20-F 1 d548270d20f.htm FORM 20-F FORM 20-F
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 20-F

 

 

(Mark One)

¨ Registration statement pursuant to section 12(b) or (g) of the Securities Exchange Act of 1934

OR

 

x Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended March 31, 2013

OR

 

¨ Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                      to                     

OR

 

¨ Shell Company Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of event requiring this shell company report                     

Commission File Number 001-16139

 

 

WIPRO LIMITED

(Exact name of Registrant as specified in its charter)

 

 

Not Applicable

(Translation of Registrant’s name into English)

 

 

Bangalore, Karnataka, India

(Jurisdiction of incorporation or organization)

 

 

Doddakannelli

Sarjapur Road

Bangalore, Karnataka 560035, India

+91-80-2844-0055

(Address of principal executive offices)

 

 


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Suresh C. Senapaty, Chief Financial Officer and Director

Phone: +91 80 28440055; Fax: +91 80 28440104

(Name, telephone, email and/or facsimile number and address of company contact person)

 

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Name of each exchange on which registered

American Depositary Shares, each represented by one

Equity Share, par value Rs. 2 per share.

  New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

Not Applicable

(Title of Class)

 

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 2,462,934,730 Equity Shares.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    No  ¨

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act, 1934.    Yes  ¨    No  x

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large Accelerated Filer   x    Accelerated Filer   ¨   Non-Accelerated Filer   ¨

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP

  ¨    International Financial Reporting Standards as issued by the International Accounting Standards Board  x     Other   ¨

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.    Item 17  ¨    Item 18  ¨

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

 

 

 


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Currency of Presentation and Certain Defined Terms

In this Annual Report on Form 20-F, references to “U.S.” or “United States” are to the United States of America, its territories and its possessions. References to “India” are to the Republic of India. References to “U.K.” are to the United Kingdom. Reference to “US” or “US$” or “dollars” or “U.S. dollars” are to the legal currency of the United States, references to “£” or “Pound Sterling” or “GBP” are to the legal currency of United Kingdom and references to “Rs.” or “rupees” or “Indian rupees” are to the legal currency of India. All amounts are in Indian rupees or in U.S. dollars unless stated otherwise. Our financial statements are presented in Indian rupees and translated into U.S. dollars solely for the convenience of the readers and are prepared in accordance with the International Financial Reporting Standards and its interpretations (“IFRS”), as issued by the International Accounting Standard Board (“IASB”). References to “Indian GAAP” are to Indian Generally Accepted Accounting Principles. References to a particular “fiscal” year are to our fiscal year ended March 31 of such year.

All references to “we,” “us,” “our,” “Wipro” or the “Company” shall mean Wipro Limited and, unless specifically indicated otherwise or the context indicates otherwise, our consolidated subsidiaries. “Wipro” is our registered trademark in the United States and India. All other trademarks or trade names used in this Annual Report on Form 20-F are the property of their respective owners.

Except as otherwise stated in this Annual Report, all convenience translations from Indian rupees to U.S. dollars are based on the certified foreign exchange rates published by Federal Reserve Board of Governors on March 29, 2013, which was Rs. 54.52 per US$ 1.00. No representation is made that the Indian rupee amounts have been, could have been or could be converted into United States dollars at such a rate or any other rate. Any discrepancies in any table between totals and sums of the amounts listed are due to rounding. Information contained in our website, www.wipro.com, is not part of this Annual Report.

Forward-Looking Statements May Prove Inaccurate

In addition to historical information, this Annual Report on Form 20-F contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are not historical facts but instead represent our beliefs regarding future events, many of which are, by their nature, inherently uncertain and outside our control. As a result, the forward-looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements, and reported results should not be viewed as an indication of future performance. For a discussion of some of the risks and important factors that could affect the firm’s future results and financial condition, please see the sections entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Quantitative and Qualitative Disclosure About Market Risk.”

The forward-looking statements contained herein are identified by the use of terms and phrases such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “objectives,” “outlook,” “probably,” “project,” “will,” “seek,” “target” and similar terms and phrases. Such forward-looking statements include, but are not limited to, statements concerning:

 

   

our strategy to finance our operations, including our planned construction and expansion;

 

   

future marketing efforts, advertising campaigns, and promotional efforts;

 

   

future growth and market share projections, including projections regarding developments in technology and the effect of growth on our management and other resources;

 

   

the effect of facility expansion on our fixed costs;

 

   

our future expansion plans;

 

   

our future acquisition strategy, including plans to acquire or make investments in complementary businesses, technologies, services or products, or enter into strategic partnerships with parties who can provide access to those assets;

 

   

the future impact of our acquisitions;

 

   

our strategy and intentions regarding new product branding;

 

   

the future competitive landscape and the effects of different pricing strategies;

 

   

the effect of current tax laws, including the branch profit tax;

 

   

the effect of future tax laws on our business

 

   

the outcome of any legal proceeding, hearing, or dispute (including tax hearings) and the resulting effects on our business;

 

   

our ability to implement and maintain effective internal control over financial reporting;

 

   

projections that the legal proceedings and claims that have arisen in the ordinary course of our business will not have a material and adverse effect on the results of operations or the financial position of the Company;

 

   

expectations of future dividend payout;

 

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projections that our cash and cash equivalent along with cash generated from operations will be sufficient to meet our working capital requirements and certain of our obligations;

 

   

our compensation strategy;

 

   

projections regarding currency transactions, including the effect of exchange rates on the Indian rupee and the U.S. dollar;

 

   

the nature of our revenue streams, including the portion of our IT Services revenue generated from a limited number of corporate clients;

 

   

the effect of a strategically located network of software development centers, and whether it will provide us with cost advantages;

 

   

our ability to anticipate and develop new services and enhance existing services in order to keep pace with rapid changes in technology;

 

   

projections regarding future economic policy, legislation, foreign investment, currency exchange and other policy matters that may affect our business;

 

   

the nature and flexibility of our business model;

 

   

expectations as to our future revenue, margins, expenses and capital requirements; and

 

   

our exposure to market risks.

We wish to ensure that all forward-looking statements are accompanied by meaningful cautionary statements, so as to ensure to the fullest extent possible the protections of the safe harbor established in the Private Securities Litigation Reform Act of 1995. Accordingly, all forward looking statements are qualified in their entirety by reference to, and are accompanied by, the discussion of certain important factors that could cause actual results to differ materially from those projected in such forward-looking statements in this report, including the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We caution the reader that this list of important factors may not be exhaustive. We operate in rapidly changing businesses, and new risk factors emerge from time to time. We cannot predict every risk factor, nor can we assess the impact, if any, of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those projected in any forward-looking statements.

Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date hereof. In addition, readers should carefully review the other information in this Annual Report on Form 20-F and in the Company’s periodic reports and other documents filed with the Securities and Exchange Commission (“SEC”) from time to time.

 

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TABLE OF CONTENTS

 

Part I

       6   

Item 1.

 

Identity of Directors, Senior Management and Advisers

     6   

Item 2.

 

Offer Statistics and Expected Timetable

     6   

Item 3.

 

Key Information

     7   

Item 4.

 

Information on the Company

     28   

Item 4A

 

Unresolved Staff Comments

     43   

Item 5.

 

Operating and Financial Review and Prospects

     43   

Item 6.

 

Directors, Senior Management and Employees

     61   

Item 7.

 

Major Shareholders and Related Party Transactions

     72   

Item 8.

 

Financial Information

     75   

Item 9.

 

The Offer and Listing

     77   

Item 10.

 

Additional Information

     79   

Item 11.

 

Quantitative and Qualitative Disclosure About Market Risk

     94   

Item 12.

 

Description of Securities Other than Equity Securities

     95   

Part II

       96   

Item 13.

 

Defaults, Dividend Arrearages and Delinquencies

     96   

Item 14.

 

Material Modifications to the Rights of Security Holders and Use of Proceeds

     97   

Item 15.

 

Controls and Procedures

     98   

Item 16 A.

 

Audit Committee Financial Expert

     100   

Item 16 B.

 

Code of Ethics

     100   

Item 16 C.

 

Principal Accountant Fees and Services

     100   

Item 16 D.

 

Exemptions from the Listing Standards for Audit Committees

     101   

Item 16 E.

 

Purchase of Equity Securities by the Issuer and Affiliated Purchasers

     101   

Item 16 F.

 

Changes in registrant’s Certifying Accountant

     101   

Item 16 G.

 

Corporate Governance

     101   

Item 16 H.

 

Mine Safety Disclosure

     102   

Part III

       102   

Item 17.

 

Financial Statements

     102   

Item 18.

 

Financial Statements

     103   

Item 19.

 

Exhibits

     164   
 

EX-1.2

  
 

EX-12.1

  
 

EX-12.2

  
 

EX-13.1

  
 

EX-15.1

  

 

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PART I

 

Item 1. Identity of Directors, Senior Management and Advisers

Not applicable.

 

Item 2. Offer Statistics and Expected Timetable

Not applicable.

 

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Item 3. Key Information

Summary of Selected Consolidated Financial Data

The selected consolidated financial data should be read in conjunction with the consolidated financial statements, the related notes and operating and financial review and prospects which are included elsewhere in this Annual Report. The selected consolidated statements of income data for the five years ended March 31, 2013 and selected consolidated statements of financial position data as of March 31, 2009, 2010, 2011, 2012 and 2013 in Indian rupees have been derived from our audited consolidated financial statements and related notes, which have been prepared and presented in accordance with IFRS, as issued by the IASB. Historical results are not necessarily indicative of future results.

In accordance with IFRS 5 – Non-Current Assets Held for Sale and Discontinued Operations, the consolidated income statements have been adjusted retrospectively for all periods presented to reflect the completion of the demerger of the Company’s consumer care and lighting, infrastructure engineering and other non-IT business segments (collectively, the “Diversified Business”) into Wipro Enterprises Limited, effective on March 31, 2013. The Diversified Business is therefore presented as a discontinued operation. For additional information please see Note 4 of the Notes to the Consolidated Financial Statements.

 

(In millions, except per equity share data)  
    2009     2010     2011     2012     2013     2013
Convenience
Translation

into
US$(1)
 

Consolidated Statements of Income data:

           

Continuing operations

           

Revenues

  Rs. 227,735      Rs. 241,586      Rs. 271,437      Rs. 318,747      Rs. 374,256      US$ 6,865   

Cost of revenues

    (160,008     (166,504     (186,613     (225,794     (260,665     (4,781
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

  Rs. 67,727      Rs. 75,082      Rs. 84,824      Rs. 92,953      Rs. 113,591      US$ 2,083   

Selling and marketing expenses

    (12,270     (11,750     (14,043     (17,953     (24,213     (444

General and administrative expenses

    (13,060     (13,407     (16,843     (18,416     (22,032     (404

Foreign exchange gains/(losses), net

    (1,386     (753     503        3,328        2,626        48   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Results from operating activities

  Rs. 41,011      Rs. 49,172      Rs. 54,441      Rs. 59,912      Rs. 69,972      US$ 1,283   

Finance expense

    (3,843     (1,013     (1,924     (3,371     (2,693     (49

Finance and other income

    5,101        4,346        6,631        8,982        11,317        208   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit before tax

  Rs. 42,269      Rs. 52,505      Rs. 59,148      Rs. 65,523      Rs. 78,596      US$ 1,442   

Income tax expense

    (5,510     (8,365     (8,878     (12,955     (16,912     (310
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit for the year from continuing operations

  Rs. 36,759      Rs. 44,140      Rs. 50,270      Rs. 52,568      Rs. 61,684      US$ 1,132   

Discontinued operations

           

Profit after tax for the year from discontinued operations

  Rs. 2,101      Rs. 1,977        3,051        3,419        5,012        92   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit for the year

  Rs. 38,860      Rs. 46,117      Rs. 53,321      Rs. 55,987      Rs. 66,696      US$ 1,224   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit attributable to:

           

Equity holders of the Company

  Rs. 38,761      Rs. 45,932        52,977        55,730        66,359        1,218   

Non-controlling interest

    99        185        344        257        337        6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit for the year

  Rs. 38,860      Rs. 46,117      Rs. 53,321      Rs. 55,987      Rs. 66,696      US$ 1,224   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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    2009     2010     2011     2012     2013     2013
Convenience
Translation

into
US$(1)
 

Profit from continuing operations attributable to:

           

Equity holders of the Company

  Rs. 36,671      Rs. 43,967        49,938        52,325        61,362        1,126   

Non-controlling interest

    88        173        332        243        322        6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  Rs. 36,760      Rs. 44,139      Rs. 50,270      Rs. 52,568      Rs. 61,684      US$ 1,132   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per equity share:

           

Continuing operations

  Rs. 15.13      Rs. 18.10      Rs. 20.49      Rs. 21.36      Rs. 25.01        0.46   

Discontinued operations

    0.86        0.81        1.25        1.39        2.04        0.04   

Continuing and discontinued operations

  Rs. 15.99      Rs. 18.90      Rs. 21.73      Rs. 22.75      Rs. 27.05        0.50   

Diluted earnings per equity share:

           

Continuing operations

  Rs. 15.03      Rs. 17.94      Rs. 20.35      Rs. 21.29      Rs. 24.95        0.46   

Discontinued operations

    0.86        0.80        1.24        1.39        2.03        0.04   

Continuing and discontinued operations

  Rs. 15.89      Rs. 18.74      Rs. 21.59      Rs. 22.68      Rs. 26.98        0.49   

Weighted average number of equity shares used in computing earnings per equity share (2):

           

Basic

    2,423,944,803        2,429,675,750        2,437,492,921        2,449,777,457        2,453,218,759        2,453,218,759   

Diluted

    2,439,451,426        2,451,131,178        2,453,409,506        2,457,511,538        2,459,184,321        2,459,184,321   

Cash dividend per equity share paid

    4.00        4.00        8.00        6.00        6.00      US$ 0.11   

Additional data:

           

Revenue by segment (3)

           

IT Services

  Rs. 191,613      Rs. 202,490      Rs. 234,850      Rs. 284,313      Rs. 338,431      US$ 6,207   

IT Products

    34,277        38,205        36,910        38,436        39,238        720   

Consumer Care and Lighting (discontinued)

    19,249        22,584        27,258        33,401        40,594        745   

Others (discontinued)

    8,995        7,143        10,896        18,565        14,785        271   

Reconciling items

    1,204        1,152        1,073        534        560        10   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  Rs. 255,338      Rs. 271,574      Rs. 310,987      Rs. 375,249      Rs. 433,608      US$ 7,953   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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    2009     2010     2011     2012     2013     2013
Convenience
Translation

into
US$(1)
 

Operating income by segment

           

IT Services

  Rs. 40,288      Rs. 47,687      Rs. 53,407      Rs. 59,265      Rs. 69,933      US$ 1,283   

IT Products

    1,363        1,764        1,609        1,787        990        18   

Consumer Care and Lighting (discontinued)

    2,592        3,102        3,450        3,956        5,012        92   

Others (discontinued)

    (294     (836     (97     110        290        5   

Reconciling items

    (649     127        (701     (1,105     (1,079     (20
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  Rs 43,300      Rs. 51,844      Rs. 57,668      Rs. 64,013      Rs. 75,146      US$ 1,378   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated Statements of Financial Position Data:

           

Cash and cash equivalents

  Rs. 49,117      Rs. 64,878      Rs. 61,141      Rs. 77,666      Rs. 84,838      US$ 1,556   

Available for sale investments

    16,293        30,420        49,282        41,961        69,171        1,269   

Working capital (4)

    57,152        95,565        131,696        155,803        162,663        2,984   

Total assets

    284,255        329,928        371,443        436,001        439,730        8,065   

Total debt

    56,892        62,511        52,802        58,958        63,816        1,171   

Total equity

    147,381        196,549        240,371        286,163        284,983        5,227   

Number of shares outstanding

    1,464,980,746        1,468,211,189        2,454,409,145  (5)      2,458,756,228        2,462,934,730        2,462,934,730   

Notes:

 

1. Solely for the convenience of the readers, the selected consolidated financial data as of and for the year ended March 31, 2013, has been translated into United States dollars at the certified foreign exchange rate of US$1 = Rs. 54.52, as published by Federal Reserve Board of Governors on March 29, 2013.
2. Adjusted for stock dividend and for the grant of one employee stock option for every 8.25 employee stock options held by each eligible employee as of the Record Date of the Demerger, pursuant to the terms of the Scheme. Refer to Note 4 and 27 to the Consolidated Financial Statements for more information on the Demerger.
3. For the purpose of segment reporting only, we have included the impact of exchange rate fluctuations in revenue. Further, finance income on deferred consideration earned under multi-year payment terms in certain total outsourcing contracts is included in the revenue of the respective segment and is eliminated under reconciling items. Please see Note 31 of the Notes to the Consolidated Financial Statements for additional details.
4. Working capital equals current assets less current liabilities.
5. Adjusted for stock dividend.

 

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Exchange Rates

Fluctuations in the exchange rate between the Indian rupee and the U.S. dollar will affect the U.S. dollar equivalent of the Indian rupee price of our equity shares on the Indian stock exchanges and, as a result, will likely affect the market price of our American Depositary Shares, or ADSs, listed on the New York Stock Exchange, and vice versa. Such fluctuations will also affect the U.S. dollar conversion by our depositary for the ADSs, J. P. Morgan, or Depositary, of any cash dividends paid in Indian rupees on our equity shares represented by the ADSs.

The following table sets forth, for the fiscal years indicated, information concerning the amount of Indian rupees for which one U.S. dollar could be exchanged based on the certified foreign exchange rates published by the Federal Reserve Board of Governors. The column titled “Average” in the table below is the average of the certified foreign exchange rates on the last business day of each month during the year.

 

Fiscal Year Ended March 31,

   Period End      Average      High      Low  

2013

   Rs. 54.52       Rs. 54.36       Rs. 57.13       Rs. 50.64   

2012

     50.89         48.01         53.71         44.00   

2011

     44.54         45.46         47.49         43.90   

2010

     44.95         47.18         50.48         44.94   

2009

      50.87          46.32          51.96          39.73   

On June 7, 2013, the certified foreign exchange rate published by the Federal Reserve Board of Governors was Rs. 56.57.

The following table sets forth the high and low exchange rates for the previous six months based on the certified foreign exchange rates published by the Federal Reserve Board of Governors on each business day during the period:

 

Month

   High      Low  

May 2013

   Rs. 56.50       Rs. 53.65   

April 2013

     54.91         53.68   

March 2013

     54.92         54.06   

February 2013

     54.47         52.99   

January 2013

     55.20         53.21   

December 2012

      55.06          54.23   

Capitalization and Indebtedness

Not applicable.

Reasons for the Offer and Use of Proceeds

Not applicable.

 

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RISK FACTORS

This Annual Report contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth in the following risk factors and elsewhere in this Annual Report. The following risk factors should be considered carefully in evaluating us and our business.

Risks Related to our Company and our Industry

Our revenues and expenses are difficult to predict because they can fluctuate significantly given the nature of the markets in which we operate. This increases the likelihood that our results could fall below the expectation of market analysts, which could cause the market price of our equity shares and ADSs to decline.

Our revenue historically has fluctuated and may fluctuate in the future depending on a number of factors, including:

 

   

the size, complexity, timing, pricing terms and profitability of significant projects or product orders;

 

   

changes in our pricing policies or those of our competitors;

 

   

the proportion of services we perform at our clients’ sites rather than at our offshore facilities;

 

   

seasonal changes that affect the mix of services we provide to our clients or the relative proportion of services and product revenue;

 

   

seasonal changes that affect purchasing patterns among our consumers of desktops, notebooks, servers, communication devices and other products;

 

   

unanticipated cancellations, contract terminations or deferral of projects or those occurring as a result of our clients reorganizing their operations;

 

   

the duration of tax holidays or exemptions and the availability of other Government of India incentives;

 

   

the effect of seasonal hiring patterns and the time we require to train and productively utilize our new employees;

 

   

unanticipated variations in the duration, size and scope of our projects, as well as changes in the corporate decision-making process of our clients;

 

   

increased wage pressures in India and at other locations where we maintain operations;

 

   

currency exchange fluctuations; and

 

   

other economic and political factors.

A significant portion of our total operating expenses in our IT Services and IT Products businesses, particularly personnel and facilities, are fixed in advance of any particular quarter. As a result, unanticipated variations in the number and timing of our projects may cause significant variations in operating results in any particular quarter.

Therefore, we believe that period-to-period comparisons of our results of operations are not necessarily meaningful and should not be relied upon as indications of future performance. Thus, it is possible that in the future some of our periodic results of operations may be below the expectations of public market analysts and investors, and the market price of our equity shares and ADSs could decline.

Our profits attributable to equity holders increased by 19.07% for the year ended March 31, 2013, as compared to the year ended March 31, 2012. There continues to be a high level of global economic uncertainty driven by high levels of sovereign debt, particularly in Europe. Pricing remains competitive and clients remain focused on cost reduction and capital conservation. Consequently, to maximize our revenues, we are investing in developing capabilities in new technology areas and deepening our domain expertise. While we believe that we have a flexible business model which can mitigate the negative impact of an uncertain or slow growing economy, we may not be able to sustain historical levels of profitability. In our BPO business, we are diversifying our service offerings to reduce the proportion of revenues from customer interaction services. Continued attrition levels in our customer interaction services could adversely impact our operating margins.

As a result, there can be no assurance that we will be able to sustain our historic levels of profitability.

 

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If we do not continue to improve our administrative, operational and financial processes and systems to manage our growth, the value of our shareholders’ investment may be harmed.

Our expected growth will continue to place significant demands on our management and other resources. This will require us to continue to develop and improve our operational, financial and other internal controls, both in India and elsewhere. In particular, our continued growth will increase the challenges involved in:

 

   

recruiting, training and retaining sufficiently skilled technical, marketing and management personnel;

 

   

maintaining an effective internal control system and properly educating and training employees to mitigate the risk of individuals engaging in unlawful or fraudulent activity or otherwise exposing us to unacceptable business risks;

 

   

adhering to our high quality standards;

 

   

maintaining high levels of client satisfaction;

 

   

developing and improving our internal administrative infrastructure, particularly our financial, operational, communications and other internal systems including data management in our IT applications and Management Information Systems (MIS);

 

   

preserving our culture, values and entrepreneurial environment;

 

   

assimilating and integrating disparate IT systems, personnel and employment practices, and operations of acquired companies; and

 

   

Managing our procurement, supply chain and vendor management processes.

If we are unable to manage our growth effectively, the quality of our services and products may decline, and our ability to attract clients and skilled personnel may be negatively affected. These factors in turn could negatively affect the growth of our IT business and harm the value of our shareholders’ investment.

Intense competition in the market for IT and ITeS services could adversely affect our cost advantages, and, as a result, decrease our revenues.

The market for IT services is highly competitive. Our competitors include software/IT companies, systems consulting and integration firms, other technology companies and client in-house information services departments. We may also face competition from IT and ITeS companies operating from emerging low cost destinations such as China, the Philippines, Brazil, Romania and Poland. Some of our competitors command significantly greater financial, technical and marketing resources and generate greater revenue than we do. We cannot be reasonably certain that we will be able to compete successfully against such competitors or that we will not lose our key employees or clients to such competitors. Additionally, we believe that our ability to compete also depends in part on factors outside our control, such as the availability of skilled resources, the price at which our competitors offer comparable services and our competitors’ responsiveness to their clients’ needs.

We may face difficulties in providing end-to-end business solutions for our clients that could cause clients to discontinue their work with us, which in turn could harm our business.

The increased breadth of our service offerings may result in larger and more complex projects with our clients. This will require us to establish closer relationships with our clients, develop a thorough understanding of their operations, and take higher commercial risks in our contracts with such clients. Our ability to establish such relationships will depend on a number of factors, including the proficiency of our IT professionals and our management personnel. Our failure to understand our client’s requirements, the domain and country-specific laws and regulations which govern the products and services that we provide, or our failure to deliver services which meet the requirements specified by our clients could result in termination of client contracts and/or imposition of penalties or damages. Additionally, we may experience financial losses in contracts which are linked to our client’s future business outcomes or based on assumptions which are not realized. We may also be subject to loss of clients due to dependencies on alliance partners or subcontractors.

Larger projects may involve multiple engagements or stages, and there is a risk that a client may choose not to retain us for subsequent stages or may cancel or delay subsequent planned engagements. These terminations, cancellations or delays may result from the business or financial condition of our clients or the economy generally, as opposed to factors related to the quality of our services. Such cancellations or delays make it difficult to plan for project resource requirements, and inaccuracies in such resource planning may have a negative impact on our profitability.

 

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Our success depends in large part upon the strength of our management team and other highly skilled professionals. If we fail to attract and retain these personnel, our business may be unable to grow and our revenue could decline, which may decrease the value of our shareholders’ investment.

The continued efforts of the senior members of our management team, including of our Chairman and Managing Director, are critical to our success. Our ability to execute project engagements and to obtain new clients depends in large part on our ability to attract, train, motivate and retain highly skilled professionals, especially project managers, software engineers and other senior technical personnel. If we cannot hire and retain additional qualified personnel, our ability to bid on and obtain new projects and to continue to expand our business will be impaired and our revenue could decline. We believe that there is significant competition for professionals with the skills necessary to perform the services we offer. We may not be able to hire and retain enough skilled and experienced employees to replace those who leave. Increasing competition for technology professionals in India may also impact our ability to retain personnel. Changes in government policies may also affect our ability to attract, hire and retain personnel. Additionally, we may not be able to reassign or retain our employees to keep pace with continuing changes in technology, evolving standards and changing client preferences. Our profits could be adversely affected if we are unable to manage employee hiring and attrition to achieve a stable and efficient workforce structure.

Our profitability could suffer if we are unable to improve our cost management or such strategies are not as successful as they have been in the past.

Our ability to improve or maintain our profitability is dependent on successful management of our costs. Our cost management strategies include maintaining appropriate alignment between the demand for our services and our resource capacity, optimizing the costs of service delivery and effectively leveraging our sales and marketing and general and administrative costs. We have also taken actions to reduce certain costs, and these initiatives include deriving greater productivity from fixed costs and relocating non-client-facing employees to lower-cost locations. There is no guarantee that these, or other cost-management efforts will be successful, that our efficiency will be enhanced, or that we will achieve desired levels of profitability. Over time, we have seen a steady improvement in general and administrative costs as a percentage of revenue. Because of the significant steps taken in the past to reduce such costs, we may not be able to maintain such a high level of cost reduction once we have eliminated redundancies and streamlined our processes to maximize efficiency. If we are not able to mitigate rising employee compensation costs by relocating to lower cost locations, passing such increases to customers, or using other measures, our margins and results of operations could be materially adversely affected.

Exchange rate fluctuations in various currencies in which we do business could negatively impact our revenue and operating results.

Our IT Services business is approximately 90% of our revenue from the IT business. Our revenue from this business is derived from transactions in foreign currencies, while a significant portion of our costs are in Indian rupees. The exchange rate between the rupee and foreign currencies has fluctuated significantly in recent years and may continue to fluctuate in the future. Appreciation of the rupee against foreign currencies can adversely affect our revenue and competitive position, and can adversely impact our gross margins. Exchange rate fluctuations have in the past adversely impacted, and may in the future adversely impact, our operating results. We generate approximately 42% of our IT Services revenues in non-U.S. dollar currencies, and the exchange rate fluctuations between these currencies and the U.S. dollar can affect our revenues and growth, as expressed in U.S. dollar terms. We seek to minimize this risk by entering into forward exchange and option contracts. However, volatility in exchange rate movement and/or sustained Indian rupee appreciation will negatively impact our revenue and operating results.

A significant portion of our debt is in various foreign currencies. We also undertake hedging strategies to mitigate exposure of exchange rate risk relating to foreign currency borrowing, including entering into cross-currency interest rate swaps. As mentioned above, the exchange rate between the Indian rupee and foreign currencies has fluctuated significantly in recent years and will likely continue to fluctuate in the future. Volatility in exchange rate movement and/or Indian rupee depreciation may negatively impact our operating results.

 

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Our insurance coverage may not be adequate to protect us against all potential losses to which we may be subject, and this may have a material adverse effect on our business.

Our insurance policies cover physical loss or damage to our property and equipment on a reinstatement basis arising from a number of specified risks and certain consequential losses, including business interruption arising from the occurrence of an insured event under the policies. Under our property and equipment policies, damages and losses caused by certain natural disasters, such as earthquakes, acts of terrorism, floods and windstorms are also covered. We also maintains various other types of insurance, such as directors’ and officers’ liability insurance, workmen’s compensation insurance and marine insurance. We maintain insurance on property and equipment in amounts believed to be consistent with industry practices, but we are not fully insured against all such risks. Notwithstanding the insurance coverage that we and our subsidiaries carry, the occurrence of an event that causes losses in excess of the limits specified in our policies, or losses arising from events not covered by insurance policies, could materially harm our financial condition and future operating results. We believe that the insurance coverage that we maintain is reasonably adequate to cover all normal risks associated with our business, but there can be no assurance that any claims filed, under our insurance policies will be honored fully or timely. Also, our financial condition may be affected to the extent we suffer any loss or damage that is not covered by insurance or which exceeds our insurance coverage.

Our revenues are highly dependent on clients primarily located in the United States and Europe, as well as on clients concentrated in certain industries, and economic slowdown or factors that affect the economic health of the United States, Europe or these industries may affect our business.

We derive approximately 50% of our IT Services revenue from the United States and 29% of our IT Services revenue from Europe. If the economy in the United States or Europe continues to weaken and conditions in the global financial market continue to deteriorate, pricing for our services may become less attractive and our clients located in these geographies may reduce or postpone their technology spending significantly. Reduction in spending on IT services may lower the demand for our services and negatively affect our revenues and profitability.

