Infosys Limited American Depositary Shares

and welcome to the Infosys earnings conference call. As a reminder, all participants' lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Sandeep Mahindru. Thank you and over to you, sir.

Thanks, Margaret. Hello, everyone, and welcome to... ...to discuss Q1F521 financial results. This is Sandeep from the investor relations team in Bangalore. Joining us today on this call is CEO and MD, Mr. Saral Parekh, CEO, Mr. Praveen Dao, CFO, Mr. Nilanjan Roy, along with other members of the senior management team. We'll start the call with some remarks on the performance of the company by Salil, Praveen and Nilanjan before opening up the call for questions. Please note that anything which we say which refers to our outlook for the future is a forward-looking statement which must be written in conjunction with the risk that the company faces. A full statement and explanation of these risks is available in our filings with the ATC which can be found on www.atc.gov. I'd now like to pass it on to Sandeep.

Thank you, Sandeep. Good evening and good morning to everyone on the call. I trust each of you and your loved ones are safe and healthy. We've had an exceptionally good quarter in our first quarter of this financial year. I'm extremely proud of what we have achieved as a team. The results for Q1 were strong across multiple dimensions. Revenues, continued differentiation in our digital offerings, large deal wins, operating margins, collection and cash flows and reduction in employee attrition. Let me share with you some highlights. Our revenues grew at 1.5% year on year in constant currency terms. Digital revenue grew at 25.5% year on year in constant currency and now accounts for 44.5% of our revenue. We delivered 22.7% operating margins which is an expansion of 220 basis points year-on-year and 160 basis points sequentially. This was achieved after rewarding our employees with higher variable pay. Our employees have displayed incredible dedication and resilience and have been an integral part of our Q1 performance. Large deal wins were at $1.7 billion for the quarter. Large deal pipeline has improved over the past three months, as clients look at expanding engagements with us due to their trust in us and our exemplary service delivery in the crisis. Our voluntary attrition in IT services is down to 11.7%. Increased focus on collections yielded results, and this was evident in our operating cash flow of $783 million for the quarter. Our balance sheet remains strong with cash and investment position at 3.8 billion with no debt. I'm also happy to report that yesterday we announced a landmark digital transformation engagement with Vanguard. We will partner with Vanguard to drive the digital transformation of their record-keeping services onto a cloud-based platform. Coupled with our strong Q1 results, This gives us a powerful foundation for the rest of the year. While achieving these outstanding results in Q1, our focus and attention has been for the well-being of our employees and the highest level of service delivery for our clients. We have focused on the safety and hygiene of the environment in our office locations. and also leverage our technology infrastructure to enable 99% of our 240,000 employees across 46 countries to work from home. For our clients, we've ensured the highest level of service. The extensive digital investments we have made over the past several years enable us to operate with tremendous stability and combat uncertainty with resilience. This is serving to increase the trust that our clients have in us. we reoriented our client focus with speed to the new and emerging needs, cloud and digital, cost efficiency and automation, and consolidation discussions. Our investment in localization in the U.S. over the past several years, resulting in six digital centers, college hiring, and the majority of our U.S. workforce being local, helped us to better manage the evolving visa regulations in the U.S. our business model is more resilient as we look ahead. We have put in place a comprehensive cost program and cash management program as the crisis started and it has provided us significant benefit and will form the basis of our operating approach for this financial year. We remain committed to support the communities we live and work in In India, we've provided medical support, food supplies, technology support and contact tracing for government agencies. We're also providing medical and contact tracing support in the U.S. and U.K. to different government bodies. Notwithstanding the large stimulus programs in the U.S. and Europe, there are still economic uncertainties in those markets and there are still emerging medical scenarios. There are also emerging medical outcomes in India that are not fully known. However, with what we have learned in Q1 and ongoing strong plan contacts, we feel the strength of our franchise is coming through clearly. And with that, we will reinstate our guidance. For the full financial year, our revenue growth guidance is 0% to 2% year-on-year in constant currency. Our operating margin guidance for the full year is 21% to 23%. With our continued attention to client needs, employee well-being, cost and cash focus, and strong client reaffirmation, I'm more convinced now that we will emerge stronger from this crisis. With that, let me hand over to Karim. Thank you. Thank you, Salim. Hello, everyone. The pandemic has created an unprecedented impact on global economies and the way businesses function. At Infosys, our primary focus has been on employee safety and client continuity. Thanks to our evolved GCP measures, we have been able to respond well to the situation through multiple measures for employees like enabling work from home for our global workforce, health and safety measures, evacuation of stranded employees, enhanced support, remote engagement, overnight policy changes, and extended communication. On the client side as well, we responded very swiftly in enabling them to run their operations seamlessly, which is visible in our strong and resilient 421 performance, which I will now touch upon. Plans have recognized us for the speed, security and effectiveness of our remote enablement efforts. Our steps on supply enablement and plan centricity led to lower impact of COVID on quarter one compared to what we were expecting at the start of the year. Despite the COVID related challenges, we registered 1.5% year on year revenue growth in constant currency terms in quarter one. Financial services, high tech, life sciences and healthcare segments witnessed positive growth on a year-on basis, while communications, manufacturing and energy utilities resources and services segments were sloppish. Detail segments saw weakness as expected. Geography-wise, Europe grew by 4.4% year-on-year in constant currency while North America remained stable. As expected, utilization in quarter 1 was lower. However, on-site utilization remained steady for quarter 1 after a drop in early part of the quarter. This was due to our extended focus on cost optimization and hiring trees. On-site offshore effort may deteriorate slightly from quarter 4, but was better than quarter 1 FY20 by 70 bits. Only 10% of the revenue impact in quarter 1 FY21 was due to supply side