Wipro(WIT) - 2022 Q4 - Annual Report

PART I Item 3. Key Information This section outlines Wipro's significant risks, covering company and industry, market operations, contractual obligations, investments, cost structure, workforce, and regulatory compliance Risks Related to Our Company and Our Industry The company faces unpredictable revenue and expense fluctuations, with high fixed costs making operating results sensitive to project variations and increasing the risk of missing financial expectations - Unpredictable revenue and expense fluctuations, coupled with high fixed costs for personnel and facilities, create significant volatility in operating results[34][35] - Factors outside the company's control, such as project timing, pricing pressure, currency fluctuations, and political uncertainties, can cause substantial variations in quarterly results[36][37] Risks Related to the Markets in which We and Our Clients Operate Wipro's revenue concentration in key clients and regions, alongside potential impacts from restrictive immigration laws, poses significant market and operational risks Client Concentration Risk (IT Services) | Metric | FY 2020 | FY 2021 | FY 2022 | | :--- | :--- | :--- | :--- | | Revenue from Largest Client | 3.2% | 3.1% | 3.2% | | Revenue from 10 Largest Clients | 19.7% | 19.5% | 20.0% | Geographic Revenue Concentration (IT Services) | Region | Revenue Contribution | | :--- | :--- | | Americas (incl. U.S.) | ~58.5% | | Europe | ~29.9% | - Changes to U.S. immigration laws could make it more difficult and costly to obtain nonimmigrant work visas for employees, potentially affecting the ability to provide timely and cost-effective services to U.S. clients[57][55] - The ongoing COVID-19 pandemic continues to pose a risk, potentially affecting customer spending, project timelines, and operational delivery due to health measures and economic uncertainty[187][188][190] Risks Related to Our Contractual Obligations The company faces risks from litigation, short-notice contract terminations, price reductions from benchmarking clauses, and potential adverse changes in key alliance partnerships - Many client contracts can be terminated with little or no notice (as little as 15 days) and without termination penalties, which could negatively impact revenue and profitability[67] - Some long-term contracts include benchmarking and most-favored-customer provisions, which could trigger price reductions and adversely affect future revenue and profitability[64] - The company is exposed to litigation risks for deficient services, data breaches, or violations of intellectual property rights, which could result in substantial damages and reputational harm[63] Risks Related to Our Investments Wipro's success hinges on adapting to rapid technological changes and managing risks associated with substantial investments in facilities, partnerships, and acquisitions, including potential impairment of goodwill and intangible assets - The IT services market is characterized by rapid technological changes in areas like AI, cloud, IoT, and blockchain. Failure to anticipate and respond to these advances could render services obsolete[69][72] - The company has made substantial investments in new facilities and infrastructure, with contractual capital expenditure commitments of ₹11,376 million as of March 31, 2022. If business growth does not offset these increased fixed costs, profitability could be reduced[73] - Future acquisitions are subject to risks including failure to discover liabilities during due diligence, difficulties in integration, and not realizing expected synergies, which could harm operating results[76][77][78] - Goodwill and intangible assets from acquisitions have increased significantly and are subject to annual impairment reviews, which could lead to material charges against earnings[82] Risks Related to our Cost Structure Wipro's profitability is sensitive to its cost structure, facing risks from inaccurate fixed-price contract pricing, rising Indian wages, and adverse foreign currency exchange rate fluctuations - Pricing for fixed-price and outsourcing contracts is based on internal forecasts which may be inaccurate, creating a risk of cost overruns and unprofitable projects[84][85][86] - Wage increases in India could erode the company's competitive cost advantage and reduce profit margins, as competition for skilled professionals intensifies[91] - With 98.3% of revenue from IT Services and a significant portion in foreign currencies (like USD, GBP, EUR) while costs are largely in INR, appreciation of the Indian Rupee can adversely affect revenue and operating results[94] Risks Related to Our Workforce Wipro's success depends on attracting, training, and retaining skilled professionals, as intense competition for talent could impair its ability to secure new projects and expand