Satyam Computer Q2 Earnings Call Transcript

123jump.com Staff
12 Nov, 2008
New York City

Satyam, the fourth largest software service exporter from India reported second quarter net revenues gain of 29% to $652 million from a year ago and earnings per ADS of 39 cents. The company guided earnings growth in the third quarter to rise between 17.6% and 20%.

Satyam Computer Services Ltd, ((SAY))
Q2 Fiscal 2009 Earnings Call Transcript
October 17, 2008 6:30 p m IST

Executives

Ramalinga Raju - Founder and Chairman
Ram Mynampati - Member of the Board and President
V Srinivas – Chief Financial Officer

Analysts

George Price – Stifel Nicolaus
Bhavan Suri – William Blair
Joseph Foresi – Janney Montgomery Scott
Trip Chowdhary – Global Equities Research
Kawaljeet Saluja – Kotak Equities
Julio Quinteros – Goldman Sachs
Sandeep Shah – ICICI Securities
Rod Bourgeois – Bernstein
Pankaj Kapoor – ABN Amro
Viju George – Edelweiss
Ashish Thadhani – Gilford Securities
James Friedman – Susquehanna
Surendra Goyal – Citigroup
Shekhar Singh – Goldman Sachs
Anthony Miller – Tech Market View
Kanchana Vaidyanathan – Pacific Crest Securities
Arvind Ramnani – Bank of America Securities
Vihang Naik -- Motilal Oswal Securities
Vikas Jadhav – Motilal Oswal Securities
Harshad Deshpande – Ambit Capital
Ritesh Rathod – UTI Mutual Funds
Santhana Krishnan – Spark Capital

Operator

Ladies and gentlemen, good morning, good afternoon and good evening, this is the Chorus call conference operator. Welcome to the Satyam Earnings Conference Call for the 2nd Quarter of 2008/2009. As a reminder for the duration of this presentation all participant lines are in the listen-only mode and this conference is being recorded. After the presentation there will be an opportunity for you to ask questions. Should anyone need assistance during this conference call they may signal an operator by pressing * and then 0 on their touchtone telephones. At this time I would like to turn the conference over to Mr. Srinivas Vadlamani the CFO of Satyam Computers, thank you and over to you Mr. Vadlamani.

V Srinivas – Chief Financial Officer

Thank you, Rochelle, very good morning and good evening to you all and thank you for joining us to discuss our 2nd Quarter results. Joining me on this call are Raju and Ram. Now, before we start the discussion, I would like to draw your attention to the fact that during this call we may make certain forward-looking statements concerning our future growth prospect. Such statements involve a number of risks and uncertainties associated with our business. Please refer to our periodic various, periodic filings with the SEC for a description of such risks. The company does not undertake to update any forward-looking statements that we will make from time to time by or on behalf of the company, I now handover the session to Raju.

Ramalinga Raju – Founder and Chairman

Thank you all for joining us on this call. As we announced our results for the 2nd Quarter of fiscal year 2009 I am pleased to announce a better then guided performance for the 2nd Quarter for fiscal year 2009. We give this in a challenging global economic environment and the volatile currency scenario that became reality in the last three months since Satyam last reported earnings. In Q2, our revenue grew by 7.6% quarter-over-quarter and 38.8% year-over-year as per Indian GAAP on the back of a 4% volume growth and Rupee depreciation against the US Dollar. These drivers coupled with efficient cost management resulted in an EPS of Rs.8.63 for the quarter against a guidance of Rs.7.78. We believe that these factors will also enhance annual margin performance. Our US GAAP revenue for a quarter was $652.2 million, a growth of 28.8% year-over-year and a sequential growth of 2.3%. Earnings per ADS, was $0.39. Over time we have expanded the breadth of our services in numerous strategic areas, an effort boosted by several key acquisitions in the recent past. The combined capabilities arising out of the integration of these organizations are especially useful in a market where companies are increasingly focusing on process efficiencies. These competencies will emerge as significant differentiators for Satyam and when combined with our ever increasing global presence will uniquely qualify us to service customers in their transformation of endeavors. The near-term environment remains challenging because of the global slowdown and continued instability notably in the US banking and financial services sector. Consolidation among financial services companies is also contributing to uncertainty although it is also creating transformational opportunities.

In light of our better than guided performance for the first half and the favorable movement of the Rupee against the US Dollar, we are revising our annual revenue growth guidance under Indian GAAP upwards to between 33% and 35.4%. The annual EPS growth guidance is now expected to be in the range of 33% to 35%, aided by a superior margin performance. While Rupee has depreciated against the US Dollar, it has appreciated against other major currencies impacting our annual US GAAP revenue adversely by 3%. Given this background and prevailing market conditions, we are revising revenue growth projections downwards as per US GAAP to between 19% and 21%. In closing I would like to emphasize that Satyam is leaving no stones unturned in our efforts to create a sound foundation for our future. We will leverage the robust de-risk model, we established after 2000 the time of our last major slowdown. Since then we have grown 10 folds. As we did then, we will emerge stronger and better able to deliver superior customer value. The board has declared an interim dividend of 50% for fiscal year 2009, thank you.

V. Srinivas

Thank you, Raju. Our interim financials have been posted on the website and I assume that most of you would have got an opportunity to go through the same. Raju shared with you some of the business highlights of the quarter and for the fiscal. I will now focus on some of the financial highlights. Now for Q2 consolidated revenue growth was 38.8% year-on-year and 7.6% sequentially in Rupee terms. EPS for the quarter was Rs 8.63 year-on-year growth of 41% and sequential growth of 5.8% and sequential volume growth for the parent company was 4%. Reported onsite prices were lower by 0.75% and offshore prices were lower by 0.43%. This is primarily because of cross currency movements during the quarter. On a like-to-like basis local currency our onsite billing rates were up by 0.2% and offshore billing rates were by 0.5% sequentially. Given that we are operating in more than 65 countries and our dealings in more than 20 different currencies we have been impacted by cross currency volatility. For example between Q2 and now the Indian Rupee has appreciated by 8.6% against the Australian Dollar and 0.7% against the Euro while it has depreciated by close to 6% against the US Dollar. As our functional currency is Indian Rupees and we also report our financials in US Dollars these currency movements are likely to impact our reported US Dollar revenue by the $65 million for the year. This is the reason why we are lowering our annual revenue growth guidance by 3%.

