Infosys Limited American Depositary Shares

Ladies and gentlemen, good day and welcome to the Infosys Earnings Conference Call. As a reminder, all power-spin 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 10-0 on your touchstone 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.

Hello, everyone, and wish you all a very happy new year. Welcome to this earnings call of Infosys to discuss Q3 FI21 earnings release. This is Sandeep from the Investor Relations Team in Bangalore. Joining us today on this call is CEO and MD, Mr. Salil Parekh, CEO, Mr. Praveen Rao, CFO, Mr. Milindan 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, Savin and Nilanjan before we open up the call for questions. Please note that anything that we say which efforts are out there for the future is a forward-looking statement which must be read in conjunction with the risk that the company faces. A full statement and explanation of these risks is available in our filings with the SEC. This can be found on www.sec.gov. I'd now like to pass it on to Salil.

Thanks, Sandeep. Good evening and good morning to all of you. I trust each of you have had a great start to the new year and continue to be safe and healthy. I'm delighted to share that we have had an exceptionally strong quarter across multiple dimensions. This was made possible by the enormous trust of our clients and the extreme focus we have built for digital and the enormous client relevance that has created and help support digital and cloud transformation journeys for our clients. Let me share with you some of the highlights. We achieved the highest large deal wins in our history with a deal value of $7.1 billion. This includes the largest deal we signed in our history and what we believe is the largest in the IT services industry in India. This will continue to expand our strong presence in the continental European markets. Our overall deal value for the nine months of this financial year is over $12 billion, and the net new large deal value for nine months of this financial year is over $8 billion, positioning us very strongly for the quarters ahead. Revenues in constant currency grew at 6.6% year-on-year, and 5.3% sequentially, on the back of a very strong momentum we saw in H1, and large deal wins secured earlier, further establishing our market share gains. Digital revenue grew at 31.3% year-on-year in constant currency, and we have now crossed an important milestone in that digital is now over 50% of our revenue. We delivered operating margin of 25.4%, which is an expansion of 350 basis points year-on-year, and flat sequentially. Our operating cash flow was robust at $829 million for the quarter. Our balance sheet remains solid with cash and investments at $4.5 billion, which is stable sequentially after the payout of interim dividends. Recognizing continuous performance of the company and contribution from employees during these times, we are paying out variable pay for the quarter 100%. As announced earlier, we are initiating salary increases for employees, which will be effective January 1, 2021. And we are expanding our promotion cycle across all levels in this quarter. In Q3, we reached a significant milestone in our environmental, social, and governance journey by becoming carbon neutral. This is 30 years ahead of the 2050 global target set by multilateral agencies. We further reiterated our commitment to the causes of ESG by announcing our ESG 2030 vision and ambitions. Looking ahead, we continue to see momentum in our business, strong market share gain, and increased speed digital transformation of our clients. Keeping that in mind, we increase our revenue growth guidance for the full year from 2% to 3% to the new guidance at 4.5% to 5% growth in constant currency. We increase our operating margin guidance for the full year from 23% to 24% previously to 24% to 24.5% for the full year. That concludes my update. Thank you for your time. And now let me request Praveen to give you an update on our operations. Over to you, Praveen. Thank you, Salil. Hello, everyone. Wish you a very happy, healthy, and safe new year. While there is increasing optimism due to the commencement of COVID-19 vaccination, we have also seen a renewed surge of infection in various parts of the world. Consequently, majority of our delivery centers are operating in BCP mode with 97% of our employees globally continuing to work from home. Growth acceleration continued its sequential revenue growth of 5.3% in constant currency, accelerating further from the momentum seen in the first half of the year. Year-on-year growth rate increased to 6.6% in constant currency for quarter three. Three business segments, financial services, high-tech, and life sciences reported double-digit growth. We have seen several operating parameters improving during the quarter. Utilization was at 86.3%, which is all-time high level. Onshore effort mix was lowest ever at 25.2%. RPP declined slightly on a sequential basis due to seasonal factors like lower working days, furlough, etc., but increased on a year-on-year basis. Subcon costs increased by 40 basis points on a sequential basis, as growth picked up meaningfully. Let me talk about the large deal wins, which was key highlight of our quarter three performance. Large deal TCV crossed quarter two levels and marked value all time high at 7.13 billion. Share of new deals in quarter three was 73%. The net new deals we find in quarter three is more than 1.5 times of what we signed in the entire fiscal 20. As Salil said, in quarter three, we signed what is probably the largest deal signed in Indian IT services industry. Apart from this, we signed another deal of 500 million. Overall, we won 22 large deals in quarter three, 18 financial services, four deals in manufacturing and energy utilities resources and services sector, three deals in communication, and one deal each in retail, high-tech, and other segments. Region-wise, 13 were from America, seven were from Europe, and two were from the rest of the world. With this, our lot deal wins for nine months, each over $12 billion, an increase of 63% over the comparable period in the last year. Net new lot deal wins for nine months have increased by 244% year-on-year. While quarter 3 deal signings were very strong, a large value of these deal signings will start contributing to revenues in the second quarter of the next fiscal due to transition involved. Net employee addition during the quarter was more than 9,100 and share of women employees increased to 38.3%. Voluntary appreciation for IT services increased up to 10%, although lower than our comfort band of 14% to 15%. We will be implementing salary increase across all levels at up to January 1st, 2021. Budget planning for calendar 2021 is progressing normally and we expect clients to continue to focus on their digital transformation agenda. Moving to business segments, growth momentum accelerated in financial services with