Infosys Limited American Depositary Shares

and welcome to the Infosys earnings conference call. As a reminder, all partisan 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 earnings call to discuss Q2FI 22 earnings release. This is Sandeep from the Investors Association in Bangalore. Joining us today on this call is CEO and MD, Mr. Salil Parekh, CEO, Mr. Praveen Rao, CEO for Mr. Nilanjan Roy, along with other members of the senior management team. We'll start the call with some color on the performance of the company by Salil, Praveen, and Nilanjan before we open up the call for questions. Please note that anything which we say that refers to our outlook for the future is a forward-looking statement, which must be read in conjunction with the risks that the country faces. A complete statement and explanation of these risks is available in our values with the SEC, which can be found on www.sec.gov. I'd now like to pass it on to Salil.

Thanks, Sandeep. Good evening, good morning to everyone on the call. Thank you for joining us today. I trust each of you and your families are safe and healthy. I'm delighted to share with you that we had another exceptional quarter with increased market share gain and demonstrating more and more trust that our clients are placing with us and the strength of our digital and cloud capabilities. Our growth was 19.4% year-on-year and 6.3% quarter-on-quarter in constant currency terms. I would like to thank the entire 270,000 employees of Infosys for their incredible dedication and world-class skills that make the work we do for our clients so impactful. Our year-on-year growth was the fastest we have seen in 11 years and builds on a quarter that was a growth quarter this time last year. Our growth has been accompanied by resilient operating margins, at 23.6%. We delivered these margins while we kept in the forefront our focus on employees with increased compensation and benefits. Our digital business grew by 42% and is now 56% of our overall revenues. Within digital, our cloud work is growing even faster and our cobalt cloud capabilities are resonating tremendously with our clients. We are working with a large global company, for example, on their private cloud deployment. We are working with a large bank on their public cloud expansion. We are working with several of our clients on SaaS transformations and cloud-native developments. Some of the other highlights of our results are Revenues were 3.998 billion, which is a growth of 19.4% year-on-year and 6.3% sequentially in constant currency. Our digital business grew by 42.4% year-on-year and now constitutes 56.1% of our overall revenues. We had broad-based growth across all our sectors and service lines. All our sectors reported double-digit growth. Financial services grew by 20.5%. This, of course, is our largest sector and growing exceptionally well. Manufacturing grew at 42.5%. Retail by 17.2%. Life sciences by 26.1%. In terms of geography, North America grew by 23.1%. Europe by 19.6%. Our large deals were strong At $2.15 billion, our on-site mix moved to 23.6%, and our utilization to 89.2%. Our operating margins were resilient at 23.6%. Free cash flow was strong at $712 million. Our attrition moved up to 20.1%, and we will talk a little bit more about that later in the call with Praveen. We had a net headcount increase of 11,664, attracting leading talent from the market. We remain comfortable with our ability to support our clients in their digital transformation journeys. We are rapidly expanding our global talent pool and we have increased our college graduate hiring to 45,000 for this year. Last quarter, we had this number of 35,000 people. I'm also delighted with our increased focus on ESG. As many of you know, we have already been carbon neutral since 2020. Our ambition for 2030 is well articulated, and we are building on the momentum to create impact. We are accelerating our goals with the launch of Infosys Springboard to bring digital skills to millions of students. With a strong start to the financial year, good deal momentum in Q2, robust pipeline, we are increasing our annual revenue growth guidance, which was at 14% to 16% previously. Now we move it to 16.5% to 17.5% growth in constant currency. Our operating margin guidance remains the same, 22% to 24%. We have a very special moment in this quarter. It will be Praveen's last full quarter before he retires after an incredible journey of 35 years with Infosys. Praveen's contributions to the company are innumerable. We will, and in fact, I will personally miss his tremendous depth of knowledge of the business and his contagious sense of humor. My best wishes to Praveen in all his future plans. We will announce our future structure in the coming weeks well before Praveen steps down. With that, let me hand it to Praveen for his update. Thank you, Salil. Hello, everyone. Hope you and your family are doing good, safe and healthy. Growth acceleration continued in quarter two with year-on-year constant currency growth of 19.4%. Quarter 2 witnessed broad-based double-digit growth across all business segments and both North America and Europe. Operating parameters continued to improve further. Utilization improved to new all-time high of 89.2%. On-site effort mix reduced further to a new low of 23.6%. We won 22 large deals of over 50 million, totaling 2.2 billion PCVs. five each in financial services and energy utility resources and services, three each in retail and manufacturing, two each in communication and high-tech, and one each in life sciences and other segments. Region-wise, 15 were from America, six were from Europe, and one from the rest of the world. The share of the new deals in quarter two was 37%. Plant metrics improved with $100 million plant count increasing to 35, an increase of 5 year-on-year. We added 117 new plants in the last quarter. Voluntary last 12 months attrition increased to 20.1%. While attrition has increased on the back of high industry growth and supply tightness, especially in the niche kill areas, we continue to fulfill plant commitments through increased hiring, talent reskilling, and higher usage of subcoms. We have stepped up our hiring program and have added more than 11,600 talent employees on a net basis, highest ever in a single quarter. In H1, we onboarded over 25,000 college graduates, and for the full year, we have increased the college graduate hiring target to 45,000 globally. The vaccination drive for our employees and their dependents across locations continued unabated. Currently, over 86% InfoSys have received at least one dose of vaccine. Moving to business segments, starting with financial services, I'm happy to share that in the last quarter, InfoSys was ranked number one by HFS in the Banking and Financial Services Providers Top 10 2021. As you are aware, our year-on-year growth was over 20% on constant currency basis this quarter, and this industry-leading growth has sustained over the past several quarters. We are seeing strong demand and momentum across all regions. North America, however, continues to lead growth as we execute on large transformation programs