Prepared remarks
Ladies and gentlemen, good day, and welcome to Wipro Limited Q3 FY '26 Earnings Conference Call. Please note that this conference is being recorded, and the duration for today's call will be for 45 minutes. I now hand the conference over to Mr. Abhishek Jain, Vice President, Corporate Treasurer and Head of Investor Relations. Thank you, and over to you, sir.
Thank you, Yashashri. Warm welcome to our Q3 FY '26 earnings call. We'll begin the call with the business highlights and overview by Srinivas Pallia, our Chief Executive Officer and Managing Director, followed by updates on the financial overview by our CFO, Aparna Iyer. We also have our CHRO Saurabh Govil, and our Chief Strategist and Technology Officer, Hari Shetty on this call. Afterwards, the operator will open the bridge for Q&A with our management team. Before Srini starts, let me draw your attention to the fact that during this call, we may make certain forward-looking statements within the meaning of Private Securities Litigation Reform Act 1995. These statements are based on management's current expectations and are associated with uncertainties and risks, which may cause the actual results to differ materially from those expected. The uncertainties and risk factors are explained in our detailed filings with the SEC. Wipro does not undertake any obligation to update the forward-looking statements to reflect events and circumstances after the date of filing. The conference call will be archived and a transcript will be available on our website. With that, I would like to turn over the call to Srini.
Thank you, Abhishek. Good evening, and thank you for joining us today. A very happy new year to you. Let me start with the broader environment. Before walking you through our quarterly performance and how we are positioning Wipro for an AI-first world. Across our client landscape, one thing is clear: organizations are reshaping priorities as AI influences how they plan, invest, and operate. In fact, AI is now a standing board-level mandate led by CEOs who recognize its ability to transform business models, unlock productivity, and create lasting competitive advantage. We are also seeing the same themes continue from past quarters in our deal pipeline: cost optimization, vendor consolidation, and a clear shift towards AI-led transformation. In quarter 3, we also marked two important milestones for Wipro. In December, we completed 80 years as a company, and in October, we celebrated 25 years of being listed on the New York Stock Exchange.
These milestones reflect a legacy of strong governance, value, and integrity, a foundation of trust that continues to differentiate us with our clients, partners, and investors. Turning to quarter 3 performance, our IT Services sequential revenue at $2.64 billion grew 1.4% on a constant currency basis. Excluding the HARMAN DTS acquisition, revenue grew 0.6% in constant currency terms. Growth was broad-based with three of our four markets and four of our five sectors reporting sequential gain. Americas 1 delivered sequential and year-on-year growth driven by strong performance in health care, consumer, and LatAm. Americas 2 saw a sequential decline. Europe grew sequentially in quarter 3, led by a ramp-up of the earlier announced mega deal. We're also seeing good traction in the U.K. and Western Europe. APMEA grew sequentially and year-on-year, led by India, the Middle East, and Southeast Asia.
PFSI continues to show strong traction with the ramp-ups and new wins. CAPCO revenue was impacted by furloughs and remained flat year-on-year. Our operating margin at 17.6% expanded 0.4% over the adjusted quarter 2 margin and 0.1% year-on-year. We closed $3.3 billion in total contract value and $871 million in large deal bookings. Last quarter, I introduced Wipro Intelligence. It's a unified approach to delivering AI-powered transformation across industries. This approach is anchored on three strategic pillars. First, industry platforms and solutions. We are building consulting-led AI solutions across sectors. For example, platforms like PayerAI in health care, NetOxygen for lending, and AutoCortex for automotive. These solutions help streamline operations, improve customer outcomes, and open up new avenues for growth. Second, our delivery platforms accelerate AI adoption at scale. WINGS, part of our Wipro Intelligence, brings AI into the heart of operations from application management to infrastructure support and business process operations.
Vega adds AI-driven capabilities across the development life cycle from coding to model tuning and data pipeline. Together, these platforms help our clients modernize faster and operate smarter. Third, the Wipro Innovation Network connects our labs with partners, start-ups, universities, and deep tech talent around the world. This ecosystem helps us explore new technologies and build solutions for the future. We launched innovation labs in three cities in the U.S., Australia, and the Middle East, expanding our network, growing our global footprint, and strengthening our role as a trusted innovation partner. We are also partnering with client GCCs to drive transformation and turn their call centers into high-impact innovation labs. Let me now share two examples of large deal wins that we had, leveraging Wipro Intelligence. First, a leading global education provider in the U.K. has chosen us as a strategic partner for a multi-year transformation.
