Wipro - Earnings Call - Q1 24/25 (Media)

Transcript

Operator (participant)

Welcome, everyone, to our Kodathi Campus. For those of us who are joining virtually, good morning, good afternoon, good evening. We will begin the press conference for Wipro's first-quarter earnings. My name is Nisha Chandrasekaran. I'm part of the external communications team, and I will be your moderator for today. Joining me on stage is our Chief Financial Officer, Aparna Iyer, our Chief Executive Officer and Managing Director, Srini Pallia, and our Chief Human Resources Officer, Saurabh Govil. We will begin with opening remarks from our CEO, followed by a financial review from our CFO. Post that, we'll open the floor for your questions. With that, let me hand over to our CEO and Managing Director, Srini Pallia.

Srini Pallia (CEO and Managing Director)

Thank you, Nisha. [audio distortion]

Good evening, everyone. I'll just give it a minute, of course. Again, good evening, everyone. Thank you for joining us today. Let me start with a quick view on quarter one. And, of course, the broader environment that we are seeing today. If you recollect, we started the quarter facing significant macro uncertainty, which kept overall demand muted. In fact, our clients prioritized initiatives with immediate impact, focusing on cost optimization and vendor consolidation. And at the same time, they accelerated their AI data and modernization programs. We saw a clear trend of many AI projects. Moving to scale and production. So we quickly aligned with these priorities, deepened our partnerships, and, of course, secured key deals. The large deals we closed this quarter and, of course, the last quarter, along with a strong pipeline. Put us in a good position. For the second half of the year.

With that, let me now turn to our quarter one performance. I'll start with key financial highlights. And an overview of our markets and sectors. I'll request Aparna to provide further details on the financials in her remarks. Our IT services revenue for quarter one was $2.59 billion. Which is a growth of 2% in constant currency terms within our guidance range. Our IT services margin was 17.3%. An expansion of 80 basis points year-on-year. In our markets, Americas grew 1.5% year-on-year in constant currency terms, and we are seeing. Strong deal momentum in Americas. APMEA revenues stayed flat. However, digital spending in India, the Middle East, and Southeast Asia kept this market resilient for us. Europe continued to face headwinds, and clients remained focused on maintaining their competitiveness in this environment. Finally, Capco grew year-on-year, driven by strong performance in Latin America. Now, turning to our industry sectors.

In fact, in BFSI, demand is strong and steady. Clients are modernizing their IT landscape with a sharp focus on AI-led efficiency and transformation. In fact, we won two mega deals here, which I will discuss later. In consumer and EMR, we are seeing a more cautious mood. Retail, CPG, and manufacturing in these sectors have been most affected by tariffs. Even though discretionary budgets are tight. Outsourcing renewables are creating new opportunities for us to gain wallet share. In technology and communications, we are seeing a clear shift towards AI investments. In fact, clients are looking to innovate and future-proof their software and platforms. We won a large deal here. And, in fact, that has the potential to become a mega deal. Healthcare for us continues to do well as clients invest in modernization and digital transformation. While payers are under cost pressure. The overall outlook for the sector remains positive.

These priorities and shifts in client focus are evident in the strategic deals we have won in quarter one. Let me talk about that. During this quarter, we reported bookings worth $5 billion in total contract value, a growth of 51% year-on-year. Our large deal bookings reached $2.7 billion, up. 131% year-on-year. This includes. 16 large deals this quarter. Including the two mega deals I just talked about. Several of these wins, I want to repeat, several of these wins were driven by vendor consolidation, where we continue to build strong momentum. These deals reflect a good balance of extension of work and securing new business. They also highlight our capabilities, our domain expertise, and the progress we have made in AI. Let me share three examples to bring this to life. All three, two of them are mega deals, and one of them is a potential mega deal.

My first example is a global banking leader that selected us as their strategic partner to transform technology across multiple business lines and enterprise functions. They chose Wipro for our deep BFSI expertise and consulting-led approach. We will help transform their digital ecosystem, modernize their cloud and data platforms, and improve cyber resilience, and also embed AI across their software development lifecycle to boost engineering productivity and also reimagine core processes. Next, a leading global semiconductor company signed a multi-year agreement with us to modernize its entire product lifecycle, building on our longstanding partnership. We will drive end-to-end engineering transformation from silicon design and system software to platform development and hardware validation. Our focus is on using AI and automation to accelerate development, improve quality, reduce costs, and enable agile practices. The third one, we secured a mega deal with a leading North American bank, extending a decade-long partnership.