wrap-up of past bail-wins focus on accelerating the digital transformation agenda for many of our large clients, and opening up new accounts across various sub-verticals like mortgages, regional banks, wealth and retirement services. We see multiple opportunities in cloud, data services, and creating new digital bank capabilities as things improve post-COVID. Finnecal continues to grow steadily and has firmly established itself as one of the best banking platforms in the industry for digital transformation. ETL segment continued to improve with increased volumes in Q3 despite seasonal softness and year-on-year growth turning positive. The deal pipeline remains healthy and we are seeing opportunities around vendor consolidation and captive monetization. Performance in communication segments also improved sequentially, although media, entertainment, advertising, and OEM segments remain under pressure. We have won three deals in the segment in the last quarter and continue to have strong pipeline of deals. Parts of energy utility resources and services vertical continue to face a difficult environment due to stress in segments like oil and gas, education, publishing, travel and hospitality, etc., while utilities remain relatively steady. Based on the recent deal yields and deal pipeline, we expect to see stable performance in the coming quarters. Manufacturing had a standout quarter, both in terms of deal signings and revenue momentum, which improved meaningfully despite continued disruptions across subsegments. As deals ramp up over the coming quarters, we will see superior revenue momentum for this segment. We expect spend to grow in the newer areas of digital, data, cloud, and security, and reduction in run-the-business areas. Infosys DPM has grown at double digits with strong pipeline of both traditional and digital DE. The digital portfolio also saw strong growth of 31.3% year-on-year in constant currency and crossed 50% share of overall revenues. In the last quarter, we have known Infosys modernization could Infosys live enterprise application management platform, both part of Infosys Cobalt and Infosys Applied AI. Three acquisitions completed in the last quarter, GuideVision, one of the largest ServiceNow Elias partners in Europe, Zurecon, Adobe Platinum partner in the US, and Kaleidoscope Innovation will further enrich our capabilities and offerings in the digital space. We've also been rated as leader in 17 services related capabilities across the digital pentagon areas by industry analysts. The global pandemic has gone from threat to opportunity as clients have gained confidence in their own resilience and now embrace the opportunity to accelerate and often radical reimagination of their own businesses. Infosys with its strengthening capabilities and expanding area of offering is becoming the preferred choice for customers in that journey. With that, I will hand over to Neelanjan. Thanks, Praveen. Good evening, good morning, everyone. I would like to wish you all and your families a season's greetings and a safe and healthy 2021. Q3 was another successive quarter marked by continued acceleration in revenue with the highest Q3 sequential revenue growth in the last eight years. Our unwavering execution over the past three years against our navigating a next strategy with client relevance at the core supported by digital operational excellence, cost and cash management, is clearly the driver of this all-rounded performance and reflecting in our total shareholder return appreciation during this period. Revenue for the quarter stood at $3.52 billion, a growth of 5.3% sequentially in constant currency. This translates to 6.6% growth year-on-year and 3.5% growth for nine months in constant currency. Operating margins stood at 25.4%, were up by 3.5% year-on-year and stable sequentially. Sequential margin movement in Q3 comprised of 100 basis points improvement due to better operating parameters like utilization and on-site mix and other cost levers. 20 basis points benefit due to cross-currency movements, partly offset by rupee appreciation. These benefits were negated by a 50 basis points impact of transition and rebadging costs for recently won deals, 20 basis points increase in costs relating to employee promotions and compensation corrections, and the balance repeat dips impact due to a combination of higher subcons, one-offs, and others. Our trading margin for nine months stood at 24.5%, which is 3.1% higher compared to the 21.4% margin for nine months at the last fiscal. As mentioned last quarter, we will see higher costs in Q4 as we implement the salary hike for our employees effective January. Q3 EPS grew by 12.5% in dollar terms and by 16.5% in INR on a year-on-year basis. Nine-month EPS grew by 10.6% in dollar terms and 16.9% in INR on a year-on-year basis. Return on equity increased further to 27.4% and improvement of 130 basis points over the last year. DSO measured on an LTM revenue basis remained stable year-on-year. while increasing four days quarter-on-quarter. Connection remained strong and helped in generating operation cash flow of $829 million. Coupled with lower capex of $57 million, SPF for quarter three increased to a record $772 million, a growth of 15.1% year-on-year, and a growth of 40% on YTD basis. Free cash flow conversion remained strong at 109% of net profit and 113% for the nine months. We continue to maintain a strong debt-free and liquid balance sheet. Cash and investments at the end of Q3 were $4.5 billion, in line with the previous quarter, despite paying $687 million of half-yearly dividend during this period. Yield on cash balances continued to decline due to moderating interest regime in India. The yield was approximately 6% in Q3. Q3 also marked the 22nd consecutive quarter of positive products income, despite significant currency volatility close to the open. Driven by strong deal wins and revenue performance in the first nine months, we are again increasing revenue guidance for FY21 to 4.5% to 5% in constant currency terms from 2% to 3% as I did earlier. We expect operating margins for the full year to be in the range of 24% to 24.5% compared to the previous guidance of 23% to 24%. Amidst these numbers, it would be remiss of me not to mention the landmark achievement in quarter three of attaining carbon neutrality as a company 30 years ahead of the Paris Accord. This was a journey we embarked in 2010, and we are extremely proud of the commitment shown in achieving this goal. In the last quarter, as Salil mentioned, we also announced our first ESG vision of 2030, a holistic approach of integrating our business model with the extended stakeholders, impacting environment and climate, communities and societies, employees and shareholders. We believe our robust and measurable target towards the pillars of environment, social, and governance will help us setting new standards in this area. With that, you can open the call for questions.

Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Ankur Dutra from J.P. Morgan. Please go ahead.

Thank you. Exceptional quarter yet again.

Just starting with the question on budgets, perhaps, Salil, a large part of your exceptional strong deal and momentum appears to be catalyzed perhaps with cost takeouts and consolidation you had alluded to at the beginning of this year. And I was wondering if this implies that enterprise tech budgets might actually shrink or stay flat as opposed to going up in C21. And also, what was freed up by these cost takeouts? How do you see yourself participating in those sort of freed up tech budgets? Thank you. Thanks, Ankur. The way we are seeing it today is there is definitely some element of cost takeout If you look at the wins that we have seen this past quarter and for this financial year and the three quarters, we see those are both cost takeout, but also what you all described in the second part, as large enterprises looking to invest that amount into their own digital infrastructure and landscape, for their growth with their end customers. So the overall budgets are always difficult to estimate, as you know, and we have a number of other agencies we all depend on for those sorts of estimates. Those are all positive estimates at this stage for calendar year 21. But the key is, one, to have the capabilities for digital and cloud and the transformation that these enterprises are driving. So those investment monies can be spent with us and to have the automation capability and the efficiency capability for the cost takeout which we have. And so it's a dual approach and we feel we are playing quite on both sides of that. Thank you. So just to follow up on revenue conversion, clearly very strong momentum here. I was wondering if you've seen an acceleration of the conversion from signing to recognition in the last few quarters, uh, perhaps due to virtual onboarding and would you expect those trends to go on for the large easy one right now? We've not seen, uh, anything different in the way we are converting. Um, there are some deals which convert faster, some have a slower sort of transition. Praveen shared in his comments that some of the transition from what we see in Q3 will start to show up a bit later in Q2 of next year. So that pattern has not changed. Some deals do have a faster conversion and some are more slow. Nothing changed because of the virtual onboarding and so on. Okay, thanks for the call. Just lastly on margins, should we expect a significant impact perhaps in F22 as these large deals come through like you've seen in the current quarter? Thank you. On margins, I'll request Melanjan to step in. Go ahead, please. Yeah. So, Ankur, as you know, I mean, we run with a portfolio. You know, we have large deals. We have small deals. We have new deals coming into the pipeline. Also, we are maturing large deals. So, we run with a portfolio. And if you actually see our history over the last three years, even as we've accelerated the large deal pipeline and the revenues, our margins also have gone up. And that's a couple of reasons. One is, of course, The strategic cost levers we continuously deploy each year, and we talked about that in an endless day, around the on-site offshore mix, the pyramid automation, and this is something we relentlessly focus on. When we pick up large deals, we also start seeing the lifecycle of the deals, and, of course, initially these have higher costs in terms because they would not have enough automation or process improvement. They may not be enough in terms of on-site offshore mix. And therefore, when we look at the portfolio entirely, we also realize there are deals which will be maturing and hitting near portfolio margins, and new deals will enter the portfolio at lower margins initially. And that's the way we manage our overall portfolio. Yes, every quarter you could have plus or minus, and in fact, this time we've had this mention in the margin, a one-off honorary badge deal. But I think the flow of the green, I think we are quite comfortable with our overall performance as we are. And as we look into next year, of course, we will have the quarter four impact of the wage hike cross. Some of the costs may come back next year in terms of travel and all, but that may be a bit further away. But like I said, again, the cost optimization, which we have, you know, and as we approach this, we're quite confident. Thank you, Ambassador.