The goal is to build a single secure intelligent operating model that can scale with their growth and improve stakeholder experience. Using WINGS, we will standardize core processes, embed automation and AI-driven insights, and optimize costs through a global delivery model. Second, a leading U.S.-based fitness technology company has selected Wipro for a multi-year transformation to accelerate its shift to a subscription-based wellness model and support global expansion. We will use both WINGS and Vega to embed AI and automation across IT infrastructure and core functions, driving efficiency, productivity, growth, and better customer experiences. These engagements highlight a clear trend. Clients are bringing us in much earlier and recognizing the step change in the way we deliver and innovate. I would now like to update you on HARMAN DTS. First, a warm welcome to all HARMAN DTS employees joining us.
With the acquisition now complete, we have added engineering and AI capabilities that truly complement what we do. This strengthens our engineering global business line and helps us accelerate AI-driven product innovation for clients. The integration also opens new regions and high-growth industries and allows us to take on larger, more complex transformation programs. As our teams come together, we look forward to entering new markets, building deeper client relationships, and turning innovation into long-term value. Finally, guidance for quarter 4. In quarter 4, we are projecting sequential IT services revenue growth of 0% to 2.0% in constant currency. With that, I will hand it over to Aparna for the detailed financials. Thank you. Over to you, Aparna.
Thank you, Srini. Good evening, everyone, and happy new year. I want to provide a brief update on our financial performance. Our IT services revenue for the third quarter grew 1.4% sequentially in constant currency and 1.2% sequentially in reported currency. Year-on-year, revenue increased by 0.2% in reported terms but declined by 1.2% in constant currency. The contribution from the HARMAN DTS acquisition was 0.8%, which closed in the third quarter of '26. Our operating margin for the quarter was 17.6%, reflecting a 40 basis point increase over the adjusted operating margin from Q2 and a 10 basis point improvement year-on-year. This represents one of our strongest margin performances in the recent quarters. As we prepare for Q4, we must consider the additional dilution from HARMAN DTS. Nevertheless, we will strive to maintain our margins in line with the previous quarters. Our adjusted net income for the quarter was INR 33.6 billion, and adjusted EPS was INR 3.21, marking a 3.5% increase quarter-on-quarter while remaining flat year-on-year.
Now, let's look at our strategic market unit and sector performance. I will share all numbers in constant currency. The Americas grew 1.8% sequentially and 2.8% year-on-year. Americas 2 saw a decline of 0.8% sequentially and 5.2% year-on-year. Europe grew 3.3% sequentially but declined 4.6% year-on-year. APMEA experienced a 1.7% sequential growth and 6.6% growth year-on-year. From a sector perspective, BFSI grew 2.6% sequentially and 0.4% year-on-year. Health grew 4.2% sequentially and 1% year-on-year. Consumer grew 0.7% sequentially but decreased 5.7% year-on-year. Tech and Com grew 4.2% sequentially and 3.5% year-on-year, while EMR declined 4.9% sequentially and 5.8% year-on-year. Additionally, Capco remained flat year-on-year in Q3. Before I proceed to other financial metrics, I want to highlight two specific one-off charges that impacted our net income and are not included in our IT Services segment margins.
The first charge was an increase of INR 302 crores related to gratuity expenses due to the implementation of the new labor code. The second charge was from a restructuring exercise completed during the quarter, impacting us by about INR 263 crores. I can confirm that we have finished the restructuring we aimed to accomplish and do not expect further charges. Our operating cash flow continued to exceed net income, standing at 135% of net income for Q3. Our gross cash, including investments, has reached $6.5 billion. Net other income for Q3 grew 15% sequentially. The accounting yield for our average investments held in India was 7.2%. Our effective tax rate for Q3 '26 was 23.9%, an improvement from 24.4% in the same quarter last year. Regarding guidance, we reiterate Srini's statement. We expect revenue from our IT Services business segment to be between $2.635 billion and $2.688 billion, which represents sequential guidance of 0% to 2% in constant currency.