Some of the industries in which our clients are concentrated, such as the financial services industry or the energy and utilities industry, are, or may be, increasingly subject to governmental regulation and intervention. For instance, clients in the financial services sector have been subject to increased regulation following the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act in the United States. Increased regulation, changes in existing regulation or increased governmental intervention in the industries in which our clients operate may adversely affect the growth of their respective businesses and therefore negatively impact our revenues.

Furthermore, any significant decrease in the growth of the industries in which we focus, or a significant consolidation in any such industry, may reduce the demand for our services and adversely affect our revenue and profitability.

Our IT Services revenue depends to a large extent on a small number of clients, and our revenue could decline if we lose a major client.

We currently derive, and believe that we will continue to derive, a significant portion of our IT Services revenue from a limited number of corporate clients. The loss of a major client or a significant reduction in the service performed for a major client could result in a reduction of our revenue. Significant pricing or margin pressure exerted by our largest customers would also adversely affect our operating results. Our largest client accounted for 3%, 4% and 3% of our IT Services revenue for the years ended March 31, 2011, 2012 and 2013, respectively. Our ten largest clients accounted for approximately 20% of our IT Services revenue for the years ended March 31, 2011 and 2012 and 22% for the year ended March 31, 2013. The volume of work we perform for specific clients may vary from year to year, particularly since we typically are not the exclusive external technology service provider for these clients. Thus, any major client during one year may not provide the same level of revenue in a subsequent year.

There are a number of factors other than our performance that could cause the loss of a client, and these factors are neither predictable nor under our control. In certain cases, clients have reduced their spending on IT services due to a challenging economic environment, consequently reducing their volume of business with us. If we were to lose one of our major clients or have a significantly lower volume of business with them, our revenue and profitability could be reduced. We cannot assure you that present or future large customers will not terminate their arrangements with us or significantly change, reduce or delay the amount of services ordered from us, any of which would reduce our net sales and net income.

 

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Our results of operations may be affected by the rate of growth in the use of technology in business and the type and level of technology spending by our clients.

Our business depends, in part, upon continued reliance on the use of technology in business by our clients and prospective clients as well as their customers and suppliers. In particular, the success of our new service offerings requires continued demand for such services and our ability to meet this demand in a cost-effective manner. In challenging economic environments, our clients may reduce or defer their spending on new technologies in order to focus on other priorities and prospective clients may decide not to engage our services. Also, many companies have already invested substantial resources in their current means of conducting commerce and exchanging information, and they may be reluctant or slow to adopt new approaches that could disrupt existing personnel, processes and infrastructures. If the growth of technology usage in business, or our clients’ spending on such technology declines, or if we cannot convince our clients or potential clients to embrace new technological solutions, our results of operations could be adversely affected.

Our profitability could suffer if we are not able to maintain favorable utilization rates.

Our profitability and the cost of providing our services are affected by the utilization rate of our professionals. If we are not able to maintain appropriate utilization rates for our professionals, our profit margin and our profitability may suffer. Our utilization rates are affected by a number of factors, including:

 

   

our ability to transition employees from completed projects to new assignments and to hire and integrate new employees;

 

   

our ability to forecast demand for our services and thereby maintain an appropriate headcount in each of our geographies and workforces;

 

   

our ability to manage attrition; and

 

   

our need to devote time and resources to training, professional development and other non-chargeable activities.

Our revenue could also suffer if we misjudge demand patterns and do not recruit sufficient employees to satisfy demand. Employee shortages could prevent us from completing our contractual commitments in a timely manner and cause us to pay penalties or lose contracts or clients.

Consolidation in the industries that we serve could adversely affect our business.

Companies in the industries that we serve may seek to achieve economies of scale and other synergies by combining with or acquiring other companies. If two or more of our current clients merge or consolidate and combine their operations, it may decrease the overall amount of work that we perform for these clients. If one of our current clients merges or consolidates with a company that relies on another provider for its consulting, systems integration, technology or outsourcing services, we may lose work from that client or lose the opportunity to gain additional work. The increased market power of larger companies could also increase pricing and competitive pressures on us.

Restrictions on immigration in the U.S. may affect our ability to compete for and provide services to clients in the U.S., which could hamper our growth and cause our revenue to decline.

Our employees who work onsite at client facilities or at our facilities in the U.S. on temporary or extended assignments typically must obtain visas. If U.S. immigration laws change and make it more difficult for us to obtain H-1B and L-1 visas for our employees, our ability to compete for and provide services to our clients in the United States could be impaired. In response to past terrorist attacks in the United States, the U.S. Citizenship and Immigration Services has increased its level of scrutiny in reviewing visa applications and has decreased the number of grants.

Additionally, the U.S. is currently considering comprehensive immigration reforms which may institute additional restrictions or changes that could hamper our ability to service our customers, causing our revenue to decline. If those proposed provisions are signed into law, they could have a substantial impact on our hiring practices or capacity to complete client projects, and our cost of doing business in the United States could increase and that may discourage customers from seeking our services. This could have a material and adverse effect on our business, revenues and operating results.

Although there is no limit to the number of new L-1 petitions, the L-1 and H-1B Visa Reform Act of 2004 precludes foreign companies from obtaining L-1 visas for employees with specialized knowledge if (1) such employees will be stationed primarily at the worksite of another company in the U.S. and the employee will not be controlled and supervised by his employer, or (2) the placement is essentially an arrangement to provide labor for hire rather than in connection with the employee’s specialized knowledge.

 

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In addition, companies which have obtained H-1B visas on behalf of employees face higher labor, legal and regulatory standards. Investigations by the Wage and Hour Division of the United States Department of Labor or unannounced random site inspections by the United States Department of Homeland Security could also diminish our ability to compete for and provide services to our clients in the United States.

Immigration laws in the United States and in other countries are subject to legislative changes, as well as to variations in the standards of application and enforcement due to political forces and economic conditions. It is difficult to predict the political and economic events that could affect immigration laws, or the restrictive impact they could have on obtaining or monitoring work visas for our technology professionals.

Although we currently have sufficient personnel with valid H-1B visas, we cannot be assured that we will continue to be able to obtain any or a sufficient number of H-1B visas for our onsite employees on the same timeframe as we currently maintain.

Our global operations expose us to numerous and sometimes conflicting legal and regulatory requirements, and violation of these regulations could harm our business.

Since we provide services to clients throughout the world, we are subject to numerous, and sometimes conflicting, legal requirements on matters as diverse as import/export controls, content requirements, trade restrictions, tariffs, taxation, sanctions, government affairs, anti-bribery, whistle blowing, internal and disclosure control obligations, data protection and privacy and labor relations. Gaps in our compliance with these regulations in the conduct of our business could result in fines, penalties, criminal sanctions against us or our officers, disgorgement of profits, prohibitions on doing business and adverse impact to our reputation. Gaps in compliance with these regulations in connection with the performance of our obligations to our clients could also result in liability for monetary damages, fines and/or criminal prosecution, unfavorable publicity, restrictions on our ability to process information and allegations by our clients that we have not performed our contractual obligations. Due to the varying degree of development of the legal systems of the countries in which we operate, local laws might be insufficient to defend us and preserve our rights. We could also be subjected to risks to our reputation and regulatory action on account of unethical acts by any of our employees, partners or other related individuals.

We have more than 25,000 employees located outside India. We are subject to risks relating to compliance with a variety of national and local laws including multiple tax regimes, labor laws, and employee health, safety, wages and benefits laws. We may, from time to time, be subject to litigation or administrative actions resulting from claims against us by current or former employees individually or as part of class actions, including claims of wrongful terminations, discrimination, misclassification or other violations of labor law or other alleged conduct. We may also, from time to time, be subject to litigation resulting from claims against us by third parties, including claims of breach of non-compete and confidentiality provisions of our employees’ former employment agreements with such third parties. Our failure to comply with applicable regulatory requirements could have a material adverse effect on our business, results of operations and financial condition.

Our international operations subject us to risks inherent in doing business on an international level that could harm our operating results.

Currently, we have software development facilities in several countries around the world. The majority of our software development facilities are located in India. As we continue to increase our presence outside India through our strategic development centers worldwide, we are subject to additional risks related to our international expansion strategy, including risks related to complying with a wide variety of national and local laws, restrictions on the import and export of certain technologies, data privacy and protection regulations and multiple and possibly overlapping tax structures. In addition, we may face competition in other countries from companies that may have more experience with operations in such countries or with international operations in general. We may also face difficulties integrating new facilities in different countries into our existing operations, as well as integrating employees that we hire in different countries into our existing corporate culture. Our international expansion plans may not be successful, and we may not be able to compete effectively in other countries.

Legislation in certain countries in which we operate, including the United States, may restrict companies in those countries from outsourcing work.

Some countries and organizations have expressed concerns about a perceived connection between offshore outsourcing and the loss of jobs domestically. With high domestic unemployment levels and increasing political and media attention on the outsourcing of services internationally by domestic corporations, there have been concerted efforts to enact new legislation to restrict offshore outsourcing or impose restrictions on companies that outsource. Periodically, restrictive outsourcing legislation has been considered by federal and state legislatures in the U.S. In the event any of these measures become law, our ability to do business in these jurisdictions could be adversely impacted, which in turn could adversely affect our revenues and operating profitability.

 

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In addition, from time to time, negative experiences associated with offshore outsourcing, such as theft and misappropriation of sensitive client data has been publicized, including reports involving service providers in India. Our current or prospective clients may elect to perform certain services themselves or may be discouraged from transferring services from onshore to offshore service providers to avoid harmful publicity or any negative perceptions that may be associated with using an offshore service provider. Any slowdown or reversal of existing industry trends towards offshore outsourcing would seriously harm our ability to compete effectively with competitors that provide services from within the countries in which our clients operate.

Our failure to complete fixed-price, fixed-time frame contracts within the budget and on time may negatively affect our profitability, which could decrease the value of our shareholders’ investment.

We offer a portion of our services on a fixed-price, fixed-time frame basis, rather than on a time-and-materials basis. Although we use specified software engineering processes and rely on our past project experience to reduce the risks associated with estimating, planning and performing fixed-price or fixed-time frame projects, we bear the risk of cost overruns, completion delays and wage inflation in connection with these projects. If we fail to accurately estimate the resources and time required for a project, future rates of wage inflation and currency exchange rates, or if we fail to complete our contractual obligations within the contracted timeframe, our profitability may suffer.

If our pricing structures do not accurately anticipate the cost and complexity of performing our work, then our contracts could be unprofitable.

We negotiate pricing terms with our clients utilizing a range of pricing structures and conditions. Depending on the particular contract, these include time-and-materials pricing, fixed-price arrangements, and hybrid contracts with features of both pricing models. We also undertake element or transaction based pricing, which is done with a view of certain scale of operations. Our pricing is highly dependent on our internal forecasts and predictions about our projects and the marketplace, which might be based on limited data and could be inaccurate. If we do not accurately estimate the costs and timing for completing projects, our contracts could prove unprofitable for us or yield lower profit margins than anticipated. The risk is greatest when pricing our outsourcing contracts, as many of our outsourcing projects entail the coordination of operations and workforces in multiple locations, utilizing workforces with different skill sets and competencies and geographically-distributed service centers. Furthermore, when work gets outsourced we occasionally hire employees from our clients and assume responsibility for one or more of our clients’ business processes. Our pricing, cost and profit margin estimates on outsourced work frequently include anticipated long-term cost savings from transformational and other initiatives that we expect to achieve and sustain over the life of the outsourcing contract. There is a risk that we will under price our contracts, fail to accurately estimate the costs of performing the work or fail to accurately assess the risks associated with potential contracts. In particular, any increased or unexpected costs, or wide fluctuations compared to our original estimates, delays or failures to achieve anticipated cost savings, or unexpected risks we encounter in connection with the performance of this work, including those caused by factors outside our control, could make these contracts less profitable or unprofitable, which could have an adverse effect on our profit margin.

Disruptions in telecommunications could harm our service model, which could result in a reduction of our revenue.

A significant element of our business strategy is to continue to leverage and expand our offshore development centers at Bangalore, Chennai, Hyderabad, Kolkata, Pune and other cities in India, as well as near-shore development centers outside of India. We believe that the use of a strategically located network of software development centers will provide us with cost advantages, the ability to attract highly skilled personnel from various regions of India and the world, the ability to service clients on a regional and global basis and the ability to provide services to our clients 24 hours a day, seven days a week. Part of our service model is to maintain active voice and data communications between our main offices in Bangalore, our clients’ offices, and our software development and support facilities. Although we maintain redundancy facilities and satellite communications links, any significant loss in our ability to transmit voice and data through satellite and telephone communications could result in a disruption in business, thereby hindering our performance or our ability to complete client projects on time. This, in turn, could lead to a reduction of our revenue.

We may be liable to our clients for damages caused by disclosure of confidential information or data security system failures.

We often have access to or are required to collect and store confidential client and customer data. We face a number of threats to our data centers and networks of unauthorized access, security breaches and other system disruptions. It is critical to our business that our infrastructure remains secure and is perceived by customers to be secure. Despite our security measures, our infrastructure may be vulnerable to attacks by hackers or other disruptive problems. Breaches of our security measures or the accidental loss, inadvertent disclosure or unapproved dissemination of confidential customer data could expose us, our customers or the individuals affected to a risk of loss or misuse of this information. We could be subject to termination of contracts for non-compliance with our client’s Information Security policies and procedures.

 

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Many of our client agreements do not limit our potential liability for breaches of confidentiality. If any person, including any of our employees or former employees, penetrates our network security or misappropriates sensitive data, we could be subject to significant liability from our clients or from our clients’ customers for breaching contractual confidentiality provisions or privacy laws. Unauthorized disclosure of sensitive or confidential client and customer data, whether through breach of our computer systems, systems failure, loss or theft of assets containing confidential information or otherwise, could damage our reputation and cause us to lose clients.

We are investing substantial cash assets in new facilities and physical infrastructures, and our profitability could be reduced if our business does not grow proportionately.

We have invested substantially in construction or expansion of software development facilities and physical infrastructure during fiscal year 2013 in anticipation of growth in our business. The total amount of investment made to purchase property, plant and equipment in fiscal year 2013 was Rs. 10,616 million (US$ 195 million). Additionally, as of March 31, 2013, we had contractual commitments of approximately Rs. 1,259 million (US$ 23 million) related to capital expenditures on construction or expansion of our software development and other facilities. We may encounter cost overruns or project delays in connection with new facilities and these expansions may increase our fixed costs. If we are unable to grow our business and revenues proportionately, our profitability will be reduced.

Our business will suffer if we fail to anticipate and develop new services and enhance existing services in order to keep pace with rapid changes in technology and the industries on which we focus.

The IT services market is characterized by rapid technological changes, evolving industry standards, changing client preferences and new product and service introductions. Our future success will depend on our ability to anticipate these advances and enhance our existing offerings or develop new product and service offerings to meet client needs. We may not be successful in anticipating or responding to these advances on a timely basis, or, if we do respond, the services or technologies we develop may not be successful in the marketplace. We may also be unsuccessful in stimulating customer demand for new and upgraded products, or seamlessly managing new product introductions or transitions. Further, products, services or technologies that are developed by our competitors may render our services non-competitive or obsolete. Our failure to address the demands of the rapidly evolving information technology environment, particularly with respect to cloud computing and storage, mobility and applications and analytics, could have a material adverse effect on our business, results of operations and financial condition.

If flaws in design, function or maintenance of our services were to occur, we could experience a rate of failure that would result in substantial repair, replacement or service costs and potential damage to our reputation. Continued improvement of our services and control of quality, costs and product testing are critical factors in our future growth. There can be no assurance that our efforts to monitor, develop, modify and implement appropriate testing for errors and upgrading processes will be sufficient to permit us to avoid an inability to provide services or require substantial repair, replacement or service costs, any of which could have a material adverse effect on our business, results of operations or financial condition.

Many of our client contracts can be terminated without cause, with little or no notice and without termination charges, which could negatively impact our revenue and profitability.

Our clients typically retain us on a non-exclusive, project-by-project basis. Many of our client contracts, including those that are on a fixed-price, fixed-time frame basis, can be terminated with or without cause, with as little as 90 days’ notice and without termination-related penalties. Additionally, most of our contracts with clients are typically limited to discrete projects without any commitment to a specific volume of business or future work. Our business is dependent on the decisions and actions of our clients, and there are a number of factors that might result in the termination of a project or the loss of a client that are outside of our control, including:

 

   

the business or financial condition of our clients or the economy generally;

 

   

a change in strategic priorities, resulting in a reduced level of IT spending;

 

   

a demand for price reductions; and

 

   

a change in outsourcing strategy such as moving to client in-house IT departments or to our competitors.

 

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We may engage in future acquisitions, investments, strategic partnerships or other ventures that may harm our performance, dilute our shareholders’ ownership and cause us to incur debt or assume contingent liabilities.

We have acquired and in the future may acquire or make investments in complementary businesses, technologies, services or products, or enter into strategic partnerships with parties who can provide access to those assets. In the future, we may not identify suitable acquisition, investment or strategic partnership candidates, or if we do identify suitable candidates, we may not complete those transactions on terms commercially acceptable to us. We could have difficulty in assimilating the personnel, operations, technology or software of the acquired companies. In addition, the key personnel of an acquired company may decide not to work for us. We could also have difficulty in integrating the acquired products, services or technologies into our operations. These difficulties could disrupt our ongoing business, distract our management and employees and increase our expenses. Changes in competition laws in India and abroad could also impact our acquisition plans by prohibiting potential transactions which would otherwise be beneficial for us.

Some of our long-term client contracts contain benchmarking provisions which, if triggered could result in lower contractual revenues and profitability in the future.

As the size and complexity of our client engagements increase, our clients may require further benchmarking provisions in our contracts with them. Benchmarking provisions allow a customer in certain circumstances to request a study prepared by an agreed upon third-party comparing our pricing, performance and efficiency gains for delivered contract services against the comparable services of an agreed upon list of other service providers. Based on the results of the benchmark study and depending on the reasons for any unfavorable variance, we may be required to reduce our pricing for future services to be performed for the remainder of the contract term, which could have an adverse impact on our revenues and profitability.

We may be liable to our clients for damages caused by system failures, which could damage our reputation and cause us to lose customers.

Many of our contracts involve projects that are critical to the operations of our clients’ businesses and provide benefits to our clients that may be difficult to quantify. Any failure in a client’s system could result in a claim for substantial damages against us, regardless of our responsibility for such failure. Although we attempt to limit our contractual liability for consequential damages in rendering our services, we cannot be assured that such limitations on liability will be enforceable in all cases, or that they will otherwise protect us from liability for damages. A successful assertion of one or more large claims against us that exceeds our available insurance coverage or results in changes to our insurance policies, including premium increases or the imposition of a large deductible or co-insurance requirement, could adversely affect our operating results. We may also be liable to our clients for damages or termination of contract if we are unable to address disruption in services to our clients with adequate business continuity plans.

Clients may subject us to litigation to seek damages for deficient services or for violating intellectual property rights.

Our clients may subject us to litigation and seek damages for losses caused by allegedly deficient services. Clients may also subject us to litigation and seek damages for violating or misusing their intellectual property rights. Our inability to provide services at contractually-agreed service levels or inability to prevent violation or misuse of the intellectual property of our clients could cause significant damage to our reputation and adversely affect our results of operations.

Software licensors may subject us to litigation to seek damages for violating intellectual property rights.

Software licensors contracted by us for software licenses may subject us to litigation and seek damages for violating contractual terms, misuse or excess use of our license to their intellectual property rights, which could cause significant damage to our reputation and adversely affect our results of operations.

Compliance with new and changing corporate governance and public disclosure requirements adds uncertainty to our compliance policies and increases our costs of compliance.

Changing laws, regulations and standards relating to accounting, corporate governance and public disclosure, including the Sarbanes Oxley Act of 2002, new SEC regulations, New York Stock Exchange rules, Securities and Exchange Board of India rules and Indian stock market listing regulations, are creating uncertainty for companies like ours. These new or changed laws, regulations and standards may lack specificity and are subject to varying interpretations. Their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs of compliance as a result of ongoing revisions to such governance standards.

 

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In particular, continuing compliance with Section 404 of the Sarbanes-Oxley Act of 2002 and the related regulations regarding our required assessment of our internal controls over financial reporting requires the commitment of significant financial and managerial resources. With respect to our Form 20-F for the year ended March 31, 2013, our management has performed an assessment of the effectiveness of the internal control over financial reporting. We have determined that the internal controls are effective.

We are committed to maintaining high standards of corporate governance and public disclosure, and our efforts to comply with evolving laws, regulations and standards in this regard have resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. In addition, the new laws, regulations and standards regarding corporate governance may make it more difficult for us to obtain director and officer liability insurance. Further, our board members, chief executive officer and chief financial officer could face an increased risk of personal liability in connection with the performance of their duties. As a result, we may face difficulties attracting and retaining qualified board members and executive officers, which could harm our business. If we fail to comply with new or changed laws or regulations and standards differ, our business and reputation may be harmed.

If we fail to or are unable to implement and maintain effective internal controls over financial reporting, the accuracy and timeliness of our financial reporting may be adversely affected.

We are subject to reporting obligations under U.S. securities laws. The SEC, as required under Section 404 of the Sarbanes-Oxley Act of 2002, has adopted rules requiring every public company to include a report of management on the effectiveness of such company’s internal control over financial reporting in its annual report. In addition, an independent registered public accounting firm must issue an attestation report on the effectiveness of the company’s internal control over financial reporting.

If we fail to maintain effective internal control over financial reporting in the future, we and our independent registered public accounting firm may not be able to conclude that we have effective internal control over financial reporting at a reasonable assurance level. This could in turn result in the loss of investor confidence in the reliability of our financial statements. Furthermore, we have incurred and anticipate that we will continue to incur considerable costs and use significant management time and other resources in an effort to comply with Section 404 and other requirements of the Sarbanes-Oxley Act. If we are not able to continue to meet the requirements of Section 404 in a timely manner or with adequate compliance, we might be subject to sanctions or investigation by the SEC, the New York Stock Exchange or other regulatory authorities. Any such action could adversely affect the accuracy and timeliness of our financial reporting.

We cannot predict the outcome of the Securities and Exchange Commission’s voluntary requests for documents and information, the outcome of which could have a material adverse effect on us.

As we previously disclosed in our Form 20-F for the year ended March 31, 2010, our Audit Committee and KPMG India conducted an investigation into whether financial relationships, business transactions or loans existed between any members of KPMG India’s audit engagement team and Wipro as well as other potential independence matters, including whether any other members of the KPMG India audit engagement team had dealings with any Wipro employees that would compromise KPMG India’s independence from Wipro. KPMG India concluded that it did not lack independence with respect to Wipro. Based on its review of the facts from KMPG India’s investigation and discussions with its external advisors, our Audit Committee concurred with KPMG India’s conclusion.

Subsequently, the SEC’s Division of Enforcement requested that we provide, on a voluntary basis, certain information and documents concerning, among other things, issues relating to auditor independence. Some of the voluntary requests also relate to the same subject matter we disclosed which the Audit Committee investigated previously, including the appropriateness of certain accounting entries pertaining to our exchange rate fluctuation and outstanding liability accounts. We are cooperating with the SEC’s requests. The outcome of the SEC’s review of this matter is uncertain. A conclusion by the SEC that differs with the conclusions reached by KPMG India and our Audit Committee could have a material adverse effect on us.

 

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If we are unable to collect our receivables from or invoice our unbilled services to our clients, our results of operations and cash flows could be adversely affected.

Our business depends on our ability to successfully obtain payment from our clients of the amounts they owe us for work performed. We evaluate the financial condition of our clients and usually bill and collect on relatively short cycles. We maintain provisions against receivables and unbilled services. Actual losses on client balances could differ from those that we currently anticipate and as a result we might need to adjust our provisions. There is no guarantee that we will accurately assess the creditworthiness of our clients. Macroeconomic conditions, such as a potential credit crisis in the global financial system, could also result in financial difficulties for our clients, including limited access to the credit markets, insolvency or bankruptcy. Such conditions could cause clients to delay payment, request modifications of their payment terms, or default on their payment obligations to us, all of which could increase our receivables balance. Timely collection of fees for client services also depends on our ability to complete our contractual commitments and subsequently bill for and collect our contractual service fees. If we are unable to meet our contractual obligations, we might experience delays in the collection of or be unable to collect our client balances, and if this occurs, our results of operations and cash flows could be adversely affected. In addition, if we experience an increase in the time required to bill and collect for our services, our cash flows could be adversely affected.

Our work with government clients exposes us to additional risks inherent in the government contracting environment.

Our clients include national, provincial, state and local governmental entities. Our government work carries various risks inherent in the government contracting process which may affect our operating profitability. These risks include, but are not limited to, the following:

 

   

Government entities often reserve the right to audit our contract costs, including allocated indirect costs, and conduct inquiries and investigations of our business practices with respect to our government contracts. If the client finds that the costs are not reimbursable, then we will not be allowed to bill for them or the cost must be refunded to the client if it has already been paid to us. Findings from an audit may also result in prospective adjustments of previously agreed upon rates for our work and may affect our future margins.

 

   

If a government client discovers improper or illegal activities in the course of audits or investigations, we may become subject to various civil and criminal penalties and administrative sanctions, which may include termination of contracts, forfeiture of profits, suspension of payments, fines and suspensions or debarment from doing business with other agencies of that government. The inherent limitations of internal controls may not prevent or detect all improper or illegal activities, regardless of their adequacy and therefore we can only mitigate, and not eliminate, this risk.

 

   

Government contracts, and the proceedings surrounding them, are often subject to more extensive scrutiny and publicity than contracts with commercial clients. Negative publicity related to our government contracts, regardless of its accuracy, may further damage our business by affecting our ability to compete for new contracts among commercial and governmental entities.

 

   

Political and economic factors such as pending elections, changes in leadership among key executive or legislative decision makers, revisions to governmental tax policies and reduced tax revenues can affect the number and terms of new government contracts signed.

 

   

Terms and conditions of government contracts tend to be more onerous and are often more difficult to negotiate than those for commercial contracts.

 

   

Government contracts may not include a cap on direct or consequential damages, which could cause additional risk and expense in these contracts.

We may incur substantial costs for environmental regulation compliance.

We are subject to various federal, state, local and foreign laws relating to protection of the environment. We may incur substantial fines, civil or criminal sanctions, or third-party claims for property damage or personal injury if we are held liable under environmental laws and regulations. Our current compliance with environmental laws and regulations is not expected to have a material adverse effect on our financial position, results of operations or competitive position.

We are exposed to fluctuations in the market values of our investment portfolio.

Deterioration of the credit as well as debt and capital markets due to economic turmoil could result in volatility of our investment earnings and impairments to our investment portfolio, which could negatively impact our financial condition and reported income.

 

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We are exposed to fluctuations in interest rates for our borrowings.

Turmoil in the financial markets can cause the borrowings rate to go up in the future. Deterioration in the interest rates could negatively impact our financial condition and reported income.

Our financial condition and results of operations may be harmed if we do not successfully reduce market risks through the use of derivative financial instruments.

Since we conduct operations throughout the world, a substantial portion of our assets, liabilities, revenues and expenses are denominated in various currencies other than the Indian rupee. Because our financial statements are denominated in the India rupee, fluctuations in currency exchange rates, especially the U.S. dollar against the Indian rupee, could have a material impact on our reported results.

We also experience other market risks, including changes in the interest rates of the securities that we own. We may use derivative financial instruments to reduce certain of these risks. However, if our strategies to reduce market risks are not successful, our financial condition and operating results may be harmed.

Management’s use of estimates may affect our income and financial position.

To comply with IFRS, management is required to make many judgments, estimates, and assumptions. The facts and circumstances on which management bases these estimates and judgments, and management’s judgment of the facts and circumstances, may change from time to time, and this may result in significant changes in the estimates, with a negative impact on our assets or income. Current and future accounting pronouncements and other financial reporting standards may adversely affect the financial information we present. We regularly monitor our compliance with all of the financial reporting standards that are applicable to us and any new pronouncements that are relevant to us. Findings of our monitoring activity or new financial reporting standards may require us to change our internal accounting policies and to alter our operational policy so that it reflects new or amended financial reporting standards. We cannot exclude the possibility that this may have a material impact on our assets, income, or cash flows. For a summary of significant accounting policies, refer to Note 3 of the Notes to the Consolidated Financial Statements section.

An increasing amount of goodwill and acquisition related intangibles in our financials may lead to significant impairment charges in the future.

The amount of goodwill and intangible assets in our consolidated financial statement has increased significantly in recent years, primarily due to acquisitions. Goodwill and acquisition related indefinite life intangibles are subject to impairment review at least annually. Impairment testing under IFRS may lead to impairment charges in the future. Any significant impairment charges could have a material adverse effect on our results of operations.

Risks Related to Investments in Indian Companies and International Operations Generally.

We are incorporated in India, and a substantial portion of our assets and our employees are located in India. Consequently, our financial performance and the market price of our American Depositary Shares (“ADSs”) will be affected by political, social and economic developments affecting India, Government of India policies such as taxation and foreign investment policies, Government of India currency exchange control and changes in exchange rates and interest rates.

Wage increases in India may diminish our competitive advantage against companies located in the United States and Europe and may reduce our profit margins.

Our wage costs in India have historically been significantly lower than wage costs in the United States and Europe for comparably skilled professionals, and this has been one of our competitive advantages. However, wage increases in India may prevent us from sustaining this competitive advantage and may negatively affect our profit margins. We may need to increase the levels of our employee compensation more rapidly than in the past to retain talent. Unless we are able to continue to increase the efficiency and productivity of our employees, over the long term wage increases may reduce our profit margins. Furthermore, increases in the proportion of employees with less experience, or source talent from other low cost locations, like Eastern Europe, China or Southeast Asia could also negatively affect our profits.