We will transform their technology across core banking, wealth management, and retail using our AI-powered global delivery framework. In fact, this includes modernizing their cloud infrastructure, strengthening cyber resilience, and digital ecosystems and enterprise applications. For our client, this will accelerate innovation, improve time-to-market, and deliver a customer-centric experience. If you notice, these examples highlight a clear trend. AI is no longer a niche. It's becoming essential to how businesses operate at scale. At Wipro, we see AI as a force reshaping industries and amplifying human potential. We are, in fact, building an AI-first, AI-everywhere enterprise focused on solving complex challenges, accelerating delivery, and reimagining operations at scale by embracing autonomous and agentic AI. We are transforming business models and how organizations work. Our AI capabilities are integrated into both industry and cross-industry solutions.

So, by combining domain expertise with AI, we are able to deliver value through solutions such as hyper-personalized wealth management for our BFSI clients, predictive industrial insights for our manufacturing clients. So far, we have deployed over 200 AI-powered agents using advanced technologies from our leading hyperscalers to our big partners. Just to give an example, these agents enable smarter lending, intelligent claims processing, and autonomous network management. I talked about teams and talent. We are equally focused on talent and training our teams with the skills and mindset to thrive in an AI-first world. Building on this strong foundation and with a continued focus on five strategic priorities, we are well-positioned for the future. I'd like to now discuss our outlook for the next quarter.

While we are cautious given the macro environment, our strong order book, healthy pipeline, and focus on AI-powered consulting-led solutions give us confidence in delivering long-term value to our clients. Returning to profitable growth remains our priority. Based on our visibility, we are guiding for a sequential growth of -1.0% to +1.0% in constant currency terms. With that, let me hand over to Aparna for a detailed view on our financials. Thank you, and over to you, Aparna.

Aparna Iyer (CFO)

Thank you, Srini. Good evening, ladies and gentlemen. Let me give you a brief update on the financial performance for the quarter ended 30th June 2025 before we move on to the Q&A session. Our IT services revenue for quarter one sequentially declined by 2% in constant currency terms, which is within our guidance range. On a year-on-year basis, the revenues declined by 2.3% in constant currency terms. Our operating margins for quarter one was at 17.3%. This is an expansion of 80 basis points on a year-on-year basis. As Srini shared, many of our large deal wins are in the nature of cost takeout or vendor consolidation. These deals require upfront investments and come with their fair share of pressures on cost. As always, we will continue to focus on operational excellence in order to offset these pressures.

Let me give you some color on the performance of our strategic market units and sectors. All numbers that I will share will be on a constant currency basis. Americas 1 grew 0.2% sequentially and grew 5.8% on a year-on-year basis. Americas Two degrew 1.7% sequentially and 2.7% on a year-on-year basis. Europe declined 6.4% sequentially and 11.6% on a year-on-year basis. APMEA has grown 0.6% sequentially and has declined 0.1% on a year-on-year basis. Moving on to sector performance, BFSI declined 3.8% sequentially and 3.5% year-on-year. Healthcare grew 0.5% sequentially and 3.5% on a year-on-year basis. Consumer declined 4% sequentially and 5% year-on-year. Technology and communications grew 0.4% sequentially and declined 0.3% on a year-on-year basis. Energy, manufacturing, and resources declined 0.7% sequentially and 2.4% on year-on-year. Capco continued to perform well, growing 6.1% on a year-on-year basis.

Let me share with you some of the other key financial parameters. Our net income grew 10.9% year-on-year in Q1. This is after absorbing a one-time restructuring charge of INR 247 crores. Our EPS for the quarter was at INR 3.2. A growth of 10.8% year-on-year. The free cash flows as a percentage of net income continues to be robust and came in at 115% for the quarter. This takes our gross cash, including investments, to $6.4 billion in Q1. Our net income grew 62% on a year-on-year basis. Accounting yield for the average investments held in India was at 8.1% in the quarter. Our effective tax rate was 21.6% for quarter one Q1 2026 versus 24.5% in Q1 2025. Our hedges continue to be in line with policy. We had about $2.5 billion of forex derivative contracts as hedges at the end of the quarter.

Finally, before I move to guidance, I would like to share with you that in our recently concluded board meeting, the board of directors have declared an interim dividend of INR 5 per share. With this, we have now distributed excess cash in excess of $1.3 billion in the last six months. As you know, we have revised our capital allocation policy in January to pay out to a minimum of 70% of our net income over a block of three years. Going forward, subject to our cash position, the need for strategic investments, and board approval, our endeavor will be to pay dividends twice a year, once along with the June results and then along with the quarter 3 results. In terms of guidance, to reiterate what was shared by Srini, we expect revenues from our IT services business segment to be in the range of $2.56 billion-$2.612 billion.