Thank you. The next question is from the line of James Fridman from Susquehanna. Please go ahead.

Hi.

Congratulations on the extraordinary results. Praveen, in your prepared remarks, and I know you reflected this in the previous response, Salil, you're suggesting that the large deal wins that were currently addressed, start to bill in the Q2. I realize that that can vary, but is there any, can we think about those boarding linearly, or would that be a mistake in terms of our future modeling exercise?

Yeah, as I said, all this log bill will involve a period of transition, and revenue will start kicking in only in the second quarter of next fiscal. Again, the trajectory of revenue also will vary on the nature of the game. In some large buildings, it's primarily initially taking over, providing services to the clients, and then maybe over a period of time, modernizing. In some other cases, it could be taking over, but at the same time, in parallel, it are doing the transformation. So the nature of the game actually varies. So I don't think we can have a common obstacle to say how revenue will pan out.

And then, Praveen, you also mentioned, quote, a good pipeline of deals. I think you were talking about the communications vertical. You said despite weak media, you see a good pipeline in that vertical overall. Could you give us some context for that? Is the opportunity in that vertical, you know, equivalent to the, say, strength that you're seeing in manufacturing deals? When you say good pipeline about that vertical, what's that about? Some context would be helpful.

I think a number of opportunities in the communication segment, as I said, is fairly good, decent. And it's primarily in the telecom space, because when you look at communication, it's normally about telecom. It's also media, entertainment, OEM. So we do find softness in media, entertainment, and OEM, but we are seeing a lot more traction from the telecom segment. We have already won three deals in this segment in this quarter, and the pipeline, as I said, continues to be healthy. I mean, given the pandemic, we have seen a lot of volumes improvement in telco, but it has so far not really translated into impact on their own revenues, but we expect this to probably change going forward. At least on the telecom side, we remain optimistic given the deal wins as well as the pipeline.

Great. Thank you so much for the call. I'll drop back in the queue.

Thank you. The next question is from the line of Kavalti Saluja from Kotak. Please go ahead.

Hey guys, fantastic quarter. A couple of questions. First is that, you know, there was a very healthy conversion of pipeline into PCVs in this quarter and actually in the last two quarters. You know, has this conversion left the pipeline a little bit lighter or does it continue to be as robust as it was earlier? That's the first question.

Thanks, Kamal. This is Talib. Yes, the conversion at that instant, it comes out of the pipeline, as you actually point out, but the overall health of the pipeline is extremely robust. Of course, with this level of large in QT, we will have that impact in the immediate outlook. However, we see across the different industries, still significant opportunities and the pipeline overall seeing that level of health and robustness. So still feeling quite good about the pipeline.

Thank you, Sajid. The second question I had is on profitability. And it's the same question I asked in the previous quarter to Niranjan. Niranjan, your margin band in the last every year has changed. This year it has been a good thing that it has increased. but what's the real sustainable level of a band of operating margin taking into consideration the large deal a possibility of two rounds of weight increases and possibly cost normalization as well how should one really think about your profitability dynamics as we move into f522 or even beyond that thanks devil i'm not sure you'll get a separate answer in each quarter uh so uh

On a serious note, I think like where we are today at 24.5% on a nine-month basis. I think the last time we were at 21.4. We have seen about a 310 basis points improvement on a year-on-year basis for nine months. I think this is a combination, like we said, of some of the distributionary cuts which we have done, which is largely the impact of the compensation hike, and that will come back in Q4. Also, if you look at the temporary cuts which we've done, which some of them were on travel or the brand side, et cetera, some may open up, but that's yet to be seen how fast the post-vaccine world normalizes. But I think we are very, very confident, and you continue to see very strong metrics on our cost optimization, right? So, you know, the on-site offshore mix improvements, you know, in the last one year has been something which took three years in the past, and these are will open up a lot of opportunities as clients see and are open to more offshoring. You know, with 98%, 97% of our teams working from home literally over the last year, I think the confidence of clients as well to offshore will increase and that could be a lever we will step on. Our localization and local hiring in the U.S. has a pyramid, something very unique to Infosys, creating the six digital hubs, recruiting from universities, community colleges Historically, you know, the IT industry had a very, you know, steep pyramid on-site and 75% of employee costs actually is on-site, whereas only 25% of your headcount is there. And therefore, if you don't address the on-site pyramid, you really have a battle up your hands. And I think what we've been doing over the years with our localization drives, putting in our hubs and hiring specialists is helping us negate some of this. Without giving any numbers into next year, I think we are entering with some levers up our sleeves. Yes, there may be some impacts of compensation, but we'll see as next year comes and our guidance is announced.