 

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We would realize lower tax benefits if the special tax holiday scheme for units set up in Special Economic Zones is substantially modified.

Currently, we benefit from tax incentives under Indian tax laws. We qualify for a deduction from taxable income on profits attributable to our status as a developer of Special Economic Zones or from operation of units located in Special Economic Zones, or SEZs. The tax deduction for SEZ developers is available for any ten consecutive years out of fifteen years, commencing from the year in which the SEZ is notified. The tax deduction for a unit in an SEZ is equal to 100% of profits from the export of services for the first five years after the commencement of operations in the SEZ, and thereafter is equal to 50% of profits from the export of services for a subsequent period of ten years, subject to meeting specified re-investment conditions and earmarking of specified reserves in the last five years. This tax deduction will terminate if our operations are no longer located in an SEZ, fail to comply with rules required for an SEZ or fail to meet certain conditions prescribed under the Income Tax Act, 1961 of India. These tax benefits of units are conditioned upon our ability to generate positive net foreign exchange within five years of the commencement of our operations in the SEZ. If we fail to generate positive net foreign exchange within five years, or thereafter fail to maintain it, we will be subject to penalties under the Foreign Trade (Development and Regulation) Act, 1992, or the Indian Foreign Trade Act. The maximum penalty that may be imposed is equal to five times the gross value of the goods and services that we purchase with duty exemptions. Effective for financial years beginning April 1, 2011, we are subject to a Minimum Alternate Tax, or MAT, at a fixed rate of approximately 20% on its net profits as adjusted by certain prescribed adjustments. Where any tax is paid under MAT, such tax will be eligible for adjustment against regular income tax liability computed under the Income Tax Act, 1961 of India, for the following ten years as MAT credit. We cannot assure you that the Government of India will continue these special tax exemptions or that we will continue to qualify for such tax benefits and other incentives. If we no longer receive these tax benefits and other incentives, or if the MAT rate of taxation is increased, our financial results may be adversely affected.

In the past, there have been demands by legislators and various political parties in India for the Government of India to actively regulate the development of SEZs by private entities. There have also been demands to impose strict conditions which need to be complied with before economic zones developed by private entities are designated as SEZs. If such regulations or conditions are imposed, it would adversely impact our ability to set up new units in such designated SEZs and avail ourselves of the tax benefits associated with SEZs

In the event that the Government of India or the government of another country changes its tax policies in a manner that is adverse to us, our tax expense may materially increase, reducing our profitability.

Based on the Finance Act, 2012, and effective as of July 1, 2012, the Government of India is levying a service tax on all services which are not otherwise exempted. Consequently, all services are likely to become taxable at a rate of 12.36%, except enumerated exempted services.

We operate in jurisdictions that impose transfer pricing and other tax related regulations on us, and any failure to comply could materially and adversely affect our profitability.

We are required to comply with various transfer pricing regulations in India and other countries. Failure to comply with such regulations may impact our effective tax rates and consequently affect our net margins. Additionally, we operate in several countries and our failure to comply with the local tax regime may result in additional taxes, penalties and enforcement actions from local authorities. In the event that we do not properly comply with transfer pricing and tax-related regulations, our profitability may be adversely affected. The Finance Act, 2012 extended the applicability of transfer pricing regulations to domestic transactions entered into with related parties and certain specified transactions through financial years 2012 and 2013.

Taxation laws are susceptible to frequent change. In India, changes in taxation law are announced on an annual basis in February, when the Union Budget is presented. In addition, a new Direct Tax Code is expected to replace the existing Indian Income Tax Act, 1961. These changes in law may affect the accuracy of our estimated tax obligations, or the obligations of holders of our equity shares and ADSs.

 

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Terrorist attacks or a war could adversely affect our business, results of operations and financial condition.

Terrorist attacks, such as the attacks of September 11, 2001 in the United States, the attacks of July 7, 2005 in London, U.K., the attacks of June 30, 2007 in Glasgow, U.K., the attacks in November 29, 2008 and July 13, 2011 in Mumbai, India and other acts of violence or war have the potential to directly impact our clients. To the extent that such attacks affect or involve the United States or Europe, our business may be significantly impacted, as the majority of our revenue is derived from clients located in those regions. In addition, such attacks may make business travel more difficult, may make it more difficult to obtain work visas for many of our technology professionals who are required to work in the United States or Europe, and may effectively curtail our ability to deliver services to our clients. Such obstacles to business may increase our expenses and negatively affect the results of our operations. Furthermore, any terrorist attacks in India could cause a disruption in the delivery of our services to our clients, could have a negative impact on our business, personnel, assets and results of operations, and could cause our clients or potential clients to choose other vendors for the services we provide. Terrorist threats, attacks or war could also delay, postpone or cancel our clients’ decisions to use our services.

The markets in which we operate are subject to the risk of earthquakes, floods and other natural disasters, the occurrence of which could cause our business to suffer.

Some of the regions that we operate in are prone to earthquakes, hurricanes, tsunamis, flooding and other natural disasters. In the event that any of our business centers are affected by such disasters, we may sustain damage to our operations and properties, suffer significant financial losses and be unable to complete our client engagements in a timely manner, if at all. Further, in the event of a natural disaster, we may also incur costs in redeploying personnel and property. In addition, if there is a major earthquake, as occurred in Japan in March 2011, a flood, as occurred in Thailand in July 2011, or other natural disaster in any of the locations in which our significant customers are located, we face the risk that our customers may incur losses or sustained business interruption which may materially impair their ability to continue their purchase of our products or services. A major earthquake, flood or other natural disaster including as a result of climate changes in the locations in which we operate could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Regional conflicts in South Asia could adversely affect the Indian economy, disrupt our operations and cause our business to suffer.

South Asia has from time to time experienced instances of civil unrest and hostilities among neighboring countries, including between India and Pakistan. There have been military confrontations between India and Pakistan in the Kashmir region and along the India-Pakistan border. The potential for hostilities between the two countries is high due to recent terrorist activities in India and the aggravated geopolitical situation. Both countries have initiated active measures to reduce hostilities. Military activity or terrorist attacks in the future could harm the Indian economy by disrupting communications and making travel more difficult. Such political tensions could create a greater perception that investments in Indian companies involve a higher degree of risk. This, in turn, could have a material adverse effect on the market for the securities of Indian companies, including our equity shares and our ADSs, and on the market for our services.

Political considerations in the Government of India could delay the liberalization of the Indian economy and adversely affect economic conditions in India in general, which could in return impact our financial results and prospects.

Since 1991, successive Indian Governments have pursued policies of economic liberalization, including significantly relaxing restrictions on private sector enterprise. Nevertheless, the role of the Indian federal and state governments in the Indian economy as producers, consumers and regulators has remained significant. Although we believe that the process of economic liberalization will continue, the rate of economic liberalization could change, and specific laws and policies affecting technology companies, foreign investment, currency exchange and other matters affecting investment in our securities could change as well. A significant change in India’s economic liberalization and deregulation policies could adversely affect business and economic conditions in India generally and our business in particular.

For instance in April 2007, the Government of India announced a number of changes in its policy relating to SEZs, including specifying a cap on land available for SEZs. The Government of India is also considering making changes in its SEZ policy. We currently have several facilities operating within SEZs and any adverse change in policy relating to SEZs could affect our profitability.

 

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Indian law limits our ability to raise capital outside India and may limit the ability of others to acquire us, which could prevent us from operating our business or entering into a transaction that is in the best interests of our shareholders.

Indian law constrains our ability to raise capital outside of India through the issuance of equity or convertible debt securities. Generally, any foreign investment in, or an acquisition of, an Indian company requires approval from relevant government authorities in India, including the Reserve Bank of India. However, subject to certain exceptions, the Government of India currently does not mandate prior approvals for IT companies such as ours. If we are required to seek the approval of the Government of India and the Government of India does not approve the proposed investment or implements a limit on the foreign equity ownership of IT companies, our ability to seek and obtain additional equity investment by foreign investors will be limited. In addition, these restrictions, if applied to us, may prevent us from entering into a transaction, such as an acquisition by a non-Indian company, which would otherwise be beneficial for our Company and the holders of our equity shares and ADSs.

Our ability to acquire companies organized outside India depends on the approval of the Government of India. Our failure to obtain approval from the Government of India for the acquisition of companies organized outside India may restrict our international growth, which could negatively affect our revenue.

The Ministry of Finance of the Government of India and/or the Reserve Bank of India must approve our acquisition of any company organized outside of India or grant general or special permission for such acquisition. The Reserve Bank of India permits acquisitions of companies organized outside of India by an Indian party without approval in the following circumstances:

 

   

if the transaction consideration is paid in cash, up to 400% of the net worth of the acquiring company; or

 

   

if the acquisition is funded with cash from the acquiring company’s existing foreign currency accounts or with cash proceeds from the issue of ADRs or Global Depositary Receipts (“GDRs”).

We cannot assure you that any necessary approval from the Reserve Bank of India or the Ministry of Finance or any other Government agency can be obtained. Our failure to obtain such approvals from the Government of India for acquisitions of companies organized outside India may restrict our international growth, which could negatively affect our revenue.

It may be difficult for you to enforce any judgment obtained in the United States against us, our directors or executive officers or our affiliates.

We are incorporated under the laws of India and many of our directors and executive officers reside outside the United States. A substantial portion of our assets and the assets of many of these persons are also located outside the United States. As a result, you may be unable to effect service of process upon us outside of India or upon such persons outside their jurisdiction of residence. In addition, you may be unable to enforce against us in courts outside of India, or against these persons outside the jurisdiction of their residence, judgments obtained in courts of the United States, including judgments predicated solely upon the federal securities laws of the United States.

We have been advised by our Indian counsel that the United States and India do not currently have a treaty providing for reciprocal recognition and enforcement of judgments, other than arbitration awards, in civil and commercial matters. Therefore, a final judgment for the payment of money rendered by any federal or state court in the United States on civil liability, whether or not predicated solely upon the federal securities laws of the United States, would not be enforceable in India. However, the party in whose favor such final judgment is rendered may bring a new suit in a competent court in India based on a final judgment that has been obtained in the United States. The suit must be brought in India within three years from the date of the judgment in the same manner as any other suit filed to enforce a civil liability in India. It is unlikely that a court in India would award damages on the same basis as a foreign court if an action is brought in India. Furthermore, it is unlikely that an Indian court would enforce a foreign judgment if it viewed the amount of damages awarded as excessive or inconsistent with Indian practice. A party seeking to enforce a foreign judgment in India is required to obtain approval from the Reserve Bank of India under the Foreign Exchange Management Act, 1999, to execute such a judgment or to repatriate any amount recovered.

The laws of India do not protect intellectual property rights to the same extent as those of the United States, and we may be unsuccessful in protecting our intellectual property rights. Unauthorized use of our intellectual property may result in development of technology, products or services which compete with our products. We may also be subject to third-party claims of intellectual property infringement.

Our intellectual property rights are important to our business. We rely on a combination of patent, copyright and trademark laws, trade secrets, confidentiality procedures and contractual provisions to protect our intellectual property. However, we cannot be certain that the steps we have taken will prevent unauthorized use of our intellectual property. Furthermore, the laws of India do not protect proprietary rights to the same extent as laws in the United States. Therefore, our efforts to protect our intellectual property may not be adequate. Our competitors may independently develop similar technology or duplicate our products or services. Unauthorized parties may infringe upon or misappropriate our products, services or proprietary information.

 

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The misappropriation or duplication of our intellectual property could disrupt our ongoing business, distract our management and employees, reduce our revenue and increase our expenses. The competitive advantage that we derive from our intellectual property may also be diminished or eliminated. We may need to litigate to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights of others. Any such litigation could be time-consuming and costly. As the number of patents, copyrights and other intellectual property rights in our industry increases, and as the coverage of these rights increases, we believe that companies in our industry will face more frequent infringement claims. Defending against these claims, even if not meritorious, could be expensive and divert our attention and resources from operating our company. Also, there can be no assurance that, as our business expands into new areas, we will be able to independently develop the technology necessary to conduct our business or that we can do so without infringing on the intellectual property rights of others.

Although we believe that our intellectual property rights do not infringe on the intellectual property rights of any other party, infringement claims may be asserted against us in the future. If we become liable to third parties for infringing their intellectual property rights, we could be required to pay a substantial damage award and be forced to develop non-infringing technology, obtain a license or cease selling the applications or products that contain the infringing technology. We may be unable to develop non-infringing technology or to obtain a license on commercially reasonable terms, or at all.

Risks Related to the ADSs

Sales of our equity shares may adversely affect the prices of our equity shares and ADSs.

Sales of substantial amounts of our equity shares in the public market, including sales by insiders, or the perception that such sales may occur, could adversely affect the prevailing market price of our equity shares or our ADSs or our ability to raise capital through an offering of our securities. In connection with the Demerger, equity shares of Wipro now represent shares in a more specialized company comprised exclusively of the IT Services and IT Products business segments. As a result, Wipro’s current shareholders may decide to sell their Wipro equity shares if they consider them to no longer be appropriate for their investment portfolios. This could have a material adverse effect on the liquidity and share price of our equity shares and the trading price of our equity shares may decrease.

The exchange of equity shares of Wipro in the public market in connection with the Demerger could adversely affect the prevailing market price of our equity shares or ADSs, or our ability to raise capital through an offering of its securities. It could also create volatility and impact the market price of our equity shares or ADSs. In the future, we may also sponsor the sale of shares currently held by some of our shareholders, or issue new shares. We can make no prediction as to the timing of any such sales or the effect, if any, that future sales of our equity shares, or the availability of our equity shares for future sale, will have on the market price of our equity shares or ADSs prevailing from time to time.

The price of our ADSs and the U.S. dollar value of any dividends we declare may be negatively affected by fluctuations in the U.S. dollar to Indian rupee exchange rate.

Our ADSs trade on the New York Stock Exchange (“NYSE”) in U.S. dollars. Since the equity shares underlying the ADSs are listed in India on the BSE Limited (“BSE”) and National Stock Exchange (“NSE”) and trade in Indian rupees, the value of the ADSs may be affected by exchange rate fluctuations between the U.S. dollar and the Indian rupee. In addition, dividends declared, if any, are denominated in Indian rupees, and therefore the value of the dividends received by the holders of ADSs in U.S. dollars will be affected by exchange rate fluctuations. If the Indian rupee depreciates against the U.S. dollar, the price at which our ADSs trade and the value of the U.S. dollar equivalent of any dividend will decrease accordingly.

An active or liquid trading market for our ADSs is not assured.

An active, liquid trading market for our ADSs may not be maintained in the long term. Loss of liquidity could increase the price volatility of our ADSs.

Indian law imposes foreign investment restrictions that limit a holder’s ability to convert equity shares into ADSs, which may cause our ADSs to trade at a premium or discount to the market price of our equity shares.

Under certain circumstances, the Reserve Bank of India must approve the sale of equity shares underlying ADSs by a non-resident of India to a resident of India. The Reserve Bank of India has given general permission to effect sales of existing shares or convertible debentures of an Indian company by a resident to a non-resident, subject to certain conditions, including the price at which the shares may be sold. Additionally, except under certain limited circumstances, if an investor seeks to convert the rupee proceeds from a sale of equity shares in India into foreign currency and then repatriate that foreign currency from India, he or she will have to obtain additional approval from the Reserve Bank of India for each transaction. Required approval from the Reserve Bank of India or any other government agency may not be obtained on terms which are favorable to a non-resident investor or may not be obtained at all.

 

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Investors who exchange ADSs for the underlying equity shares and are not holders of record will be required to declare to us details of the holder of record, and the holder of record will be required to disclose the details of the beneficial owner. Any investor who fails to comply with this requirement may be liable for a fine of up to Rs. 1,000 for each day such failure continues. Such restrictions on foreign ownership of the underlying equity shares may cause our ADSs to trade at a premium or discount to the equity shares.

Our ADSs have historically traded at a significant premium to the trading prices of our underlying equity shares on Indian stock exchanges, but may not continue to do so in the future.

Historically, our ADSs have traded at a premium to the trading prices of our underlying equity shares on Indian stock exchanges due to the relatively small portion of our market capitalization represented by ADSs, restrictions imposed by Indian law on the conversion of equity shares into ADSs, and the potential preference of some investors to trade securities listed on U.S. exchanges. The completion of any additional secondary ADS offering will increase the number of our outstanding ADSs. Further, the restrictions on the issuance of ADSs imposed by Indian law may be relaxed in the future. Over a period of time, investor preferences may also change. Therefore, the historical premium of our ADSs as compared to the trading prices of our underlying equity shares on Indian stock exchanges may be reduced or eliminated.

Negative media coverage and public scrutiny may adversely affect the prices of our equity shares and ADSs.

Media coverage, including social media coverage such as blogs, of our business practices, employees, policies and actions has increased dramatically over the past several years. Any negative media coverage, regardless of the accuracy of such reporting, may have an initial adverse impact on our reputation and investor confidence, resulting in a decline in the share price of our equity shares and our ADSs.

Holders of ADSs are subject to the Securities and Exchange Board of India’s Takeover Code with respect to their acquisitions of ADSs or the underlying equity shares, and this may impose requirements on such holders with respect to disclosure and offers to purchase additional ADSs or equity shares.

The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (the “Takeover Code”) is applicable to publicly listed Indian companies such as Wipro and to any person acquiring our equity shares or voting rights in our company, including ADSs.

Under the Takeover Code, persons who acquire 5% or more of the shares of a company are required, within two working days of such acquisition, to disclose the aggregate shareholding and voting rights in the company to the company and to the stock exchanges on which the shares of the company are listed.

Additionally, holders of 5% or more of the shares or voting rights of a company who acquire or dispose of shares representing 2% or more of the shares or voting rights of the company must disclose, within two working days of such transaction their revised shareholding to the company and to the stock exchanges on which the shares of the company are listed. This disclosure is required even if the transaction is a sale which results in the holder’s ownership to fall below 5%. The Takeover Code also may impose conditions that discourage a potential acquirer, which could prevent an acquisition of our company in a transaction that could be beneficial for our equity holders.

An investor in our ADSs may not be able to exercise preemptive rights for additional shares and may thereby suffer dilution of his or her equity interest in us.

Under the Indian Companies Act, a company incorporated in India must offer its holders of equity shares preemptive rights to subscribe and pay for a proportionate number of shares to maintain their existing ownership percentages prior to the issuance of any new equity shares, unless such preemptive rights have been waived by three-fourths of the shares voting on the resolution to waive such rights. Holders of ADSs may be unable to exercise preemptive rights for the equity shares underlying ADSs unless a registration statement under the Securities Act is effective with respect to such rights or an exemption from the registration requirements of the Securities Act is available. We are not obligated to prepare and file such a registration statement, and our decision to do so will depend on the costs and potential liabilities associated with any such registration statement, as well as the perceived benefits of enabling the holders of ADSs to exercise their preemptive rights, and any other factors we consider appropriate at the time. No assurance can be given that we would file a registration statement under these circumstances. If we issue any such securities in the future, such securities may be issued to the Depositary, which may sell such securities for the benefit of the holders of the ADSs. There can be no assurance as to the value, if any, the Depositary would receive upon the sale of such securities. To the extent that holders of ADSs are unable to exercise preemptive rights granted in respect of the equity shares represented by their ADSs, their proportional interests in the Company would be reduced.

 

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ADS holders may be restricted in their ability to exercise voting rights.

At our request, the Depositary will mail to you any notice of shareholders’ meeting received from us along with information explaining how to instruct the Depositary to exercise the voting rights of the securities represented by ADSs. If the Depositary receives voting instructions from you prior to such shareholders’ meeting, relating to matters that have been forwarded to you, it will endeavor to vote the securities represented by your ADSs in accordance with such voting instructions. However, the ability of the Depositary to carry out voting instructions may be limited by practical and legal limitations and the terms of the securities on deposit. We cannot assure that you will receive voting materials in time to enable you to return voting instructions to the Depositary in a timely manner. Securities for which no voting instructions have been received will not be voted. There may be other communications, notices or offerings that we only make to holders of our equity shares, which will not be forwarded to holders of ADSs. Accordingly, you may not be able to participate in all offerings, transactions or votes that are made available to holders of our equity shares.

We may be classified as a passive foreign investment company, which could result in adverse United States federal income tax consequence to U.S. holders.

Based on the current price of our ADSs and the composition of our income and assets, we do not believe that we are a “passive foreign investment company,” or PFIC, for United States federal income tax purposes for our current taxable year ended March 31, 2013. However, a separate determination must be made after the close of each taxable year as to whether we are a PFIC. We cannot assure you that we will not be a PFIC for any future taxable year. If we were treated as a PFIC for any taxable year during which a United States holder held an equity share or an ADS, certain adverse United States federal income tax consequences could apply to the United States holder. See “Taxation – Material United States Federal Tax Consequences – Passive foreign investment company.”

 

Item 4. Information on the Company

History and Development of the Company

Wipro Limited was incorporated on December 29, 1945, as Western India Vegetable Products Limited under the Indian Companies Act, VII of 1913, which is now superseded by the Companies Act, 1956. We are a public limited company deemed to be registered under the Companies Act, 1956 (“Companies Act”) and are registered with the Registrar of Companies, Karnataka, Bangalore, India as Company No. 20800. In October 2000, we raised gross aggregate proceeds of approximately US$131 million in our initial U.S. public offering of our ADSs on the New York Stock Exchange. Our registered office is located at Doddakannelli, Sarjapur Road, Bangalore 560 035, and the telephone number of our registered office is +91-80-2844-0011. The name and address of our registered agent in the United States is CT Corporation System, located at 111 8th Avenue, 13th Floor, New York, New York 10011-5252.

We first began business as a vegetable oil manufacturer in 1945 in Amalner, Maharashtra, India and later expanded into the manufacture of soaps and other consumer care products. During the late 1970s and early 1980s, we further expanded into the IT industry in India. We began selling personal computers in India in 1985. In the 1990s, we leveraged our hardware expertise and began also offering our clients software services. We are one of the pioneers of the offshore development center (“ODC”) model.

We are headquartered in Bangalore, India and have operations in North America, Europe, Africa, Latin America and Asia. For the fiscal year ended March 31, 2013, 99% of our operating income from the IT business was generated from our IT Services business segment. For the same period, IT Products generated 1% of our operating income from the IT business.

We incurred a total capital expenditure of Rs. 12,211 million, Rs. 12,977 million and Rs. 10,616 million during the fiscal years ended March 31, 2011, 2012 and 2013, respectively. These capital expenditures were primarily incurred on new software development facilities in India for our IT Services and IT Products business segments. As of March 31, 2013, we had contractual commitments of Rs. 1,259 million (US$ 23 million) related to capital expenditures on construction or expansion of software development facilities. We currently intend to finance our planned construction and expansion entirely through our operating cash flows and through cash and investments as of March 31, 2013.

In the last three fiscal years, we have made several acquisitions, including the acquisition of the global oil and gas information technology practice of the Commercial Business Services Business Unit of Science Applications International Corporation (“SAIC”) in April 2011.

 

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The Demerger of the Diversified Business

Effective as of March 31, 2013 (“Effective Date”), the consumer care and lighting, infrastructure engineering and other non-IT business segments (collectively, the “Diversified Business”) were demerged (the “Demerger”) into Wipro Enterprises Limited, formerly known as Azim Premji Custodial Private Limited (“Resulting Company”), a company incorporated under the laws of India. The Demerger was effected pursuant to a scheme of arrangement (“Scheme”) approved by the High Court of Karnataka, Bangalore. The Scheme is included as an exhibit to the Form 6-K filed on December 11, 2012. Pursuant to the Scheme, all shareholders of Wipro received either securities of the Resulting Company or the equivalent value in additional shares of Wipro.

In connection with the Demerger, all subsidiaries which pertained to the Diversified Business were transferred to the Resulting Company. Certain of these subsidiaries in turn possessed subsidiaries which do not pertain to the Diversified Business and instead are considered a portion of the IT Services business segment. Therefore, the Resulting Company is now in the process of completing the transfer of the IT Services related subsidiaries back to Wipro. In the interim, the board of directors of the Resulting Company has authorized Wipro to retain all operating and management control of such subsidiaries, including the power to govern the operating and financial policies, the appointing of a majority of the board of directors, and appointment of key management personnel.

Following the Demerger of the Diversified Business, Wipro transferred certain trademarks, patents, copyrights and design rights that related to the Diversified Business to the Resulting Company. Similarly, Wipro Trademarks Holding Limited transferred certain trademarks, patents, copyrights and design rights that related to the Diversified Business to the Resulting Company. In addition, Wipro Trademarks Holding Limited, a wholly owned subsidiary of the Company, owns certain trademarks that are used both by Wipro and the Resulting Company pursuant to the Scheme. Such details are provided in Schedule III Part A to D annexed to the Scheme of Arrangement approved by the High Court of Karnataka.

Pursuant to the Court order approving the Demerger, for a period of ten years from the effective date of the Demerger, the Company may not, except with the express prior written consent of the Resulting Company, engage in, or be connected as a controlling shareholder with any company which engages in any activities that are in competition to the Diversified Business, and the Resulting Company may not, except with the express prior written consent of the Company, engage in, or be connected as a controlling shareholder with any company which engages in any activities that are in competition to the primary business of the Company.

Following the Effective Date, the Diversified Business is classified and presented in the Consolidated Financial Statements as discontinued operations in accordance with IFRS 5 – Non-Current Assets Held for Sale and Discontinued Operations. The Demerger is considered a common control transaction and therefore IFRS 3, Business Combination and IFRIC 17, Non-Current Assets Held for Sale and Discontinued Operations, are inapplicable. Accordingly, assets and liabilities of the Diversified Business as on the Effective Date will be reported at their carrying values. As of the Effective Date, the consumer care and lighting segment, infrastructure engineering and other non-IT business segments are reported as discontinued operations. Please see Note 4 of the Notes to Consolidated Financial Statements for additional information regarding the treatment of discontinued operations.

Industry Overview

IT Services

Companies are increasingly turning to offshore IT service providers to meet their need for high quality, cost competitive technology solutions and IT services. Spending on global sourcing in 2012 grew by 9% over 2011, nearly twice as fast as global technology spending, according to the National Association of Software and Service Companies (NASSCOM) Strategic Review Report 2013. Offshore IT service providers offer a range of end to end software development, IT business solutions, research and development services, business process outsourcing (BPO), consulting and related support functions.

Over the past two decades, India has risen to become the leading destination for global sourcing of IT, BPO and research and development services. Established Indian IT services companies have a proven track record for providing business and technology solutions, offering a large, high quality and English-speaking talent pool, and a friendly regulatory environment. These factors have facilitated India’s emergence as a global outsourcing hub. The following are key factors contributing to the growth of India-based IT services:

 

   

Global sourcing from India offers significant cost advantages in terms of accessing highly skilled talent at lower wage costs as well as productivity gains derived from having a very competent employee base. According to the NASSCOM Strategic Review Report 2013, Indian service providers have been able to maintain their cost competitiveness by deploying various control strategies including delivery networks in Tier II/III cities, wage inflation offset by operational gains and productivity measures.

 

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India has a large, highly skilled and English-speaking talent pool. According to the NASSCOM Strategic Review Report 2013, the Indian information technology business process management industry employed nearly 3 million software professionals as of March 31, 2013, making it one of the largest employers in the global IT services industry.

 

   

Favorable policy decisions of the Government of India have played an instrumental role in the development of robust IT and BPO sectors in the country. The Software Technology Park (“STP”) Scheme and the Special Economic Zone Act also played a dominant role in the emergence and development of the IT and BPO industries by providing incentives in the form of tax holidays.

 

   

The Indian IT industry has been the primary beneficiary of the rapid transformation of the telecom sector as deregulation has resulted in the rapid decline of the cost of international connectivity and improvement in service level quality.

 

   

India-based IT companies have proven their ability to deliver premium IT and BPO services that satisfy the requirements of international clients who adhere to the highest quality standards.

While exports remain the focus area for the Indian IT industry, domestic IT services represent approximately 22% of the total Indian IT service industry and are expected to be a key growth driver. According to the NASSCOM Strategic Review Report FY13, Indian IT export revenues, excluding hardware, are expected to grow at 10.2% in 2013. This growth will be driven by all customer segments, and particularly across government, enterprise consumers and small and medium businesses.

IT Products

According to the NASSCOM Strategic Review Report 2013, the hardware market in India accounted for 40% of the domestic IT industry, with anticipated growth of 1.4% in fiscal 2013. The key components of the hardware industry are servers, desktop and notebook computers, storage devices, peripherals, printers and networking equipment. Increased use of computing devices in education and consistent demand from enterprises are key factors driving the continued growth of this market. Additionally, the Government of India is promoting initiatives to provide low cost, affordable computing devices, which is expected to also fuel growth. Increased adoption of virtualization and cloud computing technologies, large-scale digitization and the increased importance of big data and analytics have also contributed to growth in the server and storage markets. Demand for networking equipment is increasing as businesses invest in expanding and upgrading their infrastructure and as market penetration of mobile devices, teleconferencing and voice over internet protocol (“VOIP”) increases.

Business Overview

We are one of the leading global IT services providers. We provide a comprehensive range of IT services, software solutions, IT consulting, BPO services, cloud mobility and analytics services and solutions and research and development services in the areas of hardware and software design to leading companies worldwide. We combine the business knowledge and industry expertise of our domain specialists and the technical knowledge and implementation skills of our delivery team in our development centers located in India and around the world. We develop and integrate solutions that enable our clients to leverage IT in achieving their business objectives at competitive costs. We use our quality processes and global talent pool to deliver time to development advantages, cost savings and productivity improvements.

