On margins - how should we broadly think about margins going forward? You think this quarter the transition costs will start kicking in on a going forward basis, or we have already had some impact from that?
So, you know, when we started Quarter 2, we had alluded to headwinds as some of these large deals start to ramp up. Those headwinds will continue as some of these large deals ramp up and face. In Quarter 2, the walk, while we are not quantifying the exact impact, we had 2 positives. One was certainly the rupee depreciation and the dollar weakness, which was a positive. Second, operationally, too, we have continued to expand in terms of our utilization has improved and attrition has come down. We also drove better profitability in our fixed price program. All in all, I think operations and Forex were positive. Yes, we continue to make certain investments for our growth in terms of these large deals, and that is also 0a part of our margin. Some of it is there in Q2, and there will be more as some of these large deals continue to ramp up. So, Quarter 3 is also a seasonally weaker quarter in terms of furlough, lower working days, et cetera. That's the headwind we are starting Quarter 3 with. We have several initiatives in place. If you look at it, our utilization has been better. We have also driven better profitability in our fixed price program. Even our SG&A, we are continuing to optimize. These 3 levers will continue, and we do not guide for a margin, but our endeavor will be to be in a narrow band of our adjusted operating margins of 17.2. The notable one -off was the provision for bad and doubtful debt provision that we took in terms of th e insolvency, which was 50 basis points. Adjusted for that, our operating margins is 17.2, which is in a narrow band of Q1 performance.
You are now growing year-on-year on an organic basis in line with the peers. So, do you think this can sustain or can you even improve from here?
So, Ravi, Srini here. As far as we are concerned at this point in time, we have given a Quarter 3 guidance like Aparna talked about. The midpoint is positive. Second point is some of the deals that we have won on the first half. Some of them we will have to start executing. And each of them have their own rhythm in terms of when the ramp ups will happen. It varies from client to client. Our focus right now is to execute some of the deal wins that we have. And also, we have a very robust pipeline into second half. Our focus is to convert those deals into bookings, which will again translate to revenues going into the future. So, from that perspective, Ravi, like the main focus for us is to execute both in terms of the deal win and also win the deal.
Earlier, you had called out some large SAP implementation projects being pushed out, pauses by clients when the tariff-led uncertainty started. Considering some time has passed, are you seeing some of these client conversations beginning on trying to get these things back?
So, Nitin, specific to the comment you made in the context of what we said, there was in one quarter, we did talk about one of the transformation programs that came to an end. That particular client still is going through the difficulties of tariff. Unless and until that piece of the tariff is clear to them, they may not want to start the program. Having said that, we have got good traction, especially for SAP HANA across industries, Nitin.
On deal to revenue conversion - we have had very strong deal wins, large consolidation wins. Do you think BFSI, considering you had those large consolidation wins, should start flowing through this year itself, those that you closed last quarter? And how are you thinking about growth as you go forward in next year?
I will take this one, Nitin. Obviously, we have several large deal wins in the BFSI space. We had one in Q4, which is expected to ramp up in Q3 and is factored as a part of our guidance. We had a few large deals in Q1 in BFSI, all of which have a reasonable element of new in it. And we expect them to ramp up over the next few quarters. This may take about 6 to 8 quarters to fully ramp up on the new. In terms of the large deal win that we had in the BFSI space in Q2, it's largely renewal, right? So, it is a mix of both renewal, renewal plus expansion, and then net new. The net new deal is likely to ramp up, like I said, in Q3. The ones with expansion w ill take a few quarters for them to ramp up. And if you look at, like I said, the one that we did in Q2 is largely renewal. Now, to your other question on BFSI growth, yes, we have grown sequentially. That's the first dot in the plot. And we will have to sustain that momentum. We are quite confident Q3 looks positive. And from there on, we will have to build on it. Like I said, as the large deals ramp up, that will go up. A lot of the growth was actually led by Europe and APMEA within the BFSI space. We expect America to join in in that growth as those large deals pick up.