business - The company's ability to execute projects and acquire new clients is heavily dependent on attracting and retaining highly skilled professionals, especially in a competitive market[99] - Failure to manage employee hiring and attrition to maintain a stable workforce, or to re-skill employees to keep pace with technological changes, could adversely affect revenues and financial condition[101] Risks Related to Our Operations Operational risks include managing growth, complying with data privacy laws, protecting against cyber-attacks, and safeguarding intellectual property, with failure potentially leading to reputational and financial harm - The company is subject to numerous and changing data privacy laws globally, such as GDPR in Europe and CCPA/CPRA in California. Non-compliance can result in significant fines, liability, and reputational harm[104][108][109] - Cyber-attacks and security incidents pose a significant threat to the company's IT infrastructure, potentially leading to data breaches, financial loss, and reputational damage. The shift to remote work due to COVID-19 has increased this risk[119][121][124] - The company's intellectual property is crucial to its business. The enforcement of IP rights in India is not as robust as in the U.S., and unauthorized use or infringement claims could be time-consuming and expensive to defend[133][134] Risks Related to Legislation and Regulatory Compliance Operating globally exposes Wipro to diverse and conflicting legal and regulatory requirements, including tax and transfer pricing changes, which could increase effective tax rates and impact profitability - The company benefits from tax incentives for units in Special Economic Zones (SEZs). However, new SEZs commencing operations after March 31, 2021, are not entitled to these tax exemptions, which may increase future tax outflows[152] - Compliance with various transfer pricing regulations in India and other countries is required. Failure to comply could impact effective tax rates and net margins[158] - The company's ability to acquire companies outside India is subject to approval from the Government of India and/or the Reserve Bank of India, which could restrict international growth if not obtained[161] Risks Related to the ADSs ADS holders face risks from Indian political and economic developments, USD/INR exchange rate fluctuations, foreign investment restrictions, takeover regulations, and potential dilution due to inability to exercise preemptive rights - The price of ADSs and the U.S. dollar value of dividends are exposed to fluctuations in the USD/INR exchange rate, as the underlying shares trade in Indian Rupees[169] - India's Takeover Code applies to ADS holders. Acquiring 5% or more of shares or voting rights triggers disclosure requirements, and acquiring 25% or more triggers a mandatory open offer to other shareholders[173][174] - ADS holders may be unable to exercise preemptive rights for new share issuances unless a registration statement is filed in the U.S., which the company is not obligated to do. This could result in the dilution of their proportional interest[176] Item 4. Information on the Company Wipro is a global IT, consulting, and BPS company with over 240,000 employees, structured into IT Services, IT Products, and ISRE segments, with a strategy focused on growth, client partnerships, talent, and operational simplification, supported by strategic acquisitions Company and Business Overview Wipro is a global IT, consulting, and BPS company with over 240,000 employees, operating through IT Services, IT Products, and ISRE segments, and recently adopted a new organizational structure to enhance market and customer focus - Wipro is a global IT, consulting, and business process services (BPS) company with over 240,000 employees[194][195] - The business is structured into three segments: IT Services, IT Products, and India State Run Enterprise (ISRE)[201] - A new organizational structure was adopted, consisting of four Strategic Market Units (SMUs) and two Global Business Lines (GBLs) to simplify market execution and improve sector focus[202] Capital Expenditures and Divestitures Wipro actively engages in M&A, acquiring companies like Capco and Rizing to bolster capabilities, with capital expenditures totaling ₹20,153 million in FY2022 primarily for facilities and IT assets, alongside a divestiture of Denim Group - Key acquisitions in the last three fiscal years include Capco, Ampion, Edgile, LeanSwift, and Rizing, aimed at strengthening capabilities in financial services consulting, cybersecurity, and SAP solutions[207][208] Capital Expenditure Trend | Fiscal Year Ended March 31 | Capital Expenditure (₹ in millions) | | :--- | :--- | | 2020 | 23,497 | | 2021 | 19,577 | | 2022 | 20,153 | - As of March 31, 2022, Wipro had contractual commitments of ₹11,376 million for