Coming back to our Q2 numbers, EBIDTA margins for the quarter declined by 103 basis points. This is primarily because of the increments given during the quarter. Increments for the year have been finalized around 12% for offshore and 3% for onsite. The drop in margins because of increments, were mitigated by a better cost management on the SG&A front and the depreciation of Rupee against the US Dollar. Margins of US are expected to improve in the range of 100 to 150 basis points. Gross manpower addition in the parent company was 3323 our net addition was 1814 which includes 221 freshers. In the view of challenging business environment we are scaling down our gross manpower additions from 8000 to 10000 for the year. Parent company’s cash and bank balances increased by 105 million during the quarter. CapEx for the quarter was in US Dollars $40 million.

Turning to US GAAP, revenue for the quarter grew 2.3% sequentially and 28% year-on-year. Earnings per EP ADS grew 2.6% sequentially and 26% year-on-year. Coming to our guidance for fiscal 2009, we have revised our EPS towards upwards both on the Indian GAAP and US GAAP. Under the Indian GAAP we expect the EPS to grow between 33% to 35.1% corresponding earnings per ADS growth under the US GAAP is expected to be 17.6% and 20%. Thank you and now we throw up the session for Q&A.

Operator

Thank you very much sir. Ladies and gentlemen we will now begin the question-and-answer session. Please note that all participants who have logged into the call are allowed to ask questions. And there is no specific priority for the participants outside India and the ones in India. Anyone who wishes to ask a question may press * and 1 on their touchtone telephone. If you wish to withdraw a question from the queue you may press * and 2. Participants are requested to use only handsets while asking a question. Anyone who has a question may press * and 1 at this time. The first question is from the line of George Price from Stifel Nicolaus, please go ahead.

George Price – Stifel Nicolaus

Hi thanks very much. Couple of questions, one just to understand in terms of currency how much the 5%, 500 basis points reduction in your outlook for fiscal 09 would you attribute to currency versus demand. Should we take that 3% kind of going forward or would it be different for the fiscal year?

Ramalinga Raju

Out of the 5% reduction, 3% is because of cross currency and 2% is because of business.

George Price – Stifel Nicolaus

Okay and one thing that was kind of surprising in the results. US was actually, it appeared to me to be the strongest in terms growth. Rest of the world, outside the US and the Europe it seemed to be the weakest. It is kind of counter intuitive. Can you kind of go through maybe what is going on there?

Ram Mynampati

Yeah George this is Ram Mynampati here. In fact the answer was in the explanation, that Srinivas gave for the Forex fluctuation or while we have significant growth in the Asia Pacific market particularly markets like Australia because of the cross currency fluctuation but growth did not find its way to the percentage contribution with the revenue. That is the reason why it looks somewhat odd. Whereas if you take volume growth into consideration that would be more reflective of the distribution of vote across geographies. So in that sense the numbers are not reflective of the true business distribution.

George Price – Stifel Nicolaus

Okay and I guess just looking forward you mentioned consolidation in financial services. I guess what are you seeing over the next couple of quarters? That is then in terms of how much risk is there to growth from that, say for example with Merrill Lynch versus opportunity for Satyam. I guess stated in other way has Merrill started, has any of that work started to transition away? Do you have any indication that that is going to begin over the next couple of quarters?

Ramalinga Raju

Well without naming, without taking specific client by name I would just make some broad observations. There are some organizations that got impacted due to the market dynamics in the last couple of months and that, all our customers they continue to be our customers in almost all cases. The work that we have been executing for these customers we continue to execute that work even though now the customers name has changed perhaps or the organization has changed. So there is no significant reduction in the business that we are doing with any of these organizations, that is number one point. Second, while we remain a key player in most of these business areas that we are servicing for these customers, we have not received any indications of us not remaining a strategic player in these relationships. So I would not necessarily conclude that we would have to engage in an effort of transitioning our workout to anybody else. We believe that we have as good a chance if not better compared to other organizations to enhance our footprint in the integrated organizations. Our efforts clearly are in that direction and we are quite hopeful that we would remain a strategic player in every one of these relationships.

George Price – Stifel Nicolaus

Last thing the consulting and enterprise business solutions seems to have some deceleration maybe more so than some of the other segments. If you can maybe walk us through that what you are seeing on the…in terms of demand there you know particularly around ERP

Ram Mynampati

Yeah this is Ram again. The consulting and enterprise business solution has grown at the rate at which the company has grown. By and large it remains at the same levels. It is a flat growth this quarter. Some of the reasons are because of the same currency related things that I mentioned because some of the business came from other markets they are not particularly the US market. So relating to the outlook we are aware of some of the announcements made by product vendors relating to reduction in licensing and somewhat of a negative environment. In spite of that at least our thinking is in the next couple of quarters we would not see any dramatic negative impact in our business for the enterprise solution segment. Beyond that now we obviously need to remain very close to the ground to see where the impact would be if any in FY2010, but at this point our outlook on enterprise business solutions has not changed dramatically in relation to the outlook for the rest of the business.

George Price – Stifel Nicolaus

Thank you very much.

Ram Mynampati

Thank you.

Operator

Thank you, Mr. Price. The next question is from the line of Mr. Bhavan Suri from William Blair. Please go ahead.

Bhavan Suri – William Blair

Thanks, gentlemen, just a couple of quick questions following up on George’s questions on demand. The engineering services and IMS also look relatively weak this quarter compared to what we would expect the growth in these areas to be given the low saturation, and sort of your focus on these areas. Could you provide a little color about what you are seeing in those markets and what growth for the rest of year might look like?

Ram Mynampati

Sure this is Ram Mynampati here. We are very optimistic about the business opportunities in engineering services particularly. We are pursuing a number of opportunities that are, and the innovation end of the value chain. We also see a good traction in most of the markets where engineering services becomes a prominent play manufacturing in general or in between the manufacturing sector there are segments like aerospace. Similarly the engineering service is, looking very good in companies that are in consumer products that are even in other markets that are traditionally not a big players of engineering services. So we remain very positive about our engineering services potential. And while the numbers this quarter may not reflect that, our outlook remains very good about engineering services.

On the infrastructure side, again some of the business that we have got in this quarter on infrastructure side is in line with our expectation but like any consolidation effort we would make it almost obvious that some of the consolidation would lead to redefinition of the infrastructure services as well. So we have not seen a dramatic growth in infrastructure business this quarter, but the outlook is good for infrastructure and management services as well. I would like to also point out that one of the clear signs of where the market is, is visible in the fact that our ADMS has grown this quarter in particularly transformational engagements and engagements that are primarily focused on operation efficiencies and cost out most of those tend to start with efforts in ADMS. So your revenue distribution in ADMS is reflective of where the near term opportunities would come from. Just thought I would highlight that aspect since we are talking about all other businesses.