This translates to a sequential guidance of -1% to +1% in constant currency terms. With that, I'm going to hand this over to Nisha, and we'll open it up for Q&A.

Operator (participant)

Thank you, Aparna. We will now open the floor for your questions. For journalists present in the room, please raise your hand for the mic, and we will pass it to you. For the journalists outside of Bangalore who have joined us on Teams, please key in your questions, and we'll accommodate as many as we can. To ensure that everyone has a chance, we request that you keep your questions to two, and please introduce yourself before your publication and your publication before you ask your question. Veena, do you want to get started? Oh, sorry, Sai, go ahead.

Sai Ishwar (India Company News Correspondent)

Hi, this is Sai Ishwar from Reuters News. So, two questions. Srini, so what is the macro outlook right now? You said in your speech that you are cautious about the coming quarter, but still the deal wins give you some visibility. But beyond that, has the situation changed from what we see, what you had seen in the start of quarter one? And one to Aparna, so we see that Americas has grown by 5.8% constant currency. But if you see the sectors, all the sectors are down. So what has powered this Americas' one performance? And just one more, if I can squeeze in. So, Srini, you have completed one year. Congratulations. And I think in corporate parlance, you are eligible for hikes now. So any additional mandate from the board now since you've completed a year?

Or personally also, any change in additional goal posts or additional vision here since you've completed a year? Thank you.

Srini Pallia (CEO and Managing Director)

No. I completed one year last quarter. So you're one quarter a little too late to ask me that question.

Sai Ishwar (India Company News Correspondent)

Delay in hikes question.

Srini Pallia (CEO and Managing Director)

So he's asking about hiking. Okay. First and foremost, I think the most important thing is to stay focused on the clients and continue to deliver on our five strategic priorities. So from that perspective, I think we'll continue to stay focused. Going back to your question on macro environment, I would certainly say that I would certainly say that there is uncertainty. Okay? So the whole aspect of geopolitics continues, the aspect of tariff continues. And each of the industries and each of the countries have a different situation. But broadly, from a sector perspective, clearly, like I said, retail, CPG, and manufacturing are the three industries specifically impacted by that. But if you look at, like I said, BFSI, right, the pipeline is very strong, and also deal momentum and wins are also strong for us. The clients are very focused on cost optimization and vendor consolidation.

I think that's where we are winning. Having said that, the clients are also spending money on AI data. And that's where we are also staying focused on. In terms of technology and telecom, clearly, they want to protect their investments, both software and platforms. Again, a lot of investments in AI. So net-net uncertainty continues.

Aparna Iyer (CFO)

So your question on Americas 1 group, we're very pleased with our performance. We've been growing 5.8% year-over-year. If you notice, our performance in Americas 1 has been strong all through. Sectors that are doing well within the market unit, health is doing really well, and that continues to grow for us and is one of the sectors that's actually powering the growth for the market unit. We had a very good win in communications vertical in quarter one of last year. That continues to grow and build into a very good sector for us within the market unit. Consumer, even though this quarter there is slight softness because of tariff-related impacts, is something that has done really well in terms of the B2C part of technology companies. We kind of categorize them as consumers.

So that part of consumers is doing really well, even though there was some softness in retail and CPG. But overall, if you look at our bookings in retail and CPG this quarter, those bookings have come in really well, right? So six of the large deals that we spoke of, 16 large deals, are actually in consumer. So we do feel very confident about our performance in Americas 1. I would say that it's very broad-based within the industry verticals that are there within that unit.

Deena (Analyst)

Yeah. Hi, this is Deena from The Economic Times. Srini, you mentioned that most of your deals have been in vendor consolidation and cost takeout. Could you give us a sense if discretionary demand is no more the focus? And is this an era of the past for most of the companies? And you mentioned about pressure on cost as well. Do you see that really impacting the margins going forward? And are you seeing a revisit in terms of your pricing overall on deals across the industry, if you could just highlight? Second, in terms of AI efficiencies, how is that impacting your hiring and headcount change? Because this quarter as well, we've seen very minimal changes. And if that is going to continue and the non-linearity between revenue and headcount change is likely to be the new normal.

And also, in addition, similar to that, you mentioned yesterday in your AGM that there is a focus on getting high-potential talent and moving high performers to critical roles. Could you elaborate a little bit on what is your game plan going forward?