capital expenditures[211] Our Business Strategy Wipro's strategy focuses on accelerating growth, strengthening client partnerships, leading with business solutions, building talent at scale, and simplifying its operating model to be a trusted partner in client transformation journeys - The company's strategy is centered on five key priorities: Accelerate growth, Strengthen clients and partnerships, Lead with business solutions, Build talent at scale, and a Simplified operating model[232] - In FY2022, top five and top ten IT Services customers grew 31.5% and 30.5% YoY, respectively. Large deal total contract value was $2.3 billion[238] - M&A is integral to the strategy, with recent acquisitions like Capco strengthening local presence and capabilities. Capco achieved double-digit growth in FY2022[242] - The operating model is simplified into four Strategic Market Units (SMUs) and two Global Business Lines (GBLs: iDEAS and iCORE) to improve go-to-market focus and delivery[250][251] Operating Segment Overview Wipro operates through IT Services, IT Products, and ISRE segments, with IT Services dominating FY2022 revenue (98.3%) and operating income (99.1%), and its offerings organized under iDEAS and iCORE Global Business Lines Segment Revenue (FY 2022) | Segment | Revenue (₹ in millions) | % of Total Revenue | | :--- | :--- | :--- | | IT Services | 781,824 | 98.3% | | IT Products | 6,173 | 0.8% | | ISRE | 7,295 | 0.9% | | Total | 795,289 | 100.0% | Segment Operating Income (FY 2022) | Segment | Operating Income (₹ in millions) | % of Total Operating Income | | :--- | :--- | :--- | | IT Services | 139,078 | 99.1% | | IT Products | 115 | 0.1% | | ISRE | 1,173 | 0.8% | | Total | 140,286 | 100.0% | IT Services Client Count by Revenue | Per client revenue (US$) | FY 2021 | FY 2022 | | :--- | :--- | :--- | | 1-3 million | 217 | 269 | | 3-5 million | 92 | 113 | | 5-50 million | 217 | 247 | | 50-100 million | 29 | 31 | | > 100 million | 11 | 19 | | Total > 1 million | 566 | 679 | Item 5. Operating and Financial Review and Prospects Wipro's FY2022 revenue grew 27.77% to ₹795,289 million, driven by IT Services, while profit attributable to equity holders increased 13.20% to ₹122,191 million, despite a 218 bps operating margin decline due to higher costs and strategic shifts in other segments Results of Operations In FY2022, total revenue increased 27.77% to ₹795,289 million, but gross and operating margins declined by 199 bps and 218 bps respectively, primarily due to a 31.35% rise in cost of revenues, despite a 13.20% increase in profit attributable to equity holders Consolidated Financial Highlights (FY2022 vs FY2021) | Metric | FY 2021 (₹ in millions) | FY 2022 (₹ in millions) | YoY Change | | :--- | :--- | :--- | :--- | | Revenue | 622,425 | 795,289 | 27.77% | | Gross Profit | 199,220 | 239,417 | 20.18% | | Operating Income | 123,053 | 140,286 | 14.00% | | Profit attributable to equity holders | 107,946 | 122,191 | 13.20% | | Gross Margin | 32.01% | 30.02% | (199) bps | | Operating Margin | 19.77% | 17.59% | (218) bps | | Diluted EPS (₹) | 19.07 | 22.29 | 16.88% | - Cost of revenues increased by 31.35% YoY, primarily due to higher employee compensation from salary increases and acquisitions, increased sub-contracting costs, and facility expenses as employees partially returned to offices[340] - The effective tax rate decreased from 21.83% in FY2021 to 19.13% in FY2022, primarily due to certain audit closures for past years[346] Analysis of Revenue and Results by Segment In FY2022, IT Services revenue grew 29.05% to ₹781,824 million despite a 254 bps margin decline, while IT Products revenue fell 19.67% to ₹6,173 million and ISRE revenue decreased 18.14% to ₹7,295 million, though ISRE's margin significantly improved by 417 bps IT Services Segment Results (FY2022 vs FY2021) | Metric | FY 2021 (₹ in millions) | FY 2022 (₹ in millions) | YoY Change | | :--- | :--- | :--- | :--- | | Revenue | 605,815 | 781,824 | 29.05% | | Segment Results | 122,850 | 139,078 | 13.21% | | Segment Margin | 20.28% | 17.74% | (254) bps | IT Products Segment Results (FY2022 vs FY2021) | Metric | FY 2021 (₹ in millions) | FY 2022 (₹ in millions) | YoY Change | | :--- | :--- | :--- | :--- | | Revenue | 7,685 | 6,173 | (19.67)% | | Segment Results | 45 | 115 | 155.56% | | Segment Margin | 0.59% | 1.86% | 127 bps | ISRE Segment Results (FY2022 vs FY2021) | Metric | FY 2021 (₹ in millions) | FY 2022 (₹ in millions) | YoY Change | | :--- | :--- | :--- | :--- | | Revenue | 8,912 | 7,295 | (18.14)% | | Segment Results | 1,061 | 1,173 | 10.56% | | Segment Margin | 11.91% | 16.08% | 417 bps | Liquidity and Capital Resources As of March 31, 2022, Wipro held ₹345,491 million in cash and short-term investments, with operating cash flow decreasing to ₹110,797 million due to higher working capital, while investing activities used ₹224,495 