Over the last couple of quarters, we have seen the deal wins to have materially picked up. Total bookings have been touching close to about 5 billion. Your large deals also have been quite high. You also spoke about Phoenix deal will start ramping up in the third quarter. But at the midpoint, what we are guiding is only marginal improvement in growth. So, what exactly is something which we are looking at from the headwind perspective?
So, Rakesh, when we guide, we guide based on the visibility that we have at the start of the quarter. You should look at the midpoint, and then we guid in a range that's why we have a (+1.5%) on the top end, and we have a (-0.5%) to accommodate volatilities that we could see during the quarter. Yes, there is a ramp up of the large deal wins. And you are right, that is giving us a positive momentum. If you look at it after several quarters, we have guided where the midpoint is in a positive. That, we believe, is the first step. And as we convert m ore of these large deals into revenue, this momentum should improve.
On margins - today you spoke about that you would intend to keep the margin in a narrow band around 17.2%. And you had earlier also spoken about some of these large deals would be margin dilutive, and there would be some impact of that. So, how should we tie up these 2 comments?
Yes, you know, so like I said, we do not guide for a range on the margin, right? Our endeavor has to be to keep it in the band of 17% to 17.5% that we had earlier alluded to. Obviously, if you look at it in terms of the investment for growth, there will be organically, we will continue to win some of these large deal wins. There is a vendor consolidation -led pipeline, which are quite intently fought, right? So, one is also looking to be on the right side of some of those deal wins, which will also come with pressure on margins, at least as they start, right? But over a period of time, as we realize the productivity that we have offered to our clients and that starts to kick in, the margins then tend to improve. We are driving several other initiatives to offset some of these investments that we are making. I also want you to know that the Harman DTS acquisition is not a part of these numbers. When that comes, that will also be an investment that we will be making for our growth. And that will come with a 60 basis points dilution that we have already spoken o f at the point of announcing the acquisition. These are things that we are, these are the headwinds we have to the margins. We have initiatives in play that we will use to offset some of these pressures. And that's why we are saying at least for Quarter 3, we are holding it in a narrow band, and then we will see from there, how we take those margins.
Going into Q3, other than seasonality, are there any specific factors that you think are headwinds to revenue?
No, not really.
I just wanted some clarity on your response to one of the earlier questions that you said a large part of it is renewal. So, are you talking about any specific large deal within BFSI, or are you talking about the overall deal wins that we had this quarter? What is the mix of renewal and new within the overall space?
So, Sudheer, as far as Q2 deal wins are concerned, the 2 mega deals that I talked about, one is in the healthcare sector, other one is in the BFSI sector. Sudheer, I hope that clarifies. Yes. Sure, Sudheer. I think if you look at the deal flows we had in the first half, it's a combination of the 3 types of deals. One is, like you rightly called out, there are renewals where you actually get to work in those accounts and find opportunities to bring in. One is, like you rightly called out, there are renewals where you actually get to work in those accounts and find opportunities to bring in growth. Second, there are renewals with extension of the pipeline, wherein the extensions like Aparna talked about, will take its time in the next 6 months to 8 months. And the third piece is net new deals that we have, which we will execute immediately. And the two deals that I called out in Europe are the net new deals, Sudheer.
From net new person perspective, are we seeing any change compared to past trend in H1, because we have very strong deal booking? Whether we are witnessing any delay in this deal ramp-up? We earlier faced some client-specific challenges, particularly in Europe BFSI. Are we seeing those challenges are behind? And on verticals - 3 out of 5 still showing sequential decline. By when you expect relatively more broad-based growth?