Bhavan Suri – William Blair

Sure thanks Ram. Quick other question, now we talked about weaker demands in the US. Have you seen any weakness in Europe and can you speak a little more about what you are seeing in that market given that Asia, you feel is still strong.

Ram Mynampati

Yeah I think I would categorize this in two different buckets. One is in the BFSI bucket and second given all other businesses. In the BFSI, while the market is somewhat weak in the US that sentiment has spread to an extent in particularly into UK and some of the other markets in continental Europe, but outside of that most of the other markets we have not seen any dramatic impact in European market for those businesses. It just so happened that we have seen greater traction in Asia Pacific market, particularly in markets like Middle East and Australia. So outside of BFSI Europe looks good again good within the market the market we are operating in today.

Bhavan Suri – William Blair

Great, you know I will let ask others question. Thanks Ram.

Ram Mynampati

Thank you.

Operator

Thank you, Mr. Suri. The next question is from the line of Mr. Joseph Foresi from Janney Montgomery Scott. Please go ahead.

Joseph Foresi – Janney Montgomery Scott

Hello, I just wondered first, maybe you can give us a little bit more color on your package implementation offering. Is that a higher discretionary spend decision than your standard application development and maintenance work?

Ram Mynampati

It used to be at one time, but perhaps it is no longer the case. The reason why that is the case is because many of the applications that were customized earlier, they are being dealt with now by packages. So the breadth of the business areas that are addressed by package implementation has grown quite dramatically. So much so that there isn’t a significant business area that is not addressed by package implementation, this opportunity. So I would not say that discretionary spend correlation exist any longer with package implementation. And it follows that once there is a package chosen for implementation addressing a specific business area the maintenance and support relating those packages tend to be mission critical as well. So I would not say great proportion of the package implementation is discretionary any longer. It used to be the case sometimes, but not anymore.

Joseph Foresi – Janney Montgomery Scott

And when you look at sort of the licensing stuff coming out of the SAP itself, is the work that you are doing is there a lag or can you help us kind of figure out the correlation between the work that you are doing and the licensing information that we are getting out of them. Are you working on work that was, a project that was started 10 to 12 months ago? Is that a fair assumption to make?

Ram Mynampati

Let me answer the question in an indirect way. First of all we maintain for a long time that there is no direct correlation between the growth in our package implementation business versus licensing and we believe that to be the case, but to the extent that there is a correlation that is the work that we get from customers is directly attributed to a new license of an SAP or a Oracle product, typically there is a lag time of 2 quarters or so when we see getting involved in implementation of those applications, but I would not say the entire package implementation business is correlated to licensing. So there is a portion of the business that is somewhat related, but in those instances where it is related you can probably assume couple of quarters of lag time

Joseph Foresi – Janney Montgomery Scott

And then just one last question, actually in two parts. I wonder first if you could talk about what you are seeing on the pricing environment. And then secondly it seems like you reduced your headcount guidance much more than you reduced your revenue. Typically we have seen a link between the headcount and revenue guidance. How should we think about that relationship at this point?

Ram Mynampati

On the pricing front, again there are two flavors to pricing. One is, all the deals that we have signed, all the contracts that we have renegotiated this year, they have been in many instances for higher prices while there are instances where one odd request came for reduced pricing. Overall the sentiment to date is, of a stable pricing sort of realized prices for the year is concerned. So our outlook on pricing for the year continues to be stable realized prices for FY2009. Having said that, we do see the possibility that there will be some pressure on prices if the current economic environment prevails for few months longer, but so far in our interactions that have not resulted in, us concluding that there is a pressure on pricing for this year. And I’ll let Srinivas answer the question on manpower.

V Srinivas

Yeah. We have basically, as you would have observed our guidance implies 21% upper end of guidance implies Q3 and Q4 organically seeing flattish growth revenues will be at Q2 levels. So since we are not you building in much of a growth going forward so we thought that it is prudent to bring down hiring also and with soft job market environment like this it would be easy for us to switch gears should need arise then quickly bring them on board. So to address these issues and also to basically to protect our margins so we thought that it would be better that we go slow on gross additions. So that is the reason why we kind of took this call of reducing the overall of hiring to 8000.

Joseph Foresi – Janney Montgomery Scott

And so basically it is safe to say pricing is stable and hiring coming in and utilization is the factor that you are pushing to, is that correct.

V. Srinivas

No sorry I did not get that.

Joseph Foresi – Janney Montgomery Scott

If hiring is decreasing and pricing is flat then it is safe to say that utilizations is the metric that you are really going to focus on going forward.

V. Srinivas

Yeah absolutely, that is definitely one of the important focus areas, but even with this gross addition which we are planning we expect the utilizations to come under pressure because of the lower volume growth that we are projecting. So but then definitely it is one of the areas of focus and we would like to keep this as high as possible.

Joseph Foresi – Janney Montgomery Scott

Thank you.

Operator

Thank you, Mr. Foresi. The next question is from the line of Mr. Trip Chowdhary from Global Equities Research. Please go ahead.

Trip Chowdhary – Global Equities Research

Thank you. I have two quick questions, first is regarding strategic decisions that Satyam may need to make in the light of probably a very elongated slowdown. If you have two options, #1 is reduce the headcount and #2 roll back the salaries of employees to the 2003 levels what do you think makes good sense both from a short-term perspective and from a long-term perspective.

Ramalinga Raju

Yeah we have given guidance for the year, this is Raju here. And what is the visibility is fairly good and we do not expect any events that may change the outlook that we have in a way painted. We are not giving guidance for the next year nor are we at this time claiming that we fully understand and appreciate what the economic scenario maybe in the next year or in the coming years. It goes without saying Satyam has in the past shown its resilience to adjust its actions to better suit the market conditions. At this time what you have stated is therefore somewhat in the speculative zone. And I am not sure, it is appropriate for me to comment in a definitive …

Trip Chowdhary – Global Equities Research

Second question I had is regarding the industry structure and some acquisition frenzy we have heard over the last three months and in hind sight it looks like the frenzy was totally misplaced. I am talking in reference to Axon where Infosys put a bid, then HCL came in and probably there were rumors that you also put a bid. Considering the fact that Europe is much weaker than US, considering the fact that at least most their positions when the people move so does the business so there is hardly any strategic asset that remains in an IT services purchasing acquisitions and considering the fact that acquired company’s stocks are already down 50% and during the premium to an acquirer is totally I would say out of base. What is your current thinking in terms of industry structure, new acquisitions and would you rather wait for two years when the companies you have an eyes on are valued literary at a quarter of the price at which they are trading today, any thoughts. And again all the best and continue to execute well.

