Wipro Limited (NYSE: WIT) Q3 2021 earnings call dated Jan. 13, 2021.
Corporate Participants:
Aparna Iyer — Vice President and Corporate Treasurer
Thierry Delaporte — Chief Executive Officer and Managing Director
Jatin Dalal — Chief Financial Officer
Analysts:
Moshe Katri — Wedbush Securities — Analyst
Sandeep Shah — Equirus Securities Private Limited — Analyst
Sandip Agarwal — Edelweiss Securities Limited — Analyst
Sudheer Guntupalli — ICICI Securities — Analyst
Saurabh Govil — President and Chief Human Resources Officer
Girish Pai — Nirmal Bang — Analyst
Abhishek Shindadkar — Elara Securities (India) Private Limited — Analyst
Rishit Parikh — Nomura — Analyst
Dipesh Mehta — Emkay Global — Analyst
Nitin Padmanabhan — Investec — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to the Wipro Limited Q3 FY’21 Quarterly Investor Conference Call. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes.
[Operator Instructions]. I now hand the conference over to Ms. Aparna Iyer, Vice President and Corporate Treasurer. Thank you, and over to you.
Aparna Iyer — Vice President and Corporate Treasurer
Thank you, Stanford. A very warm welcome to our quarter three FY’21 earnings call. We will begin the call with the Business Highlights and Overview by Thierry Delaporte, our Chief Executive Officer and Managing Director, followed by a Financial Overview from our CFO, Jatin Dalal. Afterwards, the operator will open the bridge for Q&A with our management team.
Before Thierry starts, let me draw your attention to the fact that during this call, we may make certain forward-looking statements within the meaning of the 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.
These uncertainties and risk factors are explained in our detailed filings with 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 made available on our website.
Over to you, Thierry.
Thierry Delaporte — Chief Executive Officer and Managing Director
Aparna, thank you and good evening ladies and gentlemen. Really wishing you a very happy new year. It’s a true pleasure to speak with you today. Last year we witnessed some very unprecedented times and now with improved vaccine prospects, we are filled with optimism for 2021. And sincerely are hopeful that it will be a much better year for the society, for businesses, our clients and for us. I am also very happy to share with you that effective January 1st, so just literally 15 days ago, we have gone live with our new organization structure; an important moment for our Company.
Let me now give you an update on our Q3 performance. I am pleased to share with you that we’ve actually had a second consecutive quarter of strong performance with healthy growth in revenues, acceleration in order booking, expansion of margins, sustained lower employee turnover and solid operating cash flows.
Looking at it one by one, the revenue growth, 3.9% in reported terms, 3.4% on constant currency terms, is at the upper end of our guidance. Our growth was the highest in 36 quarters. The growth in revenues were broad-based across sectors and market and led by a surge in volumes. On operating margins, we expanded our OM during the quarter by 240 basis points to 21.7%. This again is the highest we have achieved in the last 22 quarters.
Expansion was led by driving excellence in operations, focusing on improving the quality of revenues. Several operating metrics are at our all time best, including offshore mix, utilization, attrition and optimized subcontracting. Third, our overall order booking for the quarter grew double digit on a year-on-year basis. The order book was strong across sectors and service offerings and had a good mix of both large and small deals, which is always important for us.
We closed 12 deals with more than $30 million TCV each, and the TCV booked of these deals was over $1.2 billion. We also, as you know, closed our largest deal ever in Continental Europe with Metronom. All of this was achieved while implementing the biggest transformation that the organization has seen in recent years. It’s a real testimony to the stead fast execution capabilities and the committed One Wipro team that we have in place whose relentless efforts are paying off.
Now, let me provide some color on the underlying business performance. There is significant traction in market across all our key geographies. We saw good order booking across major geographies. In the U.S., the growth funnel add [Phonetic] was very healthy and the order booking grew double-digit year-on-year.
We have consistently converted some of the large deals in Europe which had — which has resulted in Europe growing faster on a year-on-year basis, at 1.4% in constant currency terms. We see demand in Europe being particularly strong, and mostly driven by acceleration in the adoption of cloud, digital transformation and driving efficiencies in the core, leading to optimized cost.
Now, from a sector view, I’m pleased to report that we had all cylinders firing, five out of seven sectors grew over 4% sequentially. Consumer sector continues to trail blaze on the back of solid deal wins, growth in financial services is driven by demand across pretty much all sub verticals, led by demand in digital operations, primarily cloud infrastructure services also and digital transformation.
The momentum in energy and utility was led by utilities. However, we are beginning to see a ramp up in demand in oil and gas customers as well and encouraged by the deal wins we have. Technology bounced back this quarter with a healthy growth despite the furloughs. Communications and manufacturing continue to build on the momentum. And finally, healthcare and life sciences’ performance was truly aided by a seasonal uptick in our health plan services business.
Now looking at the demand environment, it has shown steady improvement in the last six months. The intensity of the sales activity continues to rise and the pipeline is robust. We are seeing heightened demand for our service offerings in digital transformation, in digital operations and in cloud infrastructure services in particular.
Now, let me give you a few examples of some of our wins in digital operations and cloud infrastructure services space. First example, Wipro won a multi-year, multi-million dollar engagement from a U.S.-based mortgage lender to provide customer service to the lenders’ rapidly growing retail mortgage client base.
