Wipro Ltd Q1 FY24 Earnings Conference Call Insights

Key highlights from Wipro Ltd (WIPRO) Q1 FY24 Earnings Concall

Management Update:

• [00:07:10] WIPRO announced a $1 billion investment in AI and launched a new AI-first innovation ecosystem called Wipro ai360.

• [00:12:46] WIPRO said it is seeing solid demand in high-growth areas, like cloud transformation.

• [00:14:50] WIPRO’s attrition has continued to moderate Q-on-Q, coming in at an eight-quarter low of 14% in 1Q24.

• [00:15:30] The company expects margins to be in a similar range as in the last few quarters.

Q&A Highlights:

• [00:17:56] Sudheer Guntupalli from Kotak Mahindra asked what is the key concern driving the return of spends, and how quickly could it happen, based on client conversations. Thierry Delaporte CEO said that clients are aware of the macro economic uncertainty and are therefore cautious in their IT spending. WIPRO believes that the market will improve in 2H24, but not sure when.

• [00:22:53] Sudheer Guntupalli of Kotak enquired if the panic around the banking crisis is over and that demand will improve going forward, assuming macro variables remain stable. Thierry Delaporte CEO clarified that banks are cautious about IT spending due to macro economic uncertainty, but will resume spending at some point in time. The focus will be on consulting activities that improve efficiency and KPIs.

• [00:24:16] Sudheer Guntupalli of Kotak also asked if the $1 billion investment commitment in AI will be largely in the M&A route. Thierry Delaporte CEO replied that the majority of the investment will be organic, with a small budget for M&A to complement or accelerate the progression.

• [00:26:00] Nitin Padmanabhan at Investec also asked how Capco and Rizing are faring in the current environment, margins going forward, and compensation increases. Thierry Delaporte CEO answered that the Capco and Rizing businesses are facing some challenges due to the current economic climate, but the fundamentals are strong and the traction in the SAP business is beyond expectations.

• [00:30:23] Nitin Padmanabhan from Investec asked if WIPRO has room to increase utilization, or will it need to start hiring in anticipation of demand in 6 months. Amit Choudhary COO said that utilization is a key performance indicator that Persistent Systems will continue to drive. There is still room to improve utilization by looking at different components, such as location and seniority.

• [00:31:32] Gaurav Rateria at Morgan Stanley asked how WIPRO can explain the divergence in revenue growth from its peers, given the success of WIPRO strategy. Thierry Delaporte CEO said WIPRO has been focusing on its priorities, and has seen solid growth despite the market slowdown. The company has doubled the number of $100 million accounts in the last 2.5 years, becoming more impactful in the market.

• [00:34:06] Gaurav Rateria at Morgan Stanley also enquired how the investment in generative AI will be funded and the implications of it for longer-term margin aspirations. Thierry Delaporte CEO said that the investment in generative AI is funded by operational improvements, which will drive revenue growth and profitability in the future.

• [00:36:20] Girish Pai from Nirmal Bang asked if higher competitive intensity leading to lower prices or larger productivity benefits for customers. Jatin Dalal CFO replied that large deals are benchmarked with the best standards on productivity and pricing, and there is no observed behavior of dropping prices or giving deferrals in billing that would worry WIPRO.

• [00:39:07] Girish Pai of Nirmal Bang enquired if the he productivity gains from generative AI lead to lower prices for customers, or will vendors be able to capture some of the benefits. Jatin Dalal CFO answered that the productivity benefits of generative AI will gradually be baked into the pricing of deals, but the company hasn’t seen a significant impact on prices yet.

• [00:41:19] Abhishek Kumar with JM Financial queried what’s driving the sequential decline in guidance for the next quarter, given that the impact of client ramp-downs is already in the base quarter. Thierry Delaporte CEO replied that guidance for 2Q shows a slight improvement over 1Q, but there is still uncertainty in the market. The company is staying cautious, but there is no deterioration in performance.

• [00:44:31] Ravi Menon from Macquarie asked why is consulting still separate from the 4 global business lines, when it could be embedded more deeply to increase cross-sell. Thierry Delaporte CEO answered that WIPRO’s new operating model has four GBLs: iDEAS, iCORE, FullStride Cloud Services, and Enterprise Futuring. The new model is designed to increase impact in the market with clients, streamline operations, and reduce layers between teams and clients.

• [00:56:41] Mukul Garg at Motilal Oswal asked where the majority of the $1 billion investment in gen AI will go and whether it will be used for tools, employee training, or something else, and if it will be capitalized or expensed. Thierry and Jatin said that the $1 billion investment in gen AI will fund initiatives such as solutions, assets, accelerators, capabilities, methods, training, and M&A. The accounting treatment will vary and the investment will not result in an incremental P&L hit as it will be funded through gains on operations.