Ramalinga Raju

Most of the comments you have made clearly paint a possibly a very bleak picture of the future. I am not sure if we would agree with that. And now as regards value behind acquisitions and strategies around acquisitions all I would like to say is that we believed and we continue to believe that inorganic growth would be as much of an important factor in our growth as organic growth. It goes without saying that not every acquisition will necessarily enhance value for the shareholders. Therefore one has to be very careful in choosing acquisitions and there are many factors that determine success or otherwise of an acquisition. And then therefore it goes without saying difficult to give a generic answer, expecting saying that acquisitions are important for our strategy and number two selecting what to acquire and what not to acquire is going to be also equally important.

Trip Chowdhary – Global Equities Research

Thank you. All the best.

Ramalinga Raju

Thank you.

Operator

Thank you, Mr. Chowdhary. The next question is from the line of Mr. Kawaljeet Saluja from Kotak Equities. Please go ahead.

Kawaljeet Saluja – Kotak Equities

Hi, my question are for, Srinivas. Srinivas any specific reasons why you have $500 million parked in current accounts which does not yield any interest.

V. Srinivas

No that is basically, as of the quarter ending, but subsequent to that the amount goes to the deposit accounts; majority of its in deposits now.

Kawaljeet Saluja – Kotak Equities

But Srinivas if I look at deposit account for the last 4 quarters that number has remained absolutely flat and most of the incremental cash flows have been parked in current accounts and this is not something is this quarter trend. Would you highlight the reasons for it?

V. Srinivas

No basically what will happen is this amount will be basically in different countries and then we will be bringing them to India based on the needs. Basically some of them are in overnight deposits and all that. So now, we have kind of placed them into normal term deposits. So next quarter onwards, we will see that as part of the deposits.

Kawaljeet Saluja -- Kotak Equities

So would your yields on excess cash go up because your yields are very low compared to the industry? It is just 5.3% whereas the going yield was 9% to 10%.

V. Srinivas

Yeah right now our yield is roughly around 8% or so and we expect that to go up because currently the overall yield on the deposit rate in the past one month or so also has gone up. So everybody will be benefited by that.

Kawaljeet Saluja -- Kotak Equities

Okay and a second, you know given the fact that the stock is now more or less trading at valuation which does not imply any growth in entirety. So, what will make you consider a buy back of stock?

Ramalinga Raju

Well it goes without saying that we constantly evaluate as to what kind of use we can put our liquid funds positions to, and there are many options in front of us particularly around acquisitions, around possibility of a buy back, around possibility of special dividend so on and so forth. We believe that there are enormous opportunities particularly at this stage in acquisitions and then therefore it is always a very difficult decision to make when it comes to having to buy back. All I can say is that we are well in tune with this pattern and we would be taking decisions as we go forward weighing various possibilities carefully.

Kawaljeet Saluja -- Kotak Equities

Right. And Srinivas are there any specific reasons why you have taken a loan of $15 million in Satyam standalone entity?

V. Srinivas

No, no Kawaljeet that is basically not a loan taken. It is basically related to Caterpillar MRCA business acquisition. As per the acquisition agreement we have paid $10 million in cash and balance is due over the period. And as per the agreement we have to give them a promissory note for the future payments, so that under the GAAP requirements that promissory note needs to be qualified as unsecured loan. So that is why it is there in the unsecured loan.

Kawaljeet Saluja -- Kotak Equities

Okay and, just to get it right, has there been any revenue contribution from the Caterpillar acquisition or the analytics division acquisition in this particular quarter?

V. Srinivas

No, not I think the contribution will start from Q3 both for S&V and MRCA.

Kawaljeet Saluja -- Kotak Equities

Okay and finally what is the revenue contribution you are expecting from the two acquisitions. I think that is the acquisition which you have made in the 2nd half of the fiscal?

V. Srinivas

I think the contribution for the second half from these two acquisition may be roughly around anywhere between 15 to 20 million over the next 6 months.

Kawaljeet Saluja -- Kotak Equities

Okay thank you.

Operator

Thank you, Mr. Saluja. Ladies and gentlemen before we take the next question we would like to remind participants to limit their questions to one per participant in order to ensure that the management is able to address all questions. The next question is from the line of Mr. Julio Quinteros from Goldman Sachs. Please go ahead.

Julio Quinteros – Goldman Sachs

Great thanks guys. I just wanted to go back to the employee growth rate and I know we talked about this a little bit last night, but as we round the corner into March of 2009 and we are staring at a sub-10% growth rates for you guys, how do we think about the factors that are going to help drive any reacceleration in growth as we really begin to think about other factors for growth into fiscal 2010?

Ram Mynampati

Well Julio this is Ram Mynampati here. I am not so sure whether we are thinking if that is the growth for FY2010 would be in the 10% range and I do not think we have visibility to that. What we are seeing currently is a bit of uncertainty in the market, a number of things that are pulling the market in different directions and we are not sure exactly where the stability would be and what would that mean in the near-term or long-term. The two or three things that we are clearly seeing is that along with the challenges in the market we are also noticing significant opportunities for the transformational deals. You know those are not necessarily measured in quantum of longevity, but those are in terms of the impact that we are able to create whether to an organization that is M&A, that is organization that is challenged for speak to market issues, challenge for compliance to specific regulatory needs, a host of things that are redefining the opportunity space as we look at it today compared to a few quarters ago. So I am not so sure whether the pipeline is as barren to conclude that there is only a 10% growth potential for next year. At least I would not necessarily subscribe to that at this stage. So we are clearly looking at opportunity space not just limiting to what we are used to pursuing but also what the market bears in light of the dynamic situation that we are in.

Julio Quinteros – Goldman Sachs

Okay and then I guess just as it relates to maybe more than near-term than what is implied in your negative 3% sequential growth rates for the December quarter? In other words how much are you guys factoring in there for necessary project push out, delays, anything on these lines? So what is really implied in the 3% growth rate? Is that one client? Is that multiple clients? How do we think about negative growth in the next quarter relative to your guidance?