Wipro will leverage its best-in-class mortgage centers in the U.S. and in India, business operation services and application development to power the customer aggressive growth strategy. Second example, a U.S. based multinational food manufacturing company has awarded Wipro a strategic multi-year global managed services contract for cloud and infrastructure for service desks and IT services management.
As part of this engagement, we probably will also provide end to end infrastructure services including multi-lingual service desk, site support, workplace optimization, cloud on AWS, cross-functional coordination tools, ServiceNow, ScienceLogic. In addition, we probably will consolidate all infrastructure projects globally.
Now, in digital transformation, we are witnessing significant business traction across three broad areas. One, clients are embracing the transformation of the IT estate. And they’re moving away from traditional IT models and adopting business tech operating models and shifting the discussion towards [Indecipherable]. Second, our clients are investing significantly on digital business solutions. Customer experienced transformation programs are becoming front to back initiatives including cloud transformation and not just on the key — on omnichannel experience.
And third, clients are moving beyond the lift and shift of the workloads to the cloud, to exploit the automation and native capabilities and we are helping them link these directly to business goals. You know of that [Phonetic] partnership with our strategic alliance to create joint solutions are leading to wins where we are helping clients transform their IT and create business solutions. Let me give you a few examples. With Metro AG, a leading global wholesale food company, we’ve signed a five-year and over $700 million by the way, with the intention to extend up to four additional years for potential spend of $1 billion, a strategic digital and IT partnership we’ve made toward it.
Wipro will deliver a complete technology, engineering, solutions transformation program for Metro, as it positions itself as the wholesale 360 degree provider in the trading, the cash-and-carry, the hotel, restaurant and catering food industry. Wipro’s transformation program will encompass cloud, data center services, workplace and network services along with application development and operations to provide an integrated, a flexible and robust digital infrastructure.
Partnering with Wipro allows Metro AG to simplify and streamline the IT landscape and critically give access to innovation and the best digital practices. Next example we have been chosen as the transformation partner for Bank in the U.K. to re-imagine the customer journey and transform to be more a digital relationship bank delivered with Cloud-First Architecture. Our cloud studio continues to build and leverage industry and horizontal patterns, enabling us to deliver business that would commence rapidly. Final example for a leading healthcare provider, we have leveraged AWS containerized solution to deliver complex data application in four months to meet the year end regulatory requirements.
Now, on our outlook for Q4’21. We’ve guided for a revenue growth 1.5% to 3.5%, which reflects the current demand environment. We feel confident that we will deliver this in our new and improved operating model. The last 90 days have been very busy for us as an organization, as you can imagine, but the good news is that we are moving in the right direction. The team is in place, and our focus now is only on growth and accelerating the momentum.
In our Analyst Day commentary, we have said that we have seen margins sustainable in medium term as you’ve observed, we have delivered significant margin expansion in Q3, growth remains our top priority. We have begun to make investments in our frontline sales and domain specialist. For 80% of our employees, we completed the promotion cycle effective December 1st, and we will also be rolling out salary increases for them effective January 1st.
We’ve also announced a 100% variable pay out for Q3 and for Q4, which will make it three consecutive quarters of full payout. Our margins for Q4 will have headwinds of these investments, but will still remain elevated. To summarize, I must say I’m very excited by the acceleration in the business momentum we have seen in the quarter and optimistic about the year ahead of us.
With that, I hand it over to you, Jatin for his — for your comments on the financial performance for Q3 ’21. Jatin, over to you.
Jatin Dalal — Chief Financial Officer
Thank you very much, Thierry. Good evening, good morning, ladies and gentlemen. As always, great to talk to all of you. We had an excellent quarter of execution. Our revenue growth was at just at the upper end of our guidance at 3.4% versus 3.5% at the upper end. Margin expansion of approximately 240 basis point resulted in our operating profit growth year-on-year of robust 24%. We had a higher ETR this quarter compared to Q3 of last year, 22.1%. Resultant, our net income growth was 20.8% that too improved significantly from our prior quarters.
Let me now talk about the cash conversion. Our cash conversion during the course of the quarter was very robust. We improved our DSO days by approximately six days. Overall, after first two quarters of robust performance we continued one more quarter where we delivered free cash flow at 133% of our net income and operating cash flow at 106% of our EBITDA.
At the end of the quarter three, we had $6.2 billion of debt, of cash on the balance sheet and net of debt, our cash was $5.2 billion. Let me talk about the forex. Our realized rate for the quarter was $74.04, we delivered 0.3% positive margin uptick on account of forex. We had hedges of $2.7 billion at the end of quarter three. As you are aware, we are in the middle of a buyback program and we expect the overall process of buyback to get completed by the end of this month. The Board of Directors have also — has also approved an interim dividend of INR1 per share in today’s Board meeting. These were my financial highlights and we’ll be very happy to take your questions from here on.
Questions and Answers:
Operator
Thank you very much sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions]. The first question is from the line of Moshe Katri from Wedbush Securities. Please go ahead.
