There has been good large deal wins in early H1 and Q4 last year. We kept saying ramp-up delays would resolve in Q3, then Q4, then Q1, but the guidance does not show that despite the deals being cost-takeout / vendor consolidation in nature. Why are these delays happening?
Three out of the 4 SMUs - Americas, Europe and APMEA - have grown sequentially. Specifically, Americas 2 saw significant softness, specific to the BFSI sector. This has been a combination of both client-specific issue and delayed ramp-up. The reason for the delay is very client specific, but we see opportunity coming up sooner than later, and that will give us the growth in that particular account and that particular sector.
There has been notable decline in our top clients. What is the reason? And second, can you give the inorganic growth contribution factored in the first quarter growth guidance?
These two deals we announced this month are part of our guidance. At the midpoint, we have assumed both deals to start yielding revenues for 1.5 months, halfway through the quarter. On the top account growth, it's a sequential decline. But from a YoY standpoint, it continues to have grown. We are very confident it will come back as we go through the quarters.
Is it possible to quantify inorganic growth in the guidance?
They are not inorganic. They are actually strategic deal wins. Olam is a strategic deal win - a relationship with committed revenue. The other one was part of the vendor consolidation strategy for one of our top clients. Both will be a part of our numbers and our guided range.
Beyond top customers, we have seen a sharp decline. Top 2-5 customers also declined slightly. Top customer decline though temporary - it's a very sharp decline. What led to this? And what gives you confidence it will be temporary?
Our top client has been producing healthy growth for us for a fairly long time. This kind of one-off quarter volatility is not something that we are unduly concerned about. The relationship remains very strong, and you should continue to see it bounce back.
Can you give some sense - what factor is leading to delay in ramp-up qualitatively? And on the couple of transactions we closed or are closing that are included in the guidance - if there is any delay in those closures, do you see risk to that guidance?
We guide in a range. We have some cushion, both on the downside and the upside. For now, we are comfortable within that guidance range. On the first point - Srini: This is a very client-specific issue, where they have changed a little bit of the strategy around some of the things as part of the business because of which they have delayed it. But we have clear visibility going forward. It is about timing - when and how much - and that should help us going forward.
On the energy and utility verticals - a vertical we have been very strong in - what are conversations you are having with clients given the Gulf war? Will crude prices and volatility impact our business in this vertical either positively or negatively?
If you look at quarter 4, we have seen sequential growth and both manufacturing, particularly auto and industrial, has seen impact otherwise on the reason for tariffs. On geopolitics - some of the clients are waiting and watching. But having said that they have not dramatically changed their strategy. In manufacturing they are looking at how to secure the supply chain to make it more visible and dynamic going forward - opportunities we are looking at in the context of AI. Auto industry varies country to country. On overall manufacturing, we have not seen any clear change, but they have been constantly under pressure because of tariff disruptions. They are also looking at consumer demand and input cost. So they are trying to sharpen their budgeting - tightening at this point.
On Q1 guidance once again - 1.5 months from the two new deals would be ~0.7-0.8% of revenue; HARMAN one incremental month another 0.7-0.8%; so ~1.5% growth coming from these three factors. Aside from these, the remaining business seems to be quite a sharp decline in Q1. You mentioned one client-specific issue. Are there any other significant client ramp-downs or delays causing this organic growth weakness?
DTS HARMAN is fully in our Q4 numbers. Q4 was all 3 months. So that is not - that is the only inorganic piece and our growth for Q1 is - there are these two deals we have spoken about which will add to our revenues in Q1. We have assumed they will start yielding revenues mid-quarter. As organic growth, these are strategic deals we have taken.
Sorry for harping on Americas 2 again. Client-specific issues you faced in Q4 and Q1. But over a one-year or three-year period, Americas 2 seems to have had consistent multiple client-specific issues. Is it coincidence or what are your thoughts? Second question on AI partnerships - your larger peers have announced partnerships with frontier models like Anthropic, Mistral AI, OpenAI - but we haven't heard a lot from you. How are you planning around this and any GTM around these models?
AI is a central strategy for Wipro. Two quarters back we launched Wipro Intelligence - a combination of industry and cross-industry and functional platforms and solutions. Last quarter, we announced the formation of the AI-native business and platform unit. Based on our experience in the last two quarters, both in terms of industry platforms and delivery platforms - WINGS for run and operate and WEGA for SDLC lifecycle - we have seen very good traction. Clients feel comfortable with the guardrails - aligning technology, making sure it is secure, reliable and responsible. We will continue to invest. Wipro Intelligence and the new AI-native business and platform unit is going to pivot us into our services-as-a-software industry. We already saw some success with our platforms in Health Care, Banking, Insurance, Telecom.
On the first question - multiple client issues over the years. Just wanted to understand your thoughts on that?