Srini Pallia (CEO and Managing Director)

Hi, Deena. So, discretionary spend is coming back in certain pockets. It's not uniform across. Second, when I said we are focused on data, AI, and modernization, that's kind of a discretionary spend because. This is something that clients want to experiment on. So if you look at the cost optimization and vendor consolidation, the savings that a client can get actually gets into discretionary spend. So these are the two tracks that we are seeing. As far as we are concerned, this is purely based on the pipeline that we see. So there will continue to be investment on data, AI, and modernization in a big way going forward. And of course, there will be projects around cybersecurity and enterprise modernization and so on and so forth. As far as AI efficiency is concerned, I think it continues to evolve, right? For example, I gave an example.

I said we have built 200 agents that we have put on the hyperscalers. These agents actually address certain tasks, right? So we are building on that. As far as talent that we have, whether it's a software development or managed services or building our industry solutions and our platforms and agents, we need the talent. However, they have to be AI-trained. They have to be trained in advanced AI. And that's how I see at this point in time. There is no strong correlation in the industry yet in terms of AI and the hiring aspect of it. I think it'll continue to evolve as we move forward. As far as high performance, you want to talk about it, Saurabh? Or?

Saurabh Govil (CHRO)

In the philosophy across, and I think Srini yesterday reiterated it to the AGM, we continue to have people taking up critical roles who are high potential, and we have a bench strength. And you're seeing it across since the last one and a half years, Srini has come a lot of critical roles. People have moved up and taken up those roles. So that'll be in a philosophy for us, and we'll continue to build on it.

Srini Pallia (CEO and Managing Director)

So Deena, just to add one more, right? It's also important for our leaders to rotate laterally. And I'm a classic example at Wipro for the last three decades. I've done multiple roles. And that gives you a good view of clients and within Wipro and the partnership. So that's going to be evolving, and that's how you build future-ready leadership for Wipro.

Saurabh Govil (CHRO)

AI impact on pricing of deals?

Srini Pallia (CEO and Managing Director)

So if you look at a software development lifecycle, let's talk about it. It depends upon the tool that you use and the productivity the tool can get in the coding stage, in testing stage, and in the deployment stage. So the pricing will actually put those components into it when you are actually going back to the client. So it'll be part of the project cost, end-to-end project cost.

Operator (participant)

Veena, do you like to go next?

Veena Mani (Special Digital Content Specialist)

Yeah. Hi, Veena Mani from The Times of India. First of all, I wanted to understand. We keep talking about benefits of AI being passed on to the customer. What kind of benefits are we talking about at this point? And how is it panning out in terms of the projects that you're getting? Are you getting more projects for the same price that you're offering, or are they asking you to take a discount and keep the scope of work the same? Aparna, if you could give the margin breakup for the quarter. And then from the talent perspective, AI talent is quite premium, quite niche in the industry still. What I gather from industry is about only 20%-30% people are really ready to take on AI roles. Is that having an impact on the salaries that you're giving people that you hire for AI?

Is there a premium involved here? The same way that happened in the cloud cycle, people with cloud skills got more. Also, if I look at the fact sheet, there's been a - if I look at the attrition right from quarter one of FY24 till now, there's been a steady increase. Now, where are we heading? Are we going back to a cycle of high attrition, increasing attrition? And is there a reason for that?

Srini Pallia (CEO and Managing Director)

All questions for you.

Saurabh Govil (CHRO)

Should I start?

Aparna Iyer (CFO)

Yeah, why don't you go ahead.

Saurabh Govil (CHRO)

So first of all, on attrition, if you look at the last four quarters, it's been, as my colleague and friend Aparna says, narrow band of [11%, 12%. So 15%.] We see, as we move forward, the attrition coming down. That is one. However, we also see that. There are pockets where we are seeing higher attrition, depending on the skill and the demand for that skill. But from our standpoint, we are very comfortable with this kind of a range of attrition. And forward. So that is one. But we have good supply and a good bench, and there is no challenge in meeting demand. On the talent and premiumness, I think that's been a norm, an industry norm for us for the last three decades. As new technology comes in, we have always seen this thing happen.

We always have a role in building that capability and going external to get that capability. And it's been a mix. It's not that there are a large number of people available in the industry who are deeply trained on AI. That's also a very new area. So obviously, that's scarcity, and that's why there's a premium. But we are comfortable because we are doing a lot of work in-house to build that talent as well. So it's a combination in which we have gone through these cycles earlier also. There was ERP, there was data, there was cloud. So it's going on. So same way we understood it. So on both these counts, we're fairly comfortable as we move forward.