Moshe Katri — Wedbush Securities — Analyst
Hey, thanks. Congratulations on the strong quarter and happy new year everyone. I just wanted to kind of get your feel on how long will it in your view take for Wipro to be able to show growth rates that are comparable with some of your peers? And at this point, obviously you’ve had better than expected results for the quarter. The quarter has been strong for many other peers in the sector. Are you still growing, probably at half a rate compared to some of your larger peers and what do you need to do to get there at this point? Thanks.
Thierry Delaporte — Chief Executive Officer and Managing Director
Moshe, thanks for your question. I think it’s a very — if we understand the question, this is clear that we have defined a strategy to really go back to the leading Board in term of growth, we know it’s going to take some time. We — it takes first to walk before you run and what we’ve said is that we would go from a situation where we hadn’t stabilized the business in Q2 to a growth pattern and then accelerate, get to the same level of growth of then our competitors and then accelerate after. It’s going to take several quarters to get there, how many, I cannot tell you now, but what is clear is that we are seeing a — we are seeing the journey, we are seeing the trajectory and we are executing step after step along these lines.
What we see as well is that, you know, with the increased focus on growth, with the focused investments into areas that we believe are going to drive higher growth than others, by investing in some of the market that are key to our success, by investing in talent and so on we will continue to support our journey and our roadmap.
So bear with us. We will not be telling you — you know, making you promise one or two years ahead of time. We are going to execute consistently, and you will see the — you will see the consistency of the trajectory quarter after quarter. For now it’s clear that the demand is good, the market is good, and our level of optimism is here.
Moshe Katri — Wedbush Securities — Analyst
Okay. Just as a follow-up.
Thierry Delaporte — Chief Executive Officer and Managing Director
Sure.
Moshe Katri — Wedbush Securities — Analyst
Just to confirm what I heard. Are you comfortable that some of the margin gains that you had in fiscal ’21 are sustainable looking into fiscal ’22 and obviously, the new pandemic driven working or work from home model has given you guys a lot of flexibility and the real question here is what’s sustainable into next year and what’s not. Thanks a lot for all the color.
Thierry Delaporte — Chief Executive Officer and Managing Director
Absolutely. Thanks, Moshe. Jatin, you want to take this one?
Jatin Dalal — Chief Financial Officer
Sure, Thierry. Moshe, as you know, the margin momentum has three effective levers for Wipro. We spoke about it earlier in the day. One is the revenue improvement this year. Revenue growth creates operating leverage on fixed expenses. That has helped certainly. Second is a significant offshoring over the course of last four quarters. Our offshore mix as you can see in our data sheet has improved by approximately 6%, over the course of the last four quarters.
And the third is, we have been able to manage our utilization in a very tight range especially in quarter three, adjusted for leave we have done quite well. So the first component of the saving, which is related with fixed expenses remaining at a lower level given the situation of pandemic will slowly go away during the course of next six months to nine months and that is the reality that we have to prepare ourselves for.
But the revenue momentum if it continues and offshoring it remains, then some of those advantages may stay with the — within the operating margin. We’ll have to — we’ll have to see how situation pans out, Moshe.
Moshe Katri — Wedbush Securities — Analyst
Understood. Thank you.
Operator
Thank you. The next question is from the line of Sudheer Guntupalli from ICICI Securities, please go ahead. Mr. Guntupalli, your line is unmuted, please unmute the line from your side and go ahead. Sudheer Guntupalli from ICICI Securities, your line is unmuted. Please go ahead with your question. As there is no response, we take the next question from the line of Sandeep Shah from Equirus Securities, please go ahead.
Sandeep Shah — Equirus Securities Private Limited — Analyst
Yeah. Thanks for the opportunity, and thanks for sharing some data points from the deal wins. The first question is in terms of any quick learning in terms of a change in the operating model which helps Wipro in terms of a faster creation of the pipeline or a conversion of a pipeline into deal wins? And just a related question, this quarter we have won 12 deals with a TCV of $1.2 billion. So if I exclude the Metro AG, the deal wins at $500 million includes ACV, the average tenure of close to $45 million, $50 million. So Thierry just wanted to understand whether these deal wins on larger size, are we making a practice to win every quarter, otherwise, it may become sporadic and the deal win momentum may die down in the coming quarter as a whole?
Thierry Delaporte — Chief Executive Officer and Managing Director
Very true. Okay. Hi, thanks Sandeep. So, question on the operating model first. The operating model we have built has the following strengths. One, it’s a leaner model. It has many less P&Ls, we’ve reduced the number of P&L from something like 26 down to four, adding up at my level, four. So that means a lot less walls inside the organization, a lot less silos and a lot more opportunity for people to work together.
Second, we have put in place an organization where strategic market units are the one managing the account and managing the client relationship in a given geography or in a given market are working hand-in-hand with the global business line who owns the expertise, who owns the solutions, who define, who invest in talent, right, and owns the delivery.
And those team work together and that is the logic of One Wipro. What it does is that you have actually less people focusing on managing or controlling the internal, you have more people involved on deals, more people working on opportunities and working with clients, more people exposed to clients, less need to manage operation in the organization. So you are nimble.
So the efficiency, I mean, obviously we’ve moved into this model on January 1st, so it’s going to be a little bit early stage to see visibly the results. But what is clear is the following. One, we’re only in January 13, but the whole organization is already in place under the new model. And that’s in itself the proof that the model was well designed and well implemented.