Ram Mynampati

Well next quarter we are actually predicting flat growth not negative because whatever the negative we will be attributed it to the exchange fluctuation. As we have said there is a 3% impact due to the exchange rate fluctuation which neutralizes whatever volume growth we are expecting for Q3 and that’s how we should read number for Q3

Julio Quinteros – Goldman Sachs

Got it. Okay great thanks

Ram Mynampati

Thank you.

Operator

Thank you, Mr. Quinteros. The next question is from the line of Mr. Sandeep Shah from ICICI Securities. Please go ahead.

Sandeep Shah – ICICI Securities

Yes, if you look at the Satyam Technologies number, it is roughly around more than $5 million and it is contributing more than 1/3rd of the additional growth in this quarter. So what has exactly happened and is it like recurring revenue or it is a onetime revenues?

V. Srinivas

Yeah, basically Satyam Technologies means as you know it is a joint venture we have formed along with TRW in those days and now it is 100% owned by Satyam. And some of the business which was earlier….and most of this business is executed by our joint venture – Venture Corporation. We have a JV with Venture and so that is executed by that. So when TRW gives us business that was earlier routed through Satyam Computers to the JV. Now it is being routed through STI to the JV. So from that point of view there is no change in the business that we are getting from TRW. It is just that it is routed through STI today rather than from Satyam Computers.

Sandeep Shah – ICICI Securities

Okay. Is it a recurring like, is there any?

V. Srinivas

Yeah. It will continue to now be in STI.

Sandeep Shah – ICICI Securities

Okay. And depreciation has increased in this quarter. So what is your sense for this figure going forward?

V. Srinivas

Sandeep this is primarily because of some of the capitalization that we have done in this quarter. It has gone up and we expect this to go up marginally over the next couple of quarters but not materially. It is kind of in line with the accretive numbers that has been increased marginally.

Sandeep Shah – ICICI Securities

Okay. And you expect the tax rate to increase in the next two quarters?

V. Srinivas

Kind of maybe marginal increase, not very material increase.

Sandeep Shah – ICICI Securities

Okay. Thanks a lot.

Operator

Thank you Mr. Shah. The next question is from the line of Mr. Rod Bourgeois from Bernstein. Please go ahead.

Rod Bourgeois – Bernstein

Hi there. You are essentially dropping your volume growth outlook for Fiscal 09 by 2.0% and I wanted if I can get some specific on where that 2.0% point decline in the outlook is coming from and this is the specific question I am wanting to ask you is how much of the decline in your growth outlook is stemming from known issues that you have already uncovered in your deal flow and in your existing clients versus the fact that you might be adding some buffer in your outlook to account for unknowable events that might stem from economic issues. So in other words, how much of the decline in your guidance due to issues that are already known versus you sort of prudently adding some buffer in your outlook given the more uncertain environment that we are in? Can you disaggregate it into those two categories?

Ram Mynampati

Rod, this is Ram Mynampati here. To a large extent that is attributed to the unknown. So we have factored all the known parameters into the guidance as much as we can. The reduction that we are projecting is due to the uncertainty in the environment, the unknown impact that we might have in specific sectors like BFSI things like that that we can’t put our finger on exactly what is happening we know something will happen but we do not know what.

Rod Bourgeois – Bernstein

Got it that probably makes sense. So the follow up on that can you characterize how your pipeline has changed in the last kind of year or year and a half? Specifically what types of deals are embedded in your pipeline today versus the kind of deals you were seeing a year ago? Are you seeing smaller deals today or you are seeing less concentration of your P deals in your pipeline? Have there been noteworthy changes in the types of deals that are currently sitting in your sales pipeline?

Ram Mynampati

There are may be a couple of qualitative aspects that I can point over in the pipeline. One, there is a greater instance of deals that we categorize as transformational in nature figuring in our pipeline today compared to may be a year ago or two years ago where if we did something that was more happening in light of our engagement taking us to a transformational opportunity as opposed to campaigning and opposing a transformation opportunity with a planned effort. So there is a clear qualitative aspect to the pipeline. Second is as I said earlier I think a greater portion of the organizational businesses today is being addressed by ERP. So clearly the pipeline would have a greater presence of ERP-oriented deals today. The third probably is in line with the focus that we brought to specific competency such as engineering services. We would see pipeline consisting of not one competence but more than one competencies factoring into an integrated service offering. So those are the qualitative aspects but in terms of numbers and value and all that that would be in line with the sign of times rather than the dramatic difference in any of those aspects.

Rod Bourgeois – Bernstein

I got it. And then you have made some very good progress in reducing your DSOs and your unbilled receivables in the quarter that’s very nice to see. Can you comment on the outlook for DSOs and unbilled going forward assuming that you are going to continue to have a focus on those metrics thanks?

V. Srinivas

Rod this is Srinivas here. Yes as you have rightly said that we are continuing to focus on these two metrics. Definitely we want to reduce the DSO as much as possible. That is one of the important areas for an organization. So while we were not able to commit any number there but definitely if you further ask me 100 point you can see improvement there. So is the case with unbilled revenue.

Rod Bourgeois – Bernstein

Right. Thanks guys.

V. Srinivas

Thank you.

Operator

Thank you, Mr. Bourgeois. The next question is from the line of Mr. Pankaj Kapoor of ABN Amro, please go ahead.

Pankaj Kapoor – ABN Amro

Yeah hi sir, this is question to Srinivas. Sir can you give me some reason why the CapEx went up very sharply during this quarter and actually if I look at the CapEx that has happened in the first half it is much ahead of what you guided for in March-April, so how should I look at this number going forward? Thanks.

V. Srinivas

Pankaj as you are aware, we have started off our own buildings in our own SEZs in Hyderabad especially. So that is the reason why the CapEx has gone up, so this is basically with our new strategy to building more and more SEZs and also get all our growth in the SEZ. So with that strategy and also we are moving the away from leased premises model to now owned premises model. So that is the primary reason.

Pankaj Kapoor – ABN Amro

Sir, in April call you had guided that you will be having a CapEx of for roughly about $125 million for this year and if I just look at the first half data it is about close to about 150+ so I was just trying to reconcile that there has been a shift in our strategy as far as in accelerating the set up of the SEZs? Or see you this whole amount doubling more going up further in the next two quarters?