Our IT Services business segment provides a range of IT and IT enabled services which include IT consulting, custom application design, development, re-engineering and maintenance, systems integration, package implementation, technology infrastructure outsourcing, BPO services and research and development services in the areas of hardware and software design. Our objective is to be a world leader in providing a comprehensive range of IT services to our clients. The markets we service are undergoing rapid change due to the pace of developments in technology, changes in business models and changes in the sourcing strategies of clients. We believe that these trends provide us with significant growth opportunities.

Our IT Products business segment provides a range of IT products encompassing computing, storage, networking, security and software products, including databases and operating systems. Under this segment, we sell IT products manufactured by us as well as third-party IT products. We have a diverse range of clients, from small and medium enterprises (“SMEs”) to large enterprises in all major industries.

Our Competitive Strengths

We believe that the following are our principal competitive strengths:

 

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Comprehensive range of IT Services

We provide a comprehensive and integrated suite of IT solutions, ranging from consulting to application development and maintenance, and take end-to-end responsibility for project execution and delivery. We have more than two decades of experience in product engineering, software development, re-engineering and maintenance for our corporate customers, and provide managed IT support services at client sites through our offshore development centers in India and several near shore development centers located in countries closer to our clients’ offices. We believe that this integrated approach positions us to take advantage of key growth areas in enterprise solutions, including IT services data warehousing, implementation of enterprise package application software such as enterprise resource planning, or ERP, supply chain management, or SCM, and customer relationship management, or CRM. In many large outsourcing deals, BPO services are an integral part of the total services outsourced. Integrating BPO services into our portfolio of service offerings has provided us with a strong competitive advantage over other IT services providers.

Broad range of research and development services

Due to our strengths in research and development services, we are well positioned to benefit from the continuing increase in global research and development spending. We are one of a few major IT services companies in the world capable of providing an entire range of research and development services from concept to product realization. We are one of the largest independent third party research and development service providers in the world, with over three decades of experience in electronic product design and design services. We have been rated number one in engineering and research and development services by Zinnov for the last three successive years. According to NASSCOM’s Strategic Review Report 2013, software products, engineering, and research and design services exports from India are estimated to exceed US$14 billion in fiscal 2013. We provide IT services for designing, enhancing and maintaining platform technologies including servers and operating systems, communication subsystems, local area and wide area network protocols, optical networking systems, Internet protocol based switches, routers and embedded software, including software used in mobile phones, home or office appliances, industrial automation and automobiles.

Global delivery model

One of our strengths is our global delivery model, which includes our offshore development centers, or ODCs, and our near shore development centers. We were among the first India-based IT services companies to implement the offshore development model as a method for delivering high quality services at a relatively low cost to international clients.

Ability to access, attract and retain skilled IT professionals

We have continued to develop innovative methods for accessing and attracting skilled IT professionals. We are partners with a leading Indian university to provide a program for on the job training and a Master’s degree in software engineering. We believe that our ability to retain highly skilled personnel is enhanced by our leadership position, opportunities to work with leading edge technologies and focus on training and compensation. As of March 31, 2013, in our IT Services business we had over 130,000 professionals. We expect to grow these numbers in the foreseeable future. One of the keys to attracting and retaining qualified personnel is our variable and performance linked compensation programs. We have had an employee stock purchase program since 1984 and an employee stock option plan since 1999.

Broad distribution network and strong sales force in India

We have a large and growing distribution network for our domestic businesses. For our Indian IT Services and Products business segments, our direct sales force targets large corporate clients and our 64 active channel partners focus on medium and small enterprises. This distribution reach provides us with a significant competitive advantage and allows us to grow our business with minimal increases in personnel.

Strong brand recognition in the Indian market

We believe that our brand is among the most well recognized brands in the Indian market. We have been operating in the Indian market for over 65 years and believe that customers equate our brand with high quality standards and a commitment to customer service. We enhance the value of our brands through aggressive and selective advertising and promotional campaigns.

Our Business Strategy

Our goal is to drive sustainable and profitable growth in all of our business segments by executing the following key strategies:

 

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Continuously improve service and delivery efficiencies

We seek to achieve agility and increased efficiencies in our organization by continuously improving the manner in which we develop and deliver our IT services. We develop preconfigured solutions, standardized delivery tools and technology-enabled delivery processes to increase the speed and efficiency of our IT services and provide our clients with faster, more accessible and more cost effective IT solutions. For example, our cloud and hosted service offerings provide clients with standardized and automated solutions that allow them to collect, process and analyze information quickly without the need for extensive consultation and configuration. Where specialized solutions are required, we believe that more experienced and better trained personnel can identify problems, develop solutions and deliver those solutions in a more efficient and cost effective manner. By deploying more experienced and highly trained personnel across our service and product delivery offerings, we intend to further increase our effectiveness and efficiency.

Focus on broad range of services in key industry verticals and develop deep industry knowledge

We continue to build specialized industry expertise in key verticals and offer a broad range of IT services in each of these key verticals. We have invested and continue to invest significant resources in understanding and prioritizing verticals such as banking, financial services and insurance, healthcare, life sciences, energy and natural resources and retail and consumer product goods. Within these verticals, we invest in developing deep industry knowledge, understanding the information and technology needs of major participants and leveraging available technologies to deliver effective solutions and products to our clients and potential clients. We also seek to meet all of the IT services needs of clients in these verticals with a broad range of specialized service offerings that are designed to address the industry specific issues and needs of our clients.

Aggressively build awareness of the Wipro brand name

We continue to aggressively build awareness of the Wipro brand name among clients and consumers both domestically and internationally. We believe we can leverage the strength of our international brand name by ensuring that our brand name is associated with our position as a market leader committed to high quality. To achieve this objective, we intend to expand our marketing efforts with advertising campaigns and promotional efforts targeted to specific markets. Wipro is focused exclusively on its IT Services and IT Products business segments. As an IT-focused business, we seek to position ourselves as a strategic solutions provider that has the resources and capabilities to provide a comprehensive range of IT services.

Pursue differentiation and leadership through our people

We believe that our employees are the backbone of our organization and a key differentiator in the global market for IT services and IT products. We are committed to recruiting and developing highly skilled employees, service providers and leaders. Our aim is to build a best in class global leadership team and provide our employees with unlimited opportunities for career enhancement and growth. We continue to design and implement processes and programs to foster people development, leadership development and skill enhancements among our global team. It is our aim to be a diverse global company that not only services clients but also empowers people worldwide to increase their expertise beyond their industry peers.

Pursue selective acquisitions

Acquisitions are an inherent part of our corporate strategy. We believe our acquisition program has the potential to further our strategic objectives, strengthen our competitive position, enhance our domain expertise and contribute to the growth and success of our company. In pursuing acquisitions, we focus on opportunities where we can leverage our domain expertise, specific skill sets and our global delivery model to realize service and product enhancements and higher margins. We also use our acquisition program to increase our presence in select geographies and pursue select business opportunities. For example, we significantly increased our footprint in the United States with the acquisition of Infocrossing, Inc., a then U.S. publicly listed company, in August 2007. In April 2011, we acquired the global oil and gas information technology practice of the Commercial Business Services Business Unit of Science Applications International Corporation, or SAIC.

Business Segment Overview

We have two primary business segments, IT Services and IT Products. Effective as of March 31, 2013 (“Effective Date”), our non-IT business segments, including the consumer care and lighting, infrastructure engineering and other non-IT business segments (collectively, the “Diversified Business”), were demerged (the “Demerger”) into Wipro Enterprises Limited (“Resulting Company”), a company incorporated under the laws of India.

 

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IT Services

Our IT Services business segment is a leader in providing IT services to companies across the globe. We provide a range of IT and IT enabled services which include IT consulting, custom application design, development, re-engineering and maintenance, systems integration, package implementation, technology infrastructure outsourcing, BPO services, cloud mobility and analytics services and solutions and research and development services in the areas of hardware and software design. We offer these services globally through a team of over 130,000 IT professionals.

Our IT Services segment accounted for 86%, 88% and 90% of our revenue from the IT business for the years ended March 31, 2011, 2012 and 2013, respectively. Our IT Services segment accounted for 97%, 97% and 99% of our operating income from the IT business for the years ended March 31, 2011, 2012 and 2013, respectively.

Our IT Services business segment is organized into six strategic business units by customer industry:

 

   

Finance Solutions: Finance Solutions is our biggest business unit in terms of revenue and includes clients in the banking, insurance and securities and capital market industries. We strive to bring transformational change to our clients. Our banking practice has partnered with over 50 of the world’s leading banks, including four of the top five banks worldwide and leading banks in the Asia Pacific region. Our insurance practice has been instrumental in delivering success for our Fortune 100 insurance clients through our solutions accelerators, insurance IP, end-to-end consulting services and flexible global delivery models. We have partnered with leading investment banks and stock exchanges worldwide, providing state-of-the-art technology solutions, to address business priorities including operational efficiency, cost optimization, revenue enhancement and regulatory compliance.

 

   

Manufacturing and Hi-Tech: Wipro provides a range of solutions across the entire manufacturing ecosystem to various industries, including automotive, aerospace and defense, peripherals and consumer electronics, semiconductor, computing and storage, process manufacturing and industrial and general manufacturing. We offer strategic business and technology solutions, and advise customers on business process optimization and engineering across diverse functional and engineering areas such as Supply Chain Management, Product Lifecycle Management and Manufacturing Enterprise Solutions. We help our clients design intelligent customer experiences, implement intuitive man-to-machine interactions, gain customer and industry insights using cloud, mobility and analytics, drive innovation using mobile devices and create customer-facing autonomic services.

 

   

Global Media and Telecom: For the past two decades, we have offered services across the entire telecommunications and media value chain, serving equipment vendors, device vendors, service providers and content providers. We assist clients in dealing with the business changes arising from disruptions caused by new technologies, new enterprise and consumer services and shifting regulations.

 

   

Retail, Consumer Goods, Transportation and Government (RCTG): We provide strong customer-centric insight and project execution skills across retail, consumer goods, government and transportation industries. Our domain specialists work with customers to maximize value through technology investments.

 

   

Energy, Natural Resources and Utilities (ENU): Our Energy, Natural Resources and Utilities business unit is strongly positioned to meet the evolving needs of clients in the oil and gas, utilities, mining, and engineering and construction industries globally. Our energy practice has helped clients, primarily in the oil and gas sectors, address complexity through solutions which can effectively collect data from oil wells to retail outlets, integrate different parts of the value chain to increase transparency and provide tools and solutions to effectively analyze data. We help large utility firms manage assets, reduce operational costs and enhance revenue by improving customer satisfaction. We have leveraged our capabilities in oil and gas and utilities to provide comprehensive solutions to the mining and engineering and construction industries. We are a strategic partner for many of the world’s major oil and utility companies. We have also commenced engagements with some of the world’s largest mining companies.

We have expertise in domains such as consulting, program management, solution architecting and packaged delivery capability. We are helping our clients improve customer satisfaction, increase efficiency of service delivery and asset management, introduce smart solutions, and discover and integrate newer sources of energy. We are also helping our clients digitize and automate operations, create collaborative work environments, reduce the cost of exploration and extraction, addressing the need for sustainable practices, and we are developing compliance solutions in the areas of health, safety, and security.

 

   

Healthcare, Life Sciences and Services (HLS): We have a comprehensive presence in HLS industries across payers, providers, e-health and government funded programs, pharma and life science segments. Our centralized, scalable and high quality software delivery capability coupled with our domain knowledge help us to provide innovative solutions which enable our clients to produce products faster and at lower costs. We have substantial experience in supporting global supply chain initiatives to implement ERP applications, PLM tools, enterprise compliance management apps, lab-automation apps and controlled records management solutions.

 

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Our service offerings in each of these strategic business units are aligned with the technology needs of our customers which include applications, infrastructure, engineering, business processes, analytics, consulting, cloud and mobility services. Our key service offerings are outlined below:

 

   

Business Application Services: Our Business Application Services offer integrated business solutions that span the application and technology landscape, from enterprise applications and digital transformation to security and testing. We help drive business innovation by integrating next generation technology into the enterprise IT landscape. Our solutions streamline business processes, maximize and extend the value of package applications, and offer secure IT operations. We aggregate cutting-edge applications to drive collaboration and commerce with customers.

 

   

Enterprise Application Services: Our Enterprise Application Services assist our customers’ transformation initiatives through Enterprise Resource Planning, Financial Management, Human Capital Management, Supply Chain Management, Customer Relationship Management and Application Management Services. We have strategic partnerships with many major ERP vendors which enables us to provide tailored recommendations for the specific needs of customers.

 

   

Business Collaboration and Customer Experience: We provide digital solutions that enhance customer loyalty, drive business sales and increase customer workforce effectiveness. Our business collaboration and customer experience solutions facilitate collaboration and ecommerce between customers and their partners, suppliers, distributors and internally among our customers’ employees.

 

   

Enterprise Architecture: Our Enterprise Architecture Services assist clients in establishing the structure, processes and tools for improvements in technology governance and the metrics they need to measure the alignment of their IT landscape with their business goals.

 

   

Enterprise Integration: Our business integration solutions integrate a customer’s social, mobile, real-time analytics and cloud applications. We also increase customer business responsiveness through IT agility, IT spend optimization, and regulatory compliance.

 

   

Enterprise Security Solutions: We offer end-to-end integrated enterprise security solutions and are among the top global firms offering comprehensive IT security services. Our solutions enhance performance of information security and enable compliance programs to adapt with agility to constantly evolving business and IT risks.

 

   

Testing Services: Our Testing Services are focused on deployment readiness of applications and products by delivering functional assurance, better quality and enhanced performance in addition to greater cost savings and faster time to market. We provide risk-based testing, cloud testing, Level IV and V, and business assurance.

 

   

Global Infrastructure Services: Our Global Infrastructure Services (“GIS”) enables clients to deploy technology solutions across the globe on an integrated basis. Some of our key industry specific service offerings include Wireless Place, Shoptalk™, and Bank in a Box, while our traditional offerings include data center management, cloud, managed network, managed security, end user computing and business advisory services.

 

   

Product Engineering Services and Research and Development Services: We provide comprehensive research and development service, including product engineering across most industries and product types. For example, solutions frameworks like Digital TV middleware stacks, tele-health gateway and automotive connectivity as well as end-to-end product lifecycle services like collaborative design and manufacturing and sustenance.

 

   

Advanced Technologies: Our Advanced Technologies services are focused on cloud, mobility, analytics, social and smart sensor technologies. We provide offerings such as:

 

   

integrated cloud services include review and analysis for cloud amenability, cloud-based IT infrastructure and application transformation, as well as assurance, monitoring and management for cloud services. We also leverage public SaaS, in partnership with industry leaders such as Salesforce.com, Workday, and NetSuite;

 

   

mobility solutions including mobile strategy consulting, mobile user interface design services, mobile application development and testing as well as mobile security and device management;

 

   

high performance technologies including highly scalable and platforms for high speed computing and big data applications; and

 

   

analytics-as-a-service and information-as-a-service including assisting clients with developing a comprehensive analytics and cloud strategy utilizing Information-as-a-Service and analytics solutions.

 

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Business Process Outsourcing (BPO): Our BPO services enable clients to improve the quality of their processes, reduce costs and realize economies of scale. We offer customized service offerings that translate into flexible and cost effective services of the highest quality for our customers. We are uniquely positioned to service customer requirements by leveraging our quality and innovation, talented employees, self-sustaining process framework and domain knowledge. In many large outsourcing deals, BPO services are an integral part of the total services outsourced. Integrating BPO services into our portfolio of service offerings has provided us with a strong competitive advantage over other stand-alone IT services providers.

Our BPO service offerings include:

 

   

customer interaction services, such as IT-enabled customer services, marketing services, technical support services and IT helpdesks;

 

   

finance and accounting services, such as accounts payable and accounts receivable processing;

 

   

process improvement services that provide benefits of scale for repetitive processes like claims processing, mortgage processing and document management;

 

   

knowledge process outsourcing services which involve high-end knowledge work on intellectual property, equity and finance, analytics, market research and data management; and

 

   

process transformational offerings, such as automated chats and e-mails, speech analytics and IVR based voice solutions.

 

   

Analytics and Information Management (A&IM): Our A&IM solutions enable customers to derive actionable business insights from data to drive growth, enhance cost management and strengthen risk management. We work with customers to develop end to end analytics and information strategy leveraging our process assets and solutions based on analytics, business intelligence, enterprise performance management, and information management.

Some of our key A&IM services include:

 

   

consulting services, such as business strategy, architecture, change management;

 

   

performance management and optimization;

 

   

predictive analytics, statistical modeling and data mining, machine learning, big data solutions, next generation business information, including mobile business information, advanced visualization and in memory computing;

 

   

information management, such as strategy, architecture, governance, enterprise data warehouse, business data quality, master data management, data privacy, lifecycle management and information integration;

 

   

system integration solutions including hardware, infrastructure, and application; and

 

   

managed services.

 

   

Consulting: Wipro Consulting Services (WCS) helps companies solve today’s business issues while thinking ahead to future challenges and opportunities. We bring value to our clients through end-to-end business transformation through our “think, build and operate” approach. Our model for the 21st century virtual corporation includes implementing lean process transformation, exploiting new technology, optimizing human capital and physical assets and structuring next generation partnering agreements that create value and win/win business outcomes for our clients.

WCS has nine industry leading consulting practices: Business Transformation, Process Excellence, Enterprise Architecture Consulting, Customer Relationship Management, Supply Chain Management, Human Capital Management, Governance, Risk and Compliance, Finance and Accounting. Our consultants are based across North America, Western Europe, India, the Middle East, Africa and the Asia Pacific. WCS works closely with the other business units of Wipro, maximizing our business analysis by also offering implementation solutions, thereby combining the benefits of proximity and global expertise to provide a technological and timing edge for our customers.

Our Global Delivery Model

Our Global Delivery Model allows us to utilize the best talent available, wherever it is located, to achieve the best financial and delivery results possible. Our Global Delivery Model relies on the following key elements:

 

   

24 hour capabilities across multiple time zones;

 

   

highly skilled technology professionals;

 

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cost competitiveness across geographic regions;

 

   

uninterrupted service delivery through multi-location redundancy; and

 

   

an integrated workflow based system with reusable tools and knowledge management

We have accelerated the speed to market of our solutions through our globally connected delivery centers and depth of capabilities.

IT Services Clients

We provide IT software solutions to clients from a broad array of industry sectors. Several of our clients purchase our services across multiple service offerings. We seek to expand the level of business with our existing clients by increasing the type and range of services we can provide to them. The table below illustrates the size of our client project engagement size as measured by revenues.

 

     Number of clients in  

Per client revenue(US$)

   Year ended
March 31,
2011
     Year ended
March 31,
2012
     Year ended
March 31,
2013
 

1-3 million

     174         183         199   

3-5 million

     75         84         78   

>5 million

     180         208         213   
  

 

 

    

 

 

    

 

 

 

Total > 1 million

     429         475         490   
  

 

 

    

 

 

    

 

 

 

The largest client of our IT Services segment accounted for 3%, 4% and 3% of total revenues from the IT Services segment for the years ended March 31, 2011, 2012 and 2013. The five largest clients of our IT Services segment accounted for 11%, 11% and 13% of our total IT Services revenues for the years ended March 31, 2011, 2012 and 2013, respectively.

Sales and Marketing for IT Services

Our sales operations are global so we can satisfy the requirements of global companies. Our sales efforts are complemented by our marketing team, which assists in brand building and other corporate and field-level marketing efforts.

Sales: We believe that the “customer” always comes first. We believe we can achieve higher levels of client sales and client satisfaction by structuring ourselves based on the following key elements:

 

   

Client Relationship: We have designated global client partners that have primary responsibility for the client relationship, providing single person accountability and single person sales responsibility.

 

   

Industry Focus: Our sales teams are dedicated to a specific industry segment and often have significant experience and training in their industry.

 

   

Proactive Solutioning: We have a consulting led approach to sales where our sales teams provide proactive solutions to prospective clients rather than only offer our software services capabilities.

 

   

Geographic Focus: Our sales teams are dedicated to a specific country or region to increase our knowledge of the local business culture, anticipate prospective and existing client needs and increase our market penetration.

Marketing: Our marketing organization complements our sales teams by:

 

   

Building on our brand as a global company that is a leader in global consulting and IT services;

 

   

Positioning our brand with clients as a thought leader and a solution provider that utilizes innovative techniques to solve difficult as well as mundane problems; and

 

   

Participating in industry events that are aligned to drive sales by showcasing our services, products and strategic alliances.

IT Services Competition

The market for IT services is highly competitive and rapidly changing. Our competitors in this market include consulting firms, big four accounting firms, and global IT services companies, such as Accenture, IBM Global Services, Cognizant Technology Solutions Corporation and Tata Consultancy Services.

 

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These competitors are located internationally as well as in India. We expect that competition will further increase and will potentially include companies from other countries that have lower personnel costs than in India. A significant part of our competitive advantage has historically been a wage cost advantage relative to companies in the United States and Europe. Because wage costs in India are presently increasing at a faster rate than those in the United States, our ability to compete effectively will increasingly become dependent on our ability to provide high quality, on-time, complex deliverables that depend on increased expertise in certain technical areas. We also believe that our ability to compete will depend on a number of factors not within our control, including:

 

   

the ability of our competitors to attract, retain and motivate highly skilled IT services professionals;

 

   

the extent to which our international competitors expand their operations in India and benefit from the favorable wage differential;

 

   

the price at which our competitors offer their services; and

 

   

the extent to which our competitors can respond to a client’s needs.

We believe we compete favorably with respect to each of these factors and distinguish ourselves through consistently providing quality leadership, our ability to create client loyalty and our expertise in select targeted market.

IT Products

Our IT Products segment provides hardware solutions for a range of IT products encompassing servers, computing, storage, networking, security and related software products, including databases and operating systems. Our solutions include IT products manufactured by us as well as third-party IT products.

Our IT Products segment accounted for 14%, 12% and 10% of our total revenues from the IT business for the years ended March 31, 2011, 2012 and 2013, respectively. Our IT Products segment accounted for 3%, 3% and 1% of our total operating income from the IT business for the years ended March 31, 2011, 2012 and 2013, respectively.

Our range of IT Products is comprised of the following:

 

   

Wipro Manufactured Products: Our manufactured range of products includes desktops, notebooks, net power servers, netStor storage and super computers. We offer form factors and functionalities that cater to the entire spectrum of users. We continue to launch new products based on market needs.

 

   

Enterprise Platforms: Our offerings in this category include supply, design, deployment and maintenance of technology solutions consisting of enterprise class servers, databases and server computing resource management software.

 

   

Networking Solutions: Our offerings in this category include supply, design, deployment and maintenance of technology solutions for data network products available for large and small enterprises as well as service providers.

 

   

Software Products: Our products under this category are comprised of enterprise application, data warehousing and business intelligence software from leading software product companies.

 

   

Data Storage: Our offerings in this category include supply, design, deployment and maintenance of technology solutions for enterprise class storage, backup and disaster recovery systems.

 

   

Contact Center Infrastructure: In this category our offerings include voice response solutions, computer telephony interface, customized agent desktop application, predictive dialer and voice logger systems.

 

   

Enterprise Security: Our security solutions include infrastructure, information and application security products such as firewalls, intrusion prevention systems, data leakage protection and identity and access management.

 

   

IT Optimization Technologies: We offer new technology products which enhance application performance and resource optimization like load balancers, WAN optimizer and virtualization software.

 

   

Video Solutions: We also provide enterprise wide video solutions products from leading OEMs.

IT Products Clients

The clients for our IT Products segment range from individual users to large enterprises. We provide our offerings to enterprises under all major industries including the government, defense, IT and ITeS, telecommunications, manufacturing, utilities, education and financial services sectors. We have a diverse range of clients, none of whom individually account for more than 10% of our overall IT Products business segment revenues.

 

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IT Products Sales and Marketing

We sell and market our manufactured products through our direct sales force, national distributor network and resellers. Our direct and indirect sales teams are distributed geographically. We resell third party enterprise products through our direct sales force. Our direct sales teams are organized by:

 

   

client segment;

 

   

geography; and

 

   

industry segment.

We use an integrated sales team approach that allows us to deliver a complete sales and delivery experience to the customer with a single point of accountability through designated global client partners. Our global client partners receive support from our corporate marketing team to assist in brand building and other corporate level marketing efforts for various market segments.

IT Products Competition

The IT products market is a dynamic and highly competitive market. In the marketplace, we compete with both international and local providers. Our local competition comes from HCL, TCS, and CMC, among others. Our international competitors include IBM, Dell, HP, Lenovo, Acer, Sony and Toshiba.

One of the major challenges we encounter is margin pressure due to competitive pricing. Achieving mindshare and market share in a crowded market place requires differentiated strategies on pricing, branding, delivery and products design. We believe we are favorably positioned based on our brand, quality leadership, expertise in target markets and our ability to create client loyalty by delivering value to our customers.

Diversified Business

Effective as of March 31, 2013 (“Effective Date”), our non-IT business segments, including the consumer care and lighting, infrastructure engineering and other non-IT business segments (collectively, the “Diversified Business”), were demerged (the “Demerger”) into Wipro Enterprises Limited (“Resulting Company”), a company incorporated under the laws of India. Please see the section titled “The Demerger of the Diversified Business” in Item 4, Information on the Company.

Markets and Sales Revenue

Our revenues for the last three fiscal years by business segment are as follows:

 

     Year ended March 31,  
     2011      2012      2013  
     (in millions)  

IT Services

   Rs.  234,850       Rs.  284,313       Rs.  338,431   

IT Products

     36,910         38,436         39,238   

Consumer Care and Lighting (discontinued operation)

     27,258         33,401         40,594   

Others (discontinued operation)

     10,896         18,565         14785   

Reconciling items

     1,073         534         560   
  

 

 

    

 

 

    

 

 

 
   Rs. 310,987       Rs. 375,249       Rs. 433,608   
  

 

 

    

 

 

    

 

 

 

Our revenues for the last three fiscal years by geographic areas are as follows:

 

     Year ended March 31,  
     2011      2012      2013  
     (in millions)  

India

   Rs.  67,904       Rs.  80,135       Rs.  80,357   

United States

     129,217         148,160         173,127   

Europe

     68,159         87,186         105,356   

Rest of the world

     45,707         59,768         74,768   
  

 

 

    

 

 

    

 

 

 
   Rs.  310,987       Rs.  375,249       Rs.  433,608   
  

 

 

    

 

 

    

 

 

 

 

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Intellectual Property

Our intellectual property rights are important to our business. We rely on a combination of patent, copyright, trademark and design laws, trade secrets, confidentiality procedures and contractual provisions to protect our intellectual property. We require employees, independent contractors and, whenever possible, vendors to enter into confidentiality agreements upon the commencement of their relationships with us. These confidentiality agreements generally provide that any confidential or proprietary information being developed by us or on our behalf be kept confidential. These agreements also provide that any confidential or proprietary information disclosed to third parties in the course of our business be kept confidential by such third parties. However, our clients usually own the intellectual property in the software we develop for them.

Our efforts to protect our intellectual property may not be adequate. Our competitors may independently develop similar technology or duplicate our products and/or services. Unauthorized parties may infringe upon or misappropriate our products, services or proprietary information. In addition, India has now complied with all World Trade Organization (“WTO”) requirements with respect to intellectual property protection, which means that India meets the international mandatory and statutory requirements regarding the protection of intellectual property rights.

We could be subject to intellectual property infringement claims as the number of our competitors grows and our product or service offerings overlap with those of our competitors. In addition, we may become subject to such claims since we may not always be able to verify the intellectual property rights of third parties from which we license a variety of technologies. Defending against these claims, even if not meritorious, could be expensive and divert our attention from operating our company. If we become liable to third parties for infringing their intellectual property rights, we could be required to pay substantial damage awards and be forced to develop non-infringing technology, obtain a license or cease selling the applications that contain the infringing technology. The loss of some of our existing licenses could delay the introduction of software enhancements, interactive tools and other new products and services until equivalent technology could be licensed or developed. We may be unable to develop non-infringing technology or obtain a license on commercially reasonable terms, if at all.

As of March 31, 2013, our continuing operations held more than 500 registered trademarks including registered community trademarks in India, Japan, the United States, Malaysia and over 60 other countries. We also have 124 registered patents in various countries. We have approximately 87 patent applications and over 200 trademark applications pending for registration in various jurisdictions across the world.

Following the Demerger of the Diversified Business, Wipro transferred certain trademarks, patents, copyrights and design rights that related to the Diversified Business to the Resulting Company. Similarly, Wipro Trademarks Holding Limited transferred certain trademarks, patents, copyrights and design rights that related to the Diversified Business to the Resulting Company. In addition, Wipro Trademarks Holdings Limited owns certain trademarks that are used both by Wipro and the Resulting Company. Such details are provided in Schedule III Part A to D annexed to the Scheme of Arrangement approved by the High Court of Karnataka.

Our continuing operations have more than 400 registrations completed with respect to WIPRO and the Flower logo trademarks in over 60 territories across the world (including Madrid Protocol countries) and more than 120 trademark applications pending registration in India, Iran, Vietnam, Iraq, Malaysia, Singapore, Nepal, Sri Lanka and other countries. These overseas registrations also include our applications in the EU (via the Community Trade Mark).

Effect of Government Regulation on our Business

Regulation of our business by the Government of India affects our business in several ways. We benefit from certain tax incentives promulgated by the Government of India, including the export of IT services from Special Economic Zones (SEZs). As a result of this incentive, our operations have been subject to relatively lower Indian tax liabilities. The tax holiday for all of our Software Technology Parks and Export Oriented Units expired in fiscal year 2011. We have also benefited from the liberalization and deregulation of the Indian economy by successive Indian government administrations since 1991, including the current administration.