Thank you so much. Just a final question. You know, it's on the largest ever deal that you have won. I mean, is it just, you know, typical large deals like the ones you have signed with Vanguard or maybe, you know, others? Or is there something unique, you know, that you want to call out, maybe in the form of a higher pass-through element or anything of that sort? Any color on this deal would be very, very helpful. And thank you so much. That's my last question.

Let me try that. In terms of the large deals, I think your question was on a specific deal. The way I would characterize it is it's a deal which relates to cloud and a really huge movement to both public cloud, private cloud, inside the service. and bringing together an ecosystem to make all of that happen. The primary driver for parts of it is what we built in Infosys Cobalt, which is all of our cloud assets. And, of course, we are working very strongly with an ecosystem of partners together shaping what this cloud environment will look like.

Thank you so much and have a great year ahead.

Thank you. The next question is from the line of Yogesh Agarwal from HSBC. Please go ahead.

Yeah, hi. Good evening, everyone, and happy new year to the team as well and a good quarter. Just two questions from me. Firstly, on large deal wins, which have been so impressive. Salil, is there from a... Execution perspective, are there the executions is different than a normal deal or they are almost similar? So in that context, do you need to make any SLA or milestone related contingencies since these are a lot more complicated deals? And secondly, from a guidance perspective, the fourth quarter guidance is much weaker compared to what you achieved in the third quarter. So was there some kind of a budget flush in third quarter or any specific weakness which is leading to slower growth in fourth quarter? I have a follow-up after that on margins, please.

Okay. On the first two points, I think the delivery risk profile across our last portfolio, if I look at the last nine months, the last quarter, it's not any different from delivery risk of those type of deals in the past. Now, we're doing larger deals in this last year or last year. And so, with that, the publicity increases. However, there is no provisioning in our books with regard to specific situations on SBAs as we start out the delivery of the deal. In that sense, this is something where these built out capabilities and we are now putting together the approach to deliver on the various last days that we've talked about. The second point, sorry, can you just repeat that please?

Sorry, I was trying to understand the guidance for fourth quarter which looks much weak.

So on the guidance, as you probably know, Historically, Q3 and Q4 financial year are always softer quarters for the industry and for Infosys. So there is nothing different. In fact, this particular Q3 has been extremely robust. We had a phenomenal growth in terms of the revenue, constant currency growth that we have shared. But there is nothing unusual in that to point to any weakness in Q4. However, seasonally, Q3 and Q4 have always been softer across the industry and for emphasis over the years.

Okay. Okay, thanks. Just another question on margins. Okay. Most of your operating metrics have improved quite smartly, as you said, utilization, offshore mix, etc. But the employee cost is still up around 5-6% sequentially. We have seen with other companies, despite the wage hike, it's been largely flattish. So what is leading to the employee cost increase, if I may ask?

Yeah, so like I mentioned in the margin walk, sequentially, we had this 50 basis point impact of transition and rebadging of a recently won large deal. So that's something clearly we called out. And the balance, we had talked about a combination of higher subcon, one-off, and others, which was explaining about 100 basis points of the cost drag versus the 100 basis point improvement in operational metrics and utilization and on-site mix.

Thank you so much.

Thank you. The next question is from the line of Keith Bagley from Bank of Montreal. Please go ahead.

Yes, thank you very much. I had two questions as well. The first, your cash flow was also very impressive this quarter. Was there anything that you wanted to call out that might have been unusual or one time in nature? And anything that you wanted to call out on the cash flow that we should be thinking about over the next couple quarters, but certainly next quarter in particular?

Yeah, thanks. So I think that we've been showing for the entire year, quarter after quarter, we have had very strong collections because I think that was our first concern when COVID struck, you know, the ability of our clients. And, of course, the reality is our clients, you know, our Fortune 500 clients and, you know, very, very strong balance sheets as well. And, you know, across the three quarters, we have not seen any impact at all in terms of our collection ability, and that's remained strong. One reason for the cash flows improving is, of course, the lower capex. As everybody is now working from home, I think that automatically – has come down, and in fact, we repurposed some of our cap expense to a technology so that people can be able to work from home with laptops rather than desktops. So nothing really to call out on a cash flow basis. Yes, here and there we have received some deferrals of some indirect taxes, but nothing material really. I think on an online basis, we are still above 100% of net profits.