V. Srinivas

Pankaj, I think you are getting confused with the capitalization that we have done in the fixed asset schedule and the actual CapEx we have incurred. So this capitalization of whatever 400 Crores that has happened in this quarter is accumulated capital work in progress over the last 7-8 quarters. So we have capitalized that now in this quarter that is why we are seeing the fixed asset schedule as additions in this quarter and depreciation has also gone up. This is not the actual spent in this quarter. So what actually we have spent in this quarter on CapEx is only $40 million.

Pankaj Kapoor – ABN Amro

Okay. Fair enough. And secondly can you give me some sense in terms of the BFSI like clients without obviously naming them but if I look at the clients where we have seen some kind of issues either they are getting acquired or so, what percentage of our revenues would be coming in from such accounts?

Ram Mynampati

Well as we have talked about it earlier, this is Ram Mynampati here. In BFSI sector, there are three segments. The retail banking, the institutional and investment banking, and capital markets & insurance, they all contribute equally to our business. So the maximum exposure you have is one-third of our BFSI exposure, which is about 21% and within that you know these clients that you mentioned constitute may be one-third of the market.

Pankaj Kapoor – ABN Amro

Okay. So can I take it as there is roughly around say 7% or 8% of the revenues from such account and that could have been the minimum?

Ram Mynampati

No. That is the maximum. 7% is the maximum of the capital market size within that and the name side, which you referred to constitute may be 1/3rd to ½.

Pankaj Kapoor – ABN Amro

Okay. Fair enough. And Sir lastly, any 15 million plus kind of a large deals that we had in this quarter and what is the outlook or the pipeline we are looking at on such deals?

Ram Mynampati

We have closed one opportunity of that kind this quarter. The outlook remains fairly positive except the cycle times seem to be getting longer in pursuit of those opportunities but the pipeline remains very strong.

Pankaj Kapoor – ABN Amro

Okay. Thank you and all the best.

Operator

Thank you, Mr. Kapoor. The next question is from the line of Viju George from Edelweiss, please go ahead.

Viju George – Edelweiss

Hi. Thanks for taken my question. This pertains to the enterprise solutions business. Could you give us a sense of what percentage of your 45% exposure would possibly derive from implementation of new licenses just a ballpark field number?

Ram Mynampati

I think we have obviously this number keeps changing but we have talked about somewhere between 50%-55% of the enterprise business coming from the implementation and the rest coming from support and operations type of thing.

Viju George – Edelweiss

Okay. I was also you know looking at this metric from million dollar clients and I have seen a decline from 237-230. The first such decline I have seen in 11 quarters, any comments on this?

Ram Mynampati

Nothing specific. You might have probably noticed that 10 million dollar customers have gone up as well.

Viju George – Edelweiss

Okay. This refers to the guidance very specific this is for Srinivas. This refers to the guidance very specifically for the next quarter, if I look at the upper end of the guidance in rupee terms I find that your are guiding for near 8% quote in sequential revenue growth but your EPS is sort of kind of dead flat coming you know at the time when your wage anyway is settling down into next quarter, I just find it a bit surprising. Are you allowing for some margin declines?

V. Srinivas

Viju, Srinivas here. One thing is that this quarter too we have a FOREX gain of around 8 Crores that we are not basically assuming for Q3 when we gave the guidance that basically accounts roughly 2% growth and the second one is that we are basically closing back some of the office but we will be within because of the rupee depreciation into our operation. So basically in the marketing expenditure, brand building and also in training there is this and as we expect the utilization levels also to dip in Q3 and Q4 primarily because we are adding people but the growth is remaining constant. So keeping some these things in view, we thought that the EPS growth will be either flat to negative.

Viju George – Edelweiss

Okay, just one last question. This pertains to the employee addition figures. What’s is the flexibility you would have in terms of you know you have guided downwards and you are keeping volume growth constant for the next two quarters? What’s the flexibility you will have to for sort of increases numbers you see demand coming back especially if you are focusing on the campus hires?

V. Srinivas

We have very good flexibility there because as far as the campus hires are concerned our commitment is to honor whatever commitments we have made so far and the only thing that we are very uncertain about is the timeframe. Otherwise, it is our endeavor to honor the commitments that we have given to the campus hires and from that point of view the maneuverability which I was talking about earlier is quite high for us to shift gears should the need arise because of the demand environment so that we can do real fast.

Viju George – Edelweiss

Okay, just one clarification here. This 2% decreasing guidance for business factors is only a contingency or a buffer that’s what you have clarified? It’s not attributed and impact you are currently seen, you are just providing for impact possible?

V. Srinivas

Yeah. That’s what Ram has been clarifying that most of it is for unknown reasons and some of it is from known reasons.

Viju George – Edelweiss

Okay. Thank you so much and all the best.

V. Srinivas

Thank you.

Operator

Thank you, Mr. George. The next question is from the line of Ashish Thadhani from Gilford Securities, please go ahead.

Ashish Thadhani – Gilford Securities

Yes. Good evening. At this juncture what is your best guess on when normal quarter-on-quarter revenue growth should resume?

V. Srinivas

Ashish, we were hoping to get some input from your end when that is likely. The market is as dynamic as it is and it is very difficult to predict when normalcy would prevail in the market. So what we are doing is you know getting in touch with our customers, trying to be more aligned with what is happening in the market and making some near-term decisions that seem reasonable but beyond that we are in no better position to make any definitive prediction about the timeframe within which the stability would return.

Ashish Thadhani – Gilford Securities

Assuming that the environment doesn’t get much worse, would you expect a pick up you know right after the fiscal year ends, will that be sort of a reasonable way to look at things?

V. Srinivas Raju

See, we are in a way little hesitant to talk about things going beyond the next two quarters. We have our own guesses and estimates of what it may be. We are assuming that if only the global economic scenario improves, things can turn out to be positive, you know, it is just that we are not in a position at this time to definitively understand as to how the markets are likely to behave.

Ashish Thadhani – Gilford Securities

Understood. Nice quarter.

V. Srinivas

Thank you.

Operator

Thank you, Mr. Thadani. The next question is from the line of Mr. James Friedman from Susquehanna, please go ahead.

James Friedman – Susquehanna

Hi, good evening, thank you. My first question is with regard to the $10 million customers. You mentioned that trying to understand press release, could you describe may be what vertical that is from?

Ram Mynampati

I’m sorry. We are not sure. The customer that we are referring to the large deal we signed this quarter is the transportation vertical.

James Friedman – Susquehanna

Okay. Thank you. And then Ram you occasionally give updated pipeline metric about how many you have shopped and how many you have closed. Do you have any further visibility into that?

