After two quarters of subdued growth in FY 2016-17, Wipro, the country’s third largest IT services exporter, bounced back in the fourth quarter with better than expected revenues. In a chat with BusinessLine, Jatin Dalal, CFO, talks about the impact of the appreciating rupee to the business, pricing challenges and using automation to improve cost of delivery to customers.
The rupee has been appreciating against the dollar since January. How did it impact margins in the fourth quarter and how will it affect margins in Q1 of FY2018?
In a scenario where we were running absolutely without any hedges, we would have roughly one per cent of appreciation or depreciation with a 30-40 basis point impact on the margins. Since we run with hedges, we have been protected so far and our impact on margins has been nil. It has, of course, impacted our dollar growth by 2 per cent — dollar growth in constant currency for FY 2016-17 is 7 per cent but our reported dollar growth is 4.9 per cent. However, going forward, the rupee appreciation will impact margins.
So, we will have some impact in Q1, some more impact in Q2 and more impact in Q3, as we typically hedge our earlier quarters tighter and our hedging gets sparser and sparser in Q3 and Q4.
Are you giving out any further price discounts in Q1 of FY2018 to maintain your strategic accounts?
I think pricing will remain a challenge in the market. Whether we give a price discount or not is a choice we make. There are certain prevalent market prices which we can fight and say we want to do business at certain levels. But, at some point in time you have to turn around and ask yourself the question, whether you want to stay in the market or exit. We try very hard not to give discounts on pricing and work with the customer to reduce the total cost of ownership.
We tell customers, if you want savings we will help deliver it, lets not work on the pricing. Typically, pricing is an annual exercise and our biggest focus is on keeping our cost curve below the price curve. If we continue to work harder on the cost curve, we make profits.
Will Wipro’s automation platform, Holmes, contribute to improve margins in FY2018?
Our entire bet around improving productivity and sustaining cost below our price is predicated on automation. And Holmes is our flagship internal as well as external AI engine that helps us do that. It will contribute to significant reduction in overall cost structures.
For instance, if I am executing a client project where the direct cost of delivery is 65 per cent, and I deploy a lot more automation to it, I should be able to reduce the total cost by 5 per cent, a part of which, I will plough back to my sales engine, into developing the next version of Holmes, creating a next-gen solution that will give me revenue growth in two years.
I’m not saying that these cost savings get translated into margins always, but that the savings kitty is available for us to use as we deploy more and more automation. In FY2017, we saved on costs of 12,000 people through Holmes.
How has the pound sterling’s 20 per cent drop against the rupee in less than a year, impacted Wipro’s UK business?
The UK economy is in reasonably good shape. Inflation, for the first time, has risen above 2 per cent, beyond the comfort range of the monetary policy, which will probably prompt the Bank of England to raise the rate of interest at some point. Their currency depreciation has helped the export competitiveness of the local produce.
Our UK business is very tightly linked with the prospects of the customers that we serve and we benefit from their doing well.
Thankfully, our exposure is largely in Banking and Energy & Utilities with some large customers in these two segments. There is some life coming back in these two Industries, with some of the banks having declared good results, helping the overall sentiment on the work that we do. Similarly, energy companies have had a breather after 2-3 years of calamity in the market, which has helped place us comfortably in the UK market.