Aparna Iyer (CFO)

You had a question on margins, Ila. You were requesting for a breakup. I'm assuming you're looking for a margin walk, right, of sorts. It's been in narrow band. We reported 17.5% last quarter. In Q1, we delivered 17.3%. So that's a 20 basis points movement. If you look at Forex, it's been broadly flattish. Utilization has been flattish. We've had some savings in SG&A, and we've had the revenue decline being offset through operational improvements. That's broadly how I would characterize the margins for the quarter. You also had a question on AI and how that's been impacting deals and pricing. See, like I said, Srini had spoken about how a lot of the deals that we've won are vendor consolidation, cost takeout, right? Now, these deals will have a fair share of AI, right, in terms of productivity that we bake in.

And some of those benefits are passed on to the client, right? And therefore, in some sense, it has always been the case with the industry, right, that vendor consolidation deals are very intensely fought and competed. And therefore, it's always likely to be accommodated. But if you look at the overall portfolio of the deals that you win and the pricing that you get, it's pretty much neutral and similar. But this category of deals, there is more pressure, right? And there is a tendency to be a little bit more competitive and for you to take on more than what you can see at the moment. And therefore, push yourselves to it. So that's about it. If there's something else that you want to add.

Saurabh Govil (CHRO)

Perfect.

Operator (participant)

Can we have the next question from Puneet?

Puneet (Senior Research Analyst)

From NDTV Profit. Thanks.

Saurabh Govil (CHRO)

Sorry, missed your name.

Puneet (Senior Research Analyst)

Puneet.

Operator (participant)

Puneet.

Puneet (Senior Research Analyst)

Thanks for the opportunity. Just a couple of questions on deal wins has been very strong in an uncertain time, as you pointed out. How do you see the movement of these deal wins into your financials? Because we've seen that kind of impact on both revenue as well as margins for the last two quarters, and the margins have been a little more stark compared to the previous quarter. If you can just give some perspective on how do these big deal wins, 16 large deals you quantified, into financials? The second is largely on guidance. You mentioned for quarter to minus one to plus one percentage point. Does that largely put pressure on the second half to boost any kind of positive revenue growth for this year? Because it's something that's been a conversation with Wipro. How do you tackle that as well going into H2?

I know we're still in quarter one, but how does that happen in H2 for growth in terms of revenue? That's it. Thank you.

Aparna Iyer (CFO)

So in terms of deal wins and conversions, some of the deals that we have won have a good balance of both extending the work that we do, and there is an element of expansion. Given the nature of these deals, they will take about six to eight quarters for them to just fully ramp up, right? But you will start seeing that trickling down. And we also had a very large deal win in Q4 of the last fiscal, right? The Phoenix deal win. So this does put us collectively in a better shape. And Srini also characterized that in his speech by saying that the second half is looking far more positive. And we've got the deals that we need. Now it's down to execution. Your point on guidance for quarter two. At midpoint, it's flat.

We always guide based on the visibility that we have at the start of the quarter. We don't give forward full-year guidance, but just based on the deal bookings, we've already given you a color that the performance would get better in the second half.

Operator (participant)

Rishabh.

Rishabh (Chief Sub-Editor)

Yeah. Hi, Srini. Aparna and Saurabh. Rishabh here from MoneyControl. So Srini, your large deal wins are at least 19-quarter high, but the constant currency revenue growth is at eight-quarter low. So is there a delay in conversion? If you could throw more light on that. Then you have stated a goal that you'll reduce your tail end of your customers. So how is that trend playing out? Because we see that there's a continuous reduction in the number of clients that you have. Are you losing market share there? And are you building LLMs, SLMs for banks? Because that's gaining traction and momentum. Thank you.

Srini Pallia (CEO and Managing Director)

So hi, Rishabh. Let me answer the one and three, and then I'll leave the tail accounts to you, Aparna. On the large deal wins, right, if you recollect in quarter four, we announced a mega deal, which is from Phoenix, right?

And that actually will get started in quarter three. So some of these large deals do take time for the ramp-up. Similarly, the deals that we have won this quarter, right, sorry, last quarter, will take some time for it to accelerate. As those deals, we've completed the transition, get into a steady state, it'll have an impact on the revenues in a positive way. So I'll leave it there. And I think, like you rightly said, very strong deal wins, both $5 billion overall deal wins and $2.75 billion of large deal wins. I think one of the highest. Like you rightly said. Coming to the LLMs and SLMs, I think our strategy for our clients is we have what we call as the Wipro AI Platform, and we have Vega Studio.

