Wipro Ltd Q2 FY2023 Concall Summary

Key Takeaways

• Strong bookings, cautious guidance: Total contract value bookings grew 24% YoY with 11 large deals signed, yet Q3 revenue guidance of just +0.5% to +2.0% QoQ reflects furloughs and an uncertain demand environment.
• Margins held at the floor: Operating margin of 15.1% absorbed salary increases and quarterly promotions; management calls 15% the floor and commits margins will not go down from here.
• Consulting is slowing, as expected: The consulting business, a massive growth driver for two years, is now in an early-cycle slowdown that management says was forecasted and will also improve its margins.
• Europe restructuring signals cleanup: A one-off ~₹136 crores charge addresses long-standing inefficiencies; a tailwind from reduced employee spend follows, though the cost number does not equal the savings.
• What to watch next quarter: Whether the consulting slowdown deepens or stabilizes, the pace of utilization improvement as freshers become billable, and any demand signal from Europe's energy-exposed manufacturing clients.

Demand Environment

• What drove Q2: Double-digit constant-currency growth across all markets, with Americas 1 up 15% YoY, Americas 2 up 12% YoY, Europe up 12% YoY, and APMEA up 11% YoY. Top 5 and Top 10 clients grew 19% and 17% YoY respectively, signaling share gains in the largest accounts.
• Where the pipeline is heading: The pipeline is "stronger than ever" but its nature is evolving toward deals with a stronger focus on cost optimization, productivity gains, and business cases, a shift from the transformation-heavy mix of recent quarters.
• Sector-level caution: Management flagged perceivably more slowdown to expect in large tech, potential retail weakness if the economy worsens, and uncertainty for European manufacturing clients in Q3 or Q4 from the energy crisis. Banking is expected to hold up well, driven by simplification, compliance, and streamlining work.
• The uncertainty question: Management acknowledged the market has changed from 9-12 months ago but is unsure whether that context will actually impact the industry, calling the outlook uncertain rather than definitively negative.

Delaporte: "We are no longer in the same market and condition that we were nine months ago or 12 months ago. That's a reality. But the big question is, is this context going to impact our industry. And frankly speaking, I am not sure. That's why I see a certain level of uncertainty today."

Consulting Slowdown

• The cycle turns: Consulting has been a massive growth driver over the last two years, with Capco growing more than planned every single quarter, but there is now a slowdown that management says was forecasted. Consulting tends to be early cycle: first to slow down, first to accelerate, and extremely agile in adjusting to market evolution.
• The margin silver lining: As consulting growth moderates, its margins are improving, a dynamic management is already seeing for Q3. The slowdown does not erase Capco's strategic value: its impact on winning large deals in financial services is higher than before, with more synergy deals that are more strategic and driving more value.

Delaporte: "There is no doubt that there is a slowdown, and we see it. ... We also know because it's a reality now in the industry, that consulting tends to be early cycle. So, the first one to slow down, first one to accelerate, and extremely agile to adjust to market evolution."

Margins & Efficiency

• Q2 margin walk: Operating margin of 15.1% was achieved despite rolling out quarterly promotions in July and annual salary increases effective September, supported by improved price realizations, operational excellence, automation, and higher productivity.
• The 15% floor: Management reiterated that 15% is the floor and committed margins will not go down from here, with the objective to continue to grow and drive profitable growth. Levers include the fresher strategy, automation, larger deals delivering more value, and continued efficiency improvements.
• Utilization dynamics: Numerical utilization was impacted by the volume of freshers onboarded, but economic utilization improved in Q2 versus Q1 because more-experienced lateral bench got utilized and replaced by fresher bench, giving an economic upside not yet visible in the numerical number. The ~400 bps drop in net utilization ex-trainees reflects freshers completing training and moving into the overall bench definition, not any client or project drop-off.
• Europe restructuring: A one-off charge of ~₹136 crores addresses long-standing inefficiencies that had not been tackled for a long time. Post-restructuring, there will be a tailwind from reduced employee spends, though the cost number should not be equated to the savings because in Europe restructuring costs many years of pay. A possible small tail spend may occur in Q3, with nothing beyond that.
• Pricing power holding: Over recent quarters, Wipro has been able to raise prices with a lot of clients through conscious focus, and most clients understood the supply pressure reality. Management assumes price increases should continue for now, though the market could change.

Delaporte: "On the margin side, we will not go down from where we are. So, that is a clear position on margins."

Strategic Bets: Cloud, Security & Engineering

• FullStride Cloud: Now more than one-third of the business; bookings with Hyper Growth Partners grew 24% YoY. Cloud transformation within iDEAS grew 26% YoY. Management expects cloud will continue to grow massively.
• Cyber Security Services: Grew 23% YoY within iCORE, driven by increased demand for the full suite of cyber offerings as transformation accelerates. Security is expected to continue growing large double-digit.
• Engineering Services: Grew 18% YoY within iDEAS and is growing very well, forming the third leg of the strategic growth triad alongside cloud and security.
• Lab45 launch: A new brand for the CTO organization, positioned as a Technology Research and Development Unit to develop new assets, IP, and products through client collaborations and partnerships.

People & Talent

• Hiring and bench build: A conscious decision in Q1 to hire materially, knowing it could result in higher headcount and a bigger bench excluding freshers, was made to get ready for demand. Over 14,000 freshers were onboarded in H1, already 75% of the prior full year's intake.
• Reward and retention: Quarterly promotions rolled out in July with ~10,000 colleagues promoted in Q2; annual salary increases given across bands with steep differentiation for top talent. Attrition moderated for the third consecutive quarter to 23% on a trailing 12-month basis, with quarter annualized numbers trending even lower and further moderation expected in Q3.
• Utilization trajectory: Utilization is expected to improve in coming quarters as freshers become more revenue-generating, closing the gap between numerical and economic utilization.

Guidance & Commitments

Key Metrics