Second is the level of intensity that we’ve had over the last three months. On the way we are working on opportunities, mobilizing forces around the group, leveraging the capabilities and the references we have given there has been very, very high — very high intensity. Third is, we have moved from a quarterly tracking of sales activities to a monthly tracking of sales activities and that has undoubtedly driven a change, a shift in level of intensity and discussions around deals. Just to give you more examples, we hold an executive committee every week, more than 50% of it is focused on deals and on deals exclusively.
So if we’re not focusing time on internal discussions, but really looking at our clients, connecting with our clients, I have never one day without talking to a client, and I know the team is doing the same, has the same level of intensity. And on — from that standpoint, I think we are more present in the market, more ambitious and more active than ever.
Second is, I think the possibilities that we’ve already started to implement in Q3 to focus investments and make some bold moves in some areas where we are convinced this is strategic. Instead of having an organization where every unit was deciding its own priorities, we have now an alignment of priority, it helps us to move faster and stronger. We have made also some decisions in terms of — in order to respond proactively to situations or clients who are exposed to in the context of COVID and I think it’s been well received as well.
So I would say, it’s the beginning of this journey in the new operating model, but this is promising. And the last thing I would say is that based on the survey we run internally, the feedback and the level of adoption and understanding and support of the teams and leaders on this new operating model is very high. So the momentum is there.
Sandeep Shah — Equirus Securities Private Limited — Analyst
Okay. Thanks. Just a follow-up, the deal similar to the size of Metro AG, more such deals are in the pipeline, and just a question to Jatin, regarding the margins with Q4 also there could be a wage hikes as an impact and peers are also announcing another round of wage hikes maybe in the next couple of quarters as one of your large peers has said next year would be a normal year. So, and Thierry also said that our margins will continue to remain aggravated.
So Jatin, is it possible to believe that the current quarter margins may continue with a narrow band movement which we generally you make a statement around that.
Thierry Delaporte — Chief Executive Officer and Managing Director
So Jatin, maybe before you respond, I’ll just take the big deal question, the first part and I give this — I’ll let you to second one. So, your first — your question on the big deal was, okay, you won Metro, does it mean you’re going to win one Metro per quarter? Okay. That’s the plan, okay? So you know, again, we have moved from a place where we didn’t have largely to a place where we have won, and now we are going to systematize. That is the logic of having created this big deal team, this large deal team.
We have — we are structuring it, we are putting experts and knowledge. You do not go after large deals the way you go after a smaller deal. You need to bring different type of talent, expertise and caliber and we are putting that in place with the objective to obviously have a true big deal machine. For now we have some in the pipe and we are getting more. So this is the good news. But we are not yet at a place where we will have once — one every quarter.
To you, Jatin.
Jatin Dalal — Chief Financial Officer
Thanks Thierry. Yeah, so Sandeep, here is what — what we have articulated. We definitely had a great quarter in quarter three with the 21.7% operating margin. We definitely have investments in the front line, sales capability consulting domain where we are hiring this cadre. We also have a host of investments on talent which Thierry and Saurabh have articulated since this morning, which means that quarter three margins were on higher side and in quarter four, we will not see those given these headwinds that we spoke about in terms of investments.
Having said that, some of the benefits that we have seen during the course of last few months, which is that we have lower travel spend, we have lower facilities costs, those benefits will continue. We have an additional lever in terms of increased revenue momentum that should also play out. Offshoring has increased significantly over last few quarters, that will also hopefully sustain. It cannot go out overnight in quarter four.
So some of the benefits will also continue compared to where we were in the beginning of the year and hence our articulation is that we will see a headwind of this investment. However, we will not go back to the levels that we were at the beginning of the year, but we will remain elevated from those levels.
Sandeep Shah — Equirus Securities Private Limited — Analyst
Okay, thanks, and all the best gentlemen.
Jatin Dalal — Chief Financial Officer
Thank you.
Operator
Thank you. [Operator Instructions]. The next question is from the line of Sandip Agarwal from Edelweiss. Please go ahead.
Sandip Agarwal — Edelweiss Securities Limited — Analyst
Hi, hello, can you hear me?
Thierry Delaporte — Chief Executive Officer and Managing Director
Yes, hi Sandip.
Sandip Agarwal — Edelweiss Securities Limited — Analyst
Hi, Thierry and congrats to the whole management team for excellent execution and reaching top end of the guidance and also wishing you all happy new year and stay health, stay safe. So, I have only one question Thierry is that what is our strategy towards this hyperscalers? How are we seeing the whole opportunity of the cloud and also are you seeing early signs of strong capex being pushed by the banking industry after a long period of gap? Are you seeing this two trends and what is your, what would be your strategy to get this delta for our revenue growth? Thank you.
Thierry Delaporte — Chief Executive Officer and Managing Director
Okay, all right. So thank you. So you know, cloud for us is — is a big part, is right at the center of our growth strategy, right. One because we historically had a position on the infrastructure side, a significant investment have been made over the last years. We have a strong relationship with you know companies like AWS, Google or Microsoft. We’ve been with company like ServiceNow, like Salesforce and so on.
