring, pricing power in differentiated services, moderating attrition reducing lateral replacement premiums, and operating leverage as growth returns.
• Fresher hiring as structural lever: FY’23 fresher hiring will be more than double FY’22 levels, enabling pyramid correction; subcontractor costs are expected to moderate every quarter going forward.
• Revenue per employee decline explained: IT services revenue per employee declined 8% YoY primarily because favorable offshoring mix shifts realization to one-third of onshore rates, not because of price discounts; adjusting for offshore, strength is visible due to high-realization acquisitions.

Dalal: “I do not want to, for a second believe that there are not sufficient levers in our business to get back to a structural superior position from the margin.”

Talent, Attrition & Operating Model

• Attrition moderating steadily: Attrition declined for three consecutive quarters, down to 23% on a trailing 12-month basis; further moderation is expected ahead, which should reduce the cost impact of replacing similar skills with laterals at a 25–30% premium.
• Net hiring strong: 15,000 net new talent added in Q1; more than 10,000 freshers onboarded in line with the strategy shift toward fresher intake.
• Quarterly promotion cycle introduced: Effective July 2022, promotions moved to a quarterly cycle from a yearly cycle, and salary increases for all eligible employees will take effect in September 2022, 12 months after the last increase.
• No shift in wage cycle: The wage-increase cycle for the majority of the population remains 12 months from the last increase; management sees no reason to alter that cadence.

Acquisitions & Consulting Integration

• Rizing acquisition completed: Rizing, a global SAP consulting firm and leading strategic SAP partner, will become a critical extension of Wipro’s SAP Cloud practice and FullStride Cloud Services.
• Capco momentum sustained: Capco’s growth has been extremely strong quarter after quarter; there has been no acceleration or easing of attrition after the acquisition, and bookings in the last two quarters have been solid with a strong pipeline.
• Consulting and technology converging: A significant proportion of business now combines consulting and technology capabilities; Capco had more than 60 joint wins with Wipro in the last 12 months, and Rizing is generating joint leads and wins with Wipro’s technology teams.
• Margin levers exist in consulting: Consulting businesses have levers to improve margin, primarily by increasing the offshore component; cost synergies are also being pursued, and management expressed confidence that even in a downturn two years out, cost structures can be managed well.

Guidance & Commitments

Key Metrics