And the platform is a place where we have the complete guardrails to make sure whatever we build in the context of AI is ethical, is secure, is reliable, and responsible. With that in the context, what we do for our clients is use the LLMs that are there in the market. We don't build LLMs, but we build the SLMs. We build the models. We feed in the data and actually help our clients to accelerate on the AI journey.

Aparna Iyer (CFO)

Hi. So the point on clients, right, number of clients. If you look at the number of clients with more than $50 million of revenues, it's actually expanded from 44 to 47. If you look at our top account, top 5 and top 10, they're all growing. In fact. A substantial portion of the large deal bookings that we have got is actually from our top 10 existing clients. So in fact, we are doing very well. And the fact that we are winning in vendor consolidation should give you, you should all take heart that it will continue to grow, right? And we continue to add about 49 clients. The drop that you see is just a result of discretionary spends being weak, which continues to play on it.

But I would urge you to look at how our top client performance is, and that will continue to do well.

Operator (participant)

Go ahead. Okay.

Uma Kannan (Business Analyst)

Good evening. I'm Uma Kennan from the New Indian Express. How your acquired companies have contributed to your growth in quarter one, you did speak about. Capco, I think, 6%. So how growth would be for these acquired companies in coming quarters first? And second, Aparna, last time you spoke about headwinds on account of an uncertain macroeconomic environment and that it is putting pressure on your revenues. So are there any signs of change that you're seeing in the second half?

Aparna Iyer (CFO)

So on the acquired entity performance, I think Capco has done well. We have shared that it has grown 6% on a year-on-year basis. If you look at the last 12 months bookings of Capco, it's very robust. We've had a billion-dollar-plus booking.

So Capco will continue to grow. And we see good momentum in that business. In terms of other acquired entities, there's been some softness in how the S/4 SAP programs, there have been some pauses different owing to the tariffs, etc. But overall, we do think that it should stabilize in the coming quarters, right? What was your second question?

Saurabh Govil (CHRO)

That's it.

Aparna Iyer (CFO)

Revenues, we just spoke about it. A lot of the large deal wins that we have had over the last six months gives us confidence, right? And last time we met, there were macroeconomic uncertainties, and we guided -3.5% to -1.5%. And we shared that, listen, that's based on the visibility we have. And if things were to improve because there were substantial flux in the first 15 days of April, it has improved. And therefore, it's also reflected in the way our quarter one performance has been. It's come in between the midpoint and the top end of our guidance range. So there has been some improvement. Our Q2 guidance also reflects it. And our commentary that the second half will look better is also based on our own bookings that we've had.

Operator (participant)

Yeah. Avik, would you like to go next?

Avik Das (Associate Editor)

Yeah. Sure. Hi, Avik Das from Business Standard. Srini, a couple of questions. You talked about having a very strong deal momentum in America. So would you be able to give me some breakdown in which are some of the specific verticals that you are seeing that growth momentum headed? And you also talked about the European headwinds. What are some of those headwinds? Is it client-specific, or is it geography-specific? Because some of your peers, of course, have been just having it the other way. Aparna, also on the questions on margins, 17.3, you're closing towards the upper end of your band. Now, going ahead, would margins be under pressure, or would you be able to maintain those numbers? If you can just clarify. And Saurabh, I also wanted to know that attrition has been going up in the industry over the last 12 months.

So what are some of the specific reasons for that? It's not company-specific. It's industry happening across the industry. So I wanted to get your views. And again, I'll repeat the question that I also asked in April. Are the hikes happening in October? And if that is so, Aparna, would margins, again, be a little bit constrained in the second quarter? [crosstalk]

Aparna Iyer (CFO)

I should start with Saurabh. And then me, and then Srini.

Saurabh Govil (CHRO)

On the hikes, we haven't decided. It's too early. The macro environment, the current demand, supply, all this will play in factors. I did not speak what are we seeing within the industry right now. But closer to the date, we'll take a call and communicate. So I think that's where we are on the margin front. On the attrition, if you look at it, and twice it's come up, let me just color the numbers. It's been last three quarters, if you look at it, it's been 15%, 15%, 15.1%. So it's not that it is something majorly. Yeah, but it's been a flattish kind of a thing. There are pockets, as I said. There are skills which are in demand. There is GCC hiring that is in demand. There are some startup hiring that's in demand. So there are different pockets where we're seeing things are happening.

And ultimately, it's people with the right skill and expertise that are going on. So I think that's where we are. But we are continuing everything. If you look at from a people standpoint, we are going to our campuses and hiring. We are hiring across the globe depending on demand that is coming. And in a tough environment, we continue to be flattish on the headcount. So I don't see that as a challenge at all. From a supply side to manage the demand coming from.