Yes, yes. Okay. Then the second question, I wanted to go back to the deal signings. Again, impressive deal signings, particularly 73% being net new. If you took out the one large deal that you said was the largest in history, any growth rates that you can provide just to give some dimensions? And then, B, I'm just curious of the, you know, the distribution. Is there any dimensions you could give around what was in the digital versus legacy of the signings this quarter, or if you wanted to say over the last few quarters? But I'm just curious that the signings, you know, the distribution between the legacy and the digital side. Thank you.

Let me start. This is Salil. And then Salil might be able to add a bit more color on the distribution. In terms of what we did in Q3, we don't have a view to give a specific number for one deal. What I would say is even outside of that, we were running at an extremely robust pace overall in terms of the sort of averages we have had over the last several quarters for large deal findings. So while it was a large specific deal, that was not the only one. And as Praveen also mentioned, there were 22 deals also referencing the one, another deal which was at 500 million, just to give some color. Praveen, over to you for anything else. Yeah. So I think there is an element of digital in every large deal, because at the end of the day, a large deal is not only about taking over and delivering the services, but it's also transforming over a period of time. So in that sense, it's a combination of digital plus legacy, and we don't really see a breakup of that. And the nature of these deals also varies. I mean, there are some deals around infra-modernization, cloud, and infrastructure as a service, There are some deals around ops transformation. There are some deals where we have taken over the whole IT and delivering it back as IT as a service. There are deals which are purely ADM where we are providing next-gen ADM services. There are deals which is platform-led where we have taken over some products, not only maintaining but also go-to-market with those products. There have been some captive core works as well. Engineering also has a strong element in many of these large deals. Of course, VPN is also part and parcel of most of these bills. So the nature of these bills vary, but there's always an element of digital in it. And as I said earlier, we call out how much is digital and how much is non-digital. Okay.

Well, congratulations on the signings. Many thanks. Cheers. Thank you.

Thank you. The next question is from the line of Divya Nagarajan from UPS. Please go ahead.

Thanks for taking my question. Quite a few of my questions have been discussed already, but to kind of go back to this large deal that you talked about, could you just kind of explain how this deal like this at this scale is typically structured and anything that you would like to call out on how we should model some of these ramp-ups in these deals? Yes. The second part to that is that for a contract like this, and I think we've also seen some dilution that came in because of the large deal ramp-up in Q3, Lilinji, you spoke about a portfolio approach. When you think about this portfolio, what kind of a timeline do you typically price in for these deals to mature and then for margins to start coming up the curve, so to speak?

Let me start with the first part. We've not given anything more specific than what Kaveen shared earlier in terms of sort of broadly of the ramp-ups from the QC bookings. What I can say is the way this has been put together where we have a lot of the work that relates to data centers and workplace transformation and all of that underlying with cloud transformation, private cloud. We see that once this has gotten into steady state, it's really the foundation of many things that we can do which run through on a steady basis over a number of years. The timing of that is not given Anything more specific which can give you a sense today of when specifically the revenue will come up beyond the comment that's actually made on Q2. And let me now pass it to Nilanjan for the margin profile on these large deals. Yeah, so like I mentioned earlier, we have various kinds of large deals. Some of them come initially with margins which can bind with portfolios. tied below portfolio. That may be initially one which requires dramatic transformation because they are 100% on-site. There's no automation which has been done. Client expects savings from day one. So once we go in, we are very, very clear over the deal cycle. Typically, these are five, seven-year deals that we model literally on a quarter basis what is going to be done in terms of an intervention of moving work on-site, offshore, putting automation inside the pyramid height of it. And I think we look at that very, very holistically as part of the bid process so that we are very clear that there is a trajectory in the margins as well. So that's an ongoing process. And like I mentioned, we've been winning large deals over the last three years, accelerating them quite sharply. But yet we've seen an improvement in margins because the way we've talked about it is these elements – you know, start kicking in. And at the same time, new deals come in at lower margin, whereas the existing deals start maturing and, you know, changing portfolio margins. But it doesn't mean that every deal will be exactly in line with, you know, what the operating margin of the company is. There are deals above the operating margin profile of the company, and there are deals which are below that. So it's a portfolio which we continuously look through and focus on the cost side.

Got it. And you spoke about potential margin leavers, one of which was the offshore mix. Praveen earlier alluded to how it's one of the lowest offshore mixes that we've seen in a while. What is the room here that we have for further offshore mix shift? Sorry, lower on-site mix so far. So what's the potential there? And secondly, on utilization, has anything structurally changed in how we look at utilization as a result of remote working and better employee allocations over various locations. And my question here is this, can these mid-80s utilization structurally move up from where they are?