million primarily for acquisitions, and financing activities generated ₹46,586 million from borrowings Cash Flow Summary (FY2022 vs FY2021) | Activity | FY 2021 (₹ in millions) | FY 2022 (₹ in millions) | | :--- | :--- | :--- | | Net Cash from Operating Activities | 147,550 | 110,797 | | Net Cash from/(used in) Investing Activities | 7,739 | (224,495) | | Net Cash from/(used in) Financing Activities | (128,840) | 46,586 | - The decrease in operating cash flow was primarily due to increased working capital, with a ₹43,229 million negative impact from higher trade receivables, unbilled receivables, and contract assets[403] - The company had cash and cash equivalents plus short-term investments of ₹345,491 million and unutilized credit lines of ₹56,685 million as of March 31, 2022[401][402] Item 6. Directors, Senior Management and Employees This section details Wipro's Board and senior management, including executive compensation, and highlights the company's growing employee base of over 240,000 and its talent management strategies, along with the structure of key board committees Executive Compensation (Fiscal Year 2022) | Name | Position | Total Compensation (US$) | | :--- | :--- | :--- | | Rishad A. Premji | Chairman | 1,819,022 | | Thierry Delaporte | CEO and Managing Director | 10,519,174 | | Jatin Pravinchandra Dalal | President and CFO | 1,591,142 | Employee Headcount Trend | As of March 31 | Employee Count | | :--- | :--- | | 2020 | > 175,000 | | 2021 | > 200,000 | | 2022 | > 240,000 | - As of March 31, 2022, the Board consisted of nine directors: two executive directors, one non-executive non-independent director, and six independent directors[427] Item 7. Major Shareholders and Related Party Transactions As of March 31, 2022, the promoter group, led by Azim H. Premji, beneficially owned approximately 73.00% of Wipro's outstanding equity shares, with all related party transactions conducted at arm's length Major Shareholder Ownership (as of March 31, 2022) | Name of Beneficial Owner | Class of Security | Shares Beneficially Held | % of Total Shares Outstanding | | :--- | :--- | :--- | :--- | | Azim H. Premji (and promoter group) | Equity | 4,001,950,248 | 73.00% | - As of March 31, 2022, 2.46% of the company's equity shares were held through ADSs by approximately 55,700 record holders[498] Item 8. Financial Information This section confirms the report includes IFRS-compliant consolidated financial statements and highlights Wipro's significant reliance on international business, with export revenue accounting for 97% of total segment revenues in FY2022 Export Revenue as a Percentage of Total Segment Revenue | Year Ended March 31 | Export Revenue (₹ in millions) | Total Segment Revenue (₹ in millions) | % of Total | | :--- | :--- | :--- | :--- | | 2020 | 584,027 | 613,401 | 95% | | 2021 | 595,269 | 622,425 | 96% | | 2022 | 769,350 | 795,289 | 97% | Item 9. The Offer and Listing Wipro's equity shares trade on the BSE and NSE in India, while its ADSs, each representing one equity share, are traded on the NYSE under the ticker 'WIT' - Equity shares are traded on the BSE and NSE in India. ADSs are traded on the NYSE under the ticker 'WIT'[510][514] - As of March 31, 2022, the company had 5,482,070,115 equity shares outstanding[511] Item 10. Additional Information This section details Wipro's corporate structure, shareholder rights, and the Indian regulatory environment, including tax implications for shareholders under both Indian and U.S. federal income tax laws - The company's Articles of Association set the board size between four and fifteen directors, with at least two-thirds subject to retirement by rotation, excluding independent directors[534] - Dividends are declared by the Board and approved by shareholders. For FY2022, a total dividend of ₹6 per share was declared[541][542] - The section details Indian regulations such as the Takeover Code, SEBI Listing Regulations, and Foreign Direct Investment (FDI) policies, which impact shareholders and ADS holders[612][615][635] - A detailed summary of Indian and U.S. federal tax implications for holding and disposing of shares/ADSs is provided, covering capital gains, dividends, and potential classification as a Passive Foreign Investment Company (PFIC)[658][681] Item 11. Quantitative and Qualitative Disclosures About Market Risk Wipro is exposed to market risks from foreign currency fluctuations, interest rate changes, and credit risk, managed by its treasury department using derivatives to hedge foreign exchange exposure arising from significant USD revenue and INR cost base - The company's primary market risk is foreign currency risk, as a significant portion of revenue is in USD, GBP, EUR, AUD, and CAD, while a large portion of costs are in INR[707] - As of March 31, 2022, a ₹1 increase in the INR/USD exchange rate would result in an