Ram Mynampati

Are you talking about large deals?

James Friedman – Susquehanna

Yeah.

Ram Mynampati

I think we still have still 20+ large deals in the pipeline. So as I said the pipeline remains fairly robust and also spread out across geographies and market segments and all that. As I said the only noticeable change that we are witnessing is the cycle times seems to be getting longer and that is understandable given the market environment.

James Friedman – Susquehanna

Okay. Then Srinivas with regard to the balance sheet, I didn’t want to dwell into that a little bit because you had significant improvement in both the DSO and the unbilled revenue and I know what you mentioned with regard to the DSO. The unbilled revenue declined the percentage of revenue to the lowest revenue it has been in about three years. To me that‘s a side of the cash flow, better financial environment. Can you describe some of mechanics of how you got the unbilled down to this magnitude?

V. Srinivas

Yeah. This is one thing on which we have been working for quite sometime and as we were basically mentioning earlier some of the unbilled is linked to the fixed price contracts. So, that is basically based on the milestone that we’ve reached. We will be announcing the customers. So it basically kind of so happened that some of the milestones we have reached in this quarter and we were able to invoice the customer. So otherwise it is our endeavor to basically to see that we have shorter milestones put in the contracts in (inaudible) so that this unbilled will not pile out. Some of these initiatives we are taking just to ensure that the unbilled revenue is under check.

James Friedman – Susquehanna

Smart. And then last thing is with regards to the pricing environment. We had this description also in the press release but you had in your comments Srinivas some contemplation of the difference between a constant currency pricing environment relative to the as reported number. It appears from the calculation that the pricing environment is declining. Could you revisit what you said with regard to the currency impact in the pricing calculation? Thank you very much.

V. Srinivas

Yeah. Sure. One point worth mentioning is because of this cross currency especially the Australian dollars rupee is appreciating against Australian dollar. So, whatever we earn in Australian dollar, when we report in the US dollar, it will show as if the prices have come off. So, for a while if we ignore that then on like to like basis, we have seen an improvement in the pricing. So that is what I was mentioning. It is basically because of the cross currency.

Operator

Mr. Friedman do you have any further questions?

James Friedman – Susquehanna

No, that was very helpful. Thank you, Srinivas.

V. Srinivas

Thank you.

Operator

Thank you, Mr. Friedman. The next question is from the line of Mr. Surendra Goyal from Citigroup, please go ahead.

Surendra Goyal – Citigroup

Hi, good evening, just one question for Srinivas. Do you have any guidance or estimate on the free cash flow you are likely to generate in FY09? Thanks.

V. Srinivas

Not really. I think we basically give guidance on our EPS and on the top line and we closely keep track of free cash flow but we will basically not be able to give any guidance on that.

Surendra Goyal – Citigroup

Okay. Thanks.

Operaor

Thank you, Mr. Goyal. The next question is from the line of Mr. Shekhar Singh from Goldman Sachs, please go ahead.

Shekhar Singh – Goldman Sachs

Hi, sir. I just wanted to know like are there any positive developments which you might have seen, whether in the form of better competitive positioning of Satyam or in the form of new areas or say an increase in the pipeline that you might be seeing?

Ram Mynampati

Well, this is Ram Mynampati here. We strive to create a differentiation in the market that is an endeavor that we are continuously in pursuit of. Clearly there are known factors that would put Satyam ahead of many organizations but what we have been able to put together now in light of the acquisitions that we have made, whether it is big strategy, whether it is S&V, and a few acquisitions that we made earlier, we are in a position to address the entire value chain, all the way from consulting to BPO, in a much more integrated and seamless fashion than what we were able to do before. That opens up new set of opportunities that perhaps we were not able to pursue and we are also able to create enhanced level of intimacy with our customers, in light of these added competencies. I believe that that position is competitively better particularly in the embedded customers that we are dealing with. But probably the only thing other than the maturity of service offerings that clearly is at a much more improved state today than in the past in light of the renewal focus that we have on solutions. But beyond that everything else is specific to the opportunity and the markets segments that we are operating in and then the other strength are well publicized. Our geographic footprint, our Asia pacific presence or enterprise business solution These are all competencies that would give us significant strengths in their own right but what we have been able to do is build on top of that in creating holistic solutions in a seamless fashion.

Shekhar Singh – Goldman Sachs

Sir like during good times we were under the impression that in case the cycle turns there will be more of off shoring to cut costs. Now that the cycle has turned and we are seeing like okay clients under immense pressure to cut cost, are you seeing clients actually talking about shifting business offshore or in terms of increasing the engagement that they have with you and if so like, are we specific in terms of which area, which geography, how many employees, etc?

Ram Mynampati

It is true that in theory we should work in favor of offshore and it should be helping realization of better cost savings in the near-term. While we do see discussions taking place arising out of the need to try create ‘greater cost out’, but what we also see hesitation because of the uncertainty in the market. Organizations have to reach a positional stability and the attention is diverted to issues that are probably not directly related to cost savings and perhaps related to level and stability. So we would see a bit of that coming into place but I agree with you that when the situations stabilizes, the immediate focus would be how to explore greater cost savings to leveraging the off shore to greater extent.

Shekhar Singh – Goldman Sachs

But currently, none of the clients are actually talking in.

Ramalinga Raju

Yeah, they are talking, they are talking. I am saying that maybe the speed with which we have made decisions is somewhat hampered by the environment that they are operating in.

Shekhar Singh – Goldman Sachs

Sir, lastly just want to know, versus your MNC competitors, if you look at the five years, Indian companies growth rate has been three times to five times of those competitors. But in the current scenario has there been a change in the competitive dynamics because of which you might actually end up growing at a pace slower as compared to some of your MNC competitors?

Ramalinga Raju

Again it is a hypothetical situation because the changes that we have seen have happened in a very rapid fashion. We have only two or three months into the significant changes that we are witnessing. I am not so sure, whether we know enough about the dynamics, and the impact of the dynamics in the relative competitive positioning of Indian players versus MNCs. But, I would argue that the essential elements that made us look more attractive remain the same today and at least it would remain the same for some time to come in my opinion.

Shekhar Singh – Goldman Sachs

Okay sir thanks a lot.

Ramalinga Raju

Thank you.

Operator

Thank you, Mr. Singh. The next question is from the line of Mr. Anthony Miller from Tech Market View, please go ahead.