Yeah, so I think on the on-site also mix, yes, there has been some firstly temporary benefits because of curtailed travel and therefore people have not been able to travel overseas as well. But having said that, I think the bigger strategic, I think, opportunity is that with work-from-home clients are now seeing over the last year SLAs have been delivered on par. There's been no impact on, you know, whether signing deals or delivering. And therefore, the confidence of clients in terms of, you know, offshoring has also started improving. And in fact, we are also now solutioning ourselves so that we can give, you know, near-shore facilities. So Canada is is a near-shore base for the U.S. We have Mexico, and both have seen dramatic growth in this time as well, and Mexico being a low-cost location. So it's a combination of remote working in our hubs where we can create a pyramid, that one lever, then move on to near-shore, and then finally on to offshore. So I think these are three things which we can continuously press on, and I think these opens up large opportunities Of course, as travel comes back, there could be some temporary lull, but particularly, I think the downward decline is quite clear. On the utilization. Yeah, let me add on the reflection with Praveen here. I think utilization, as I said, is a record high. This is not where we want to be. In the past few quarters, I think we have had comfort in operating between 83% to 85%, and that's where we want to be. So we will look at much more aggressive hiring over the next few quarters and try to bring down the utilization to manageable levels.

Thanks for taking my questions. Congrats on a good quarter, and all the best for the rest of 2021. Thank you.

Thank you. The next question is from the line of Moshe Guthrie from Red Bush Security. Please go ahead.

Hey, thanks for taking my question and congrats on very strong results. I have two follow-up questions. One is confirmation regarding margins. Praveen, I think during the last call, you indicated that some of the margin gains that you've seen in fiscal 21 will not be sustainable into fiscal 22. given some of the commentary that you made today, is that still the case? Because it seems that you talk about some marginal leverage, you're talking about some encouraging signals and accelerating the offshore trend. And one of your former executives suggested in a call that we hosted last week that he hasn't seen this acceleration into offshoring in about 10 years. And the second question is more about the sustainability of what we're seeing right now in terms of the demand trends, the pipeline, and et cetera. Maybe you can give some color on both of these. Thank you.

Yeah, so I'll take the first question. So like I said, we are in the first nine months at 24.5%, and we have the wage hikes coming up in quarter four, so that clearly will have an impact. And as we look into next year, there could be some easing off of travel, et cetera, which will have some cost pressures. Now, having said that, we said we also parallelly will work on our cost optimization levers, which is something we continuously work on. So we are not at this stage saying that there's a margin guidance out there for FY22, but just the color of what's coming ahead. We will have these cost pressures, but we will also work on the cost optimization parallelly.

And on the second question regarding, you know, at this point, what you're seeing in terms of sustainability, some of the trends that you're seeing in terms of pipeline strength, and maybe also maybe you can elaborate on what percentage of the mix in terms of the bookings came in from new logos versus renewals.

Thank you. Let me see if I can. Mix, you go ahead.

Okay. Let me start on the sustainability trend, and then on the next study, you can go ahead. I think the way we see the pipeline and the movement of the deals, we still see a good demand environment across all the industry segments as we referenced at the start of the call. There are some where the strength is quite exceptional, but overall, all of the industry segments are moving in a positive direction. On the mix, I think, to your point on the offshore mix, there we've seen good movement this year. Of course, with some of the travel restrictions coming off, we will see some more movements from offshore to on-site, but our recruitment engine on-site is very strong as well. And so we wait and watch how that plays out. We don't see that it's immediately going to change because fundamentally clients are seeing that delivery remotely from whichever location is more feasible for a broader set of functions. So we feel quite comfortable that over a period of time that will work to our benefit in terms of the mix and therefore in terms of the mark. On the mix, again, we normally call out only what is net new and what is rebates. And in this quarter, it's 73% net new. And if you look at for the nine months of the year, when the total TCD is $12 billion, the net new is $9 billion of the year. So from that perspective, I think in the last past nine months, we have seen a significant percentage of revenues coming from NetNew, which gives us good comfort on the growth momentum in the coming few quarters. Obviously, there is also a mix of new logos. As part of this mix, like for instance, last quarter we had Vanguard, which was one of the large deals we announced, and which was a new logo.

But we typically don't call that out. I mean, we normally look at what is next new and that gives us a sense of the growth momentum for the forthcoming process.

Thanks for the call.

Thank you. The next question is from the line of Pankaj Kapoor from TLSA. Please go ahead.

