Infosys Limited American Depositary Shares

Ladies and gentlemen, good day and welcome to the Infosys earnings conference call. As a reminder, all participant 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 Q3 FY22 results. I'm Sandeep from the Investor Relations Team in Bangalore. Let me begin by wishing everyone a very happy New Year. Joining us today on this Earnings Call is CEO and MD, Mr. Salil Pare, CFO, Mr. Malanjan 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 Sellers and Millengen. After that, we'll 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 company faces. A full statement and explanation of these risks is available in our filing with the SEC. It can be found on www.sec.gov. I'd now like to turn it over to Sellers.

Hi, Sunday. Good evening and good morning to everyone on the call. Wish you all a happy new year and trust you and your dear ones are well and safe. Thank you for making the time to join us today. I am delighted to share with you that we are an extremely strong quarter with 7% sequential growth and 21.5% year-on-year growth in constant currency terms. Our year-on-year growth was the fastest we have had in 11 years. The growth was broad-based across industries, service lines, and geographies, driven by our differentiated digital and cloud capabilities. A strong broad-based growth in a seasonally weak quarter is a clear testament to the enormous confidence clients have in us to help them accelerate their business transformation. This has been made possible by the relentless commitment from our employees through these challenging times. I'm extremely proud as well as grateful for the extraordinary efforts in delivering success for our clients. Our growth has been accompanied by resilient operating margins at 23.5%. We deliver these margins while keeping in the forefront our focus on our employees with increased compensation and benefits. Benefits. Our digital business grew by 42.6% and is now 58.5% of our overall revenues. Within digital, our cloud work is growing faster, and our cobalt cloud capabilities are resonating tremendously with our clients. Some of the highlights of our results are revenues at $4.25 billion, where the growth 21.5% year-on-year and 7% sequential in constant currency, broad base across all industry service line geographies. All of our segments reported strong double-digit growth. Large deals at 2.5 billion. On-site mix at 23.8% and utilization at 88.5%. Operating margins strong at 23.5%. Free cash flow at 719 million. Attrition increased to 25.5%. Our quarterly annualized attrition was flattish on a sequential basis. We had a net headcount increase of 12,450, attracting leading talent from the market. We've increased our annual college recruiting target to 55,000, and Elanjan will comment more on this. We remain comfortable with our ability to support our clients in their digital transformation journey. Financial services grew at 15.5% in constant currency with broad-based growth across geography and steady daily wins. Various sub-sectors like lending, mortgage, cards, payments are seeing increasing demand and clients are driving cloud transformation initiatives to build resilient and scalable platforms. The retail segment growth was 19.8% in constant currency Across sub-verticals, we see increased client spend on digital transformation, including digital supply chain, omni-channel commerce, and large-scale cost takeout initiatives to improve business resilience. We signed six large deals in this segment during the quarter. The communications segment grew at 22.2% on constant currency, Segment performance continued to improve with ramp up of recently one deal. Client budgets are focused on digital and customer experience programs, increasing networking infrastructure, cloud adoption and security with emphasis on 5G rollout and innovations. Energy, utilities, resources and services vertical continues its steady performance. with 13.6% constant currency growth and five large deal wins. We are seeing gradual improvement across various businesses as consumer spending continues to increase and clients focus on increasing technology transformation around areas like customer experience, cybersecurity, and workload migration to the cloud. Manufacturing segment growth accelerated to 48.4% in constant currency with continued ramp-up of the Daimler deal and steady momentum in new deal wins. We see across the broad improvement within various subsectors and geographies and expect client focus to continue in areas like smart manufacturing, IoT, digital supply chain, and connected products. High tech growth improved during the quarter to 18.9% in constant currency. Clients are seeing renewed momentum in terms of spending on digital transformation programs linked to customer, partner, and employee engagement. Life sciences segment performance also improved further to 29.2% growth. Adoption of digital health, telehealth, and patient access programs are resulting in significant uptake of cloud, IOT, patient-facing applications, patient portals, and next generation CRM work. We had a very strong performance on our income tax program in India. Over 5.8 crore or 58 billion tax returns were filed using the new system by the deadline of December 31, 2021. On the last day, over 46 