Srini Pallia (CEO and Managing Director)

So you want to take?

Aparna Iyer (CFO)

No, you go ahead.

Srini Pallia (CEO and Managing Director)

So Avik, on the deal momentum, right? If you look at our pipeline right now. It's very strong. We have a very strong pipeline in Americas. We have a very strong pipeline in Europe. We do have a strong pipeline in RPM, right? And if we look at from a sector's perspective, like I said in my remarks as well, BFSI is strong and steady. If you look at telecom and communications, the deal's momentum continues for us, right? If you look at the EMR, manufacturing is soft at this point in time. If you look at consumer, while the revenue has not been good for us in this quarter, but Aparna alluded to the fact that we have won deals in that sector, which is specifically around B2C, and we see a momentum. Healthcare continues to be good, continues to create that momentum.

All I can tell you is that in spite of booking $5 billion, pipeline is still strong. And it continues to be. And we're being very proactive with our clients in these conversations and will continue to do so. And the pipeline, again, discretionary spend is in pockets, but it's around data, AI, modernization, to be very specific. Cost optimization, vendor consolidation continues. And we have made a good momentum on that. And the third one, which is also very important, is the industry solutions that we are building, which are consulting-led, AI-powered, whether it's wealth management or payers and so on and so forth. Momentum continues. In fact, in healthcare, we had good momentum on those solutions as well. So net-net, it's overall positive as far as the deal wins and deal pipeline is concerned.

Aparna Iyer (CFO)

So, we're very excited about the $5 billion bookings. And one of the priority or focus areas for us is going to be conversion, right? These large deals will need certain upfront investments for us to be able to convert them. And that's going to be number one priority for us. So in some sense, there are going to be pressures on our margins as we look at it, but we're very excited about the potential of growth that these deals bring with them. We have been happy with our performance on margins over the last eight quarters. We have consistently improved. And we will continue with the same rigor for us to be able to offset these pressures. But, that's how it characterizes. And we don't guide for margins.

Operator (participant)

Sorry, Avik, could we come back to your question? Let's take Sanjana's since we're running out of time. I'd like to.

Sanjana (Business Reporter)

Thank you. Hi, Sanjana from Business Line. Many top U.S. banks have commented that they've reformed activities and digitization efforts. But I think there has still been some softness in this vertical for you. Any idea when there will be a recovery? And also, I think there's been a lot of discussion about macroeconomic uncertainties persisting. Any idea when this will simmer down? Will this continue for the remainder of this fiscal? And Aparna, you mentioned that performance in H2 will be better. Is this despite the usual seasonalities and the furloughs? And coming back to the first question, do you think that discretionary spending picking up will be on the back of BFSI growth? Yeah, that's it.

Srini Pallia (CEO and Managing Director)

So, Sanjana. As far as the macroeconomics are concerned, I'm very certain that there is uncertainty. So beyond that, I don't think I can comment on that. And I think you know it. I'm sure you're reading all the reports that's coming in. So we will continue with that. But I think the clients are getting to be resilient in the context of uncertainty. I think that's very important. So. The fact that you asked about BFSI very specifically, so if you look at one of the lead indicators for us is Capco. Aparna talked about it. We grew 6% year-on-year in a very uncertain environment, especially in the BFSI segment. Second, if you look at the deal wins, we won two mega deals. In this quarter in BFSI segment. So that also tells a story, right?

As far as the investments, the BFSI clients, while there are uncertainties in the environment, the technology investment continues, right? What they want to do is bring in better experience, bring in velocity, and of course, productivity into their business operations. And that is a journey I think they will continue to do at this point in time.

Operator (participant)

Sorry, she has the mic. We'll ask Ayanthi and then we'll come back to you. Ayanthi, do you want to go ahead?

Ayanti (Senior Correspondent)

Yes. Hi. Ayanthi from Financial Express. I have a question for Saurabh.

Aparna Iyer (CFO)

We can't hear you.

Operator (participant)

Can you hold the mic a little bit closer?

Ayanti (Senior Correspondent)

Hi. Can you hear me now?

Hi. Ayanthi from Financial Express. I have a question on what does the increasing DOP percentage sequentially signify? How do I read into that? And also, does your hiring outlook for FY26 is on track? I think it was around 10-12,000.

Aparna Iyer (CFO)

Attrition of DOP?