Indian laws also place additional restrictions on our business, including that we are generally required to obtain approval under the Factories Act and the Shops and Establishment Act, from the Reserve Bank of India and/or the Ministry of Finance of the Government of India to acquire companies organized outside India, and we are generally required, subject to some exceptions, to obtain approval from relevant government authorities in India in order to raise capital outside India or conduct other activities. We may also be required to obtain the approval of the Indian stock exchanges and/or the Securities and Exchange Board of India to take certain actions, such as the acquisition of, or merger with, another company. The conversion of our equity shares into ADSs is governed by guidelines issued by the Reserve Bank of India.

 

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Finally, we are subject to several legislative provisions relating to storage of explosives, environmental protection, pollution control, essential commodities and operation of manufacturing facilities. Noncompliance with these provisions may lead to civil and criminal liability or delays in obtaining approval from the requisite governmental authorities.

Please see the section titled “Risk Factors” in Item 3, Key Information, as well as the section titled “Additional Information” in Item 10, for more information on the effects of governmental regulation on our business.

Organizational Structure

Our subsidiaries as of March 31, 2013 are listed in the table below.

 

Subsidiaries    Subsidiaries    Subsidiaries    Country of
Incorporation
Wipro LLC (formerly Wipro Inc).            USA
     Wipro Gallagher Solutions Inc         USA
     Enthink Inc. *         USA
     Infocrossing Inc.         USA
     Promax Analytics Solutions Americas LLC         USA
     Wipro Insurance Solution LLC         USA

Wipro Energy IT Services India Private Limited

(formerly SAIC India Private Limited)

           India
Wipro Japan KK              Japan
Wipro Shanghai Limited              China
Wipro Trademarks Holding Limited            India
Wipro Travel Services Limited              India
Wipro Holdings (Mauritius) Limited            Mauritius
     Wipro Holdings UK Limited         U.K.
        Wipro Technologies UK Limited    U.K.
        Wipro Holding Austria GmbH (A)    Austria
       

3D Networks (UK) Limited

Wipro Europe Limited (A) (formerly SAIC Europe Limited)

  

U.K.

U.K

Wipro Cyprus Private Limited              Cyprus
     Wipro Technologies S.A DE C. V         Mexico
     Wipro BPO Philippines LTD. Inc         Philippines
     Wipro Holdings Hungary Korlátolt Felelősségű Társaság         Hungary
     Wipro Technologies Argentina SA         Argentina
     Wipro Information Technology Egypt SAE         Egypt
     Wipro Arabia Limited *         Saudi Arabia
     Wipro Poland Sp Zoo         Poland
     Wipro IT Services Poland Sp. z o. o         Poland
     Wipro Outsourcing Services UK Limited         U.K.
     Wipro Technologies (South Africa) Proprietary Limited         South Africa
        Wipro Technologies Nigeria Limited    Nigeria
    

Wipro Information Technology Netherlands BV

(formerly Retail Box BV)

        Netherland
        Wipro Portugal S.A.(A) (Formerly Enabler Informatica SA)    Portugal
        Wipro Technologies Limited, Russia    Russia

 

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Subsidiaries    Subsidiaries    Subsidiaries    Country of
Incorporation
        Wipro Technology Chile SPA    Chile
        Wipro Technologies Canada Limited    Canada
        Wipro Information Technology Kazakhstan LLP    Kazakhstan
       

Wipro Technologies W.T. Sociedad Anonima

Wipro Outsourcing Services (Ireland) Limited

Wipro Technologies Norway AS

  

Costa Rica

         

         

Ireland

Norway

     Wipro Technologies SRL         Romania
     PT WT Indonesia #         Indonesia
     Wipro Australia Pty Limited #         Australia
         

Wipro Promax Holdings Pty Ltd

(formerly Promax Holdings Pty Ltd) (A)

   Australia
     Wipro Technocentre (Singapore) Pte Limited #         Singapore
     Wipro (Thailand) Co Limited #         Thailand
     Wipro Bahrain Limited WLL #         Bahrain
     Wipro Gulf LLC (formerly SAIC Gulf LLC)         Sultanate of Oman
     Wipro Technologies Spain         Spain

Wipro Networks Pte Limited

(formerly 3D Networks Pte Limited)

           Singapore
Planet PSG Pte Limited              Singapore
     Wipro Technologies SDN BHD         Malaysia
Wipro Chengdu Limited            China
Wipro Technology Services Limited              India
Wipro Airport IT Services Limited *              India

 

* All the above subsidiaries are 100% held by the Company except that the Company holds 98% of the equity securities of Enthink Inc., 66.67% of the equity securities of Wipro Arabia Limited and 74% of the equity securities of Wipro Airport IT Services Limited.
# In connection with the Demerger, all subsidiaries which pertained to the Diversified Business were transferred to the Resulting Company. Certain of these subsidiaries in turn possessed subsidiaries which do not pertain to the Diversified Business and instead are considered a portion of the IT Services business segment. Therefore, the Resulting Company is now in the process of completing the transfer of the IT Services related subsidiaries back to Wipro. In the interim, the board of directors of the Resulting Company has authorized Wipro to retain all operating and management control for such subsidiaries, including the power to govern the operating and financial policies, the appointing of a majority of the board of directors, and appointment of key management personnel, and accordingly, the results of such subsidiaries are included with the results of the Company in these financial statements. Please refer to Note 4 and Note 29 of the Notes to Consolidated Financial Statements.

 

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(A)

Subsidiary details of Wipro Holding Austria GmbH, Wipro Portugal S.A, Wipro Europe Limited and Wipro Promax Holdings Pty Ltd are as follows:

 

Subsidiaries    Subsidiaries    Country of
Incorporation
Wipro Holding Austria GmbH          
     Wipro Technologies Austria GmbH    Austria
     New Logic Technologies SARL    France

Wipro Europe Limited

(formerly SAIC Europe Limited)

         
     Wipro UK Limited (formerly SAIC Limited)    U.K.
     Wipro Europe (SAIC France) (formerly Science Applications International, Europe SARL)    France
Wipro Portugal S.A.          
    

SAS Wipro France

(formerly Enabler France SAS)

   France
    

Wipro Retail UK Limited

(formerly Enabler UK Limited)

   U.K.
     Wipro do Brasil Technologia Ltda (formerly Enabler Brazil Ltda)    Brazil
     
     Wipro Technologies Gmbh (formerly Enabler & Retail Consult GmbH)    Germany

Wipro Promax Holdings Pty Ltd

(formerly Promax Holdings Pty Ltd)

  

Wipro Promax Analytics Solutions Pty Ltd

(formerly Promax Applications Group Pty Ltd)

   Australia
     
     Wipro Promax IP Pty Ltd (formerly PAG IP Pty Ltd)    Australia
     
     Promax Analytics Solutions Europe Ltd    UK

The list of controlled trusts are:

 

Name of entity    Nature    Country of Incorporation
Wipro Equity Reward Trust    Trust    India
Wipro Inc Benefit Trust    Trust    USA

Property, Plant and Equipment

Our headquarters and corporate offices are located at Doddakannelli, Sarjapur Road, Bangalore, India. The offices are approximately 0.30 million square feet. We have approximately 1.3 million square feet of land adjoining our corporate offices for future expansion plans.

In addition, we have approximately 40 million square feet of land, including approximately 9.6 million square feet of owned software development facilities in India and over 1 million square feet of leased software development premises in India. We have approximately 1.9 million square feet of leased offices, software development and data center facilities in 36 countries outside India, which includes approximately 0.7 million square feet at various locations in the U.S.

We incurred capital expenditures of Rs. 12,211 million, Rs. 12,977 million and Rs. 10,616 million during the fiscal years ended March 31, 2011, 2012 and 2013, respectively. These capital expenditures were primarily incurred on new software development facilities in India for our IT Services and IT Products business segments.

We have 38 sales/marketing offices, data centers, development and training centres in the United States. In addition, we have similar facilities located in the following countries: Argentina, Australia, Austria, Brazil, Canada, Chile, China, Columbia, Finland, France, Germany, Hungary, Indonesia, Ireland, Japan, Kazakhstan, Kenya, Luxembourg, Mexico, Netherlands, Nigeria, Norway, Oman, Philippines, Poland, Portugal, Qatar, Romania, South Africa, Saudi Arabia, Singapore, South Korea, Sweden, Switzerland, Taiwan, Thailand, Turkey, United Arab Emirates, Uganda and United Kingdom.

We operate 2 manufacturing sites, which are approximately 0.2 million square feet and approximately 0.5 million square feet of land, respectively. We own one of these facilities, located in Pondicherry, India. We have leased on a long-term basis one other facility located in Kotdwar, India.

Our software development and manufacturing facilities are equipped with a world class technology infrastructure that includes networked workstations, servers, data communication links, captive power generators and other plants and machinery.

 

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We believe that our facilities are optimally utilized and that appropriate expansion plans are being developed and undertaken to meet our future growth.

Material Plans to Construct, Expand and Improve Facilities

As of March 31, 2013, we have capital commitments of Rs. 1,259 million (US$ 23 million) related to the construction or expansion of our software development facilities. We currently intend to finance our additional expansion plans entirely through our operating cash flows and through cash and investments as of March 31, 2013.

Legal Proceedings

In the ordinary course of business, we may from time to time become involved in certain legal proceedings. As of the date of this Annual Report on Form 20-F, we are not party to any pending legal proceedings whose resolution could have a material impact on our financial position. Please see the description of our tax proceedings before the Deputy Commissioner of Income, Tax, Bangalore, India, under the section titled “Income Taxes” under Item 5 of this Annual Report.

Effective as of March 31, 2013 (“Effective Date”), the consumer care and lighting, infrastructure engineering and other non-IT business segments of the Company (collectively, the “Diversified Business”), were demerged (the “Demerger”) into Wipro Enterprises Limited (“Resulting Company”), a company incorporated under the laws of India. The Demerger was effected pursuant to the High Court of Karnataka, Bangalore’s approval of the Scheme of Arrangement. The Demerger was also approved by various Indian authorities, including the Securities and Exchange Board of India, the Government of India Ministry of Finance Department of Economic Affairs, and the Foreign Investment Promotion Board of the Reserve Bank of India. As required under the provisions of the Indian Companies Act, 1956, the court order was also filed with the Registrar of Companies.

 

Item 4A. Unresolved Staff Comments

None.

 

Item 5. Operating and Financial Review and Prospects

(in millions, except share data and where otherwise stated)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

As discussed elsewhere in this report, in addition to historical information, this Annual Report on Form 20-F contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are not historical facts but instead represent our beliefs regarding future events, many of which are, by their nature, inherently uncertain and outside our control. As a result, the forward-looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements, and reported results should not be viewed as an indication of future performance. For a discussion of some of the risks and important factors that could affect the Company’s future results and financial condition, please see the sections entitled “Risk Factors.”

The forward-looking statements contained herein are identified by the use of terms and phrases such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “objectives,” “outlook,” “probably,” “project,” “will,” “seek,” “target” and similar terms and phrases. Such forward-looking statements include, but are not limited to, all of the statements set forth above under the heading “Forward-Looking Statements May Prove Inaccurate.”

We wish to ensure that all forward-looking statements are accompanied by meaningful cautionary statements, so as to ensure to the fullest extent possible the protections of the safe harbor established in the Private Securities Litigation Reform Act of 1995. Accordingly, all forward-looking statements are qualified in their entirety by reference to, and are accompanied by, the discussion of certain important factors that could cause actual results to differ materially from those projected in such forward-looking statements in this report, including the section entitled “Risk Factors” and this section.

We caution the reader that this list of important factors may not be exhaustive. We operate in rapidly changing businesses, and new risk factors emerge from time to time. We cannot predict every risk factor, nor can we assess the impact, if any, of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those projected in any forward-looking statements.

 

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Overview

We are a leading global information technology, or IT, services company, headquartered in Bangalore, India. We provide a comprehensive range of IT services, software solutions and research and development services in the areas of hardware and software design to leading companies worldwide. We use our development centers located in India and around the world, quality processes and global resource pool to provide cost effective IT solutions and deliver time-to-market and time-to-development advantages to our clients. We also provide business process outsourcing, or BPO, services.

Our IT Products segment is a leader in the Indian IT market and focuses primarily on meeting requirements for IT products of companies in India and the Middle East region. We provide hardware solutions for a range of IT products encompassing servers, computing, storage, networking, security and related software products including databases and operating systems. Our solutions include IT products manufactured by us as well as third-party IT products.

Effective as of March 31, 2013 (“Effective Date”), our non-IT business segments, including the consumer care and lighting, infrastructure engineering and other non-IT business segments (collectively, the “Diversified Business”), were demerged (the “Demerger”) into Wipro Enterprises Limited (“Resulting Company”), a company incorporated under the laws of India. Accordingly, we have treated the Diversified Business as a discontinued operation for all prior periods presented. Please see the Section titled “The Demerger of the Diversified Business” in Item 4, Information of the Company.

Results of Operation

Our revenue and profit from continuing operations for the years ended March 31, 2011, 2012 and 2013 are provided below.

 

     Wipro Limited and subsidiaries  
     Years ended March 31,     Year on Year change  
     2011     2012     2013     2012-11     2013-12  
     (in millions except earnings per share data)              

Revenue (1)

   Rs.  271,940      Rs.  322,075      Rs.  376,882        18.44     17.02

Cost of revenue

     (186,613     (225,794     (260,665     21.00     15.44

Gross profit

     85,327        96,281        116,217        12.84     20.71

Selling and marketing expenses

     (14,043     (17,953     (24,213     27.84     34.87

General and administrative expenses

     (16,843     (18,416     (22,032     9.34     19.64

Operating income

     54,441        59,912        69,972        10.05     16.79

Profit attributable to equity holders

     49,938        52,325        61,362        4.78 % (2)      17.27 % (2) 

As a Percentage of Revenue:

          

Selling and marketing expenses

     5.16     5.57     6.42     (41 ) bps      (85 ) bps 

General and administrative expenses

     6.19     5.72     5.85     47   bps      (13 ) bps 

Gross margins

     31.38     29.89     30.84     (149 ) bps      95   bps 

Operating Margin

     20.02     18.60     18.57     (142 ) bps      (3 ) bps 

Earnings per share

          

Basic

     20.49        21.36        25.01       

Diluted

     20.36        21.29        24.95       

 

(1) 

For the purpose of segment reporting only, we have included the impact of exchange rate fluctuations in revenue. Excluding the impact of exchange rate fluctuations, revenue, as reported in our statements of income, is Rs. 271,437, Rs. 318,747 and Rs. 374,256 for the years ended March 31, 2011, 2012 and 2013, respectively.

(2) 

Our adjusted non-GAAP profit from continuing operations for the year ended March 31, 2011, 2012 and 2013 is Rs. 49,561, Rs. 52,204 and Rs. 61,054, an increase of 5.31% and 16.95% over the years ended March 31, 2011 and 2012, respectively. See discussion below.

Our revenue and operating income by business segment from the IT business expressed in terms of percentages are provided below for the years ended March 31, 2011, 2012 and 2013, respectively:

 

 

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     Year ended March 31,  
     2011      2012      2013  
     (In Percentage)  

Revenue:

        

IT Services

     86         88         90   

IT Products

     14         12         10   

Total - IT Business

     100         100         100   

Operating Income:

        

IT Services

     97         97         99   

IT Products

     3         3         1   

Total - IT Business

     100         100         100   

This Annual Report on Form 20-F contains, and future filings with the SEC may contain, non-GAAP financial measures within the meaning of Regulation G and Item 10(e) of Regulation S-K, under which “GAAP” and “non-GAAP” for a foreign private issuer means the principles under which its primary financial statements are prepared, or IFRS and non-IFRS. Such non-GAAP financial measures are measures of our historical or future performance, financial position or cash flows that are adjusted to exclude or include amounts that are excluded or included, as the case may be, from the most directly comparable financial measure calculated and presented in accordance with IFRS.

The following table provides our adjusted profit for the year, which is a non-GAAP financial measure that excludes the impact of accelerated amortization in respect of stock options that vest in a graded manner. This non-GAAP financial measure is not based on any comprehensive set of accounting rules or principles and should not be considered a substitute for, or superior to, the most directly comparable financial measure calculated in accordance with IFRS. In addition to this non-GAAP financial measure, readers should carefully review and evaluate our financial statements prepared in accordance with IFRS as well as the reconciliation of this non-GAAP financial measure with the most directly comparable IFRS financial measure.

A reconciliation of adjusted non-GAAP profit, which excludes the impact of accelerated amortization in respect of stock options that vest in a graded manner, with total profits from continuing operations as calculated and presented in accordance with IFRS, is as follows:

 

     Year ended March 31,  
     2011     2012     2013  

Total profits attributable to equity holders for the year as per IFRS

   Rs.  52,977      Rs.  55,730      Rs.  66,359   

Adjustments:

      

Accelerated amortization of stock options that vest in a graded manner

     (376     (125     (321
  

 

 

   

 

 

   

 

 

 

Adjusted non-GAAP profit

   Rs.  52,601      Rs.  55,605      Rs.  66,038   
  

 

 

   

 

 

   

 

 

 

Profits from continuing operations attributable to equity holders for the year as per IFRS

   Rs.  49,938      Rs.  52,325      Rs.  61,362   

Adjustments:

      

Accelerated amortization of stock options that vest in a graded manner

     (377     (121     (308
  

 

 

   

 

 

   

 

 

 

Adjusted non-GAAP profit from continuing operation

   Rs.  49,561      Rs.  52,204      Rs.  61,054   
  

 

 

   

 

 

   

 

 

 

The Company believes that the presentation of this non-GAAP adjusted profit, when shown in conjunction with the corresponding IFRS measure, provides useful information to investors and management regarding financial and business trends relating to the Company’s profit for the period. The Company considers a stock option award with a graded vesting schedule to be a single award and not multiple stock option awards. Further, the Company considers the services of the employee in each year, covered by the stock option award to be equally valuable and accordingly believes that straight line amortization reflects the economic substance of the stock awards. However, under IFRS, the Company records the related stock compensation expenses on an accelerated basis. Therefore, we believe that making available an adjusted profit number that excludes the impact of accelerated amortization from profit provides useful supplemental information to both management and investors about our financial and business trends.

For our internal budgeting process, our management also uses financial statements that do not include the impact of accelerated amortization relating to stock options that vest in a graded manner. The management of the Company also uses non-GAAP adjusted profit, in addition to the corresponding IFRS measures, in reviewing our financial results.

 

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A material limitation associated with the use of non-GAAP profit as compared to the IFRS measure of profit is that it does not include costs which are recurring in nature and may not be comparable with the calculation of profit for other companies in our industry. The Company compensates for these limitations by providing full disclosure of the effects of non-GAAP measures, by presenting the corresponding IFRS financial measure and by providing a reconciliation to the corresponding IFRS measure.

Results of operations for the years ended March 31, 2013 and 2012

 

   

Our revenue from continuing operations increased by 17.02%. This was driven primarily by a 19.03% and 2.09% increase in revenue from our IT Services and IT Products business segments, respectively.

 

   

Our gross profit as percentage of our revenue from continuing operations improved by 95 basis points (bps). This was primarily on account of improvement in gross profit as a percentage of revenue from our IT Services segment by 80 bps. This improvement was partially offset by a decline in gross profit as a percentage of revenue from our IT Products segment by 145 bps.

 

   

Our selling and marketing expenses as a percentage of revenue from continuing operations increased from 5.57% for the year ended March 31, 2012 to 6.42% for the year ended March 31, 2013. In absolute terms selling and marketing expenses increased by 34.87%, primarily due to an increase in such expenses in the IT Services segment.

 

   

Our general and administrative expenses as a percentage of revenue from continuing operations increased from 5.72% for the year ended March 31, 2012 to 5.85% for the year ended March 31, 2013. In absolute terms general and administrative expenses increased by 19.64%, primarily due to an increase in such expenses in both the IT Services segment and IT Products segment.

 

   

As a result of the foregoing factors, our operating income from continuing operations increased by 16.79%, from Rs. 59,912 for the year ended March 31, 2012 to Rs. 69,972 for the year ended March 31, 2013.

 

   

Our finance expenses from continuing operations decreased from Rs. 3,371 for the year ended March 31, 2012 to Rs. 2,693 for the year ended March 31, 2013. This decrease is primarily due to a decrease of Rs. 604 in exchange loss on foreign currency borrowings and related derivative instruments. This decrease is also due to a decrease in interest expense by Rs. 74 during the year ended March 31, 2013.

 

   

Our finance and other income from continuing operations increased from Rs. 8,982 for the year ended March 31, 2012 to Rs. 11,317 for the year ended March 31, 2013. Our gain on sale of investments increased by Rs. 2,064 and interest and dividend income increased by Rs. 271 during the year ended March 31, 2013 as compared to the year ended March 31, 2012. This increase was due to an increase in cash available for investments due to increased availability of cash flows.

 

   

Our income taxes for continuing operations increased by Rs. 3,957, from Rs. 12,955 for the year ended March 31, 2012 to Rs. 16,912 for the year ended March 31, 2013. Adjusted for tax write-backs, our effective tax rate increased from 19.77% for the year ended March 31, 2012 to 21.52% for the year ended March 31, 2013. This increase is primarily due to changes in our taxable profits which resulted in a lower proportion of exempt income, but this was partially offset by a higher deferred tax asset due to a rate change.

 

   

As a result of the foregoing factors, our profit from continuing operations attributable to equity holders increased by Rs. 9,037, or 17.27%, from Rs. 52,325 for the year ended March 31, 2012 to Rs. 61,362 for the year ended March 31, 2013.

 

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Results of operations for the years ended March 31, 2012 and 2011

 

   

Our revenues from continuing operations increased by 18.44%. This was driven primarily by a 21.06% and 4.13% increase in revenue from our IT Services and IT Products business segments, respectively.

 

   

Our gross profit as percentage of our revenue from continuing operations decreased by 149 basis points (bps). This was primarily on account of a decline in gross profit as a percentage of revenue from our IT Services segment by 209 bps. This decline was partially offset by an increase in gross profit as a percentage of revenue from our IT Products segment by 31 bps.

 

   

Our selling and marketing expenses as a percentage of revenue from continuing operations increased from 5.16% for the year ended March 31, 2011 to 5.57% for the year ended March 31, 2012. In absolute terms, selling and marketing expenses increased by 27.84%, primarily due to an increase in such expenses in the IT Services segment.

 

   

Our general and administrative expenses as a percentage of revenue from continuing operations decreased from 6.19% for the year ended March 31, 2011 to 5.72% for the year ended March 31, 2012. In absolute terms, general and administrative expenses increased by 9.34%, primarily due to increased expenses in the IT Services segment.

 

   

As a result of the foregoing factors, our operating income from continuing operations increased by 10.05%, from Rs. 54,441 for the year ended March 31, 2011 to Rs. 59,912 for the year ended March 31, 2012.

 

   

Our finance expenses from continuing operations increased from Rs. 1,924 for the year ended March 31, 2011 to Rs. 3,371 for the year ended March 31, 2012. This increase is primarily due to an increase of Rs.1,277 in exchange loss on foreign currency borrowings and related derivative instruments. This increase is also due to an increase in interest expense by Rs. 170 during the year ended March 31, 2012, attributable to higher loans and borrowing rates.

 

   

Our finance and other income from continuing operations, increased from Rs. 6,631 for the year ended March 31, 2011 to Rs. 8,982 for the year ended March 31, 2012. Our interest and dividend income increased by Rs. 2,355 during the year ended March 31, 2012 as compared to the year ended March 31, 2011. This was partially offset by a marginal decrease in the gain from sale of investments during the same period.

 

   

Our income taxes relating to continuing operations increased by Rs. 4,077, from Rs. 8,878 for the year ended March 31, 2011 to Rs. 12,955 for the year ended March 31, 2012. Adjusted for tax write-backs, our effective tax rate increased from 15.01% for the year ended March 31, 2011 to 19.77% for the year ended March 31, 2012. This increase was primarily due to the expiration of the tax holiday period for STPs, which resulted in a substantial portion of our pre-tax income becoming subject to taxation. The increase is partially offset by an increase in profits from our operations in SEZ units.

 

   

As a result of the foregoing factors, our profit from continuing operations attributable to equity holders increased by Rs. 2,387, or 4.78%, from Rs. 49,938 for the year ended March 31, 2011 to Rs. 52,325 for the year ended March 31, 2012.

Segment Analysis

IT Services

Our IT Services segment provides a range of IT and IT enabled services which include IT consulting, custom application design, development, re-engineering and maintenance, systems integration, package implementation, technology infrastructure outsourcing, BPO services and research and development services in the areas of hardware and software design.

Our IT Services segment accounted for 86%, 88% and 90% of our revenue from the IT business for the years ended March 31, 2011, 2012 and 2013, respectively. Our IT Services segment accounted for 97%, 97% and 99% of our operating income from the IT business for the years ended March 31, 2011, 2012 and 2013, respectively.

 

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     Year ended March 31,     Year on Year change  
     2011     2012     2013     2012-11     2013-12  

Revenue

   Rs.  234,850      Rs.  284,313      Rs.  338,413        21.06     19.03

Gross profit

     81,404        92,600        112,938        13.75     21.96

Selling and marketing expenses

     (12,642     (16,114     (22,335     27.46     38.61

General and administrative expenses

     (15,355     (17,221     (20,670     12.15     20.03

Operating income

     53,407        59,265        69,933        10.97     18.00

As a percentage of revenue:

          

Selling and marketing expenses

     5.38     5.67     6.60     (29) bps        (93) bps   

General and administrative expenses

     6.54     6.06     6.11     48 bps        (5) bps   

Gross margin

     34.66     32.57     33.37     (209) bps        80 bps   

Operating margin

     22.74     20.84     20.66     (190) bps        (18) bps   

In our segment reporting only, management has included the impact of exchange rate fluctuations in revenue. Excluding the impact of exchange rate fluctuations, revenue, as reported in our statements of income, is Rs. 234,286, Rs. 280,718 and Rs. 335,307 for the years ended March 31, 2011, 2012 and 2013, respectively. Further, finance income on deferred consideration earned under multi-year payment terms in certain total outsourcing contracts is included in the revenue of the respective segment and is eliminated under reconciling items. Please see Note 31 of the Notes to the Consolidated Financial Statements for additional details regarding these accounts.

Results of operations for the years ended March 31, 2013 and 2012

 

   

Our revenue from IT Services increased by 19.03%. In U.S. dollar terms our revenue increased by 5.01% from US$5,921 million to US$6,218 million. Our average US/INR realization increased from Rs. 48.02 for the year ended March 31, 2012 to Rs. 54.43 for the year ended March 31, 2013.

The increase of 5.01% was primarily due to a 18.8% increase in revenue from the energy and utilities industries, a 5.3% increase in revenue from services to the retail, consumer goods, government and transportation industries, a 4.7% increase in revenue from manufacturing and Hi-tech companies, a 4.0% increase in revenue from the financial services sector and a 3.6% increase in revenue from the healthcare and life sciences industries. This was partially offset by a 3.9% decline in revenue from our global media and telecom customers. In our IT Services segment, we added 192 new clients during the year ended March 31, 2013.

 

   

Our gross profit as a percentage of our revenue from our IT Services segment increased by 80 bps. The increase in gross margin as a percentage of revenue is primarily attributable to depreciation in the value of the Indian rupee against the US dollar. This was partially offset by an increase in personnel compensation cost during the year ended March 31, 2013 as compared to year ended March 31, 2012.

 

   

Selling and marketing expenses as a percentage of revenue from our IT Services segment increased from 5.67% for the year ended March 31, 2012 to 6.60% for the year ended March 31, 2013. This increase is primarily attributable to an increase in the number of sales personnel and an increase in the personnel cost due to increased compensation as part of our annual compensation review and annual progression cycle.

 

   

General and administrative expenses as a percentage of revenue from our IT Services segment increased from 6.06% for the year ended March 31, 2012 to 6.11% for the year ended March 31, 2013. In absolute terms, general and administrative expenses increased Rs. 3,449. This increase is primarily due to an increase in employee compensation costs by approximately Rs. 1,445 and provision for doubtful debts of approximately Rs. 557 .

 

   

As a result of the above, the operating income of our IT Services segment increased by 18.00%.

Results of operations for the years ended March 31, 2012 and 2011

 

   

Our revenue from IT Services increased by 21.06%. In U.S. dollar terms, our revenue increased by 13.41% from US$5,221 million to US$5,921 million. This increase is primarily on account of an increase in volume by 11.5% and increase in onsite-offshore mix by 1.3%. Our average US/INR realization increased from Rs. 44.98 for the year ended March 31, 2011 to Rs. 48.02 for the year ended March 31, 2012.

The increase of 13.41% was primarily due to a 57% increase in revenue from the energy and utilities sectors, a 13% increase in revenue from the financial services sector, a 11% increase in revenue from the retail, consumer goods, government and transportation industries, a 6% increase in revenue from manufacturing and Hi-tech customers, a 6% increase in revenue from the healthcare industries and a 4% increase in revenue from global media and telecom industries. The increase in revenue from our energy and utilities sectors includes revenue from the acquisition of SAIC amounting to Rs. 6,792. In our IT Services segment, we added 173 new clients during the year ended March 31, 2012.

 

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Our gross profit as a percentage of our revenue from our IT Services segment declined by 209 bps. The decline in gross margin as percentage of revenue is primarily on account of an increase in personnel compensation cost during the year ended March 31, 2012 as compared to year ended March 31, 2011.

The increase in personnel cost is due to increased compensation as part of our annual compensation review and also the annual progression cycle. Further, integration of our acquisition of SAIC from June 2011 has contributed to a decline in gross margin by 0.5%.