We have invested and we want to really continue to accelerate on the cloud. So definitely, at the heart of our strategy, what do we see? We see an acceleration, a significant pickup in different markets. One in America where you know the cloud journey has started some years ago, we see an acceleration from pretty much every industry including from the BFSI sector, and banking and insurance. In Europe, traditionally, a lot of companies were a little bit suspicious or careful with the public cloud adoption and therefore was going a little slower on the cloud transformation. And you know, I believe with the pandemic, they’ve realized the necessity to accelerate and therefore we see now an increase in volume of business in the pipeline, in terms of cloud transformation in America, in Europe and in Asia.
The relationship we have built with our partner are absolutely critical, I’ve actually gone to several clients together with the CEO of one of these large companies, as you know together and I think there is an equal understanding on both sides on the technology side, on the service side that you know, when we are together, able to offer a cohesive unified proposal to a client, we reduce a lot the level of risks for him, and this is what has been happening.
So I would say, you probably, I don’t know if you realized also that in our five priority strategy laid out and presented to the market in November — in October actually, we have presented a point around the way we want to leverage our relationship with partners. We have created a very tall partner relationship team inside Wipro with a very senior leader managing this and Vice President managing each of these relationships, so that we are taking them to another level. There is huge appetite on both sides. And for the discussions — and I’ve engaged with all of them obviously, on deals not only at the corporate level, but on deals. There’s equal appetite on both sides to work and you will hear more about the type of partnership that we will build together with several of them.
Sandip Agarwal — Edelweiss Securities Limited — Analyst
Yeah. Thanks. Thanks a lot for the detailed explanation. And wish you best of luck for the current quarter. Thanks. And wish you happy new year once again, thank you.
Thierry Delaporte — Chief Executive Officer and Managing Director
Thank you, Sandip.
Operator
Thank you. The next question is from the line of Sudheer Guntupalli from ICICI Securities, please go ahead.
Sudheer Guntupalli — ICICI Securities — Analyst
Yeah, good evening, gentlemen, congrats on a good quarter and thanks for giving me this opportunity. Thierry, for Wipro historically H2 has been relatively better versus industry. Secondly, given the drop in the revenue run rate over the first six months of this calendar and the subsequent recovery over September and December, mathematically there looks some more scope for residual recovery in March. In addition, we’ve also been talking about strong deals and momentum over the previous six months. So if we put these things into perspective, it looks like the outlook for the next quarter could have been tad higher. Would be glad to know your thoughts if we are being conservative here or if there is some other element.
Thierry Delaporte — Chief Executive Officer and Managing Director
No, I don’t try to be conservative. I really try to define together with Jatin and the leadership team, where we believe we will land. So there is no — don’t read any game here. I think this is just realize the context we are in, we have had certainly a good quarter, we continue to have a good quarter four as well. We are in the context of the transition into the new model, this is growing swiftly. But those are conditions that feel that probably we feel comfortable with the 1.5% to 3.5% growth for Q4, which I believe is a good one. And more importantly, Sudheer, also for us, the — we have the ambition — we don’t want to shine one quarter, we want to build solidly quarter after quarter and be consistent. And I think this is — this is the — the rationale behind our communication as well.
So we are building solidly this growth engine.
Sudheer Guntupalli — ICICI Securities — Analyst
Sure, Thierry. And just one question for Jatin, in terms of margins, of course, as you rightly pointed out earlier some of the factors like when travel will resume and all might not be under our control, so we may not be able to hazard a guess over there. But in terms of some of the aspects like utilization, how comfortable are we at the current levels? Because, are we comfortable that this will sustain or probably there will be a round of hiring which can bring down the utilizations to an extent?
Jatin Dalal — Chief Financial Officer
So we have done a good job on utilization over I think last six quarters to seven quarters and we continue to do a good job. I’ll request Saurabh to share our talent planning strategy and how he sees the scope.
Saurabh Govil — President and Chief Human Resources Officer
Thanks Jatin. So from a people supply chain, three aspects, one is on the hiring that I think is a very robust hiring we had 5,000 plus net adds 14,000 gross hiring and we see that momentum continuing. We on-boarded freshers in Q3 and will continue in Q4. And it’s very broad-based across the globe. So that’s one.
Second is, attrition has held up for the last two quarters, we’ve been flat, but given the momentum in the market, I see this could be a rising trend in the coming quarter. And so, keeping these two in mind, if you look at our utilization for Q4, net of leave is typically a seasonal quarter of leave, it is actually same as for Q3 was same as Q2. And if you look at it from a — on a year-on-year basis, there’s a nearly 4% increase. So I personally believe we could also have some head space of another person to two to look up in this area.
So this is a strong operational lever for us. But from a supply side, I’m comfortable that we will — it will — we’ll make sure that we manage the growth momentum with no hiccups.
Sudheer Guntupalli — ICICI Securities — Analyst
Sure sir. Thanks and all the best to the team.
Operator
Thank you. The next question is from the line of Girish Pai from Nirmal Bang. Please go ahead.
Girish Pai — Nirmal Bang — Analyst
Yeah, thanks for the opportunity. Thierry just wanted to understand the nature of demand regarding cloud services. Do you see this being compressed over say the next 24 months to 36 months, and after that kind of going to fall off? So I’m basically talking about infrastructure as a service demand. That’s question number one, and then I have a subsequent question on the TCV.
