Infosys Limited American Depositary Shares

and welcome to the Infosys Earnings Conference Call. As a reminder, all parts and 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 Infosys Learnings Call to discuss Q1, SI22, and his relief. I'm 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, CEO, Mr. Nilanjan Rao, along with other members of the Senior Management Team. We'll start the call with some coverage on the performance of the company by Salil, Praveen, and Nilanjan before opening up the call for questions. Please note that anything that we say with reference to our outlook for the future is a forward-looking statement, which must be read in conjunction with the risks that the company faces. A complete statement and explanation of these risks is available in our filing with the SEC. It can be found on www.sec.gov. With that, I would now like to pass it on to Salim.

Thanks, Sandeep. Good evening and good morning to everyone on the call. Thank you for joining us today. I trust each of you and your families are safe and well. I'm delighted to share with you that we've had a landmark first quarter with robust year-on-year growth of 16.9% and sequential growth of 4.8% in constant currency terms. This has been the fastest growth we have seen in 10 years. We continue to gain significant market share with this growth being essentially organic and especially in the area of digital transformation. This is a clear reflection of Infostation's resilience and client relevance that has grown stronger with the unwavering commitments of our employees and a differentiated digital portfolio. I would like to thank all of our employees for their enormous dedication and contribution, especially during another testing period with the second COVID wave in India. Some of the highlights of our results are revenues were 3.78 billion, which is growth of 16.9% year on year and 4.8% sequentially in constant currency. Our digital business grew by 42% year on year and now constitutes 53.9% of our overall revenues. We had broad-based growth across all of our sectors, service lines, and geographies. Financial services grew by 22%. Retail, 22%. Life sciences, 21%. Manufacturing, 18%. The North American geography by 21%. Our large deals were at $2.6 billion. Large deals are deals over $50 million in value. Operating margins were strong at 23.7%. We had a tremendous focus on our employees, especially related to the well-being and to the new talent expansion approach that we have with employees. Free cash flow was strong at $863 million. 18.5% higher than the same quarter in the previous year. Attrition increased to 13.9%. We had a net headcount increase of 8,000, attracting leading talent from the market. We remain comfortable with our ability to support our clients in their digital transformation journey. Our sustained approach in building differentiated digital capabilities is helping us enable our clients to move with speed, becoming agile, and create value as they connect with their customers, employees, and partners with new digital constructs. For example, with the cloud becoming a strategic priority for businesses, more clients across industries are engaging with us to take advantage of Infosys COBOL solutions and services specialized on the cloud. With a strong start to the financial year, good large deals in Q1, strong pipeline, we are increasing our annual revenue growth guidance, which was at 12% to 14%. We increased it to 14% to 16% growth in constant currency. Our operating margin guidance remains unchanged at 22% to 24%. Last week Infosys completed 40 years. I'm delighted to share with you the vision of our founders and all the leaders that have helped shape the company, contributing to us being well positioned for growth and being a strong and consistent partners for our clients in their digital transformation journey. I'd like to thank the founders, employees, clients, shareholders, and all our stakeholders for their ongoing guidance, support and contribution. With that, let me turn it over to Praveen. Thank you, Salim. Hello, everyone. Hope you and your family are well, safe and healthy. After a period of extremely concerning medical situation caused by the second wave of pandemic, India is gradually returning to normalcy. We have been extremely focused on employee well-being extending every possible help to overcome any medical situation of our employees. We have ramped up vaccination drive for employees and their families. And so far, we have vaccinated 58% of our employees in India with at least one shot. We saw sustained growth acceleration in quarter one with year-on-year constant currency growth of 16.9%. Growth was broad-based with seven industry segments reporting strong double-digit growth, including the two largest, financial services and retail, growing more than 20% year-on-year. Operating parameters continued to improve during the quarter. Utilization improved further to new all-time high of 88.5%. On-site effort mix reduced further to a new low of 24.1%. However, subcontracts increased by 120 bits due to stronger than expected growth, high appreciation, and demand for new skills. We won 22 large deals in quarter one, totaling $2.6 billion, nine in financial services, four each in retail and energy utilities resources and services, two in manufacturing, and one each in communications, high tech, and life sciences segments. Region-wise, 14 were from America, 5 were from Europe, 2 from the rest of the world, and 1 from India. The share of new deals in quarter 1 was 30%. Client metrics improved meaningfully with 100 million client counts increasing to 34, an increase of 9 year-on-year. We added 113 new clients in the last quarter. With growth coming back, demand for top talent has also increased, Voluntary last 12-month attrition increased from 10.9% last quarter to 13.9% in quarter 1. However, we not only backfilled attrition completely, but also added another 8,300 employees on a net basis, which is a testimony to the strength of recruitment engine at Infosys and our status as a short-after employer. We are taking all necessary measures to enhance employee value proposition and improve both talent acquisition and retention. However, we expect attrition to be high in the near term due to strong demand. In Chapter 1, we onboarded over 10% college graduates, and for the full year, we have increased the college graduate hiring target to 35,000 globally to ensure unconstrained plan deliveries. As communicated earlier, the salary revision for fiscal 2022 will kick off from July for majority of our employees. Moving to business segments, industry-leading performance in financial services continued with steady increase in growth momentum aided by signings during the quarter. Growth is led by U.S., especially in sub-segments like banking, mortgages, wealth and retirement services. With the gradual opening