Yes. So, I will take a few questions and then, Srini, you can also add in. From a net new standpoint, we had in our last deal booking for the first half, is it better or worse compared to the past? I would say for the first half, our net new bookings have been fairly good. If you look at Quarter 2, we had two net new deals, 6 renewals, and the others are a combination of renewal plus expansion, right? In terms of whether these deals are ramping up on time and whether we are seeing any delay, I don't think there is any delay in the ramp up. They pretty much right now on course to ramp up as planned. So, there is no delay or deferral or challenges that we are facing on that. In terms of Europe, whether that client-specific issue is behind us, I guess, in some sense, the client -specific issue that we had called out earlier is behin d us. You should see the trajectory of Europe to continue to improve. We will obviously have to sustain the win momentum that we have had in the last 2 to 3 quarters, even into the next few. As you know, we continue to operate in a very competitive environment, which means that we have to be on the right side of all the vendor consolidation deals for us to be able to sustain that momentum. That's what I would like to call out. So, Dipesh, in the context of the sector questions that you asked for, if I look at it, of the five sectors that we have, I think where we see the impact of tariff is mostly on the consumer and energy manufacturing sectors. And these are the two sectors which have de-grown sequentially as well as on a year-on-year basis. Now, for us, what we are looking for in these two sectors are , what kind of deals that we can play proactively with the clients, especially because of the challenges that they are facing on the cost side. They are also facing challenges on the supply chain side, and we are having conversations with them. Otherwise, the other three sectors, I think, Dipesh, we're looking good.
On the renewal deal side, are the clients asking for greater level of savings now compared to the past when such renewals happened considering that we're using AI? And what are they doing with the savings, if at all they are getting them? Are they kind of ploughing that back into new work, and are you getting that work?
So, Girish, if you look at broader industry trends that we are seeing, Girish, is clients across industry segments and across the markets that we are in are clearly looking for cost optimization, and that is also driving to some extent vendor consolidation . As far as the cost optimization are concerned, clearly the clients are looking at aspects of, in addition to cost, speed, and also the efficiency through AI. And we see that as an opportunity for us. And if you look at the way we see the op portunities are, of course, on the run and operate side, which includes your application support and maintenance, the infrastructure, and business process services, where we infuse the AI, helping the client bring in efficiency, productivity, velocity. The second part is build and transform, which is our software development lifecycle, product development lifecycle, package implementation. Here, there are multiple tools that are available, and we are using our Wipro Intelligence WeGA platform to actually bring in those productivity benefits for our clients. And as far as the run and operate, we are using Wings as a platform to bring productivity and efficiency. Now, wherever the clients are able to get this efficiency and productivity, they are actually investing, especially on the business innovation, leveraging AI. And all the aspects of AI advisory, data architecture, and also the platforms, some of the platforms that we have built, and also solutions that industry-specific platforms and solutions that we have built is also creating a positive impact for us with the clients. Just to name, AutoCortex in automotive, PayerAI in healthcare, WealthAI in BFSI. In fact, some of these, we have already started implementing for the clients, and clients are seeing the benefits. We also have some of the industry analysts talking about industry-specific AI solutions as well, Girish. So, it's a combination of all this that we see as an opportunity for us.
On potential liabilities that vendors like you face because of AI work that leads to hallucinations, and there could be some damage that clients may probably have to bear. There seems to be quite a few cybersecurity incidents. So, how do you ensure that you don't get hit by any of these?
Hey Girish, this is Hari Shetty here, and again, glad to be on the call today. Couple of key things, and I think you bring up a very valid point in terms of your question. And one of our strengths in terms of our Wipro Intelligence platform is the responsi ble AI guardrails that we have actually built into the platform. And probably one of the best implementations of how AI can be responsibly implemented, and that is what actually differentiates us from a Wipro Intelligence perspective. And these capabilities go into both of the platforms that Srini talked about, whether it is WeGA or Wings, and that gives us the confidence that we can actually deliver the promise of what we are talking about from an AI perspective, as well as make sure some of the guardrails that you have talked about are taken care of. Obviously, some of this will also translate into contractual commitments on both sides. And again, from a risk management perspective, we take care of those controls as well.
On H1-B - do you foresee any higher pressures on subcontractor costs or on-site utilization going down because you need to maintain an on-site bench now because you can't bring in as many H1-B workers, especially if wages go up?
Girish, Saurabh here. As you know, a large part of our workforce in the U.S. is localized. So, first of all, we don't see a supply issue from an H1 -B perspective. More than 80% of people are localized and we are looking at 250-odd H1-Bs in the past five years. So, we have been progressively reducing our dependence on H1 -Bs. So, either on subcontractors or otherwise, we don't see an impact. We have been building our centers in the U.S., and we continue to grow based on the demand scenario.