This guidance includes an additional two months of revenue from HARMAN DTS but is influenced by fewer working days in Q4 and delays in ramping up certain large deals we secured earlier in the year. Lastly, I want to inform you that during our recent Board meeting, the Board of Directors declared an interim dividend of INR 6 per share. With this payout, the total cash distributed to our shareholders for the current financial year will exceed $1.3 billion, significantly surpassing the minimum threshold outlined in our capital allocation policy for the financial year ending 2026. Now, I will hand it over to Yashasvi to open the floor for Q&A.
Questions and answers
We'll take our first question from Nitin Padmanabhan from Investec.
I had a couple of questions. So one is, I think this quarter, we lost almost $24 million of revenue in energy manufacturing resources. Just wanted your thoughts on that vertical and how do you see the deal pipeline there? When do you think this can sort of turn around? The second is you alluded to some delays in ramp-ups impacting growth for next quarter; could you give some color there? I presume this is related to the large deals. By when do you see this sort of beginning to ramp going forward? And third, where are we expecting to have the wage hike cycle? Those are the three.
So Nitin, I'll take your second question. And then on EMR, I'll ask Srini to answer, and on attrition, we have Saurabh here, he could take that on salary hike, sorry. Nitin, in terms of our large deal conversion, each deal is different. One of the significant deal wins we had in Q4 of the last financial year, Phoenix, is now fully ramped up and its revenue is fully realized and it's part of our quarter 3 performance. So that's on track. Some of the other deals, given the nature of the deals that we won, we've earlier also highlighted that these deals will take a few quarters to ramp up. So it's a question of it coming in through the course of the next few quarters. And therefore, we have called it out saying that in Q4, we may not be able to realize the full impact, and therefore, we're calling it out. The other lever that is playing out is typically furloughs do come back, but Q4 continues to have lower working days, which is not really sometimes offsetting for those furloughs. And therefore, we've given you the guidance we have. But these deals should continue to convert. This deal is a little different. We are confident it will take some time, but it will ramp up. Srini, you want to talk about EMR and then Saurabh can talk.
Thanks, Aparna. Happy New Year, Nitin. As far as EMR is concerned, our performance in this sector clearly has been impacted based on the macroeconomic uncertainty. We have seen some tariff-related and also some disrupted supply chain issues that we faced. However, our pipeline continues to remain strong in the sector. Essentially, the significant pipeline is around either vendor consolidation or cost takeout. If I were to give a little bit of color to our specific segments, we have good momentum in energy in both Americas and Europe, and as far as manufacturing is concerned, we are seeing that in Europe. Also, our Capco business, which is doing some work, is also seeing some traction on the energy consulting side. So net-net, that's the situation that we have right now with the EMR, Nitin. Over to you, Saurabh.
Salary hikes, we will take a call in the next few weeks in terms of doing it. Our intention is to look at it this quarter, but we'll confirm it in the next couple of weeks.
Perfect. That's helpful. Just one clarification. Do you think EMR should start getting back to growth sometime next year? That's the last question from my end.
As far as EMR is concerned, Nitin, I'll just repeat that. One is the pipeline. Like I said, specifically, we have good momentum on the pipeline in energy in both Americas and Europe. And as far as the manufacturing is concerned, it's in Europe. I think our focus right now is to convert these deals and then that should drive the revenue growth for us. We are just getting focused on winning some of those deals, Nitin.
Perfect, very helpful. Thank you so much and all the very best.
Thank you.
Thank you.
Next question is from the line of Vibhor Singhal from Nuvama Equities.
Congrats on a solid performance. So Srini, my question was mainly on the consumer vertical. You mentioned about the challenges in the EMR vertical. Banking has been doing well for us. In the consumer vertical, the growth was tepid in this quarter. We continue to decline on a year-on-year basis. How do you see the outlook in this vertical? We know this vertical also has been impacted a lot by the tariff uncertainty that has basically impacted the producers. But any insights from your conversations with the clients in terms of our interactions in the pipeline, do you see it turning the corner in coming quarters? Or do you think it will be some time before some clarity emerges in this vertical?