of the economy, we are also seeing significant improvement in the payment sector. There is visible acceleration in cloud adoption, and we are working with many of our clients on cloud migration, cloud management, and other cloud-related platform deals. With the combination of our domain plus tech plus ops plus digital capabilities, we are well positioned as a full-stack digital transformation player. Performance of the retail segment improved meaningfully with both new day signings during the quarter as well as ramp up of previous deal wins. We are seeing aggressive investments by clients to uplift their digital capabilities. There's a huge opportunity for us to help them build omni-channel capabilities to compete with the digital natives and right-side their cost structure. Clients continue to invest in analytics across supply chain, trade promotion, fulfillment personalization using new tools that drive heavy analytics with a fraction of cost. Communication segment performance improved compared to the previous quarters due to combination of first timings and ramp-up of prior one deals. With COVID accelerating the need for better connectivity, we are seeing improving deployment of 5G across the world. We are working with our customers in advanced IoT use cases and products. Energy utility resources and services vertical grew strong double digits along with impressive deal wins during the quarter. The overall outlook is improving across subsectors and geographies we operate. Clients are slowly getting back to normalized levels of discretionary spending, especially in areas involving customer experience, operational efficiency, and associated legacy transformation. Weather security is also becoming important with recent incidents in energy and utility segments. Growth in manufacturing segment was strong with tailwinds from dealwinds in the past few quarters. Infosys grew market share through the pandemic across all sectors in automotive, aerospace, and industrial. We see emerging opportunities on various fronts in the ER&D space, resulting from increased spending on digital in areas like industrial IoT, cloud adoption, IT-OT integration, making the manufacturing value chain smarter and faster. As mentioned earlier, we expect Bandla's deal to start ramping up in the weeks ahead. Right-sensor segment also continues to grow at strong double-digit rates. Our recent offerings like personalized medicine solution for complex biotherapies, commercial insight platform to help drive commercial efficiencies, and digital health platform for patient engagement initiatives would help in accelerating digital adoption across pharma value chains. Shares of digital to overall revenues increased further to 53.9% in Q1, with a very strong growth of 42.1% year-on-year in constant currency terms. There is a pent-up demand to restart delayed projects in addition to the continuation of the pandemic-related drive towards digital transformation of enterprise infrastructure and customer experience. Clients have recognized that some of the adoptions they have made to their business are going to be permanent, and they are increasing their investment in digital panels and self-service products and tools. In the last quarter, Infosys was ranked as leader in 10 digital service-related capabilities across cloud services, modernization, artificial intelligence, and supply chain by industry analysts. With that, I will hand over to Nilanjan. Thanks, Praveen. Hello, everyone, and thank you for joining the call. I trust each of you and your families are safe and well. We are encouraged with our quarter one performance, which has significant and broad-based acceleration in growth as we began the year. At 4.8% CC growth, we clocked the highest sequential quarter one revenue growth in the last 11 years. On a year-on-year basis, revenue growth accelerated to 16.9% in constant currency terms, which is the highest growth in any quarter over the last 10 years. This growth is on the back of a relatively strong Q1-21 performance, which was the peak of pandemic-induced revenue impact. Operating margin for Q1 was 23.7% and increased by 100 basis points over Q1-21, while being 80 basis points lower compared to Q4-21. The major components of the sequential movement were a 10 basis points benefit due to currency movement, a 40 basis points benefit due to increase in utilization, and these benefits were offset by a 50 basis points impact due to increase in subcon and third-party costs, and another balanced 80 basis points impact due to all other costs primarily related to employee hiring, promotions, retention, and well-being costs. ETF grew by 26.1% in dollar terms and 22.6% in INR on a year-on-year basis. GSO for the quarter improved by one day to 70 on the back of robust collections. Consequently, free cash flow continued to increase and was $863 million in Q1, an increase of 18.5% year-on-year. SPF conversions to that 122% of net profits. Driven by healthy cash generation, consolidated cash investment was $5.07 billion after returning approximately $1 billion of final dividend and net initiation of buyback. Consequently, ROE increased to 29.3% in Q1, compared to 27.4% in quarter four. I'm happy to share that ROE has increased by over 3.4% in the last two years, driven by a robust capital allocation policy. Yield on cash balance continued to decline. The yield was 4.9% in quarter one, compared to 5.1% in quarter four, and 6.1% in quarter one last fiscal. Now let me talk about the progress made on the buyback plan. We initiated share buyback on June 25th, after securing shareholder approval during the AGM on June 29th. Out of the maximum buyback size of 9,200 crores, till June 30th, we have completed 690 crores or approximately 7.5% of the buyback by end of quarter one. During this period, we bought back 4.4 million shares and an average price of Rs. Till date, we have completed Rs. 1542 crores of share buyback and bought back 9.8 million shares at an average price of Rs. As the pandemic situation is improving in many parts of the world and businesses slowly return to normalcy, we expect some of the discretionary costs, including travel facilities, etc., to start normalizing in the coming quarters. In quarter two, we will also roll out compensation hikes for the majority of employees. With the current markets remaining heated, we are anticipating continuing costs relating to employee retention, acquisition, and well-being in the short term. However, given our focus on structural levers to improve efficiency and cost structure, we remain confident of our margin guidance stand of 22% to 24% for the full year. Given that strong quarter one invisibility, given by deal signings, backed by a robust deal pipeline, we are increasing our revenue growth guidance for the year to 14% to 15% from 12% to 14% previously. With that, we can open the call for questions.