Saurabh Govil (CHRO)

Attrition. So, it's more seasonal and more account-specific. So quarterly, so there's nothing to see much more in the DOP numbers that you are seeing. But overall, our hiring, as I said, is very, very demand-specific. Today, we have a good bench. Our utilization for the quarter has gone up. For a year-on-year basis, it's come down. So we have headspace to become better. We are gearing ourselves for the bookings which we have done and to deploy people and get revenues there. And based on the demand environment and the macro environment, we will continue to hire. We continue to go on campuses. The numbers are small. We are still adding, too, after a 10,000 people addition last fiscal. We went this quarter as well. And we'll continue to do so every quarter going forward. So it'll be very demand-specific from a hiring standpoint.

And as to again come back on the attrition, there's nothing which is unique about DOP. It's just a quarter issue.

Operator (participant)

Yeah.

Narayankar (Analyst)

I'm Narayankar from United News of India. I have a couple of questions. This operating margins expanded 80 basis points year-on-year despite revenue decline. What specific levers helped preserve profitability? And Wipro reported a strong operating cash flow of 123.2% of net income. Can we expect this trend to continue through FY26? And my last question, if you can allow me. Wipro returned over $1.3 billion to shareholders in the last six months. And how do you balance aggressive capital returns with ongoing investments in AI and innovation?

Saurabh Govil (CHRO)

All for you.

Aparna Iyer (CFO)

Thank you. So your question on how we've improved operating margins in a weak revenue environment, it's largely owing to the operational excellence that we've been driving. If you look at it, we have been driving improved productivity in our fixed-price programs. We've improved profitability in our acquired entities. We continue to remain focused on optimizing overheads, including parts of G&A that we think we can rationalize. We have been aggressively pursuing some of that. There is also an element of Forex that's also there with the rupee depreciating against the dollar that always helps in the margin performance. I think all of that has played out into our operating margins. And we will continue to those levers. We will continue to flex, especially on fixed-price programs led by improved productivity now, especially with the focus on AI.

As far as your second question is concerned on operating cash flows, we've been very pleased with our performance. For the last two years, we've actually delivered a free cash flow as a percentage of net income far superior. I think it was around 140% plus a couple of years back. Last year was 120% of net income. So this quarter, again, 115% of our net income has got converted to cash. This is again on the back of better working capital management that we've been driving. And how do we look at it from a go-forward standpoint? Our endeavor would be to at least convert whatever we deliver as profits into cash. That is the minimum as a standard that we would look at. And if we can continue to do better, we will. So that's the way we look at it.

On $1.3 billion of capital allocation, we've just announced it. INR 5 rupees. It's not yet paid out. So once we pay that out, it'll become $1.3 billion of cash back to shareholders. It is not aggressive. In some sense, 70% of the net income cumulatively over three years. That gives us substantial flexibility for us to meet that capital allocation. And we're very comfortable with it. And like I shared with you, we have $6.4 billion of gross cash on the balance sheet, enough for all organic and inorganic investments that we would like to pursue.

Operator (participant)

We have time for one last question. Bala, please go ahead.

Bala (Senior Tech Journalist)

Bala from Analytics India Magazine. I just wanted to understand [crosstalk] if you're looking at any deeper partnerships with OpenAI and the likes, and if you are planning any acquisitions to better your AI solutions. The second one is, is there any specific targets to hire freshers for the year?

Srini Pallia (CEO and Managing Director)

Sure. For us, M&A and partnership is strategic. As far as M&A is concerned, we look for opportunities that can give us capabilities, new capabilities that can give us access to new markets that gives access to clients. So that's something that we constantly look for. And if it is something that's a right fit for Wipro, I think we'll go ahead for that. And that's a path and that's a journey that we'll continue to be in. As far as the partnership is concerned, right, I don't want to call out one single name, but partnership is very, very critical. And that's why we called out Wipro Innovation Network. As part of that, we have got the Partners Lab, academia, our Wipro Ventures, and our own labs coming together to solve problems for our clients.

And we also called out the fields of innovation that we're going to focus on, be it robotics, be it agentic AI, be it quantum, be it cyber resilience, be it blockchain, right? Those are the areas that we're working on. This is very important for the clients. For example, if you're doing a drug research, combination of quantum and AI will accelerate the whole drug discovery process, just to give you an example. So we'll continue to invest in that.

Saurabh Govil (CHRO)

And on freshers, we had called out our endeavor is to look at about 10,000 freshers inducted in the fiscal. We'll see how it pans out. Quarter-on-quarter, and we'll keep you posted.

Operator (participant)

We will have to conclude our quarter one FY26 earnings press conference. For all follow-up questions, please reach out to the media relations team, and we'll be happy to help you. Thank you, and we will see you next quarter.