and win market share. Banks are increasingly focusing on virtual branches, improve customer experience through AI and analytics, and digital transformation-led cost takeout agendas. Our focused investments in building strong subvertical and platform capabilities in regional banking, retirement services, mortgages, asset management, and payments are working as a differentiator in winning large deals and digital transformation programs. We are well positioned as full-stack digital transformation player with combination of our domain plus technology plus operations with digital transformation capability. Performance of retail segment remains strong as plans continue to make investment in new digital capabilities in commerce, marketing, and supply chain areas. We are seeing focus on areas like digital consumer, analytics, digital promotions, personalization, cyber security, etc., Our recently launched Equinox platform is seeing significant traction from both our existing and prospective plans. We have a strong pipeline and expect steady performance for this segment in the coming quarters. Communication segment performance improved meaningfully on both sequential and year-on-year basis on the back of ramp-up of earlier deal wins. We are witnessing increasing momentum for CapEx rollout for 5G deployment across regions. Our 5G living labs with its capabilities and the promise of future innovations is a key differentiator in the 5G space for CSPs and OEMs. Energy utility resources and services vertical growth accelerated further with continued large deal wins. Plans in various sub-segments are seeing return to normalcy and are prioritizing projects around cloud transformation, customer experience, data analytics, automation, cybersecurity, etc., In energy, we have made good progress in developing the integrated energy as a service solution, which aims to enable plants to access reliable low-carbon energy, use energy more efficiently, and to optimize supply and demand across multiple users and assets without having to invest in additional energy infrastructure. Growth in manufacturing segments accelerated significantly with the dam deal starting to ramp up. Growth in the last quarter was broad-based across Europe and US, as well as across industrial, automotive, and aerospace industries. We are seeing traction in engineering, IoT, supply chain, cloud ERP, digital transformation, and cloud migration areas. The pipeline continues to be strong, and this provides us confidence that growth in manufacturing for Infosys will continue to be market-leading. Infosys BPM performance remains stable as most of the geographies are witnessing slow return to normalcy. We see good deal pipeline with a healthy share of digital deals. Share of digital to overall revenues increased further to 56.1% in quarter 2 with continued strong growth of 42.4% year on year in constant currency terms. We continue to see big focus on digital transformation especially around cloud, commerce and employee experience. as customers adjust to the permanent changes in both shopping habits and hybrid working. Cost takeout has been surpassed by the improvement of digital experiences that increase sales and drive customer or employee loyalty. In the last quarter, we have been ranked as leader in nine digital service-related capabilities in the areas of cloud services, experience and design, big data and analytics, IoT and engineering, modernization, and artificial intelligence. To conclude, I want to thank you for the whole-hearted support and wishes that you have extended to Infosys over the years. Personally, I have thoroughly enjoyed the discussions with you and felt enriched from your insights. I wish you good health and success in your future endeavors. With that, I will hand over to Niranjan. Thanks, Praveen. Hello, everyone, and thank you for joining the call. Hope all of you and your families are safe and well. Revenue growth accelerated further in quarter two on the back of a very strong quarter one. We had strong double-digit growth in all the business segments, led by manufacturing and financial services. It grew at 42.5% and 20.5% respectively year-on-year in constant currency. Our largest geography, North America, also grew year-on-year at 23.1% in constant currency. Consequently, constant currency year-on-year growth increased to 19.4%, which is the highest growth in any quarter in the last 11 years. Sequential growth in Q2 also saw an acceleration to 6.3% in constant currency, which is the highest sequential revenue growth in any quarter in the last six years. Q2 margins remained resilient at 23.6, despite headwinds from salary increases for most of our employees, higher sub-con costs and supply-side challenges, which were largely offset by improvement in operation parameters and scale benefits resulting from growth. The major components of the sequential margin movement are as follows. 1.1% impact due to comp hikes given effective July to most of our employee base. A 0.5% increase in subcon costs. These were offset by 80 basis points benefit due to cost optimization and improvement in operating parameters. A 50 basis points due to SDNA scale benefits. And a 30 basis points benefit due to rupee and cross currency movement. Overall leading to a 10 basis points drop in sequential operating margins. Q2 ETF grew by 13% in dollar terms and 12.7% in rupee terms on a year-on-year basis. DSO stood at 66 days, an improvement of four days versus the last quarter on the back-off robust collections. Free cash flow for the quarter was healthy at $712 million, and as a percentage of net profit was 97.1% for Q2 and 109.5% for S1. Yield on cash balance was 5.1% compared to 4.9% in Q1. We have completed the buyback of Rs. 9,200 crores on September 8th at an average price of approximately Rs. 1649 per share compared to a maximum buyback price of Rs. 1750 per share, leading to a 1.31% reduction in share capital. With this, the company has returned approximately 82% of the free cash flows for S520 and S521, so dividends and buybacks close to the 85% stated in our five-year capital allocation policy. Even after the capital return, we continue to maintain a very strong debt-free and liquid balance sheet. Consolidated cash and investments at the end of the last quarter were $4.42 billion. Return on equity increased further to 29.8%, an improvement of 3.1% over 2.2% last year, driven by consistent performance and increased capital returns. The board has also announced an interim dividend of Rs. 15 per share, an increase of 25% over prior year interim dividend, and equal to the final dividend of prior year. We see a robust demand environment coupled with tightness in the supply side, which will result in high recruitment, compensation, and retention costs in the near future, along with seasonal headwinds relating to furloughs. However, we remain confident of our ability to partially offset some of these cost headwinds through the structural cost efficiency improvement measures and deliver well within our margin guidance for the year. With a strong Q1 and robust deal pipeline, we are increasing our revenue growth guidance