Thierry Delaporte — Chief Executive Officer and Managing Director
You know, I was smiling listening to your question at the beginning, because I feel I’ve heard this question for several years already and my conviction is absolutely the contrary, Girish. So I think in my mind, it is going to be more, a lot more demand. The cloud environment is creating so much opportunity that companies will realize the potential of a true cloud environment on which they will want to develop new services, new solutions, new platforms, and so on and so I think for the foreseeable future, we will definitely serve on the cloud wave, but this is not a small wave, it’s a very big wave. And we are not at 30% of it.
Girish Pai — Nirmal Bang — Analyst
Okay. Jatin, a couple of data points, I want — this $1.2 billion TCV, is this completely net new? And the other question I had was, you know, you were talking about restructuring of your collapsing the management structure from — about people being reporting from like 24, 25 people to four people. How much of gains do you think you can extract from these two points? $1.2 billion TCV is this completely net new and the gains from the restructuring?
Jatin Dalal — Chief Financial Officer
Yeah, Girish. So first is, no it has both components in it, which means that, our renewal, as well as the new deals are part of this and we are not sharing the mix, but Girish, especially for this quarter, it is easy for you to see a component of new, because Metronom is sitting as part of this number and that you know is completely new.
So even in the rest of the — rest you apply a normal percentage you will see that there is a significant component of new in this $1.2 billion. I’m just sharing a color on this quarter, we probably will not give that mix moving — I mean as a data point, but this quarter is quite obvious for everyone to decipher.
Sorry, your second question was, Girish?
Girish Pai — Nirmal Bang — Analyst
The gains from this collapsing of the management structure, you know, people reporting to just four senior top level managers compared to say 24, 26 people. How much of gains do you see from that?
Jatin Dalal — Chief Financial Officer
Sure. You know, as we have said, for us this is around creating a simpler structure for a greater revenue momentum, a superior investment focus and sharper accountability. It’s not around cost, I’ll request Saurabh to also add his perspective.
Saurabh Govil — President and Chief Human Resources Officer
Yeah, I think the re-org is about making the organization agile and more client-centric. So that’s been the focus because our intent is to reinvest and really seeing a lot of leaders on boarding in the coming quarter as well as the next quarters as Thierry called out earlier. So don’t see that the cost exercised more, it is more about how do we make the organization more agile and client-centric.
Girish Pai — Nirmal Bang — Analyst
Okay, thank you.
Operator
Thank you. The next question is from the line of Abhishek Shindadkar from Elara Capital. Please go ahead.
Abhishek Shindadkar — Elara Securities (India) Private Limited — Analyst
Yeah, hi, thanks for the opportunity. My question is, the revenue per employee now despite a shift in the offshoring, that number is flat on a quarter-on-quarter basis. So it seems, it may helped on the gross margins as well. So just wanted to understand how sustainable these gross margins are once we shift back to non-work from home environment?
And the second question is for Thierry, whenever a large organization of Wipro size goes through a reorg, there is a substantial amount of a margin lever. Now, how much of the current quarter margins are coming from this reorg, and how much of it is kind of going to come over the next two, three-year period? Thank you.
Thierry Delaporte — Chief Executive Officer and Managing Director
Abhishek, frankly I’ll take — I’ll take that one. So one, we’ve shifted to this organization model on January 1st, so again this would not reflect much in term of savings. But again to insist on what Jatin said, yes, GDP is driving efficiency and productivity improvement, agreed. So what it means is that, you know, we will be more efficient and have a better impact in the market. But for the rest, the simplification and the rationalization of our model, we achieved somehow reducing the number, the need for many management roles is actually freeing up a lot of opportunities to reinvest into our future.
So that’s how we are seeing. Remember, we are really focused and obsessed about growth and want to really invest and prepare us with always more differentiated solutions, better offerings, and top talent. And so, the way we see things is we are constantly looking at ways to be more efficient, more nimble, avoid duplication, avoid inconsistencies, reduce layers of leadership, we have reduced the number of layers in our organization, increase the span of control and all of that driving savings that we are reinvesting into our engine going forward.
That is why also, of course, we believe we will be able to accelerate our growth.
Jatin Dalal — Chief Financial Officer
Yeah. Abhishek, I’ll answer your first question. You know, revenue per employee as a metric is a great metric to track internally. It has various dimensions to it. First is, simply the price increases. Second is offshore mix, third is, the type of services that you are selling obviously DOP could have a much lower realization than IT services. Then there is an element of fixed price versus T&M.
So, you know we do track this internally and we are quite happy with the progress we have made over the quarters. But difficult to comment externally the movement and make it insightful for — insightful for you beyond a point, but I can tell you that we watch it carefully every quarter, and we have comfort in the way we have moved. More prominent impacts in recent times has been on offshoring as I called out before, as well as accelerated growth that we have seen in our digital operations and platforms business.
Abhishek Shindadkar — Elara Securities (India) Private Limited — Analyst
Thank you for taking my question and best wishes for the next year. Thank you.
Jatin Dalal — Chief Financial Officer
Thank you.