Thanks, Vibhor. If you look at our consumer sector, clearly, if you recollect, I talked about it before as well that the tariffs had an impact on this, and that is reflected in our numbers. Also, if you reflect, there was a large SAP program which was put on hold last year by our customers. Again, the client has not yet reinitiated that, and that is impacting our year-on-year performance in this market sector. However, the overall trend that we see right now is mixed for us in consumer. Some of the wins we had earlier this year are slowly ramping up, and that should support the growth in this sector. From a quarter-4 perspective, whatever growth we are seeing is baked into our forecast number.
And a similar thing on the tech vertical. I know it's not that big a vertical, but I think both tech and health verticals appear to be doing well. Any specific project ramp-up that we saw in this quarter that led to this growth? Or do you think it's growth that we can sustain in the coming quarters as well?
Sorry, which sector did you refer to, Vibhor?
Aparna, tech and the health care verticals, both of them separately.
In some sense, in health care, we've been consistently doing well, and we've had both in our year-on-year performance. Seasonally, obviously, we have the open enrollment season that really does improve our health performance in Q3, which has added to the performance. In terms of our tech, we've continued to do well with some of our large technology players. There is a bit of the HARMAN acquisition numbers, which is also reflected in the overall sector's performance. I think communications, in general, have done better for Europe and APMEA. That's the color I can give you.
Perfect. That's really helpful. Just one last question from my side. You mentioned about a few headwinds in Q4 that you would be facing. If I look at our guidance, 0% to 2% on the consolidated level, and if we were to extrapolate the 2-month incremental impact of HARMAN acquisition, the organic growth will probably fall somewhere between minus 1.5% to plus 0.5%. Is that the right understanding? Is the reason for that very much as you mentioned in your opening remarks as well?
Vibhor, for some reason, we are not able to hear it clearly. Can you just slow down the question?
Yes, can you hear me?
I'm sorry; his line is disconnected. We'll move on to the next question. The next question is from the line of Ravi Menon from Macquarie.
Congrats on a really strong margin performance this quarter. Now that you've come to sequential growth even in a seasonally weak quarter, I'm surprised that organically, we seem to be hinting at a slight decline, possibly at the lower end of our guidance next quarter. And Capco should also be coming out of from the furloughs that it's had this quarter, right? Could you talk a bit about that? Beyond that, do you think that sequential growth is possible looking at the pipeline and the slight improvement possibly in the demand environment?
So I will ask Srini to talk through the demand environment. You know we guide based on the visibility that we have at the start of the quarter. I've shared with you that some of the furloughs that typically do come back have been partially offset by the lower working days that we are also seeing this year. To that extent, we are seeing some softness continue, right? But that said, our endeavor would be to obviously execute the quarter better through the next 90 days.
So Ravi, if I look at it, there is no significant change in the demand environment. Specifically, discretionary spend as the uncertainty continues. Second, January is the time when many of our customers will finalize their budgeting process, and we'll have a much better understanding and view of where they are going to spend. But having said that, if I look at the current pipeline that we have, a significant piece of this pipeline is around cost optimization and vendor consolidation, which are the key levers for our clients. They are using this as a lever for savings, and they want to reinvest these savings into AI capabilities and also into some of the advanced transformational projects that they want to do. For us, we believe this is an opportunity for us to capitalize on this, and we'll make strategic bets in each of these sectors and markets, continuing to invest in our clients to do this. From a full-year visibility, like Aparna said, there is uncertainty in the market, and customers continue to remain in wait-and-watch mode. At this stage, our guidance represents the best visibility we have. If there are any further updates, we will definitely share, Ravi.
You mentioned vendor consolidation, cost reduction, and clients using those savings for transformation. Are they giving both aspects to the same vendor, or do they prefer to separate them? What trends are you observing in your recent successes?
So Ravi, it's a mix. There are certain clients who are doing that and continuing with the current partners. There are certain clients who are changing, and there are certain clients who are increasing the scope and using multiple partners as well. It clearly varies from client to client.
And one last question on the HARMAN DTS. Which segments do you think this really improves your possibility of win rates?
So Ravi, if I understand the question, how the HARMAN DTS acquisition will help us, right?
Correct. Yes. Which sectors do you expect the win rates to improve?
So clearly, HARMAN brings in both design-to-manufacturing capabilities and AI-powered product innovation. In that context, clearly, the sweet spot for the combined unit is, especially the engineering global business line that we have is the tech and com sector. That's, I think, primarily the one where we see a significant opportunity. The other three sectors, I would pick are health, consumer, and EMR, Ravi.