 

   

Selling and marketing expenses as a percentage of revenue from our IT Services segment increased from 5.38% for the year ended March 31, 2011 to 5.67% for the year ended March 31, 2012. This increase is primarily attributable to an increase in personnel cost due to increased compensation as part of our annual compensation review and annual progression cycle. Further, integration of our acquisition of SAIC from June 2011 has resulted in additional selling and marketing expenses of Rs. 101.

 

   

General and administrative expenses as a percentage of revenue from our IT Services segment declined from 6.54% for the year ended March 31, 2011 to 6.06% for the year ended March 31, 2012. In absolute terms, general and administrative expenses increased by Rs. 1,866. This increase is primarily attributable to an increase in personnel cost due to increased compensation as part of our annual compensation review. Further, integration of our acquisition of SAIC from June 2011 has resulted in additional general and administrative expenses by Rs. 493.

 

   

As a result of the above, operating income of our IT Services segment increased by 10.97%.

IT Products

Our IT Products segment provides a range of Wipro personal desktop computers, Wipro servers and Wipro notebooks. We are also a value added reseller of desktops, servers, notebooks, storage products, networking solution and packaged software.

Our IT Products segment accounted for 14%, 12% and 10% of our revenue from the IT business for the years ended March 31, 2011, 2012 and 2013, respectively. Our IT Products segment accounted for 3%, 3% and 1% of our operating income from the IT business for each of the years ended March 31, 2011, 2012 and 2013, respectively.

 

     Year ended March 31,     Year on Year change  
     2011     2012     2013     2012-11     2013-12  

Revenue

   Rs.  36,910      Rs.  38,436      Rs.  39,238        4.13     2.09

Gross profit

     4,067        4,356        3,876        7.11     (11.02 )% 

Selling and marketing expenses

     (1,284     (1,395     (1,458     8.64     4.52

General and administrative expenses

     (1,174     (1,174     (1,428     —       21.63

Operating income

     1,609        1,787        990        11.06     (44.60 )% 

As a Percentage of Revenue:

          

Selling and marketing expenses

     3.48     3.63     3.72     (15) bps        (9) bps   

General and administrative expenses

     3.18     3.05     3.64     13 bps        (59) bps   

Gross margin

     11.02     11.33     9.88     31 bps        (145) bps   

Operating margin

     4.36     4.65     2.52     29 bps        (213) bps   

In our segment reporting only, management has included the impact of exchange rate fluctuations in revenue. Excluding the impact of exchange rate fluctuations, revenue, as reported in our statements of income, is Rs. 37,036, Rs. 38,040 and Rs. 38,909 for the years ended March 31, 2011, 2012 and 2013, respectively. Further, finance income on deferred consideration earned under multi-year payment terms in certain total outsourcing contracts is included in the revenue of the respective segment and is eliminated under reconciling items. Please see Note 31 of the Notes to the Consolidated Financial Statements for additional details.

Results of operations for the years ended March 31, 2013 and 2012

 

   

Our revenue from the IT Products segment increased by 2.09%, primarily due to an increase in revenue from domestic sales of computers and servers.

 

   

Our gross profit as a percentage of our revenue of our IT Products segment decreased by 145 bps. This decrease is primarily due to depreciation in the value of the Indian rupee against the U.S. dollar, which impacted the cost of imported materials and also accounted for increased pricing competition in the domestic market.

 

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Selling and marketing expenses as a percentage of revenue from our IT Products segment increased from 3.63% for the year ended March 31, 2012 to 3.72% for the year ended March 31, 2013. In absolute terms, selling and marketing expenses increased by Rs. 63. This increase is primarily attributable to an increase in personnel cost due to increased compensation as part of our annual compensation review.

 

   

General and administrative expenses as a percentage of revenue from our IT Products segment increased from 3.05% for the year ended March 31, 2012 to 3.64% for the year ended March 31, 2013. In absolute terms, general and administrative expenses decreased by Rs. 254.

 

   

As a result of the above, operating income of our IT Products segment decreased by 44.60%.

Results of operations for the years ended March 31, 2012 and 2011

 

   

Our revenue from the IT Products segment increased by 4.13%, primarily due to an increase in export revenue from US$ 79 million for the year ended March 31, 2011 to US$ 97 million for the year ended March 31, 2012.

 

   

Our gross profit as a percentage of our revenue of our IT Products segment increased marginally by 31 bps. This increase is primarily due to an increase in the proportion of revenues from exports, which typically have higher gross margins.

 

   

Selling and marketing expenses as a percentage of revenue from our IT Products segment increased marginally from 3.48% for the year ended March 31, 2011 to 3.63% for the year ended March 31, 2012. In absolute terms, selling and marketing expenses increased by Rs. 111. This increase is primarily attributable to an increase in personnel cost due to increased compensation as part of our annual compensation review.

 

   

General and administrative expenses as a percentage of revenue from our IT Products segment decreased marginally from 3.18% for the year ended March 31, 2011 to 3.05% for the year ended March 31, 2012. In absolute terms, general and administrative expenses remained constant.

 

   

As a result of the above, operating income of our IT Products segment increased by 11.06%.

Discontinued operations summary

Effective as of March 31, 2013 (“Effective Date”), our non-IT business segments, including the consumer care and lighting, infrastructure engineering and other non-IT business segments (collectively, the “Diversified Business”), were demerged (the “Demerger”) into Wipro Enterprises Limited (“Resulting Company”), a company incorporated under the laws of India. The Demerger was effected pursuant to a scheme of arrangement (“Scheme”) approved by the High Court of Karnataka, Bangalore. Therefore under IFRS, the Diversified Business is shown as discontinued operations. Net operating income for discontinued operations for the year ended March 31, 2013 was Rs. 5,176, an increase of 26% over last year, which was primarily due to higher revenue growth from the international consumer care business, through improved volume and realizations from the soap category within the India business.

Acquisitions

An active acquisition program is an important element of our corporate strategy. In the last three fiscal years, we have invested in the aggregate over Rs. 19,200 (including over Rs. 9,400 towards investment in newly acquired subsidiaries and other non-IT business related acquisitions, which were transferred to the Resulting Company) to acquire companies including the acquisition of the global oil and gas information technology practice of the Commercial Business Services Unit of Science Applications International Corporation Inc. (“SAIC”) and certain of its group companies. The oil and gas business of SAIC provides consulting, system integration and outsourcing services to major global oil companies with significant domain capabilities in the areas of digital oil fields, petro-technical data management and petroleum application services, focusing on the upstream segment. Typically the significant majority of our integration activities relating to an acquisition are substantially completed within three to six months after the acquisition date.

We believe our acquisition program supports our long-term strategic direction, strengthens our competitive position particularly in acquiring new domain expertise, expands our customer base, increases our ability to expand our service offerings and provides a greater scale to grow our earnings and increase stockholders’ value. See Note 7 of our Notes to Consolidated Financial Statements for additional information related to our acquisitions.

We routinely review potential acquisitions. We currently expect to finance our acquisitions through cash generated from operations, cash and cash equivalents and investments in liquid and short-term mutual funds as of March 31, 2013. However, for strategic acquisitions, we could decide to or be required to obtain additional debt or equity financing. We cannot be certain that additional financing, if needed, will be available on favorable terms, or if at all.

 

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Foreign exchange gains/(losses), net

Our net foreign exchange gains/(losses), from continuing operations for the years ended March 31, 2011, 2012 and 2013 were Rs. 503, Rs. 3,328 and Rs. 2,626 respectively.

Our foreign exchange gains/(losses), net, comprise of:

 

   

exchange differences arising from the translation or settlement of transactions in foreign currency, except for exchange differences on debt denominated in foreign currency (which are reported within finance expense, net); and

 

   

the changes in fair value for derivatives not designated as hedging derivatives and ineffective portions of the hedging instruments. For forward foreign exchange contracts which are designated and effective as cash flow hedges, the marked to market gains and losses are deferred and reported as a component of other comprehensive income in stockholder’s equity and subsequently recorded in the income statement when the hedged transactions occur, along with the hedged items.

Although our functional currency is the Indian rupee, we transact a significant portion of our business in foreign currencies, in particular the U.S. dollar. The exchange rate between the rupee and the dollar has changed substantially in recent years and may fluctuate substantially in the future. Consequently, the results of our operations are affected as the rupee fluctuates against the U.S. dollar. Our exchange rate risk primarily arises from our foreign currency revenues, cash balances, payables and debt. We enter into derivative instruments to primarily hedge our forecasted cash flows denominated in certain foreign currencies, foreign currency debt and net investment in overseas operations. Please refer to Notes 13 and 16 of our Notes to the Consolidated Financial Statements for additional details on our foreign currency exposures.

Finance expenses

Our finance expenses are comprised of interest expense on borrowings, impairment losses recognized on financial assets, gains/losses on translation or settlement of foreign currency borrowings and changes in fair value and gains/losses on settlement of related derivative instruments, except foreign exchange gains/losses on short-term borrowings which are considered as a natural economic hedge for the foreign currency monetary assets which are classified as foreign exchange gains/losses, net within results from operating activities. Borrowing costs are recognized in the statement of income using the effective interest method.

Finance and other income

Our finance and other income comprises interest income on deposits, dividend income and gains on disposal of available-for-sale financial assets. Interest income is recognized using the effective interest method. Dividend income is recognized when the right to receive payment is established.

Income Taxes

Our profits for the period earned from providing services at client premises outside India are subject to tax in the country where we perform the work. Most of our taxes paid in countries other than India can be applied as a credit against our Indian tax liability to the extent that the same income is subject to taxation in India.

Currently, we benefit from certain tax incentives under Indian tax laws. These tax incentives include a tax holiday from payment of Indian corporate income taxes for our businesses operating from specially designated Special Economic Zones. The tax holiday for all our Software Technology and Hardware Technology Parks ended in the fiscal year ended March 31, 2011. Previously, we benefited from a ten year income tax deduction of 100% for profits derived from exporting information technology services from Software Technology and Hardware Technology Parks. We continue to be eligible for exemptions from other taxes, including customs duties in these Software Technology and Hardware Technology Parks.

Special Economic Zone. Units in designated Special Economic Zones which began providing services on or after April 1, 2005, are eligible for a deduction of 100% of profits or gains derived from the export of services for the first five years from commencement of provision of services and 50% of such profits or gains for a further five years. Certain tax benefits are also available for a further five years subject to the unit meeting defined conditions.

Due to these tax incentives, a substantial portion of our pre-tax income has not been subject to a significant tax in India in recent years. When our tax holiday and income tax deduction/exemptions expire or terminate, our costs will increase. The Government of India could enact laws in the future, which could reduce or eliminate the tax incentives which benefit our business. The expiration period of the tax holiday for each unit within a SEZ is determined based on the number of years since commencement of production by that unit for a maximum of fifteen years. The tax holiday period currently available to the Company expires in various years through fiscal year 2026. The impact of tax holidays has resulted in a decrease of current tax expense from our continuing operations of Rs. 9,368, Rs. 7,953 and Rs. 9,244 for the years ended March 31, 2011, 2012 and 2013 respectively, compared to the effective tax amounts that we estimate we would have been required to pay if these incentives had not been available. The per share effect of these tax incentives for the years ended March 31, 2011, 2012 and 2013 was Rs. 3.84, Rs. 3.25 and Rs. 3.77 respectively.

 

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The Company had received tax demands aggregating to Rs. 39,356 (including interest of Rs. 12,170 ) arising primarily on account of denial of deduction under section 10A of the Income Tax Act, 1961 in respect of profit earned by the Company’s undertaking in Software Technology Park at Bangalore for the years ended March 31, 2001 to March 31, 2008. The appeals filed against the said demand before the Appellate authorities have been allowed in favor of the Company by the second appellate authority for the years up to March 31, 2007. Further appeals have been filed by the Income tax authorities before the Honorable High Court. For the year ended March 31, 2008, based on DRP directions confirming the position of the assessing officer, the final assessment order was passed by the assessing officer. The Company has filed an appeal against the said order before the Appellate Tribunal.

In March 2013, the Company received the draft assessment order, on similar grounds as that of earlier years, with a demand of Rs. 8,164 (including interest of Rs. 848) for the financial year ended March 31, 2009. The Company will file its objections against the said demand before the Dispute Resolution Panel, within the time limit prescribed under the statute.

Considering the facts and nature of disallowance and the order of the appellate authority upholding the claims of the Company for earlier years, we believe that the final outcome of the above disputes should be in our favor and there should not be any material impact on the consolidated financial statements.

Although we currently believe we will ultimately prevail in our appeals, the result of such appeals, and any subsequent appeals, cannot be predicted with certainty. Should we fail to prevail in our appeal, or any subsequent appeals, in any reporting period, the operating results of such reporting period could be materially adversely affected.

Pursuant to the changes in the Indian income tax laws, Minimum Alternate Tax (MAT) has been extended to income in respect of which a deduction is claimed under Sections 10A and 10B. Consequently, we have calculated our domestic tax liability after considering MAT and accordingly, a deferred tax asset of Rs. 1,223 and Rs. 1,842 has been recognized in the statement of financial position for the years ended March 31, 2012 and 2013, respectively. The excess tax paid under MAT provisions over and above normal tax liability can be carried forward for a period of ten years and set-off against future tax liabilities computed under normal tax provisions.

Liquidity and Capital Resources

The Company’s cash flow from its operating, investing and financing activities, including from discontinued operations, as reflected in the Consolidated Statement of Cash Flows on page 110, is summarized in the table below:

 

     Year ended March 31,     Year on Year Change  
     2011     2012     2013     2012-11     2013-12  

Net cash provided by/(used in) operations:

          

Operating activities

   Rs.  40,437      Rs.  40,076      Rs.  70,422      Rs.  (361   Rs.  30,346   

Investing activities

     (17,239     (8,056     (57,573     9,183        (49,517

Financing activities

     (26,378     (17,397     (6,721     8,981        10,676   

Net change in cash and cash equivalents

     (3,180     14,623        6,128        17,803        (8,495

Effect of exchange rate changes on cash and cash equivalent

     523        1,680        789        1,157        (891

As of March 31, 2013, we had cash and cash equivalent and short-term investments, including discontinued operations, of Rs. 163,469. Cash and cash equivalent and short-term investments, net of debt, was Rs. 99,653. Please see Note 4 of the Notes to Consolidated Financial Statements for additional information regarding the treatment of discontinued operations.

In addition, we have unused credit lines of Rs. 25,607. To utilize these lines of credit requires the consent of the lender and compliance with certain financial covenants. We have historically financed our working capital and capital expenditures through our operating cash flows and through bank debt, as required.

Cash provided by operating activities for the year ended March 31, 2013 increased by Rs. 30,346, while profit for the year increased by Rs. 10,709 during the same period. The increase in cash provided by operating activities is primarily due to our revenue growth and more efficient collection of outstanding invoices in the IT Services segment. Further, operating cash flow increased due to increase in trade payables and accrued expenses resulting from improved management of payment terms.

Cash provided by operating activities for the year ended March 31, 2012 decreased by Rs. 361, while profit for the year increased by Rs. 2,666 during the same period. The decrease in cash provided by operating activities is primarily due to an increase in trade receivables including unbilled revenues, attributable to higher revenue from the IT Services segment. Further, operating cash flow increased due to an increase in trade payables and accrued expenses resulting from improved management of payment terms.

 

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Cash used in investing activities for the year ended March 31, 2013 was Rs. 57,573. We purchased (net of sales) available for sale investments and inter-corporate deposits amounting to Rs. 37,133. Cash provided by operating activities was utilized for the payment for business acquisitions amounting to Rs. 3,074. Expenses from the operation and management of certain subsidiaries of the Resulting Company that pertain to the IT business and are in the process of being transferred back to Wipro consumed Rs 8,276. We purchased property, plant and equipment amounting to Rs. 10,616, which was primarily driven by the growth strategy of the Company. Further, the Company transferred cash pursuant to the Demerger to the Resulting Company amounting to Rs 4,163.

Cash used in investing activities for the year ended March 31, 2012 was Rs. 8,056. Cash provided by operating activities was utilized for the payment for business acquisitions amounting to Rs. 7,920. We also sold (net of purchases) available for sale investments and inter-corporate deposits amounting to Rs. 4,057. We purchased property, plant and equipment amounting to Rs. 12,977, which was primarily driven by the growth strategy of the Company.

Cash used in financing activities for the year ended March 31, 2013 was Rs. 6,721 as against Rs. 17,397 for the year ended March 31, 2012. This decrease is primarily due to net proceeds from loans and borrowings amounting to Rs. 11,394 and payment of dividend amounting to Rs. 17,080.

Cash used in financing activities for the year ended March 31, 2012 was Rs. 17,397 as against Rs. 26,378 for the year ended March 31, 2011. This decrease is primarily due to net proceeds from loans and borrowings amounting to Rs. 712 and payment of dividend amounting to Rs. 17,229.

On April 19, 2013, our Board proposed a cash dividend of Rs. 5 (US$0.09) per equity share and ADR. The proposal is subject to the approval of shareholders at the next Annual General Meeting, and if approved, would result in a cash outflow of approximately Rs. 14,408, including corporate dividend tax thereon.

We maintain a debt/borrowing level that we have established through consideration of a number of factors including cash flow expectations, cash required for operations and investment plans. We continually monitor our funding requirements, and strategies are executed to maintain sufficient flexibility to access global funding sources, as needed. Please refer to Note 13 of our Notes to the Consolidated Financial Statements for additional details on our borrowings.

As discussed above, cash generated from operations is our primary source of liquidity. We believe that our cash and cash equivalents along with cash generated from operations will be sufficient to meet our working capital requirements as well as repayment obligations in respect of debt / borrowings.

As of March 31, 2013, we had contractual commitments of Rs. 1,259 (US$ 23) related to capital expenditures on construction or expansion of software development facilities, Rs. 11,785 (US$ 216) related to non-cancelable operating lease obligations and Rs. 6,272 (US$116) related to other purchase obligations. Plans to construct or expand our software development facilities are dictated by business requirements.

In relation to our acquisitions, a portion of the purchase consideration is payable upon achievement of specified earnings targets in the future. We expect that our cash and cash equivalents, investments in liquid and short-term mutual funds and the cash flows expected to be generated from our operations in the future will generally be sufficient to fund the earn-out payments and our expansion plans.

In the normal course of business, we transfer accounts receivables, net investment in sale-type finance receivable and employee advances (financial assets). Please refer Note 16 of our Notes to Consolidated Financial Statements.

Our liquidity and capital requirements are affected by many factors, some of which are based on the normal ongoing operations of our businesses and some of which arise from uncertainties related to global economies and the markets that we target for our services. We cannot be certain that additional financing, if needed, will be available on favorable terms, if at all.

As of March 31, 2011, 2012 and 2013, our cash and cash equivalents were primarily held in Indian rupees, U.S. dollars, pound sterling, euros, Japanese yen, Singapore dollars and Saudi riyals. Please refer to “Financial risk management” under Note 16 of our Notes to the Consolidated Financial Statements for more details on our treasury activities.

Off-Balance Sheet Arrangements

The Company enters into operating leases for office space, hardware, and certain other equipment. These arrangements are sometimes referred to as a form of off-balance sheet financing and are set forth below under “Contractual Obligations”.

 

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Contractual obligations

The table of future payments due under known contractual commitments as of March 31, 2013, aggregated by type of contractual obligation, is given below:

 

Particulars

   Total
contractual
payment
     Payments due in  
      2013-14      2014-16      2016-18      2018-19
onwards
 

Short-term borrowings

   Rs.  42,241       Rs.  42,241       Rs.  —         Rs.  —         Rs.  —     

Long-term debt

     20,430         20,344         86         —           —     

Obligations under capital leases

     1,145         377         549         219         —     

Estimated interest payment (1)

     272         104         132         36         —     

Capital commitments

     1,259         1,259         —           —           —     

Non-cancelable operating lease obligation

     11,785         2,410         3,864         2,283         3,228   

Purchase obligations

     6,272         6,272         —           —           —     

Other non-current liabilities (2)

     578         —           578         —           —     

 

(1) 

Interest payments for long-term fixed rate debts have been calculated based on applicable rates and payment dates. Interest payments on floating rate debt have been calculated based on the payment dates and implied forward interest rates as of March 31, 2013 for each relevant debt instrument.

(2) 

Other non-current liabilities and non-current tax liabilities in the statement of financial position include Rs. 2,812 in respect of employee benefit obligations and Rs. 4,790 towards uncertain tax positions, respectively. For these amounts the extent of the amount and timing of repayment/settlement is not reliably estimatable or determinable at present and accordingly have not been disclosed in the table above.

Our purchase obligations include all commitments to purchase goods or services of either a fixed or minimum quantity that meet any of the following criteria: (1) they are non-cancelable, or (2) we would incur a penalty if the agreement was terminated.

Research and Development

Research and Development investment is directed towards developing solutions that have broad applications across various industry segments and developing expertise in emerging technologies. Our Research and Development focus is to strengthen the portfolio of Applied Research, Centers of Excellence (CoE), cloud, mobility, analytics, Solution Accelerators and Software Engineering Tools & Methodologies.

Our activities in Applied Research are focused on inclusive innovation which is aimed at discovering where and how Information and Communication Technology (ICT) can address effective delivery of government to citizen (G2C) and business to business (B2B) services to rural citizens in education, health, agriculture and rural development sectors.

CoE’s goal is to create competencies in emerging areas of technologies and industry domain and incubate new practices for business growth. Big data, machine to machine, natural user experience, web science and nano electronics were the technology themes identified for the year and investments in these technology themes have resulted in development of industry application prototypes in the area of augmented reality, sensor networks and big data visualization.

The Integrated Cloud Services (ICS) group provides end-to-end business solutions to customers using cloud technologies. We focused on creating industry relevant vertical cloud solutions for the various industries by building a strong value network of partners, creating IP, frameworks and accelerators.

We continue to invest in reusable IP and solution accelerators (components, tools, frameworks) which help in accelerating the implementation of solutions in customer engagements. We have integrated various accelerator assets to create integrated stacks and solution.

We continue to invest in in-house development of software engineering tools to improve productivity and quality. These tools have been widely deployed across our business segments. We have also developed a tool called Wipro Portfolio Analysis Tool (PAT) for use in transition services. We have also developed a tool for flex delivery for managed services for effective queue, capacity, and productivity management at reduced cost. We have developed an in-house Known Error Data Base (KEDB) tool that will help in faster ticket resolution in managed services projects.

Our research and development expenses for the years ended March 31, 2011, 2012 and 2013 were Rs. 1,631, Rs. 1,866 and Rs. 2,196 respectively for our continuing operations.

 

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Trend Information

IT Services. The realm of Information Technology (IT) is a fast changing one. IT is setting the pace at which the world around us is changing. At the turn of the first decade of the 21st century, the challenges and opportunities facing the customers and consumers of IT are very different than what they were a decade ago. As the world becomes a web of connected devices and better tools are available for making better decisions, the world is looking to leverage and integrate technology more than ever before.

There continues to be a high level of global economic uncertainty and volatility, driven by high levels of sovereign debt and unemployment, particularly in Europe and the U.S. However, there is also more stability in customer organizations and the demand for IT services is growing. Customer organizations are re-aligning their budgets to be more dominated by business users as customers use IT to differentiate themselves in the market place.

In this rapidly evolving and growing environment, we expect increased competition among IT companies, which may limit our ability to increase prices. However, we continually strive to differentiate ourselves from the competition and sustain prices and profits by developing innovative service delivery models, providing better industry solutions, adopting new pricing strategies and demonstrating our value proposition to clients. We have also acquired businesses to augment our existing services and capabilities.

Gross profit as a percentage of revenue in our IT Services segment for the year ended March 31, 2013 is 33.37%. We anticipate difficulties in significantly improving our gross profits largely due to the following reasons:

 

   

Our limited ability to increase prices;

 

   

Increases in salaries, a cost which accounts for a major part of our expense line; and

 

   

The impact of exchange rate fluctuations on our rupee realizations.

In response to the possible reduction in demand for IT services, pressure on gross margins and the increased competition from other IT services companies, we are focusing on:

 

   

Investing in customer relationship teams to establish deeper client relationships and provide a wider range of services;

 

   

Strengthening our delivery model;

 

   

Developing cost containment initiatives and driving higher employee productivity;

 

   

Aligning our resources to expected demand; and

 

   

Increasing the utilization of our IT professionals.

IT Products. In our IT Products business segment, we have experienced pricing pressures due to increased competition among IT companies. Large multinational corporations like IBM, HP and Dell have identified India as a key focus area. Our gross margin in this business segment is also impacted by the proportion of our business derived from the sale of traded and manufactured products.

Our IT Products business segment is also subject to seasonal fluctuations. Our revenue in this business segment is driven by the capital expenditure budgets and spending patterns of our clients, who often delay or accelerate purchases in reaction to tax depreciation benefits on capital equipment.

Our quarterly revenue, operating income and profit for the period have varied significantly in the past and we expect that they are likely to vary in the future. You should not rely on our quarterly operating results as an indication of future performance. Such quarterly fluctuations may have an impact on the price of our equity shares and ADSs.

Dividends. Final dividends on common stock are recorded as a liability on the date of declaration by the stockholders and interim dividends are recorded as a liability on the date of declaration by the board of directors.

New accounting standards adopted

We adopted an amendment to IFRS 7 “Disclosures – Transfers of financial assets” (‘IFRS 7’) effective April 1, 2012. The purpose of the amendment is to enhance the existing disclosures in IFRS 7 when an asset is transferred but is not derecognized and introduce new disclosures for assets that are derecognized but the entity continues to have a continuing exposure to the asset after the sale. Adoption of amendment to IFRS 7 did not have a material effect on these condensed consolidated interim financial statements.

 

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New accounting standards not yet adopted

In December, 2011, the IASB issued an amendment to IFRS 7 “Disclosures – offsetting financial assets and financial liabilities”. The amended standard requires additional disclosures where financial assets and financial liabilities are offset in the balance sheet. These disclosures would provide users with information that is useful in (a) evaluating the effect or potential effect of netting arrangements on an entity’s financial position and (b) analyzing and comparing financial statements prepared in accordance with IFRSs and U.S. GAAP. The amendment is effective retrospectively for fiscal years beginning on or after January 1, 2013. Earlier application is permitted. We have evaluated the requirements of IFRS 7 and these requirements are not expected to have a material impact on the consolidated financial statements.

In November 2009, the IASB issued the chapter of IFRS 9 “Financial Instruments relating to the classification and measurement of financial assets”. The new standard represents the first phase of a three-phase project to replace IAS 39 “Financial Instruments: Recognition and Measurement” (IAS 39) with IFRS 9 Financial Instruments (IFRS 9). IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the many different rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial assets (its business model) and the contractual cash flow characteristics of the financial assets. In October 2010, the IASB added the requirement relating to classification and measurement of financial liabilities to IFRS 9. Under the amendment, an entity measuring its financial liability at fair value, can present the amount of fair value change in the liability attributable to change in the liabilities credit risk in other comprehensive income. Further the IASB also decided to carry-forward unchanged from IAS 39 requirements relating to de-recognition of financial assets and financial liabilities. IFRS 9 is effective for fiscal years beginning on or after January 1, 2015. Earlier application is permitted. The Company is evaluating the impact these amendments will have on the Company’s consolidated financial statements.

In May 2011, the IASB issued IFRS 10 “Consolidated Financial Statements”. The new standard establishes principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. IFRS 10 replaces the consolidation requirements in SIC-12 “Consolidation – Special Purpose Entities” and IAS 27 “Consolidated and Separate Financial Statements”. IFRS 10 builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company. The standard provides additional guidance to assist in the determination of control where this is difficult to assess. IFRS 10 is effective for fiscal years beginning on or after January 1, 2013. Earlier application is permitted. We have evaluated the requirements of IFRS 10 and these requirements are not expected to have a material impact on the consolidated financial statements.

In May 2011, the IASB issued IFRS 13 “Fair Value Measurement”. The new standard defines fair value, sets out in a single IFRS a framework for measuring fair value and requires disclosures about fair value measurements. IFRS 13 applies when other IFRSs require or permit fair value measurements. It does not introduce any new requirements to measure an asset or a liability at fair value or change what is measured at fair value in IFRSs or address how to present changes in fair value. IFRS 13 is effective for fiscal years beginning on or after January 1, 2013. Early application is permitted. We have evaluated the requirements of IFRS 13 and these requirements are not expected to have a material impact on the consolidated financial statements.

In June 2011, the IASB issued Amendment to IAS 1 “Presentation of Financial Statements” that will improve and align the presentation of items of other comprehensive income (OCI) in financial statements prepared in accordance with International Financial Reporting Standards (IFRSs). The amendments require companies preparing financial statements in accordance with IFRSs to group together items within OCI that may be reclassified to the profit or loss section of the income statement. The amendments will also reaffirm existing requirements that items in OCI and profit or loss should be presented as either a single statement or two consecutive statements. This amendment is effective for fiscal years beginning on or after July 1, 2012. Earlier adoption is permitted. We have evaluated the requirements of IAS 1and these requirements are not expected to have a material impact on the consolidated financial statements.

In June 2011, the IASB issued IAS 19 (Amended) “Employee Benefits”. The new standard has eliminated an option to defer the recognition of gains and losses through re-measurements and requires such gain or loss to be recognized through other comprehensive income in the year of occurrence to reduce volatility. The amended standard requires immediate recognition of effects of any plan amendments. Further it also requires return on assets in profit or loss to be restricted to government bond yields or corporate bond yields, considered for valuation of Projected Benefit Obligation, irrespective of actual portfolio allocations. The actual return from the portfolio in excess of or less than such yields is recognized through Other Comprehensive Income. The amendment is effective retrospectively for fiscal years beginning on or after January 1, 2013. Earlier adoption is permitted. We have evaluated the requirements of IAS 19 (Amended) and these requirements are not expected to have a material impact on the consolidated financial statements.