lakh or 4.6 million tax returns were filed. And during the peak hour, over 5 lakh or 500,000 tax returns were filed. We are proud to be supporting the digital strategy for India and for the government and working on this program for future modules that will be developed. Across digital services in Q3, we have been ranked as leader in 12 digital service-related capabilities from artificial intelligence and automation, cloud services, IoT, engineering, modernization, and big data and analytics. The strong overall performance stems from four years of sustained strategic focus on areas of relevance for our clients in digital and cloud, continuing reskilling of our people, and deep relationships of trust our clients have with us. With the strong momentum in the business and the robust pipeline, we are increasing our annual revenue growth guidance from 16.5% to 17.5%, moving up to 19.5% to 20% in constant currency. Our operating margin guidance remains at 22% to 24%. With that, let me hand it over to Milunjan for his update. Thanks, Kalil. Hello, everyone, and thank you for joining the call. Let me start by wishing everyone a very happy and safe 2022. Q3 was another successive quarter of continued acceleration in revenues at 7% constant currency Q1-Q2 growth and 21.5% constant currency year-on-year growth, the highest year-on-year growth in the last 11 years. Despite the Q3 seasonality, we registered strong broad-based growth across fields and verticals, Our largest geography, North America, grew at 21.4%, while growth in Europe accelerated to an impressive 27.2% year-on-year in constant currency terms. Retail, communication, manufacturing, and life sciences also saw 20% or higher year-on-year growth in constant currency. We won 25 large deals, and large deals being those with over 15 million PCVs, totaling $2.5 billion of PCVs. six in retail, five each in financial services, communication, and energy, utilities, resources, and services, two in manufacturing, and one in high-tech and life sciences. Region-wide, 16 were from the Americas, seven were from Europe, and two from ROW. The share of new deals increased in two, three to 44% within the large deal numbers. Client metrics improved further with 100 million client counts increasing to 37 and increase of eight year-on-year. We added 111 new clients in the last quarter. Operating parameters remained robust. Utilization was 88.5%, slightly lower than the previous quarter, easing some of the supply side pressures. On-site efforts mixed in shop marginally to 23.8%. Q3 margins remained resilient at 23.5%, a marginal drop of 10 basis points versus previous quarter. The major components of the sequential margin movement were as below. 80 basis points impact due to comp hikes and promotions and other employee interventions, 40 basis points impact due to the utilization decline. These were offset by about 20 basis points benefit due to the rupee and other transparency movements, 50 basis points benefit due to cost optimization, and another 40 basis points benefit due to SGA leverage and other one-offs included with ARINs. Q3 EPS grew by 11.2% in dollar terms and 13.1% in rupee terms on a year-on-year basis. Although DSO increased to 71 days due to higher seasonal billing, an increase of five days versus the last quarter, it is still a reduction of two days versus Q3 of prior year. Free cash flow for the quarter was held at $719 million. Free cash flow as a percentage of net profit was 93% for Q3 and 104% for the nine months to date. Yield on cash balances improved to 5.29% compared to 5.13% in Q2. Our balance sheet remained strong and debt-free, consolidated cash and investments at the end of the quarter stood at $4.28 billion after paying over $815 million of interim dividend during the quarter. Return on equity increased further to 30.4%, an increase of 3% over Q3 of the prior year, given by robust performance and consistent capital returns to share buyback and increase dividend payouts. On the employee front, voluntary long-term 12-months attrition increased to 25.5%, and as Bill commented, while LCM attrition continues to increase due to the tail effect, quarterly annualized attrition was flattish compared to Q2. We will continue to invest in all aspects of talent retention, including compensation, promotions, skills incentives, learning, and career progression. We have also simultaneously increased the pace of hiring, talent reskilling, and the usage of subcoms to prevent any impact on client commitment. We have added over 12,450 employees, talented employees on a net basis in the last quarter, which is the highest ever. Our global college graduate hiring program for this fiscal has been increased to over 55,000 versus the previous quarter number of 45,000. In India, over 93% of insurgents have received at least one dose of the vaccine. Over 90% of our employees globally are presently working in remote environments due to the heightened precautions against the new variant. Driven by robust demand environment and our continued market share gains, we are further increasing our revenue guidance by 522 to 19.5 to 20% in constant currency terms from 16.5 to 17.5 earlier, and the margin guidance remains unchanged at 22 to 24%. With that, we can open the call for questions. Thank you very much.