This quarter as well as last quarter, it was something we called out very specifically for the two reasons you mentioned. One is the specific client ramp-up that has not happened - I talked in detail about that. We feel fairly confident clients come back because there was some directional change, and they wanted to pause before they had clarity. The second was the account-specific issue that impacted us in quarter 1 in addition to quarter 4. If you look at our top accounts, we continue to stay focused with a very clear account management strategy. Many of our clients are asking us to come back and help them on AI advisory and consulting. What's important for our accounts team is to be very proactive and leverage Wipro intelligence platforms and solutions to help the client through this disruption.
You said you have a positive view on BFSI in APMEA and Europe. Outside of the client-specific issue in Q1, do you have a positive view on US BFSI as well?
The best way to reflect on your question is the kind of pipeline we have - a very secular pipeline across industries and markets. On BFSI in Americas, Europe and APMEA, including Capco - we continue to see very good traction and very good pipeline. Capco's work is very consulting-led and advisory-led, and we want to see how those implementations for clients can happen. From a BFSI perspective, the client wants to invest in AI around data platforms and agentic workflows and security. While they are continuing to optimize, the spend in this specific area around AI, data and cloud continues.
On HARMAN contribution - when we gave guidance last time in the third quarter, 0.8% was the contribution, with 2 incremental months assumed for the Q4 guidance. Can you quantify the contribution for this quarter, or quantify the organic growth?
We actually made a stock exchange filing around the revenues of the organization. You can assume the quarterly run rate around that much.
Do you believe second quarter onwards, the delayed ramp-up can pull up growth? Or could the client-specific issue / geopolitical issue continue?
As far as this particular client is concerned, it will end in quarter 1, and there is no further impact for us materially. On geopolitics, we have not seen any clients at this point demonstrating any specific behavior. The pipeline across markets, countries and sectors is very strong. It is a very competitive landscape. The Olam deal is transformational, long-term, taking their entire IT into Wipro. The second deal announced yesterday was part of vendor consolidation. These deals are very different but very strategic.
The unbilled revenue has grown this quarter by more than $80 million. We also see some long-term unbilled revenue. What has led to this and how should we see the trend?
The unbilled revenue that has gone up is more a quarterly aberration. It should correct itself from a quarter on. From a YoY standpoint, our DSO has remained flattish. Our operating cash flow has remained 112% of net income. We are not seeing any large exposures or pile up of unbilled in our balance sheet. From a long-term unbilled standpoint as well, I think it's fairly contained. Some of the larger deals as they pick up, they will come with some amount of balance sheet leverage, but nothing unduly different than business usual.
BFSI weakness was due to two factors - client-specific and delay in ramp-up. You indicated some of the issue is likely to end by quarter 1. Which part are you indicating by Q1?
We have said that the client-specific issue that we have seen in one of our clients in Americas too has had an impact on both Q4 and Q1, and there won't be a continuing impact of that going forward.
And what about the delay in ramp-up part?
If I have to characterize, we have had several large deal bookings. The one we announced on Phoenix is fully ramped up to plan - no delay there. Of the other 3 mega deals, one is on plan and we are continuing to ramp up. We are seeing challenging - one of those large deals where we are seeing a delayed ramp-up, which is impacting the growth rate of that particular sector in that particular market unit. Outside of that, BFSI growth rates are pretty good in Europe and APMEA. As that client comes back and we start to ramp up, you will see those growth rates improving.
Just want to get some sense about how Capco is playing out.
Capco is a tip of the spear for the consulting piece on the paper side. They are definitely doing well. Sequentially Capco is performing very well and also on YoY both have been very positive. In fact, Capco had one of the highest revenues in the last several quarters. Capco is making a big difference in terms of the whole AI advisory and consulting, and proactively shaping the clients' thought process in the context of geopolitics, trade and tariff and technology transition.
Very strong performance on margins this quarter despite wage hike and HARMAN integration. Do you believe these margins are sustainable in the coming quarters given the new deals and cost recoveries factored in? Will you be able to maintain margins at current levels within your target range?
There are three areas we are going to be investing in. We have already rolled out the wage hike effective first March - so we will have 2 months incremental impact to absorb in Q1. Two, we are winning some of these large deals one in a competitive environment, and they will come with their share of lower margins, especially as we start these deals. Second, around capabilities - we have acquired the DTS HARMAN connected services fees, which is also putting pressure on margins. We will continue to accelerate investments, especially around Wipro Intelligence, the platform unit. Given all this, we will have to drive operational improvement - a continuous process. We may see some quarter-on-quarter volatility, but our endeavour is to maintain margins on a medium term and narrow band.
On the top 5 clients - looking at client metrics and attrition across larger accounts - do you foresee this stopping or halting in the next quarter, or may we continue to see challenges in larger accounts in the next quarter?
Our overall growth rate also tends to reflect in our top client metric growth rates as well. On YoY performance, our top client has been largely flattish YoY constant currency. Top five has grown on a YoY constant currency by 0.2%. Top 10 have grown a positive 1.5% on YoY constant currency. We are not unduly worried about the top relationships. Our constant endeavor is to continue to win with our largest client in the market. Some of the wins announced even this month are towards that. You will continue to see us growing and expanding this - it's our number 1 strategic priority. We will work with large clients.