So my question was for Nirenjan. So what I was trying to basically understand is the commercial structure of these very large transactions. at a genetic level, are cost and such deals typically flow through the P&L or do we have like the tools typically in a regular deal or can some of these be capitalized also? So that is one thing which I'm trying to understand. And my second question is on the next year's wage revision. I mean, one of your peers, of course, is talking about FY22 peer normal year. So, are you also expecting that the wage hike for next year will follow the regular pattern of being in April or sometime mid-year? These are the two questions I had. Thank you. Yeah. So, on the first question, I think all these, like, and even Parveen mentioned, they're all different. Some of them may have rebadging elements. Some of them may have a comprehensive infrastructure with software. So it depends on deal-to-deal. I think there's no standard answer or a generic way we can answer that question. And some of them may have a pass-through and some of them may not. So it depends, service elements versus entire transformation elements. So that's quite different across deals. I don't think there's anything specifically we can say more than that at this stage. So on the second one, let me address that with respect to the wage hike. We've announced the salary increase effective January 1 of this year. We've not made any comments with respect to the next year's situation. We will come to that once we conclude this and start the next year. And at that stage, we will share with you what the approach is. Salil, I just wanted to also follow up. I wanted to make a correction to my last response to Moshe, I think. I said total PCB of God deal wins for nine months of $1 billion, which is correct. And the total net yield of it is $8 billion. I think I said $9 billion. It's not $9 billion. It's $8 billion. I just wanted to clarify that.

Understood. Thank you, and we show the list for the year.

Thank you. The next question is from the line of Pradeep Sundipalli from ICICI Security. Please go ahead.

Good evening, gentlemen.

Congrats on a good quarter and thanks for giving me the opportunity. Regarding the large deal, for a deal of this size, we assume almost all the tier one vendors might have aggressively completed. Some of them might be native European companies. Some of them might have a larger revenue base in Europe or in the infrastructure kind of service offerings. So, can you help us understand what are the, let's say, three, four variables that have given emphasis that X tries to win this deal over the competition?

So, there, you're right.

This was an extremely competitive situation with several European, U.S., and Indian companies competing for this work. One of the elements that really stood out that I could see and we could see was what we understood from the client to be the technical strength of our solution. And this is a solution which is built on something we've shared before, the COBOL suite in the cloud. The approach that we put together to give the client a solution which was both flexible, scalable, and secure, while globally spread out operations of theirs could enable it, was really valued by them. We also benefited, I think, from the way that we made sure that all the different elements of their business objectives in how they wanted to focus on their business and how they wanted to perform the cloud journey, we incorporated quite fully into the solution. But this is really an extreme win in that sense from the technical capability perspective. And that's why we are extremely delighted because it opened up a new area for us, something in which We were previously doing well, and now we can do further better as we go ahead. Sure, Sunil.

And second question is on the draft client tradition during the quarter, which seems to be significantly higher than the typical run rate in the previous quarter. I think they're at around 139-odd clients. Can you please throw some more color on what has driven this strong tradition, nature of these clients, their potential scalability, and if this has to do with the entry into new subsegments that... Praveen has spoken about in his opening remarks.

Let me request Praveen first to address it and if there is anything else, I will come back. Sajid, I missed the question. Can you repeat it? Sure, sir. Basically, if you look at the gross line condition during the quarter, it seems to be significantly higher than the typical run rate in the previous quarters. So my question is, if you can throw some more color on what has driven this strong tradition and the nature of these clients' potential scalability, and if this has to do with the entry into some new sub-segments you spoke about in your fresh meat and in your opening remarks as well. I think we have seen strong new account openings, new logo openings across sub-segments. I don't think there's any secular front. We have seen good openings across many of our segments, and we have been consistent over the past two quarters as well. So I don't see any pattern in this or any specific thing. And, again, the opportunities also vary. In many of them, we are opening – the doors with transformation opportunities. Some of them, a few of them are opening with large bids. So it's a combination of things. There's no specific pattern or anything specific to a particular subject matter. Yeah, just to add to Praveen's, I think there's also some client additions we've had due to the new acquisitions we've made. Sure, sir. Thanks. That's very helpful and all the best for the future.

Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments.

Do you want to give some closing comments, please?

Yeah. First, thank you, everyone, for joining us for this session. As you can see, we extremely appreciate delighted with the performance for this quarter. Standout being an exceptional large beans win, phenomenal growth at 6.6% year-on-year, and a strong operating margin performance backed up by extremely robust cash collection and conversion that was noted. We feel confident to revise the guidance upward as we share on both revenue and margin. And we have a strong outlook as we go into the next financial year, which will start for us in April. So overall, extremely delighted with this. And thank you again, everyone, for joining us.

Thank you very much, members of the management. Ladies and gentlemen, on behalf of Infosys, that concludes this conference call. Thank you for joining us. You may now disconnect your lines.