approximate ₹3,159 million decrease in the fair value of its USD-denominated derivative instruments[710] - A 100 basis point increase in interest rates would result in an additional net annual interest expense of approximately ₹951 million on floating-rate borrowings as of March 31, 2022[711] Item 12. Description of Securities Other Than Equity Securities This section primarily details fees and charges for American Depositary Receipt (ADR) holders under the Deposit Agreement with JPMorgan Chase Bank, N.A., as the company does not have other reportable non-equity securities - The Depositary (JPMorgan Chase Bank, N.A.) charges ADS holders fees for various services, including up to $5.00 per 100 ADSs for issuance or surrender, and up to $0.05 per ADS for cash distributions[722][723] - During the year ended March 31, 2022, the Depositary reimbursed the company $453,249 for expenses related to the ADR program[725] PART II Item 15. Controls and Procedures Management concluded that Wipro's disclosure controls and internal control over financial reporting were effective as of March 31, 2022, a conclusion affirmed by an unqualified opinion from Deloitte Haskins & Sells, LLP - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2022[729] - Management assessed internal control over financial reporting based on the COSO framework and concluded it was effective as of March 31, 2022[733] - The independent auditor, Deloitte Haskins & Sells, LLP, issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting[734][735] Item 16. Corporate Governance and Other Disclosures This section covers Wipro's corporate governance, including the Audit Committee Financial Expert, Codes of Ethics and Conduct, ₹235 million in fees paid to Deloitte in FY2022, and significant differences between Indian and NYSE corporate governance standards - The Board has identified Mr. Deepak M. Satwalekar as the Audit Committee Financial Expert[748] - The company has adopted a Code of Ethics for senior financial officers and a broader Code of Business Conduct, both available on its website[749][751] Principal Accountant Fees (Deloitte) | Fee Category | FY 2021 (₹ in millions) | FY 2022 (₹ in millions) | | :--- | :--- | :--- | | Audit fees | 83 | 138 | | Tax fees | 44 | 78 | | All other fees | 13 | 19 | | Total | 140 | 235 | - Significant differences exist between Indian corporate governance rules and NYSE standards, particularly regarding the required percentage of independent directors on the board and the composition of the audit committee[762] PART III Item 18. Financial Statements This section presents Wipro's audited consolidated financial statements for FY2022, prepared under IFRS, including the Statements of Financial Position, Income, Comprehensive Income, Changes in Equity, and Cash Flows, all with an unqualified opinion from Deloitte Haskins & Sells LLP Consolidated Statement of Financial Position As of March 31, 2022, Wipro's total assets increased to ₹1,079,182 million, driven by a rise in goodwill from acquisitions, with total equity growing to ₹658,158 million and total liabilities increasing to ₹420,509 million due to higher borrowings Key Balance Sheet Items (As of March 31) | Item | 2021 (₹ in millions) | 2022 (₹ in millions) | | :--- | :--- | :--- | | Total Assets | 831,434 | 1,079,182 | | Goodwill | 139,127 | 246,989 | | Cash and cash equivalents | 169,793 | 103,836 | | Total Liabilities | 276,841 | 420,509 | | Total Equity | 554,593 | 658,673 | Consolidated Statement of Income For FY2022, Wipro's revenues increased 27.7% to ₹790,934 million, with gross profit rising to ₹235,062 million, and profit attributable to equity holders growing 13.2% to ₹122,191 million, resulting in diluted EPS of ₹22.29 Key Income Statement Data (Year ended March 31) | Metric | 2021 (₹ in millions) | 2022 (₹ in millions) | | :--- | :--- | :--- | | Revenues | 619,430 | 790,934 | | Gross Profit | 196,225 | 235,062 | | Results from operating activities | 123,053 | 140,286 | | Profit for the year | 108,662 | 122,329 | | Profit attributable to equity holders | 107,946 | 122,191 | | Diluted EPS (₹) | 19.07 | 22.29 | Consolidated Statement of Cash Flows For FY2022, net cash from operating activities decreased to ₹110,797 million due to higher working capital, while investing activities resulted in a ₹224,495 million outflow primarily for acquisitions, and financing activities generated ₹46,586 million, leading to an overall ₹67,112 million decrease in cash and cash equivalents Key Cash Flow Data (Year ended March 31) | Activity | 2021 (₹ in millions) | 2022 (₹ in millions) | | :--- | :--- | :--- | | Net cash from operating activities | 147,550 | 110,797 | | Net cash from/(used in) investing activities | 7,739 | (224,495) | | Net cash from/(used in) financing activities | (128,840) | 46,586 | | Net change in cash and cash equivalents | 26,449 | (67,112) |