Operator
Thank you. The next question is from the line of Rishit from Nomura. Please go ahead.
Rishit Parikh — Nomura — Analyst
Hi, thanks for taking my question. Just two questions from my side. [Technical Issues]. We’ve talked about some of the investments around sales, expanding into some of the strategic markets and hiring senior management, right. When do you expect that process to get completed? That’s one. And second is, if you could just provide a little more color on what is the quantum of wage hike that you’ve planned in the next quarter. Thank you.
Thierry Delaporte — Chief Executive Officer and Managing Director
Rishit, I’m sorry, I really did not understand anything. You came very muffled. It was difficult to understand. Can you — any chance you can get closer to the phone or…
Rishit Parikh — Nomura — Analyst
Let me repeat the question. We’ve talked about investments around sales, expanding into some of the strategic markets and hiring some of the senior management roles, right.
Thierry Delaporte — Chief Executive Officer and Managing Director
Yes.
Rishit Parikh — Nomura — Analyst
Could you provide us a sense of when do you expect those investments to be complete? That’s one. And second, if you could just provide some color on what quantum of wage hikes have you planned for the next quarter.
Thierry Delaporte — Chief Executive Officer and Managing Director
What quantum, what? Sorry, what — The first question I understood. What quantum of…
Jatin Dalal — Chief Financial Officer
Quantum of pay hikes.
Rishit Parikh — Nomura — Analyst
Quantum of wage hikes.
Thierry Delaporte — Chief Executive Officer and Managing Director
Okay. Okay, quantum of pay hikes. Okay. All right. So, I’ll take the first one and Saurabh I will give the — I’ll give you the second one, okay?
Saurabh Govil — President and Chief Human Resources Officer
Sure.
Thierry Delaporte — Chief Executive Officer and Managing Director
So the — to be honest, it’s Rishit, it’s an ongoing process. We are going to be active on talent acquisition, very active, probably more than what you’ve seen us in the recent past. And so, you know, we are going to obviously, you will see every time we bring new talent in a new role, we have many key roles in the organization that will on board top talent in the near future. And I’m not talking here about six months from now. It’s literally in the — it starts in the weeks to come. And that’s going to be as well the year of 2020.
Certainly, you know, my view is that by the end of Q4, which is, you know, the first quarter in the new model, we will have more or less all the key roles filled in, all the main key roles filled in. But then, we will continue to stay active. This is a journey as I said several times, so we will not consider we’ve arrived after three months, we’ll continue to constantly invest and constantly look for the best talent in the industry.
Saurabh Govil — President and Chief Human Resources Officer
Rishit, on the wage hikes, as we have called out, three things, one is, specific to wage hikes, we will have about 80% of our workforce getting increases effective 1st of January. Typically, this will have a wide range depending on performance and, but on an India basis between 5% and 6% will be an average wage hike and overseas we believe at being 1% and 2%. So that’s how — on an average versus wage hikes. This is in line with what is happening in the industry and what we had done in the previous years. Apart from that, we’ve also done called out a 100% variable pay plans for Q4 for all our employees.
So that’s another factor to that.
Rishit Parikh — Nomura — Analyst
Sure. Thank you. And just — I did not hear the earlier response, but the quantum — the wage hike cycle will be as usual in the next year, right. Is that what you’re sort of aiming for or…
Saurabh Govil — President and Chief Human Resources Officer
We will — it’s early because our next cycle typically is in June. So we will take stock of that at an appropriate time depending on what’s happening in the market industry kind of stuff. But as of now, we have planned it for the people and the closer the date we will take stock on what we do for the next year.
Rishit Parikh — Nomura — Analyst
Got it. Thank you.
Operator
Thank you. The next question is from the line of Dipesh Mehta from Emkay Global. Please go ahead.
Dipesh Mehta — Emkay Global — Analyst
Yeah. Thanks for the opportunity. Couple of questions. First about, we are seeing significant increase in impairment charges, and just wondered if EBITDA margin expansion is even more substantial. So if you can provide some color how much — how you expect this impairment charges to play out over next couple of quarters.
And second question is about India SRE business, it’s showing significant turnaround. Do you think it is now more sustainable from operational performance perspective or you think we need to work around more to get more sustainable performance from India SRE. Thank you.
Thierry Delaporte — Chief Executive Officer and Managing Director
So I’ll take — I’ll take the second question on the SRE and I’ll let you Jatin answer the one on the impairment and strategy. So looking at the SRE business, so we have confirmed or reaffirmed our strategy focus in the SRE business in India. And from a topline standpoint, I think we are being a lot more selective and specific about the type of deals we are looking for.
And on the other hand, I think that frankly speaking, Sanjeev Singh, who is now Head of Operations for Wipro since January 1st has done an excellent job to normalize, improve the quality of the operations, bring discipline and best practices inside the organization. And so, I think the work is done on the margin. I will let Jatin complement. But on the margin side, it is certainly for good. It’s not a one-off.
Jatin Dalal — Chief Financial Officer
That’s right, Thierry. Dipesh, so — as you have seen, this is also not one quarter phenomena. Systematically, we have improved this margin by completing the unfinished projects by ensuring that the risk level in current execution is significantly lower and the surprises are well anticipated and dealt with, and they don’t — no longer come to additional expenditure to the Company.