We'll take our next question from the line of Sandeep Shah from Equirus Securities.
Just the first question is because of the delay in ramp-up of deal wins of the last 2, 3 quarters, is it fair to assume if those ramp up in the first quarter next year, then the seasonal softness, which generally comes in the first quarter, may not be true next year?
So Sandeep, yes, in some sense, that will be the objective that we ramp up enough so that we can offset some of the weakness that could arise. That said, we don't guide for Q1, but we would like to clarify that it's just delayed and some of those do take time to ramp up and we're confident that it will ramp up, and we will keep you posted.
Okay. Just Aparna, I wanted to understand the guidance on the margins, which you said narrow band compared to Q3 margins or an earlier range?
So you again know we don't guide for margins. You've seen our performance over the last eight quarters. We've consistently improved, right? I think all credit to the team; we have been fairly resilient on margins, and we will continue our endeavor to keep it. But that said, we will have to invest for growth. That's the number one priority, right? We've acquired DTS HARMAN, and that will mean an incremental dilution to our margins that we will have to absorb. So we continue to chase and win large deals, and those come with a different margin profile. These are very important investments we'll have to make, and there will also be decisions that will have to be made on wage increases that Saurabh spoke of. A lot of moving parts. Our endeavor is going to be to make sure that we keep it in that band of 17% to 17.5%. If you recall, we had said that while we stated that band with the acquisition, we will see pressure to that. Right now, we are continuing to hold that band, which itself is a positive. But like I said, we will have to take it quarter-to-quarter. There will be some quarters where we will have to invest in our people, in our deals, in our clients, and for growth. So we will make those trade-offs.
Yes. Just last couple of questions. The deal TCV in this quarter, both on large deals and total, has been slightly softer versus very strong momentum in the earlier three quarters. So any reason where is it the client decision-making being slowed down or it's intense competitive pressure that has led to some decline in the win ratio?
Yes. Typically, like I said, some of these deals, they tend to be consolidated. We are contesting a lot of large deals, and they are in the cycle. We are hopeful of closing them. You will continue to see the momentum on large deal wins. At $1 billion, or maybe we are just shy of $100 million. That's been the normal trajectory. Obviously, in the first half, we had a few mega deal wins, four to be specific. We hope to win more, right? I wouldn't read into it in terms of slower decision-making cycles or competitive pressure. I would just say that they tend to lump up. We have a lot of good deals, and we will see the momentum pick up.
Okay. Just the last question, Aparna, with a war chest of $6.1 billion, though we are distributing dividends, is it fair to assume that buyback continues to remain one of the options in mind to give this excess cash back to shareholders?
We have said that buyback will continue to be a means by which we will return cash to our shareholders. It's certainly an option on the table, and we will consider it at an appropriate time.
Next question is from the line of Kumar Rakesh from BNP Paribas.
I have just one question. Srini, considering your current mix of verticals and capabilities at Wipro, do you believe you can align with the industry average revenue growth, or would it be more strategic to lower your margins to the mid-teens to compete better with peers and possibly acquire companies to adjust the mix? What are your thoughts on this?
Kumar, clearly, first, if you look at our inorganic strategy, it is very clearly aligned to the strategic priorities we called out. We constantly look for sectors and markets to invest in, where we need to acquire new capabilities. If you look at specifically HARMAN DTS, it is giving us a combination of both capabilities and also a few new markets that they are already in. So we continue to look at opportunities for us as we move forward. Our strategy is both growing our organic and inorganic business and continue to invest in inorganic. You are right; we do have cash. As far as that is concerned, it is an opportunity for us to look at the market, scan the market, and make the right investments that make it a win-win for us.
Next question is from the line of Rishi Jhunjhunwala from IIFL.
Just wanted to understand ex of HARMAN; it doesn't look like there would be much of a sequential growth in Q4 and Q1, as we were discussing earlier in the call. Historically, we have some weak seasonality. I noticed a pretty sharp increase in our overall headcount in this quarter. So I just wanted to understand, given the outlook for the next couple of quarters, what is driving this? How do we read that?