 

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In December, 2011, the IASB issued an amendment to IAS 32 “Offsetting financial assets and financial liabilities”. The purpose of the amendment is to clarify some of the requirements for offsetting financial assets and financial liabilities on the statements of financial position. This includes clarifying the meaning of “currently has a legally enforceable right to set-off” and also the application of the IAS 32 offsetting criteria to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms that are not simultaneous. The amendment is effective retrospectively for fiscal years beginning on or after January 1, 2014. Earlier application is permitted. The Company is evaluating the impact these amendments will have on the Company’s consolidated financial statements.

In May 2012, the IASB issued IFRS 12 “Disclosure of Interests in Other Entities”. This standard provides comprehensive disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose. The objective of the standard is to enable the entities to disclose the significant judgement and assumptions it has made in determining:

 

  i) the nature of its interest in another entity or arrangement, i.e control, joint control or significant influence.

 

  ii) The type of joint arrangement when the joint arrangement is structured through separate vehicle.

IFRS 12 is effective for fiscal years beginning on or after January 1, 2013. Early application is permitted. We have evaluated the requirements of IFRS 12 and these requirements are not expected to have a material impact on the consolidated financial statements.

Critical accounting policies

Critical accounting policies are defined as those that in our view are the most important for portrayal of the Company’s financial condition and results and which place the most significant demands on management’s judgment. For a detailed discussion on the application of these and other accounting policies, please refer to Note 3 to the Notes to Consolidated Financial Statements.

While preparing financial statements we make estimates and assumptions that affect the reported amount of assets, liabilities, disclosure of contingent liabilities at the date of financial statements and the reported amount of revenues and expenses for the reporting period. Such critical accounting estimates could change from period to period and have a material impact on the Company’s results of operation, financial position and cash flows. Actual results may differ from estimates. Revision to accounting estimates are recognized in the period in which the estimate is revised and for future periods affected.

Revenue:

We derive revenue primarily from:

 

   

Software development and maintenance services;

 

   

BPO services; and

 

   

Sale of IT and other products.

 

  a) Services: We recognize revenue when the significant terms of the arrangement are enforceable, services are being delivered and collectability is reasonably assured. The method for recognizing revenues and costs depends on the nature of the services rendered:

 

  (i) Time and materials contracts: Revenues and costs relating to time and materials contracts are recognized as the related services are rendered.

 

  (ii) Fixed-price contracts: Revenues from fixed-price contracts, including systems development and integration contracts are recognized using the “percentage-of-completion” method. Percentage of completion is determined based on direct project costs incurred to date as a percentage of total estimated project costs required to complete the project. The cost expended (or input) method has been used to measure progress towards completion as there is a direct relationship between input and productivity. Costs which relate to future activity on the contract are recognized as contract work in progress. If we do not have a sufficient basis to measure the progress of completion or to estimate the total contract revenues and costs, revenue is recognized only to the extent of contract cost incurred for which recoverability is probable. When total cost estimates exceed revenues in an arrangement, the estimated losses are recognized in the income statement in the period in which such losses become probable based on the current contract estimates.

“Unbilled revenues” represent cost and earnings in excess of billings as at the end of the reporting period. “Unearned revenues” included in other current liabilities represent billing in excess of revenue recognized.

 

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  (iii) Maintenance contract: Revenue from maintenance contracts is recognized ratably over the period of the contract using the percentage of completion method. When services are performed through an indefinite number of repetitive acts over a specified period of time, revenue is recognized on a straight-line basis over the specified period unless some other method better represents the stage of completion.

In certain projects, a fixed quantum of service or output units is agreed at a fixed price for a fixed term. In such contracts, revenue is recognized with respect to the actual output achieved to date as a percentage of total contractual output. Any residual service unutilized by the customer is recognized as revenue on completion of the term.

 

  b) Products: Revenue from products are recognized when:

 

   

we have transferred the significant risks and rewards of ownership to the buyer;

 

   

continuing managerial involvement usually associated with ownership and effective control have ceased;

 

   

amount of revenue can be measured reliably;

 

   

it is probable that economic benefits associated with the transaction will flow to the Company; and

 

   

costs incurred or to be incurred in respect of the transaction can be measured reliably.

 

  c) Multiple element arrangements: We allocate revenue to each separately identifiable component of the transaction based on the guidance in IAS 18. We allocate the arrangement consideration to separately identifiable components based on their relative fair values or on the residual method. Fair values are determined based on sale prices for the components when it is regularly sold separately, third-party prices for similar components or on a cost plus basis or an appropriate business-specific profit margin related to the relevant component.

 

  d) Others: We account for volume discounts and pricing incentives to customers by reducing the amount of discount from the amount of revenue recognized at the time of sale.

Revenues are shown net of sales tax, value added tax, service tax and applicable discounts and allowances. Revenue includes excise duty and shipping and handling costs.

Income tax:

Income tax comprises current and deferred tax. Income tax expense is recognized in profit or loss except to the extent it relates to items directly recognized in equity, in which case it is recognized in equity.

 

  a) Current income tax: As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. We are subject to tax assessments in each of these jurisdictions. A tax assessment can involve complex issues, which can only be resolved over extended time periods. Though we have considered all these issues in estimating our income taxes, there could be an unfavorable resolution of such issues that may affect results of our operations.

Current income tax for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities based on the taxable income for that period. The tax rates and tax laws used to compute the amounts are those that are enacted or substantively enacted by the reporting date.

 

  b) Deferred income tax: We recognize deferred income tax using the balance sheet approach. Deferred tax is recognized on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. We recognize a deferred tax asset only to the extent that it is probable that future taxable profits will be available against which the deductible temporary differences and tax loss carry forwards can be utilized.

The measurement of deferred tax assets involves judgment regarding the deductibility of costs not yet subject to taxation and estimates regarding sufficient future taxable income to enable utilization of unused tax losses in different tax jurisdictions. We consider the expected reversal of deferred tax liabilities and projected future taxable income in making this assessment. All deferred tax assets are subject to review of probable utilization.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

We recognize deferred income tax liabilities for all taxable temporary differences except in respect of taxable temporary differences associated with investments in subsidiaries and associates where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

 

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  c) Others: In addition to the U.S. federal income tax, which can tax at a rate of up to 35% arising from our income attributed to our U.S. branch, we are subject to a 15% branch profit tax in the United States on the “dividend equivalent amount” as that term is defined under U.S. tax law. We have not triggered the branch profit tax and, consistent with our business plan, we intend to maintain the current level of our net assets in the United States and therefore remain below the threshold. Accordingly, we did not record a provision for branch profit tax as of March 31, 2013.

Share based payment transaction:

Our employees receive remuneration in the form of equity instruments issued pursuant to various employee stock option and restricted stock unit option plans for rendering services over a defined vesting period. Equity instruments granted are valued at the fair value of the instrument at the date of grant. Since these are granted at a nominal exercise price, the intrinsic value on the date of grant approximates the fair value. The expense is recorded by a compensating increase to the share based payment reserve, a component of equity.

The equity instruments generally vest in a graded manner over the vesting period. The fair value determined at the grant date is expensed over the vesting period of respective tranches (accelerated amortization). The stock compensation expense is determined based on our estimate of equity instruments that will eventually vest.

In accounting for amortization of stock compensation, we also estimate stock option forfeitures. Any revisions of our estimates could impact our results of operations and our financial position.

Derivative financial instruments

Although our functional currency is the Indian rupee, we transact a significant portion of our business in foreign currencies, particularly the U.S. dollar. The exchange rate between the rupee and the dollar has changed substantially in recent years and may fluctuate substantially in the future. Consequently, the results of our operations are affected as the rupee fluctuates against the U.S. dollar. Our exchange rate risk primarily arises from our foreign currency revenues, cash balances, payables and debt. We enter into derivative instruments to primarily hedge our forecasted cash flows denominated in certain foreign currencies, foreign currency debt and net investment in overseas operations.

Changes in fair value of derivatives not designated as hedging derivatives and ineffective portions of the hedging instruments are recognized in consolidated statements of income of each period. We assess the hedge effectiveness at the end of each reporting period generally using the dollar offset method.

Hedge ineffectiveness could result from forecasted transactions not happening in the same amounts or in the same periods as forecasted or changes in the counterparty credit rating. Further, changes in the basis of designating derivatives as hedges of forecasted transactions could alter the proportion of derivatives which are ineffective as hedges. Hedge ineffectiveness increases volatility of the consolidated statements of income since the changes in fair value of an ineffective portion of derivatives is immediately recognized in the consolidated statements of income.

As of March 31, 2013, there were no significant gains or losses on derivative transactions or portions thereof that have become ineffective as hedges or associated with an underlying exposure that did not occur.

Derivatives are recognized initially at fair value and attributable transaction costs are recognized in the statement of income when incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below.

 

  a) Cash flow hedges: Changes in the fair value of the derivative hedging instrument designated as a cash flow hedge are recognized directly in equity to the extent that the hedge is effective. To the extent that the hedge is ineffective, changes in fair value are recognized in the statement of income. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognized in equity is transferred to the consolidated statement of income upon the occurrence of the forecasted transaction.

 

  b) Hedges of net investment in foreign operations: We designate derivative financial instruments as hedges of net investments in foreign operations. We have also designated a combination of foreign currency denominated borrowings and related cross currency swaps as hedge of net investment in foreign operations. Changes in the fair value of the derivative hedging instrument and gains/losses on translation or settlement of foreign currency denominated borrowings designated as hedge of net investment in foreign operations are recognized directly in equity to the extent that the hedge is effective. The cumulative gain or loss previously recognized in equity is transferred to the statement of income upon sale or disposal of the related net investment in foreign operation. To the extent that the hedge is ineffective, changes in fair value are recognized in the statement of income.

 

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  c) Others: Changes in fair value for derivatives not designated as hedging derivatives are recognized in consolidated statements of income of each period.

Business combination, goodwill and intangible assets:

 

  a) Business combination: Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. We exercise judgment in identifying whether an identifiable intangible asset is to be recorded separately from goodwill. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at fair values at the date of an acquisition, based on information available at the acquisition date and based on expectations and assumptions that are deemed reasonable by management. Transaction costs incurred in connection with a business combination are expensed as incurred.

The cost of an acquisition also includes the fair value of any contingent consideration. Any subsequent changes to the fair value of contingent consideration classified as liabilities are recognized in the consolidated statement of income.

 

  b) Goodwill: Goodwill is initially measured at cost, calculated the excess of the cost of the business combination over the Company’s share in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities. If the cost of an acquisition is less than the fair value of the net assets of the business acquired, the difference is recognized immediately in the income statement.

Goodwill is tested for impairment at least annually and when events occur or changes in circumstances indicate that the recoverable amount of the cash generating unit is less than its carrying value. The goodwill impairment test is performed at the level of the cash-generating unit or groups of cash-generating units which represent the lowest level at which goodwill is monitored for internal management purposes.

We use market related information and estimates (generally risk adjusted discounted cash flows) to determine the fair values. Cash flow projections take into account past experience and represent management’s best estimate about future developments. Key assumptions on which management has based its determination of fair value less costs to sell and value in use include estimated growth rates, weighted average cost of capital and tax rates. These estimates, including the methodology used, can have a material impact on the respective values and ultimately the amount of any goodwill impairment, if any.

 

  c) Intangible Assets: Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is fair value as at the date of an acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses.

Intangible assets with finite lives are amortized over the estimated useful life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization of an intangible asset with a finite useful life reflects the manner in which the economic benefit is expected to be generated and consumed. These estimates are reviewed at least at each financial year end. Intangible assets with indefinite lives are not amortized, but instead tested for impairment at least annually and written down to the fair value as required.

The estimated useful lives of the amortizable intangibles assets are as follows:

 

Category

   Useful life

Customer-related intangibles

   2 to 11 years

Marketing related intangibles

   20 to 30 years

Other estimates:

We make estimates of the uncollectability of our accounts receivable by analyzing historical payment patterns, customer concentrations, customer credit-worthiness and current economic trends. If the financial condition of a customer deteriorates, additional allowances may be required.

We provide for inventory obsolescence, excess inventory and inventories with carrying values in excess of market values based on our assessment of the future demands, market conditions and our specific inventory management initiatives. If market conditions and actual demands are less favorable than our estimates, additional inventory write-downs may be required. In all cases inventory is carried at the lower of historical cost or market value.

 

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Goodwill Impairment Testing

We test goodwill and indefinite life intangibles for impairment annually in accordance with our procedure for determining the recoverable value of such assets. For the purpose of impairment testing, goodwill is allocated to the cash generating unit (“CGU”) representing the lowest level within the group at which goodwill is monitored for internal management purposes, and which is not higher than the group’s operating segment. The recoverable amount of the CGU is the higher of its fair value less cost to sell (“FVLCTS”) and its value-in-use (“VIU”). The FVLCTS of the CGU is determined based on the market capitalization approach, using the turnover and earnings multiples derived from observed market data. The VIU is determined based on discounted cash flow projections. Key assumptions used by us to determine the VIUs include:

 

  a) Estimated cash flows for five years based on formal/approved internal management budgets with extrapolation for the remaining period, wherever such budgets were shorter than a 5 year period.

 

  b) Terminal value arrived by extrapolating the last forecasted year cash flows to perpetuity using long-term growth rates of 2% to 6%. These long-term growth rates take into consideration external macroeconomic sources of data. The long-term growth rates used do not exceed that of the relevant business and industry sector.

 

  c) The discount rates used are based on our weighted average cost of capital as an approximation of the weighted average cost of capital of a comparable market participant, which are adjusted for specific country risks by 10% to 15.5%.

 

  d) Value-in-use is calculated using after tax assumptions. The use of after tax assumptions does not result in a value-in-use that is materially different from the value-in-use that would result if the calculation was performed using before tax assumptions. The after tax discount rate used ranges from 10% to 16%. The before tax discount rate is determined based on the value-in-use derived from the use of after tax assumptions, and ranges from 11.7% to 23.1%.

Based on the above, no impairment was identified as of March 31, 2013, as the recoverable value of the CGUs exceeded the carrying value. Further, none of the CGU’s tested for impairment as of March 31, 2013 was at risk of impairment. An analysis of the calculation’s sensitivity to a change in the key parameters (revenue growth, operating margin, discount rate and long term growth rate) based on reasonably probable assumptions, did not identify any probable scenarios where the CGU’s recoverable amount would fall below its carrying amount.

 

Item 6. Directors, Senior Management and Employees

Directors and Senior Management

Our directors and executive officers, their respective ages and positions as of March 31, 2013 were as follows:

 

Name    Age    Position

Azim H. Premji

   67    Chief Executive Officer, Chairman of the Board and Managing Director (designated as “Chairman”)

Dr. Ashok S. Ganguly

   77    Director

B.C. Prabhakar

   69    Director

Dr. Jagdish N. Sheth

   74    Director

Narayanan Vaghul

   76    Director

William Arthur Owens

   72    Director

Priya Mohan Sinha

   72    Director

Dr. Henning Kagermann

   65    Director

Suresh C. Senapaty

   56    Chief Financial Officer and Executive Director

M. K. Sharma

   65    Director

T. K. Kurien

   54    Chief Executive Officer, IT Business and Executive Director

Shyam Saran

   66    Director

Vyomesh Joshi

   65    Director

Anurag Behar

   44    Chief Sustainability Officer

Pratik Kumar

   47    Executive Vice President - Human Resources

As of March 31, 2013, we had ten non-executive directors and three executive directors, of which one executive director is Chairman of our Board. All of the ten non-executive directors are independent directors or independent of management and free from any business or other relationship that could materially influence their judgment. All the independent directors satisfy the criteria of independence as defined under the listing agreement with the Indian Stock Exchanges and the New York Stock Exchange Corporate Governance standards.

 

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Mr. Vineet Agrawal and Mr. Pratik Kumar, who previously served as the President of Wipro’s Consumer Care and Lighting business segment, and the President of Wipro’s Infrastructure Engineering business segment and Executive Vice President of Human Resources, respectively, have been appointed as Executive Directors of Wipro Enterprises Limited, effective as of April 1, 2013. Mr. Agrawal and Mr. Kumar continue to be members of Wipro’s Group Executive Council, which has replaced the Corporate Executive Council.

The profiles of our directors and executive officers as of March 31, 2013 are set forth below.

Azim H. Premji has served as our Chief Executive Officer, Chairman of the Board and Managing Director (designated as “Chairman”) since September 1968. In 2011, Mr. Premji was honored with the Padma Vibhushan award by the Government of India for his contribution in trade and industry. Mr. Premji is a graduate in Electrical Engineering from Stanford University, USA. Mr. Premji is also a Non-official Director of the Central Board of Reserve Bank of India. Mr. Premji is also a director of each of the entities in the Promoter Group, Wipro Enterprises Limited and Wipro GE Health Care Private Ltd.

Dr. Ashok Ganguly has served as a director on our Board since 1999. He is the Chairman of our Board Governance, Nomination and Compensation Committee. He is currently the Chairman of ABP Pvt. Ltd (Ananda Bazar Patrika Group). Dr. Ganguly also currently serves as a non-executive director of Mahindra & Mahindra Limited and Dr Reddy Laboratories Limited. Dr. Ganguly is on the advisory board of Diageo India Private Limited. Dr. Ganguly is the Chairman of the Research and Development Committee of Mahindra and Mahindra Ltd, a member of the Nomination, Governance & Compensation Committee and Chairman of the Science, Technology & Operations Committee of Dr Reddy’s Laboratories Ltd. He is a member of the Prime Minister’s Council on Trade and Industry and the India-USA CEO Council, established by the Prime Minister of India and the President of the USA. Dr. Ganguly is a Rajya Sabha Member. He is a former member of the Board of British Airways Plc from 1996 to 2005 and Unilever Plc/NV from 1990 to 1997 and Dr. Ganguly was formerly the Chairman of Hindustan Unilever Limited from 1980 to 1990. Dr. Ganguly was on the Central Board of Directors of the Reserve Bank of India from 2000 to 2009. In 2006, Dr. Ganguly was awarded the CBE (Hon) by the United Kingdom. In 2008, Dr. Ganguly received the Economic Times Lifetime Achievement Award. Dr. Ganguly received the Padma Bhushan award by the Government of India in January 1987 and the Padma Vibhushan award in January 2009. Dr. Ganguly holds B.Sc (Hons) from University of Bombay and an MS and PhD from the University of Illinois.

B.C. Prabhakar has served as a director on our Board since February 1997. He is also a member of our Audit, Risk and Compliance Committee and Chairman of our Administrative/Shareholders and Investor Grievances Committee. He has been a practicing lawyer since April 1970. Mr. Prabhakar holds a B.A. in Political Science and Sociology and a BL. from Mysore University, India. Mr. Prabhakar serves as a non-executive director of Automotive Axles Limited, Page Industries Limited and 3M India Limited.

Dr. Jagdish N. Sheth has served as a director on our Board since January 1999. Dr. Sheth has been a professor at Emory University since July 1991. Previously, Dr. Sheth served on the faculty of Columbia University, Massachusetts Institute of Technology, the University of Illinois, and the University of Southern California. Dr. Sheth also serves on the board of Manipal Acunova Ltd. Dr. Sheth holds a B.Com (Honors) from Madras University and a M.B.A. and a Ph.D in Behavioral Sciences from the University of Pittsburgh. Dr. Sheth is also the Chairman of Academy of Indian Marketing Professionals.

Narayanan Vaghul has served as a director on our Board since June 1997. He is the Chairman of our Audit, Risk and Compliance Committee, and a member of the Board Governance, Nomination and Compensation Committee. Mr. Vaghul is also the lead independent director of the Company. He was the Chairman of the Board of ICICI from September 1985 to April 2009. Mr. Vaghul is on the Boards of the following public companies in India and overseas: 1) Mahindra and Mahindra Ltd., 2) Mahindra World City Developers Limited, 3) Piramal Enterprises Limited, 4) Apollo Hospitals Enterprise Limited, and 5) Arcelor Mittal, Luxembourg. Besides this he is on the boards of two private limited companies and several Section 25 companies and public trusts. Mr. Vaghul is the Chairman of the Compensation Committee of Mahindra and Mahindra Limited, Piramal Enterprises Limited and two of its 100% subsidiaries, PHL Finance Private Limited and PHL Capital Private Limited. Mr. Vaghul is also a member of the Audit Committee of Piramal Enterprises Limited. Mr. Vaghul is a member of the Remuneration Committee of Mahindra World City Developers Limited and Apollo Hospitals Enterprise Limited. Mr. Vaghul holds a Bachelor (Honors) degree in Commerce from Madras University. Mr. Vaghul was the recipient of the Padma Bhushan award by the Government of India in 2010. Mr. Vaghul also received the Lifetime Achievement Awards from Economic Times, Ernst & Young Entrepreneur of the Year Award Program and Mumbai Management Association. He was given an award for the contribution to the Corporate Governance by the Institute of Company Secretaries in 2007.

 

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William Arthur Owens has served as a director on our Board since July 1, 2006. He is also a member of our Board Governance, Nomination and Compensation Committee. He has held a number of senior leadership positions at large multinational corporations. From April 2004 to November 2005, Mr. Owens served as Chief Executive Officer and Vice Chairman of the Board of Directors of Nortel Networks Corporation, a networking communications company. From August 1998 to April 2004, Mr. Owens served as Chairman of the Board of Directors and Chief Executive Officer of Teledesic LLC, a satellite communications company. From June 1996 to August 1998, Mr. Owens served as President, Chief Operating Officer and Vice Chairman of the Board of Directors of Science Applications International Corporation (SAIC), a research and engineering firm. Presently, Mr. Owens serves as a member of the Board of Directors of Polycom Inc., Viasystems, Intelius, Flow Mobile, Prometheus, Yangtze, Humin and is the Chairman of Century Link Inc., a communications company. Mr Owens serves as a member of the Audit Committee of Viasystems. Mr. Owens holds an M.B.A. (Honors) degree from George Washington University, a B.S. in Mathematics from the U.S. Naval Academy and a B.A. and M.A. in Politics, Philosophy and Economics from Oxford University.

Priya Mohan Sinha became a director of our Company on January 1, 2002. He is a member of our Audit, Risk and Compliance Committee, Board Governance, Nomination and Compensation Committee. He has served as the Chairman of PepsiCo India Holdings Limited for South Asia and President of Pepsi Foods Limited since October 1992. From October 1981 to November 1992, he was on the Executive Board of Directors of Hindustan Lever Limited (currently Hindustan Unilever Limited). From 1981 to 1985, he also served as Sales Director of Hindustan Lever Limited (currently Hindustan Unilever Limited). He was also the Chairman of Reckitt Coleman India Limited and Bata India Limited. He was also a member of the Audit and Board and Governance Committee of Lafarge India Private Limited and Stephan Chemicals India Limited. Mr. Sinha was also on the Advisory Board of Rieter India. Mr. Sinha holds a Bachelor of Arts from Patna University, and he has also attended the Advanced Management Program at the Sloan School of Management, Massachusetts Institute of Technology.

Dr. Henning Kagermann became a director of the Company on October 27, 2009. He served as Chief Executive Officer of SAP AG until 2009. He has been a member of the SAP Executive Board since 1991. He is also President of Acatech (German Academy of Science and Technology) and currently a member of the supervisory boards of Deutsche Bank AG, Munich Re, Deutsche Post, Nokia Corporation, and BMW Group in Germany. Dr. Kagermann is a professor of Theoretical Physics at the Technical University Braunschweig, Germany and received an honorary doctorate from the University of Magdeburg, Germany.

Suresh C. Senapaty has served as our Chief Financial Officer and Executive Director since April 2008 and served with us in other positions since April 1980. Mr. Senapaty is a member of the Administrative/Shareholders and Investor Grievance Committee of our Company. Mr. Senapaty holds a Bachelors degree in Commerce from Utkal University in India, and is a Fellow Member of the Institute of Chartered Accountants of India. Mr. Senapaty is also on the boards of Wipro GE Healthcare Private Limited and Wipro Enterprises Limited. Mr. Senapaty is also a member of the Audit Committee and Administrative/Shareholders and Investor Grievance Committee of Wipro Enterprises Limited.

M. K. Sharma became a director of the Company on July 1, 2011. He is a member of our Audit, Risk and Compliance Committee. He served as Vice Chairman of Hindustan Unilever Limited from 2000 to 2007. He served as a full-time director of Hindustan Unilever Limited from 1995 to 2000. He is currently on the boards of ICICI Lombard General Insurance Co. Limited, Fulford (India) Limited (Indian affiliate of Merck and Co. Inc), Thomas Cook (India) Limited, KEC International Limited, Asian Paints Limited, India Infradebt Limited, Indian School of Business Hyderabad, Travel Corporation of India Limited, Anglo Scottish Education Society Limited and The Andhra Pradesh Paper Mills Limited. Mr. Sharma is a member of the Audit Committee of Fulford (India) Limited, The Andhra Pradesh Paper Mills Limited and Thomas Cook (India) Limited. Mr. Sharma is the Chairman of the Remuneration Committee of Fulford (India) Limited, Member of the Remuneration Committee of The Andhra Pradesh Paper Mills Limited and Chairman of the Governance and Remuneration Committee of ICICI Lombard General Insurance Co. Ltd.. Mr. Sharma is a member of the Shareholder’s Grievance Committee of Thomas Cook (India) Limited. Mr. Sharma holds a Bachelors Degree in Arts and Bachelors of Law Degree from Canning College University of Lucknow. He completed a Post Graduate Diploma in Personnel Management from the Department of Business Management, University of Delhi and Diploma in Labour Laws from Indian Law Institute, Delhi. In 1999 he was nominated to attend Advance Management Program at Harvard Business School.

T. K. Kurien has served as our Chief Executive Officer-IT Business and Executive Director since February 2011 and has served with us in other positions since February 2000. T. K. Kurien is a member of the Administrative/Shareholders and Investor Grievance Committee of Wipro Limited. T. K. Kurien is a Chartered Accountant. T. K. Kurien serves as a member of the Board of Wipro GE Healthcare Private Limited and Wipro Arabia Limited.

 

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Shyam Saran became a director of our Company on July 1, 2010. He has been a director of Indian Oil Corporation Limited since March 2012 and ONGC Videsh Limited since June 2012. He is a career diplomat who has served in significant positions in the Indian government for over three decades. He joined the Indian Foreign Service in 1970. He last served as the Special Envoy of the Prime Minister of India from October 2006 to March 2010 specializing in nuclear issues, and he also was the Indian envoy on climate change. Prior to this he was the Foreign Secretary of the Government of India from 2004 to 2006. He also served as the Ambassador of India to Nepal, Indonesia, Myanmar and Mauritius. His diplomatic stints have taken him to Indian missions in Geneva, Beijing and Tokyo. He has been a Fellow of the United Nations Disarmament Program in Geneva, Vienna and New York, U.S.A. Mr. Saran holds a Post Graduate degree in Economics from Patna University, India. Mr. Saran has been honored with the Padma Bhushan award by the Government of India for his contribution in civil services.

Vyomesh Joshi became a director of the Company on October 1, 2012. He is a member of Dean’s Advisory Council at The Rady School of Management, University of California, San Diego. Prior to joining Wipro, Mr Joshi served as the Executive Vice President of Hewlett-Packard’s Imaging and Printing Group. Mr Joshi joined Hewlett-Packard as a Research and Development engineer and held various management positions in his career with the group. Mr Joshi was also on the Board of Yahoo for 7 years until 2012. Mr Joshi has featured in Fortune’s diversity list of most influential people in 2005. Mr Joshi holds master’s degree in electrical engineering from the Ohio State University.

Anurag Behar has served as the Chief Sustainability Officer since July 2010 and has served with us in other positions since May 2002. Mr. Behar holds an M.B.A from XLRI-Jamshedpur and Bachelors degree in Engineering from Regional Engineering College, Trichy.

Pratik Kumar has served as Executive Vice-President of Human Resources since April 2002, and has served with us in other positions since November 1991. Mr. Kumar holds a B.A. (Hons) from Delhi University and a PGDM from Xavier Labour Relations Institute (XLRI), Jamshedpur, India.

Compensation

Director Compensation

Our Board Governance, Nomination and Compensation Committee determines and recommends to our Board of Directors the compensation payable to our directors. All board-level compensation is subject to approval by our shareholders. Each of our non-employee directors receive an attendance fee per meeting of US$366.83 for every Board and Committee meeting they attend. Our directors are reimbursed for travel and out-of-pocket expenses in connection with their attendance at Board and Committee meetings. Additionally, we also compensate non-employee directors by way of commission, which is limited to a fixed sum payable as approved by the Board subject to a maximum of 1% of the net profits of the Company in the aggregate as approved by the shareholders.

During the year ended March 31, 2013, we paid an aggregate of US$0.73 million (Rs. 40.07 million) as commission to our non-employee directors.

Details of stock options granted to non-executive directors as of March 31, 2013 and stock options held and exercised by non-executive directors through March 31, 2013 are reported elsewhere in this Item 6 under the section titled “Share Ownership.”

Executive Compensation

The annual compensation of our executive directors is approved by our Board Governance, Nomination and Compensation Committee, within the parameters set by the shareholders at the Annual General Meeting of Shareholders, and the annual compensation of our other executive officers is approved by our Board Governance, Nomination and Compensation Committee. Remuneration of our executive officers, including our employee directors, consists of a fixed component, performance bonus and a variable performance linked incentive. The variable performance linked incentive portion is earned under our Quarterly Performance Linked Scheme. This is a variable pay program for all employees, including executive officers, which is deemed to be part of each employee’s salary. Variable payments are made to employees based on the individual or combined performance of the employee’s business unit, division or segment, or the Company as a whole. Generally, the profit targets for each department are set quarterly, and payment amounts vary based on actual achievements. These payments are made on a quarterly basis for all employees except for certain members of senior management who receive payouts on a quarterly basis, which amounts are adjusted at the end of the year based on the performance for the full year.