On BFSI - amongst the five verticals, manufacturing and retail will continue to face challenges. But in BFSI, we have a very interesting mix in which Capco continues to do well. We have the deal ramp-up next quarter. But we were facing challenges in the European BFSI. So, how do you see the BFSI sector playing out for us over the next 2 to 3 quarters?
Sorry, Vibhor. Maybe I will answer this question in a little bit more detail if that's okay with you. If you look at our BFSI sector, we reported sequential growth of 2%. Also, by absorbing near -term impact taken for the mega deals that we signed in Quarter 1, that's number one. Second is the growth for us in BFSI, like I said, was led by Europe and APMEA. And both these SMUs, if you noticed, have reported high single -digit sequential growth. Also, in the BFSI segment, the order booking continues to be robust. And the same point I made to Girish and Dipesh in terms of the kind of deals that we have, the clients are obviously rebalancing. And also, in the BFSI sector, the clients are modernizing a lot of their core in addition to vendor consolidation and efficiencies provided through AI. And also, if you look at Capco, Vibhor, we saw Capco demonstrating both sequential and year -on-year growth for us, which Aparna talked about. So, now, if you look at it from a, specifically, if I have to double click on BFSI, banking and payment continues to be our large domain s. Also, the capital markets, some of our global top accounts and anchor accounts, they are showing po sitive growth and the m ost important is, I talked about the industry platforms, the Wealth and Asset Management is really getting traction for us. We are also in this segment, there is a lot of conversations around, how we can advise our clients on the AI side. That is something that we are helping the customers.
So, a lot of traction that we are seeing in multiple parts, Capco - should produce because overall, the outlook for the sector, we are looking at a more decent one in the coming quarters as well? Would that be a good summary?
Yes, Vibhor, look at my pipeline, right , obviously, BFSI's pipeline is very strong. So, from that perspective, I would say, the positive momentum that we see in BFSI, also like Aparna talked about, the Phoenix deal will start executing from this quarter onwards. So, I agree with the point you made, Vibhor, BFSI continues in the positive light.
On healthcare - a lot of our peers have been talking about challenge in the healthcare sector because of the beautiful bill that was introduced by the Trump administration. So, any color on that? How do we see this vertical playing out over the next 2-3 quarters?
Yes. So, Vibhor, if you look at that, traditionally, healthcare has been a strong sector for us. And we did show a year-on-year growth. But you are right. There are certain headwinds in this sector because the sector is going through structural changes. And so, number one, the good news is that one of the mega deals that I talked about is from this sector. Second, if you look at the companies, they are adapting to the whole policy changes that are happening. And I think that will drive more cost takeout, more modernization, and so on and so forth for our clients. Second, also, if you look at the healthcare companies, specifically payers, they are also trying to accelerate and transform their contact centers, so that they can improve their conversations with the members. And that is another thing that we see as traction for us. And also, a couple of areas like some of our clients are looking for real-time claim processing, for example, or trying to look at how can we bring in more efficiency in pre-authorization? How do we bring in more enhanced transparency in the context of the structural change? So, all these are opportunities for us. And I thi nk we continue to be strategic technology partners for some of the Tier 1 healthcare payers. And I think we continue to stay focused on that.
On headcount - we saw decent addition in the headcount in this quarter. What is the kind of outlook over the next 2-3 quarters with the deal ramp up? Do we see this number maybe inching up a bit, or do you think it might stabilize around the current levels?
So, if you look at the key people indices in this quarter, net headcount has gone up, on -boarded freshers from college, utilization has gone up. And based on the demand, which is very high, very strong bookings in H1, I think as we convert to revenue, we will continue to hire both laterally as well as from campus.
We talked about three kinds of deal wins - net new, scope expansion, and just plain renewal. So, net new will add to incremental revenue. In the other two types of deals, are we seeing overall book of business for those deals growing, especially in renewal and also in renewal plus scope expansion? Or the deflation, which is there in renewal, is kind of offsetting the new scope?