So overall, we feel very comfortable with the trajectory of performance on ISRE both from the quality of revenue standpoint and margin standpoint. However, this quarter numbers are obviously on a greater scale of 20% and that I don’t think will sustain. It will remain early single-digit margins on a medium-term basis, that is our anticipated view of the sector. If it improves further, we will be also — we’ll be, of course, happy to share with you.
On impairment charges, yes, there has been some acceleration that we have — we had to take in the current quarter regarding one particular item, which is built in the impairment charges and we don’t anticipate that to recur. So it would be a one-off in the current quarter.
Dipesh Mehta — Emkay Global — Analyst
Is it possible to quantify?
Jatin Dalal — Chief Financial Officer
Yeah, that is reflected in the financials, and beyond that, we have not shared a color on that, Dipesh.
Operator
Mr. Mehta, do you have any further questions?
Dipesh Mehta — Emkay Global — Analyst
No, thank you.
Operator
Thank you. Ladies and gentlemen, we take the last question from the line of Nitin Padmanabhan from Investec. Please go ahead.
Nitin Padmanabhan — Investec — Analyst
Hi, good evening and happy new year to all of you. I had a question, it’s a little theoretical. So if you look at the pandemic, I think incrementally clients are having more work being done offshore. And what do you think in terms of by when they possibly reach country risk thresholds or any such thing? And would you think that this is here to stay? Or there’s likely to be a reverse shift on-site at some point? So that was my question. Thank you.
Thierry Delaporte — Chief Executive Officer and Managing Director
You know, it’s an interesting question. I can — look, you see it’s only prospective at this point in time. This is trying to project. If I reflect on the discussion I’ve had with our clients, what has happened over the last nine months, they’ve learned — it wasn’t the case before, they’ve learned through this crisis that they can work with teams that are not at the office.
So distance suddenly has become a different problem or less of a problem, or at least a problem that they could not picture handling and that they actually realized they can handle. So there’s definitely a reflection from many clients realizing that they can build, they can manage complex operations and operating model with teams that are not — that are in the distance. So that’s the first point.
The second point obviously is that there’s also a realization that if you do so then, you also need to have a small or smaller very, very connected team locally. So it’s actually really the two different aspects that play. One is, now we know that we can operate with a global model. We can operate with people working from home, and frankly, wherever your home is, right?
But also, it means you need to have pure team — people who are really next to you, connected with you 100%, even more than before, which pushes the logic of having less partner but stronger partners, right? And so this is — clearly, my view is that what we could offshore does not exist anymore. It’s all shores, right? It’s what — it’s the model under which a lot of clients will want to operate going forward. It will imply some people being close to them and people being away.
Whether it will modify the percentage, up or down, it will be to be seen. But certainly, if there was one proof of what has happened over the last nine months, we can provide an outstanding support to a company and service to a company, including strategic services with distance.
Nitin Padmanabhan — Investec — Analyst
Sure. That’s helpful. As a follow-on, I think do vendors typically have country-risk metrics? And if that’s the case, would they mandate having maybe offshore, but in other countries, other locations as well? And the second thing is, considering that there’s such a strong pickup offshore for everyone, do you expect wage inflation at some point? And by when do you think the industry would reach a point where wage inflation would be a point to worry? Thank you.
Thierry Delaporte — Chief Executive Officer and Managing Director
Okay. So I’ll let Saurabh on the second point, although I could comment as well, but I’ll let Saurabh — the first one, I would say — and obviously, it’s — there’s many companies, many clients who decide to have different platforms to leverage around the world and not necessarily limit to one single country. It can be the choice, and we can choose different places in South America, in Eastern Europe, in other places in Asia. What is clear though is that at the end of the day, it’s tough to know where this market and the scale and the quality of the talent is not evenly spread around the world. And so, you know that depending on the choices you make there will be, at some point in time a limitation in terms of scale.
That’s why, in my view, India will continue to have a unique position, one in terms of concentration of technology expertise and talent, but also in terms of quality of the expertise.
Saurabh Govil — President and Chief Human Resources Officer
And on your second part, very typically when we’re seeing huge demand and huge hiring here the market is, we will see a pressure. But as of now, we don’t see we are coming out of a period where the demand was less two quarters back. So we are very comfortable right now. But we’ll assess that as it goes forward. But in any cycle if the demand is high, there would be a pressure on wage but not at the moment.
Nitin Padmanabhan — Investec — Analyst
Sure. Very helpful. Thank you so much and all the very best.
Thierry Delaporte — Chief Executive Officer and Managing Director
Thank you.
Operator
Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Aparna Iyer for closing comments. Ms. Iyer, may we request you to unmute your line from your side.
Aparna Iyer — Vice President and Corporate Treasurer
Thank you, Stanford. Thank you all for joining the call. In case we couldn’t take any of your questions, please feel free to reach out to the Investor Relations team. Wish you all a very happy new year, and good night and good day.
Thierry Delaporte — Chief Executive Officer and Managing Director
Thank you. Bye.
Jatin Dalal — Chief Financial Officer
Thank you, and bye.
Operator
[Operator Closing Remarks].