issues as we have achieved remote work enablement for over 99% of our employees. Large deal means we are healthy at 1.74 billion for quarter 1. This excludes the largest ever deal signed in Infosys history that we have closed in quarter 2. We won 15 large deals in quarter 1 out of which 5 deals were in financial services, 3 deals in retail, energy utility resources and services and high tech and 1 deal in manufacturing. Region wise 13 were from America and 2 were from Europe. Share of new deals was 19%. From this quarter we will be disclosing voluntary attrition for IT services The key monitorable for us. Voluntary attrition for IT services declined to 11.7% compared to 20.2% in quarter one last year. This is significantly lower than our comfort band of 14 to 15%. Let me talk about some broad teams that are playing out before I touch upon the segments. Plans are looking at building resiliency in their operations, improving efficiency and cutting costs. There is a growing interest in remote workplace solutions, employee experience, cloud solution and cyber security. There is growing acceptance that take-off digitization must accelerate. There is weakness in spending, especially in the area of discretionary spend as clients continue to focus on preserving cash and maintaining liquidity. All this translates to a deep pipeline which is robust, with focus on cost takeout, digital transformation, captive takeover and vendor consolidation. We are increasingly seen as a preferred partner for clients due to our focus on digital capabilities, differentiated localization strategy and improved geographical footprint. Moving to the business segments, financial services after an initial drop in early part of quarter one saw a cost of recovery in business volumes and deals during the quarter. especially in US and APAC banking. Strength in the vertical was also driven by high levels of remote enablement for our employees in different geographies. We see some softness in the capital markets and cards and payment sectors. Likewise, near zero interest rates are also expected to affect profitability of banks. On the positive side, we had multiple deal signings in quarter one, In early quarter 2, we find the largest ever deal in interest history in this vertical. Detail segment remains under pressure with plants in non-grocery, apparel, lifestyle and fashion, restaurants, logistics segment seeing demand contraction and supply chain disruptions. Non-food, non-home and health CPG companies are also in similar turmoil. As the challenges persist, we see clients looking for opportunities to improve efficiency of their tech spend, and we continue to see a robust pipeline of deals in this segment. Performance in communication segments stabilized on a sequential basis, although clients, especially in media and entertainment industry, are under pressure due to weaker advertisement spend and cancellation of events. Network resilience and business continuity remain highest priority, while companies are also investing in digital channels. We expect some delays in 5G rollouts due to COVID-19 related disruptions. Energy utility resources and services vertical is seeing pressure due to lower activity in energy and resources segment. However, we have been making deals in the segment and a continuous strong pipeline make us hopeful on the future prospects despite near-term volatility. Similarly, in manufacturing sector, We have seen weakened performance on a sequential basis due to demand, production and supply chain disruptions and this is expected to continue in near term. Auto and aero structures are majorly impacted with factory closures, delays and cancellations in aircraft purchases and so on. We remain, however, encouraged by new account openings and steady deal pipeline in this segment. Our digital portfolio and progress continue to grow. In the last quarter, we have been rated as leader in seven services-related capabilities across digital pentagon areas by industry analysts. With that, I will hand over to Niranjan. Hi, Praveen. Good evening, everyone. I hope all of you are well and healthy with your families and loved ones. As we mentioned during the last quarter, when we recited by Sajid and Praveen earlier, The company's priorities during the quarter were focused on three key dimensions. Firstly, ensuring that we continue to stay relevant to clients and meeting our delivery commitments whilst keeping the health and safety of employees as paramount. Revenues in quarter one were $3.121 million and grew 1.5% year-on-year in constant currency terms, which is satisfying in the context of the larger economic crisis and competitive context. Secondly, tight management of cost and cost control initiatives. This was a combination of a three-pronged approach which we adopted. A, cost avoidance measures like hiring freeze, reskilling bench talent to improve utilization, etc. These measures were critical to avoid any margin deterioration in the quarter. B, short-term discretionary cost cuts, some enforced by COVID like travel. and other cuts from professional charges, marketing, rate negotiation with vendors, etc. MC are ongoing strategic cost levers of automation, pyramids, on-site mix, and sub-cons. Consequently, operating margins increased to 22.7% compared to 21.1% in Q4, and expansion of 160 basis points explained as follows. 70 basis points benefit from rupee depreciation offset by impact of revenue hedges and cross-currency. 230 basis points benefit due to lower travel and visa costs. 110 basis points benefit due to lower SGMA costs as mentioned above. These were offset by 150 basis points headwind due to operational parameters like lower utilization, higher onsite mix, and lower RTP. And 100 basis points increase in salary costs including higher variable pay costs and others as we rewarded teams in the time of this crisis. As you can see from the above factors, some of these are, of course, one-time temporary gains, whilst others are long-term structural improvements. The final priority during the quarter was focused on cash and liquidity in the midst of this crisis. FCS of $728 million grew 50% year-on-year and was at a record high, supported by robust collections despite some increases due to client extension requests, government tax deferrals in some jurisdictions, and tight capex controls. FTF as a portfolio of net profit was a creditable 130%. While we aim to increase capital return to our shareholders, we continue to maintain a very strong debt-free and liquid balance sheet. Cash and investments at the end of Q1 were $3.8 billion, excluding the $536 million year-marked for dividend payout made in early July. Yield on cash balance declined to 6.11% in Q1 compared to 7.06% in Q4, due to declining interest rates in India. Quarter one was also marked the 20th consecutive quarter of positive forex income, despite significant currency water challenges globally. Return on equity increased to 27.7% compared to 25.9% in quarter 420. EPS dollar growth was 3.8% and 13.1% in rupee terms on a year-on-year basis. Our margin aspiration in these test times was focused on resilience and stability And consequently, our operating margin guidance remains unchanged as last year within the band of 21 to 23%. With that, we can open up the call for questions.