So, you are right. Net new is fully new, so that will add to the revenues directly. In terms of just renewal, i s there a deflationary pressure, l ike I said, every deal, every time there is a productive renewal, there is a productivity that gets passed on. And we typically tend to take on more new projects, more new spends that the client initiates. We have spoken about how some of this productivity is put back into prioritized spends around AI adoption and we are playing a huge role in that. So, in some sense, in the renewal plus expansion, there is a reasonable scope expansion, and therefore, there is an increase in the bookings or the revenue value that is expected. In a full-fledged renewal, is there a compression? I wouldn't call it a compress ion, but this is just the standard productivity that gets passed on. It is very typical to what we have seen in renewal deals over the last few years.
Q2, there have been renewal deals, and even if there is new scope, would you agree that there is a timing difference between the new scope increases versus the deflation that we see near term? So, does that mean that hits you in second half?
Yes. So, therefore, what happens is, yes, there is a timing difference, there is a productivity that gets passed on, the way the deals are configured and structured, typically have a certain timing and pacing, and like Srini said, each deal is very different. So, are there timing differences that could really impact in the short term and play out differently in the long term? That is correct.
On the impact of the bankruptcy on your topline. Did we see any impact on 2Q revenue, or we are expected to see anything in the 3Q revenue?
No, nothing. No, there was no impact on the revenue. We have actually made a provision for barren output debt. You will see that in our G&A sense of expected credit loss numbers going up, and we made a disclosure to that effect as well. This has no impact on the revenue growth in Q2.
Within the EMR vertical - last quarter, you were a little hopeful that as there is some stability, this vertical could sort of recover in the second half. Any update on how you are thinking about EMR on a going forward basis?
You are right, Nitin. EMR sector for us has de-grown sequentially as well as year-on-year. Especially the manufacturing in auto industrial, we have seen a lot more impact on account of tariffs. This sector, where we see a lot of previous generation outsourcing deals, we are hopeful to come back to the market and these deals will be very competitive. So, we are definitely staying focused on that and some of these deals are very critical for us. As far as on the energy consulting side, we have started seeing some good traction and we will stay focused on that. But broadly, Nitin, again the point I made is that we do see opportunities in SAP S /4HANA space in some of our clients. And this is a quarter where many of our clients are doing budgeting planning, especially where they look at discretionary spend and so on and so forth. So, we are looking at that aspect as well. And many of these clients in the c ontext of what is coming at them, they are also driving cost optimization and vendor consolidation. So, we continue to stay focused on that. There are certain deals we are also seeing on the post -merger integration space. So, that is another one we are focusing on. Utilities, which is a part of the energy sector, is kind of muted for now. But especially in the UK sector, we hope that sector would turn around. So, broadly, there are multiple dimensions and aspects for energy and manufacturing. But net-net, Nitin, your question is very valid.
You alluded to a very strong sort of deal pipeline. Are you seeing any improvement in smaller size deals within that pipeline at the moment? And how do you see furloughs this year currently when you just think about it versus last year?
Nitin, as far as the deal pipeline is concerned, like I said, after closing close to $9.5 billion of booking in H1, I would say our pipeline is sustained and it is robust. And this is, if you ask me, going back to a specific question, this is evenly distributed across the large dea l and across small deals. And I am seeing this consistency across sectors and Geo, so our pipeline is a lot more secular. But a broad theme, Nitin , is cost, of course, speed and AI led efficiency as opportunities that keep coming towards. And there are, in the last few months, if you ask me, we have pitched in a lot of proactive ideas to our clients, especially because of the macro challenges that they are facing. And also, they are trying to convert that into our qualified pipeline initiatives as well. Then, of course, there will be a small vendor consolidation deals. As and when it comes up, we will stay focused. The fact that we have won four mega deals, which are typically cost optimizat ion and our vendor consolidation, I think we have created a robust engine to go after the large deals, Nitin. And as far as furloughs are concerned, we are taking a similar approach like last year. We are taking that as the assumption right now, Nitin.