 

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The following tables present the annual and long-term compensation earned, awarded or paid for services rendered to us for the fiscal year 2013 by our Executive Directors and members of our administrative, supervisory or management bodies. For the convenience of the readers, the amounts in the below table have been translated into U.S. dollars based on the certified foreign exchange rates published by the Federal Reserve Board of Governors on March 29, 2013, which was Rs. 54.52 per US$1.00.

 

Annual Compensation (US$)         

Name

   Salary and
allowances
     Commission/
variable pay (1)
     Housing (2)      Others      Long-term
compensation
(Deferred
Benefit
(3)&(4))
 

Azim H. Premji

     79,057         518,660         11,859         27,626         96,625   

Suresh C. Senapaty

     231,676         177,098         27,513         1,435         31,480   

Pratik Kumar

     216,197         116,853         —           1,269         30,985   

T. K. Kurien

     472,694         338,788         4,127         1,602         71,017   

Anurag Behar

     21,171         16,565         —           930         4,058   

 

1. Azim H. Premji was paid a commission at the rate of 0.3% on incremental net profits of the Company over the previous year computed based on the method approved by the Board Governance, Nomination and Compensation Committee and in accordance with the provisions of the Indian Companies Act, 1956. All other executives received variable pay under a Quarterly Performance Linked Scheme based on key parameters of individual or combined performance of the business unit, division or segment or the Company as a whole.
2. The value of housing perquisite accounts for more than 25% of the total value of all perquisites and personal benefits received in fiscal 2013.
3. Deferred benefits are payable to employees by way of our contribution to the Provident Fund and Pension Fund. The Provident Fund is a statutory fund to which the Company and our employees contribute every month. A lump sum payment on separation and a pension payment on attaining the age of superannuation are payable from the balance standing to the credit of the Fund, as per the Employee Provident Fund and Miscellaneous Provisions Act, 1952.
4. Under our pension plans, any pension that is payable to an employee is not computed on the basis of final compensation, but on the accumulated pension fund to the credit of the employee as at the date of separation, death, disability or retirement. We annually contribute 15% of Mr. Premji’s basic salary and commission earned for that year to our pension fund for the benefit of Mr. Premji. For all other employees, we contribute 15% of their respective basic salaries to our pension for their benefit. These contributions are included in this column.

We operate in numerous countries and compensation for our officers and employees may vary significantly from country to country. As a general matter, we seek to pay competitive salaries in all the countries in which we operate.

There were no options granted to our Chairman and Managing Director in fiscal years 2012 or 2013. Details of stock options granted to executive directors as of March 31, 2013 and stock options held and exercised by executive directors through March 31, 2013 are reported elsewhere in this Item 6 under the section titled “Share Ownership.”

 

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Board Composition

Our Articles of Association provide that the minimum number of directors on our board of directors shall be four and the maximum number shall be fifteen. As of March 31, 2013, we had thirteen directors on our Board. Our Articles of Association provide that at least two-thirds of our directors shall be subject to retirement by rotation. One third of these directors must retire from office at each Annual General Meeting of the Shareholders, but each retiring director is eligible for re-election at such meeting. Mr. Narayanan Vaghul and Dr. Ashok S. Ganguly retire by rotation and are proposed for re-election at the ensuing Annual General Meeting of the Shareholders. In addition to retiring directors, up to one third of our directors are non-retiring directors. Currently, Mr. Azim H. Premji and Mr. T. K. Kurien are non-retiring directors. The tenure of appointment of Mr. Suresh C. Senapaty is through March 31, 2015 as approved by the Board Governance, Nomination and Compensation Committee and the Board of Directors. This appointment is subject to the approval of the shareholders at the next Annual General Meeting. The appointment of Mr. T. K. Kurien is for a period of five years from the date of his original date of appointment as a member of the Board. The terms and expiration date of each director is as follows:

 

Name    Expiration of current term of office    Term of office

Azim H. Premji

   July 30, 2013    2 years

Dr. Jagdish Sheth

   Annual General Meeting 2015    Retirement by rotation

Dr. Ashok S. Ganguly

   Annual General Meeting 2013    Retirement by rotation

B. C. Prabhakar

   Annual General Meeting 2014    Retirement by rotation

Narayanan Vaghul

   Annual General Meeting 2013    Retirement by rotation

Priya Mohan Sinha

   Annual General Meeting 2013    Retirement by rotation

Vyomesh Joshi

   Annual General Meeting 2013    Appointment

William Arthur Owens

   Annual General Meeting 2014    Retirement by rotation

Shyam Saran

   Annual General Meeting 2015    Retirement by rotation

M. K. Sharma

   Annual General Meeting 2014    Retirement by rotation

Dr. Henning Kagermann

   Annual General Meeting 2015    Retirement by rotation

Suresh C. Senapaty

   March 31, 2015    Reappointment

T. K. Kurien

   January 31, 2016    5 years

Terms of Employment Arrangements and Indemnification Agreements

Under the Companies Act, our shareholders must approve the salary, bonus and benefits of all employee directors at an Annual General Meeting of the Shareholders. Each of our employee directors has signed an agreement containing the terms and conditions of employment, including a monthly salary, performance bonus and benefits including vacation, medical reimbursement and pension fund contributions. These agreements have varying terms ranging from two to five year periods, but either we or the employee director may generally terminate the agreement upon six months notice to the other party.

The terms of our employment arrangements with Azim H. Premji, Pratik Kumar, Suresh C. Senapaty, Anurag Behar and T.K. Kurien provide for up to a 180-day notice period, up to 21 days of leave per year in addition to statutory holidays, and an annual compensation review. Additionally, employees are required to relocate as we may determine, and to comply with confidentiality provisions. Service contracts with our executive directors provide for our standard retirement benefits that consist of a pension and gratuity which are offered to all of our employees, but no other benefits upon termination of employment except as mentioned below.

Pursuant to the terms of Mr. T. K. Kurien’s employment, he is entitled to the following severance payments:

If the Company terminates this Agreement, the Company will communicate the same to the Director who will be eligible for “Severance Benefits” as follows:

 

  a. 12 (twelve) months’ last drawn Salary.

 

  b. The unvested options/RSUs shall vest proportionately to the completed months in service subject to the terms of grant.

In the event the Company terminates Mr. Kurien for cause, such termination shall be with immediate effect and Mr. Kurien will not be eligible for the Severance Benefits specified above.

We also have entered into agreements to indemnify our directors and officers for claims brought under any rule of law to the fullest extent permitted by applicable law. These agreements, among other things, indemnify our directors and officers for certain expenses, judgments, fines and settlement amounts incurred by any such person in any action or proceeding, including any action by or in the right of the Company, arising out of such person’s services as our director or officer, including claims which are covered by the director’s and officer’s liability insurance policy taken by the Company.

 

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Board Committee Information

Audit/Risk and Compliance Committee

The Audit Committee of our Board of Directors, which was formed in 1987, reviews, acts on and reports to our Board of Directors with respect to various auditing and accounting matters. The primary responsibilities include overseeing:

 

   

Auditing and accounting matters, including recommending the appointment of our independent auditors to the shareholders,

 

   

Compliance with legal and statutory requirements,

 

   

Integrity of the Company’s financial statements, discussing with the independent auditors the scope of the annual audits, and fees to be paid to the independent auditors,

 

   

Performance of the Company’s Internal Audit function, Independent Auditors and accounting practices,

 

   

Review of related party transactions, functioning of whistle blower mechanism, and

 

   

Implementation of the applicable provisions of the Sarbanes Oxley Act of 2002 including review on the progress of internal control mechanisms to prepare for certification under Section 404 of the Sarbanes Oxley Act of 2002.

All members of our Audit/Risk and Compliance Committee are independent non-executive directors who are financially literate. The Chairman of our Audit/Risk and Compliance Committee has accounting or related financial management expertise.

Independent Auditors as well as Internal Auditors always have independent meetings with the Audit/Risk and Compliance Committee and also participate in the Audit/Risk and Compliance Committee meetings.

Our Chief Financial Officer and Director and other corporate officers make periodic presentations to the Audit/Risk and Compliance Committee on various issues.

The Audit/Risk and Compliance Committee is comprised of the following four non-executive directors:

Mr. N. Vaghul – Chairman of the Audit Committee

Mr. P. M. Sinha, Mr. M. K. Sharma and Mr. B. C. Prabhakar – Members of the Audit Committee

During the fiscal year 2013, our Audit/Risk and Compliance Committee held seven meetings including meetings held over teleconferencing. The charter of the Audit/Risk and Compliance Committee is available under the investor relations section on our website at www.wipro.com.

Board Governance, Nomination and Compensation Committee

Effective as of April 19, 2013, the Board Governance and Nomination Committee and Compensation Committee have been combined as one committee, the Board Governance, Nomination and Compensation Committee. After this reconstitution, the four non-executive director members of the Board Governance, Nomination and Compensation Committee are as follows:

 

Dr. Ashok S Ganguly – Chairman of the Board Governance, Nomination and Compensation Committee
Mr. N. Vaghul, Mr. P.M. Sinha and Mr. William Arthur Owens –   Members of the Board Governance, Nomination and Compensation Committee

The primary responsibilities of the Board Governance, Nomination and Compensation Committee are:

 

   

Developing and recommending to the Board corporate governance guidelines applicable to the Company,

 

   

Evaluating the Board on a continuing basis, including an assessment of the effectiveness of the full Board, operations of the Board Committees and contributions of individual directors,

 

   

Establishing policies and procedures to assess the requirements for induction of new members on the Board,

 

   

Implementing policies and processes relating to corporate governance principles,

 

   

Ensuring that appropriate procedures are in place to assess Board membership needs and Board effectiveness,

 

   

Reviewing the Company’s policies that relate to matters of corporate social responsibility, including public issues of significance to the Company and its shareholders,

 

   

Developing and recommending to the Board of Directors for its approval an annual evaluation process of the Board and its Committees,

 

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Formulating the Disclosure Policy, its review and approval of disclosures,

 

   

Determining and approving salaries, benefits and stock option grants to senior management employees and directors of our Company,

 

   

Approving and evaluating the compensation plans, policies and programs for whole-time directors and senior management, and

 

   

Acting as Administrator of the Company’s Employee Stock Option Plans and Employee Stock Purchase Plans drawn up from time to time.

During the fiscal year 2013, our former Board Governance and Nomination Committee held four meetings and our former Compensation Committee held four meetings. The charter of the Board Governance, Nomination and Compensation Committee has not yet been approved by the Board. Upon approval of the Board, the Board Governance, Nomination and Compensation Committee Charter will be made available under the investor relations section on our website at www.wipro.com. Any amendments to such charter will also be made available on the Company’s website.

Our Executive Vice President-Human Resources makes periodic presentations to the Board Governance, Nomination and Compensation Committee on compensation reviews and performance linked compensation recommendations. All members of the Governance, Nomination and Compensation Committee are independent non-executive directors.

Employees

As of March 31, 2011, 2012 and 2013, we had over 110,000, 120,000 and 130,000 IT employees, including our subsidiaries. As of March 31, 2011, 2012 and 2013, more than 20,000, 20,000, and 25,000 of these employees were located outside India, respectively. Highly trained and motivated people are critical to the success of our business. To achieve this, we focus on attracting and retaining the best people possible. A combination of a strong brand name, a congenial working environment and competitive compensation programs enable us to attract and retain these talented people.

Our human resources department is centralized at our corporate headquarters in Bangalore and functions across all of our business segments. We have implemented corporate-wide recruiting, training, performance evaluation and compensation programs that are tailored to address the needs of each of our business segments.

Our relationship with employees and employee groups are based on mutual trust and respect and our goal is to maintain this spirit at all times. We continue to fulfill all requirements and commitments which could arise out of collective bargaining as required across various development centers and manufacturing facilities and other such agreements in specific geographies across the Americas, Europe and Asia.

Recruiting

We hire entry level graduates from both the top engineering and management universities in India, as well as more experienced lateral hires through employee referral programs, advertisements, placement consultants, our website postings and walk-ins. To facilitate employee growth within the Company, all new openings are first offered to our current employees. The job description, skill set requirements and experience levels are made available to our employees. Applicants undergo the regular recruitment process and, if selected, get assigned to their new roles.

Training

Each of our new recruits must attend an eight week intensive training program when they begin working with us. New or recent graduates must also attend additional training programs that are tailored to their area of technology. We also have a mandatory continuing education program that requires each IT professional to attend at least 40 hours of continuing education classes to improve their understanding and competency with new technologies, as well as to develop leadership and personal self-development skills. We supplement our continuing education program for existing employees by sponsoring special programs at leading educational institutions, such as the Indian Institute of Management, Bangalore, Birla Institute of Technology and Science, Pilani, Symbiosis Institute of Business Management, Bangalore and others, to provide special skill set training in areas such as business skills and project management to any of our IT professionals who choose to enroll and meet the eligibility criteria of these Institutes.

Performance Evaluations

Employees prepare written performance objectives that they develop in cooperation with their respective managers. They are measured against these criteria annually in a formal review process which includes self-reviews and reviews from peers, managers and subordinates.

 

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Compensation

We continually strive to provide our employees with competitive and innovative compensation packages. Our compensation packages include a combination of salary, stock options, pension, and health and disability insurance. We measure our compensation packages against industry standards and seek to match or exceed them. We adopted an employee stock purchase plan in 1984, employee stock option plan in 1999 and 2000 and restricted stock unit option plan in 2004, 2005 and 2007. We have devised both business segment performance and individual performance linked incentive programs that we believe more accurately link performance to compensation for each employee. For example, for our managerial team, we link cash compensation to their business segment’s actual quarterly performance against its planned financial targets.

Share Ownership

The following table sets forth, as of March 31, 2013, for each director and executive officer, the total number of equity shares, ADSs and vested and unexercised options to purchase equity shares and ADSs exercisable within 60 days of March 31, 2013. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. All information with respect to the beneficial ownership of any principal shareholder has been furnished by such shareholder and, unless otherwise indicated below, we believe that persons named in the table have sole voting and sole investment power with respect to all the shares shown as beneficially owned, subject to community property laws, where applicable. The shares beneficially owned by the directors include the equity shares owned by their family members to which such directors disclaim beneficial ownership. The number of shares beneficially owned includes equity shares, equity shares underlying ADSs and the shares subject to vested options that are currently exercisable or exercisable within 60 days of March 31, 2013. Our directors and executive officers do not have a differential voting right with respect to their equity shares, ADSs, or options to purchase equity shares or ADSs. For the convenience of the readers, the stock option grant price has been translated into U.S. dollars based on the certified foreign exchange rates published by Federal Reserve Board of Governors on March 29, 2013, which was Rs. 54.52 per US$1.00. The share numbers and percentages listed below are based on 2,462,934,730 equity shares outstanding as of March 31, 2013.

 

Name

   Equity Shares
beneficially
owned
     Percentage
of Total
Equity
Shares
Outstanding
    Equity
Shares
Underlying
Options
Granted
     Exercise
Price(US$)
     Date of expiration  

Azim H. Premji (1)

     1,927,880,883         78.27        —           —           —     

B. C. Prabhakar (2)

     5,000               —           —           —     

Dr. Jagdish Sheth

     —           —          —           —           —     

Dr. Ashok S Ganguly

     1,666               —           —           —     

N. Vaghul

     —           —          —           —           —     

P. M. Sinha (3)

     33,333               —           —           —     

Suresh C. Senapaty

     95,750              

 

50,000

40,000

  

  

    

 

0.036

0.036

  

  

    

 

May 2014

Oct 2018

  

  

Pratik Kumar

     100,334              

 

 

30,000

30,000

40,000

  

  

  

    

 

 

0.036

0.036

0.036

  

  

  

    

 

 

May 2014

July 2016

October 2018

  

  

  

Vyomesh Joshi

     —           —          —           —           —     

T K Kurien

     82,345              

 

 

 

 

50,000

30,000

30,000

30,000

75,000

  

  

  

  

  

    

 

 

 

 

0.036

0.036

0.036

8.807

0.036

  

  

  

  

  

    

 

 

 

 

May 2014

July 2016

April 2017

April 2017

October 2018

  

  

  

  

  

Anurag Behar

     16,766               20,000         0.036         May 2014   

M K Sharma

     —           —          —           —           —     

Dr. Henning Kagermann

     —           —          —           —           —     

William Arthur Owens

     —           —          —           —           —     

Shyam Saran

     —           —          —           —           —     

 

* Represents less than 1% of the total equity shares outstanding as of March 31, 2013.

 

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(1) Includes 370,956,000 shares held by Hasham Traders (a partnership), of which Mr. Premji is a partner, 480,336,000 shares held by Prazim Traders (a partnership), of which Mr. Premji is a partner, 479,049,000 shares held by Zash Traders (a partnership), of which Mr. Premji is a partner, 187,666 shares held by Napean Trading Investment Co. Pvt. Ltd., of which Mr. Premji is a director, 187,666 shares held by Regal Investments Trading Co. Pvt. Ltd., of which Mr. Premji is a director, 187,666 shares held by Vidya Investment Trading Co. Pvt. Ltd., of which Mr. Premji is a director, 490,714,120 shares held by Azim Premji Trust, of which Azim Premji Trustee Company Private Limited is the trustee company, of which Mr. Premji is a director and sole shareholder of the trustee company, and 95,419,432 shares held jointly by Mr. Premji and members of his immediately family. In addition 10,843,333 shares are held by Azim Premji Foundation (I) Pvt. Ltd. Mr. Premji disclaims beneficial ownership of 10,843,333 shares held by Azim Premji Foundation (I) Pvt. Ltd. Mr. Premji also disclaims beneficial ownership of 490,714,120 shares held by Azim Premji Trust.
(2) The shares are jointly held with an immediate family member of Mr. Prabhakar.
(3) The shares are jointly held with an immediate family member of Mr. Priya Mohan Sinha.

EMPLOYEE STOCK OPTION PLANS

We have various employee stock option and restricted stock unit option plans (collectively referred to as “stock option plans”). Our stock option plans provide for grants of options to eligible employees and directors. Our stock option plans are administered by our Board Governance, Nomination and Compensation Committee (the “Committee”) appointed by our Board of Directors. The Committee has the sole power to determine the terms of the units granted, including the exercise price, selection of eligible employees and directors, the number of equity shares to be covered by each option, the vesting and exercise periods, and the form of consideration payable upon such exercise. In addition, the Committee has the authority to amend, suspend or terminate the stock plan with the approval of the shareholders, provided that no such action may adversely affect the rights of any participant under the plan.

Our stock option plan generally does not allow for the transfer of options and only the optionee may exercise an option during his or her lifetime. The vesting period for the options under the stock option plans range from 12 months to a maximum of 84 months. An optionee generally must exercise any vested options within a prescribed period as per the respective stock option plans generally before the termination date of the stock option plan. A participant must exercise any vested options prior to termination of services with us or within a specified post-separation period ranging from seven days to six months from the date of the separation, depending on the reason for separation. If an optionee’s termination is due to death, disability or retirement, his or her option will fully vest and become exercisable.

In connection with the Demerger and pursuant to the Scheme, each optionee received an additional one employee stock option for every 8.25 employee stock options held as of the Record Date of the Demerger.

 

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The salient features of our stock plans are as follows:

 

Name of Plan

   Authorized
Shares (1) & (2)
     Range of
exercise

prices (1)
     Effective date    Termination
date
  

Other remarks

1999 Employee Stock Option Plan

     50,000,000       Rs. 171 - 490       July 29, 1999    July 28, 2009    There are no stock options outstanding under this plan

Wipro Employee Stock Option Plan 2000 (2000 Plan)

     250,000,000       Rs. 171 - 490       September 15,
2000
   September 15,
2020
   In the event of our merger with or into another corporation or a sale of substantially all of our assets, each option under this plan, shall be proportionately adjusted to give effect to the merger or asset sale.

Stock Option Plan (2000 ADS Plan)

     15,000,000       US$ 3 - 7       September,
2000
   September,
2010
   There are no stock options outstanding under this plan.

Wipro Restricted Stock Unit Plan (WRSUP 2004 plan)

     20,000,000       Rs. 2       June 11, 2004    June 10, 2014    In event of merger of the Company with other corporation or sale of substantially of all our assets, the successor corporation shall either assume the outstanding units or grant equivalent units to the holders. If the successor corporation neither assumes the outstanding units nor grants equivalent units, such outstanding units shall vest immediately, and become exercisable in full.

Wipro ADS Restricted Stock Unit Plan (WARSUP 2004 plan)

     20,000,000       US$ 0.04       June 11, 2004    June 10, 2014   

Wipro employee Restricted Stock Unit Plan 2005 (WSRUP 2005 plan)

     20,000,000       Rs. 2       July 21, 2005    July 20, 2015   

Wipro employee Restricted Stock Unit Plan 2007 (WSRUP 2007 plan)

     16,666,667       Rs. 2       July 18, 2007    July 17, 2017   

 

(1) 

Subject to adjustment for corporate action from time to time.

(2) 

Adjusted for the two equity shares for every three equity shares stock dividend approved by the shareholders on June 4, 2010.

Wipro Equity Reward Trust

We established the Wipro Equity Reward Trust, or WERT, in 1984 to allow our employees to acquire a greater proprietary stake in our success and growth, and to encourage our employees to continue their association with us. The WERT, which is administered by a Board of Trustees is designed to give eligible employees the right to receive restricted shares and other compensation benefits at the times and on the conditions that we specify. Such compensation benefits include voluntary contributions, loans, interest and dividends on investments in the WERT and other similar benefits.

Shares from the WERT are issued in the joint names of the WERT and the employee until such restrictions and obligations are fulfilled by the employee. After the four-year vesting period, complete ownership of the shares is transferred to the employee.

If employment is terminated due to death or disability or retirement, the employee’s restricted shares are transferred to his or her legal heirs or continue to be held by the employee, as applicable, and such individuals may exercise any rights to those shares for up to ninety days after employment has ceased. The Trustees of the WERT have the authority to amend or terminate the WERT at any time and for any reason.

 

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Shareholders have, through a postal ballot, approved the issuance of additional shares, in one or more tranches, to the WERT. The Board has the discretion to determine the timing and allotment of such shares, and as of March 31, 2013 has not approved the issuance of additional shares pursuant to the enabling resolution approved by the shareholders.

Item 7. Major Shareholders and Related Party Transactions

Major Shareholders

The following table sets forth certain information regarding the beneficial ownership of our equity shares as of March 31, 2013, of each person or group known by us to own beneficially 5% or more of our outstanding equity shares.

Beneficial ownership is determined in accordance with the rules of the SEC and includes voting and investment power with respect to such shares. Shares subject to vested options that are currently exercisable or exercisable within 60 days of March 31, 2013, are deemed to be outstanding or to be beneficially owned by the person holding such options for the purpose of computing the percentage ownership of such person, but are not deemed to be outstanding or to be beneficially owned for the purpose of computing the percentage ownership of any other person. All information with respect to the beneficial ownership of any principal shareholder has been furnished by such shareholder and, unless otherwise indicated below, we believe that persons named in the table have sole voting and sole investment power with respect to all the shares shown as beneficially owned, subject to community property laws, where applicable. The Demerger of the Diversified Business, effective as of March 31, 2013, had no impact on the number of Wipro equity shares outstanding. The number of shares and percentage ownership are based on 2,462,934,730 equity shares outstanding as of March 31, 2013.

 

Name of Beneficial Owner

   Class of Security    Number of Shares beneficially
held as of March 31, 2013
     % of Class  

Azim H. Premji (1)

   Equity      1,927,880,883         78.27   

Hasham Traders

   Equity      370,956,000         15.06   

Prazim Traders

   Equity      480,336,000         19.50   

Zash Traders

   Equity      479,049,000         19.45   

Azim Premji Trust

   Equity      490,714,120         19.92   

 

(1) Includes 370,956,000 shares held by Hasham Traders (a partnership), of which Mr. Premji is a partner, 480,336,000 shares held by Prazim Traders (a partnership), of which Mr. Premji is a partner, 479,049,000 shares held by Zash Traders (a partnership), of which Mr. Premji is a partner, 187,666 shares held by Napean Trading Investment Co. Pvt. Ltd., of which Mr. Premji is a director, 187,666 shares held by Regal Investments Trading Co. Pvt. Ltd., of which Mr. Premji is a director, 187,666 shares held by Vidya Investment Trading Co. Pvt. Ltd., of which Mr. Premji is a director, 490,714,120 shares held by Azim Premji Trust, of which Azim Premji Trustee Company Private Limited is the trustee company, of which Mr. Premji is a director and sole shareholder of the trustee company, and 95,419,432 shares held jointly by Mr. Premji and members of his immediately family. In addition 10,843,333 shares are held by Azim Premji Foundation (I) Pvt. Ltd. (each such entity, a member of the “Promoter Group”). Mr. Premji disclaims beneficial ownership of 10,843,333 shares held by Azim Premji Foundation (I) Pvt. Ltd. Mr. Premji also disclaims beneficial ownership of 490,714,120 shares held by Azim Premji Trust.

Following March 31, 2013, in connection with the Scheme, the Promoter Group exchanged an aggregate of 54,858,419 equity shares of Wipro for equity shares of the Resulting Company, leading to a reduction of 2.24% in the total promoter holding as compared to the total shares outstanding as on March 31, 2013. Further, Azim Premji Trust, a member of the Promoter Group, transferred an aggregate of 61,000,000 equity shares of Wipro to Pioneer Independent Trust on June 3, 2013, in accordance with the Securities and Exchange Board of India approval for the purpose of meeting the Minimum Public Shareholding requirement of 25% under the provisions of Rule 19A(2) of the Securities Contract (Regulation) Rules, 1957 and Clause 40A of the Listing Agreement.

Our American Depositary Shares are listed on the New York Stock Exchange. Each ADS represents one equity share of par value Rs. 2 per share. Our ADSs are registered pursuant to Section 12(b) of the Securities Exchange Act of 1934 and, as of March 31, 2013, 1.74% of the Company’s equity shares are held through ADSs by approximately 11,162 holders of record in the United States. As of March 31, 2013, approximately 98.26% of the Company’s equity shares are held by approximately 213,602 holders of record in India.

Our equity shares can be held by Foreign Institutional Investors, or FIIs, and Non-resident Indians, or NRIs, who are registered with the Securities and Exchange Board of India, or SEBI, and the Reserve Bank of India, or RBI. About 9.03% of the Company’s equity shares were held by these FIIs, and NRIs as of March 31, 2013, some of which may be residents or corporate entities registered in the United States and elsewhere. We are unaware of whether FIIs, and/or NRIs hold our equity shares as residents or as corporate entities registered in the United States.

 

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Our major shareholders do not have a differential voting right with respect to their equity shares. To the best of our knowledge, we are not owned or controlled directly or indirectly by any government or by any other corporation. We are not aware of any arrangement, the operation of which may at a subsequent date result in a change in control, of our Company.

Related Party Transactions

Terms of Employment Arrangements and Indemnification Agreements. We are a party to various employment and indemnification agreements with our directors and executive officers. See “Terms of Employment Arrangements and Indemnification Agreements” under Item 6 of this Annual Report for a description of the agreements that we have entered into with our directors and executive officers.

Related parties. The Company has relationships with the following related parties:

 

Name of entity

  

Nature

Azim Premji Foundation    Entity controlled by Director
Azim Premji Trust    Entity controlled by Director
Hasham Premji (partnership firm)    Entity controlled by Director
Prazim Traders (partnership firm)    Entity controlled by Director
Zash Traders (partnership firm)    Entity controlled by Director
Regal Investment Trading Company Private Limited    Entity controlled by Director
Vidya Investment Trading Company private Limited    Entity controlled by Director
Napean Trading Investment Company Private Limited    Entity controlled by Director

Wipro Enterprises Limited

(formerly Azim Premji Custodial Services Pvt Ltd)

   Entity controlled by Director
Cygnus Negri Investments Private Limited    Entity controlled by Director
WMNETSERV Limited    Entity controlled by Director
Wipro Singapore Pte Limited    Entity controlled by Director
Wipro Unza Holdings Limited    Entity controlled by Director
Wipro Infrastructure Engineering AB    Entity controlled by Director
Wipro Infrastructure Engineering Machinery (Changzhou) Co., Ltd.    Entity controlled by Director
Yardley of London Limited    Entity controlled by Director
Key management personnel   

- Azim Premji

   Chairman and Managing Director

- Suresh C Senapaty

   Chief Financial Officer and Director

- Suresh Vaswani

   Jt CEO, IT Business and Director (1)

- Girish S Paranjpe

   Jt CEO, IT Business and Director (1)

- T K Kurien

   CEO, IT Business and Director

- Dr. Ashok S Ganguly

   Non-Executive Director

- Narayanan Vaghul

   Non-Executive Director

- Dr. Jagdish N Sheth

   Non-Executive Director

- P.M Sinha

   Non-Executive Director

- B.C. Prabhakar

   Non-Executive Director

- William Arthur Owens

   Non-Executive Director

- Dr. Henning Kagermann

   Non-Executive Director

- Shyam Saran

   Non-Executive Director

- M K Sharma

   Non-Executive Director

- Vyomesh Joshi

   Non-Executive Director (2)

Relative of Key management personnel

  

- Rishad Premji

   Relative of the Key management personnel

 

(1) 

Up to January 31, 2011

(2) 

With effect from October 1, 2012

 

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The Company has the following related party transactions:

 

Transaction/ Balances

   Associate      Entities controlled by Directors      Key Management Personnel  
     2011