Anthony Miller – Tech Market View

Well, hello gentlemen! Just a couple of points for clarification please, and then just some data plans. In terms of hiring you said that you will hire all the job offers to freshers that you made last year, but you weren’t sure about timeframes. What do you think the hitch could be? Are we talking about in matter of weeks or could it be a couple of quarters and would you expect any fall off from that?

V. Srinivas

Srinivas here, we will not be able to give any timeframes here. I think other than just saying that we will be able to take them on board and honor our commitments as early as we could rather than that at this point in time, giving the timeframe will be very difficult.

Anthony Miller – Tech Market View

Okay, back with the early point, there was a question about why European growth seems depressed compared to North America and you mentioned exchange rate was a factor in that. But if you were to nullify the effect of exchange rates would European growth still has been slower than America’s?

Ram Mynampati

In this quarter, yes.

Anthony Miller – Tech Market View

Well and why would that have been?

Ram Mynampati

Again, the same factors that we have been talking about, the impact of different market segments, the tangential impact of what''s happening in the US, in the European region, opportunities that are not closing in the timeframes that we are looking at; the same business parameters that we have talked about are the same reasons, nothing unique about the region.

Anthony Miller – Tech Market View

Nothing, okay and then just finally, I didn’t quite catch the number of gross adds in the introductory comment and also could you give the freshers and also the headcounts that you have pruned, the closing headcounts you have pruned, please?

V. Srinivas

In the gross addition Anthony for this year, we said will be anywhere between 8000 to 10000 that is…

Anthony Miller – Tech Market View

Sorry, I mean the gross-high, sir I mean the gross adds this quarter, the quarter just gone.

V. Srinivas

Okay, that is 3000 plus, 3323.

Anthony Miller – Tech Market View

3323, and did you say fresh number as well of that?

V. Srinivas

221.

Anthony Miller – Tech Market View

221, and just finally the closing headcounts you have been approving now?

V. Srinivas

That is roughly around 2800, yeah 2800.

Anthony Miller – Tech Market View

2800. Okay, gentlemen thank you very much.

V. Srinivas

Thank you.

Operator

Thank you, Mr. Miller. The next question is from the line of Ms. Kanchana Vaidyanathan from Pacific Crest Securities, please go ahead.

Kanchana Vaidyanathan – Pacific Crest Securities

Hi, thank you. I don’t know if you gave this number before but just looking at the Q2 revenue growth rate, the overall revenue growth rate, definitely see a constant currency growth rate and also do you have a constant currency growth rate for Europe?

Ramalinga Raju

We will not be able to give region wise growth rate.

Kanchana Vaidyanathan – Pacific Crest Securities

5% okay thank you. I guess my next question is looking at the wage hikes that you gave, that during Q2, I think you typically give the wage hikes at the beginning of the quarter but this year, I think it got pushed out a little further. So looking at the operating margins for Q3, should we expect that the operating margin that we would actually see the bulk of the impact of the wage hike in Q3 rather than in Q2?

Ramalinga Raju

Kanchana, I think there is no change in the policy. We give increment with effect from 1st July. That is in the vogue this practice in vogue for the last two to three years. So that continued during this year. So the full impact of the increment is felt in Q2 itself.

Kanchana Vaidyanathan – Pacific Crest Securities

Okay. I think next question is just looking at your BPO business, what was the revenue in the US dollars and also could you comment on the BPO business? If you recall last quarter, you actually had an issue with one of the clients, how you got cancelled. Can you give us an update on what is happening in the BPO business?

Ramalinga Raju

On BPO business, relative to Q1 has done well. The revenues have increased compared to Q1. In rupee terms we have seen a growth of almost 15% on quarter-on-quarter and similarly, on operating margin front the operating losses have come off. Those were around 13% of the operating loss, 13% of revenues last quarter. Now it has come down to now roughly around 6%. Similarly, the net profit level, the net losses has also come down. So I mean quarter-on-quarter basis, we have seen improvement on the Satyam BPO front. So that is one important feature of this quarter and coming to the business, the animation project that has got delayed. I think that it is still, as we were mentioning, it is still intact and we expect that it happen in Q3 and Q4.

Kanchana Vaidyanathan – Pacific Crest Securities

Okay and finally, I was wondering if you could talk about your manufacturing and your retail verticals. I guess the expectation in Q3 and Q4, where are you seeing as strength, I mean the areas of strength and the areas of weaknesses in these two verticals?

Ram Mynampati

Well, if you look at the numbers that this quarter you will notice that the manufacturing has grown, whereas retail has not grown as much as we would like this quarter, that is including retail and consumer oriented markets. The impact of the current economy on these markets is in front of us and not behind as in a sense that we don’t know exactly where the impact of credit squeeze impacting the capital flow that would impact spending and manufacturing. That is difficult to gauge at this point because we don really know, how long it would take for this situation to get better. And that would potentially impact the spend in the manufacturing in there, by the business in manufacturing sector. But there are segments in manufacturing that continue to do well Aerospace and defense are doing well. The heavy manufacturing sector is doing well as well. In retail and transportation sector, we see some of the markets like the apparel market, the food and beverages market, these seems to be doing well. But the markets that are predominantly consumer-centric is where, potentially there might be some slow down if the consumer spending were to slow even further than what is reported to date. So it’s very difficult to predict where these markets would be and where the spending would be and we would obviously be closely following the markets and the parameters that would impact spending in this space.

Kanchana Vaidyanathan – Pacific Crest Securities

Okay, thank you that was very helpful.

Ramalinga Raju

Thank you.

Operator

Thank you Ms. Vaidyanathan. The next question is from the line of Arvind Ramnani from Bank of America Securities. Please go ahead.

Arvind Ramnani – Bank of America Securities

Sure, are you looking to make any alternations to your hedging strategy based on recent currency volatility?

V. Srinivas

Well, not really, this is Srinivas here. We would like to continue with our strategy of hedging only 50% of our expected dollars in flows over the next one year. It has held us in good stead over the years. It has also helped us in achieving the mandate given towards by our boards, that we should be able to protect the company from the vagaries of FOREX moments, not so much to make money out of it. So, if you look at our last three years performance on the hedging, I think we have achieved that objective and cumulative gain or loss because of this, it is almost zero. So, that way it is very close to the objective in effect for our results. So, we want to continue with that strategy even going forward.

Arvind Ramnani – Bank of America Securities

Sure, can you please go through the margin trade, various factors such as currency, wage hikes, pricing and I