The headcount for this quarter is mainly influenced by the acquisition of DTS and a significant deal in Phoenix that required some ramping up. This is why we've seen an increase this quarter. From a hiring and supply perspective, I don't anticipate any challenges. Attrition has been low at two percent for the quarter, and it's expected to remain the same in the next quarter. We plan to visit campuses again after taking a break this quarter. On the supply side, utilization is improving despite the furloughs, so we are quite confident in our capacity to manage demand with our headcount.
Understood, sir. The second question is just wanted to understand this restructuring cost that we have booked in our financials. Is it in the same nature as what we did in Q1? If not, if you can give some color around that?
The restructuring basically has pivoted on obsolete skills and is primarily in two areas. One is in Europe, where we have tough labor laws, and second is in Capco. These are the two big areas that we did that, similar to what we have done in Q1.
Understood. Just the last thing, there was a spike in depreciation and amortization in this quarter. Any particular reason? Is that a normalized level going forward as well?
We have taken a provision for bad debt charge, and I think that's the line item that will show an increase. That's in the usual course of business. You should see that go off starting next quarter.
Aparna, I was asking about depreciation and amortization?
Okay. Typically, we do assess the intangibles every year. Based on the expected forecast, we tend to accelerate some amortization. In this quarter, we did accelerate some amortization towards one of the earlier acquisitions, and that's reflected. That should also normalize. However, we will have an increased amortization charge coming in for the DTS HARMAN. So yes, you should wait for the next quarter to get some more normalized figures.
Next question is from the line of Kawaljeet Saluja from Kotak Securities.
I had just a couple of questions for you. First is that at $6.5 billion, it seems that you have plenty of excess cash. How do you intend to flush this excess cash out? Would it be through dividends, or is buyback on the cards? If buyback is on the cards, what are the considerations required to move towards that path? That's the first question.
We acknowledge that we've been holding excess cash. Consequently, last year we increased our capital allocation and declared a dividend of INR 6. This year, we've distributed nearly INR 11 per share, amounting to approximately $1.3 billion. If we annualize our year-to-date earnings per share, this represents about 88% to 89% of that amount. The increased dividend helps us avoid accumulating excessive cash while ensuring we have sufficient funds for necessary acquisitions and organic investments. As for buybacks as a means of returning excess cash to shareholders, it is certainly an option we are considering. We will discuss this with the board and provide updates. The factors to consider include whether we have enough net cash available to pursue our needed investments, and we will keep the market informed. Other regulatory considerations for buybacks are also being addressed.
Can you repeat that last part again? I missed it.
There are some statutory considerations that prevent a buyback from occurring within 12 months, especially if there is a pending merger for NCLT. None of these conditions hinder our plans.
If you were to consider a buyback today, you are able to do so. In the past, processes like NCLT or mergers would have hindered this, but now there are no such obstacles. You can proceed whenever you believe the timing is appropriate. Is this the correct way to interpret it?
Yes. Absolutely.
Noted. The second question is for you and Srini. Let's say, if those two mega deal ramp-ups were not delayed, what would the guidance have been for the March quarter? Any way to detail it out either quantitatively, which may be difficult, or even qualitatively, that will be very helpful to understand the growth trajectory.
Obviously, we can't talk about it quantitatively, Kawal. Qualitatively, like I said, it's only delayed. These ramp-ups should happen, and each deal is different in its nature. For example, something like Phoenix, which was entirely net new and fully where there was a clear go-live date and readiness; we've been able to do that, and that's fully into our revenue starting Q3. So that played out perfectly to plan. Now in some of the other larger deals, or mega deals that we could be winning in terms of vendor consolidation, these deals typically have both an element of renewal and new. Obviously, the renewal is fully in, and that continues, and we're not seeing any changes in terms of the expectations. In case of the new, the element of new, some of these things are taking longer, either due to client situations where there could be some changes in the client environment that they're going through, and therefore, there is a little bit of a delay in terms of the timing of the ramp-up, or it could just be the nature of how it is going to play out, right? Because it will take six quarters. That's what I earlier alluded to. It is going to take that time. We are hopeful that this will flow through in the coming quarters.
Noted. Thank you so much. All the best.
Thank you.
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to Mr. Abhishek Jain for closing comments. Over to you, sir.
Yes. Thank you all for joining the call. Have a nice day. Thank you.
Thank you. Thank you, members of the management team. On behalf of Wipro Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.