Infosys Limited American Depositary Shares

Ladies and gentlemen, good day and welcome to 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 touch-tone 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 this earnings call to discuss Q4 and FY22 earnings release. I'm Sandeep from the Investor Relations Team in Bangalore. Joining us today on this earnings call is even-named Mr. Salil Parekh, CFO of 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 and Nilanjan, subsequent to which we'll open up the call for questions. Please note that anything that we say which refers to our output for the future is a probability statement which must be read in conjunction with the risk that the company faces. A full statement explanation of these risks is available in our file with the SEC. It can be found on www.sec.gov. I'll now turn it over to Salil.

Thanks, Sandeep. Good morning, good afternoon, and good evening to everyone joining on the call. Thank you for taking the time to join us today. We've had an exceptional year with annual growth of 19.7% in constant currency terms. This was the fastest growth we've seen in 11 years. We're gaining market share, we're building on our leadership in cloud and digital, and we are a part of more and more programs where our clients are looking at digital transformation. Growth was broad-based across business segments, service lines, and geographies. Each of our business segments grew in double digits. The top three grew in high teens. US and Europe grew over 20%. The North America region crossed $10 billion in revenue, while financial services crossed $5 billion in revenue milestones. Our digital revenues now account for 59.2% and grew at 41.2% for the year. Our digital revenues crossed $10 billion annualized on a run rate basis. Within digital, our cloud work is growing faster. and our COBOL cloud capabilities are seeing significant traction with our clients. Our growth has been accompanied by robust operating margins at 23%. We deliver these margins while maintaining focus on our employees with increased compensation and benefits. Our large deal wins were at $9.5 billion for the full year and were $2.3 billion for Q4. Our net new percentage was 40% for the year and 48% for Q4, helping us set up a strong growth foundation for Financial Year 23. Our Q4 revenue growth was 20.6% year-on-year and 1.2% quarter-on-quarter in constant currency terms. Our industry-leading performance in FY22 would not have been possible without the relentless commitment from our employees I'm extremely proud as well as grateful for the extraordinary efforts in delivering success for our clients. Last 12 months, attrition increased to 27.7%. A quarterly annualized attrition declined by approximately five points on a sequential basis. We recruited 85,000 college graduates in this financial year, In the fourth quarter, we had a net addition of 22,000 employees. We have an overall strong recruitment program. This is a reflection of our enhanced recruitment capabilities, solid brand, and deep penetration into various talent markets. This increases our comfort to support clients in their digital transformation agenda as we look ahead. We've initiated a compensation review exercise for this financial year We plan this exercise so that we can focus on employee segments that need greater attention while also covering a broader group with regular increases. As in the past, we will look at individual performance, skills, and market benchmarks while determining individual compensation increases. We will focus on accelerated career growth, targeted development, and opportunity to work on cutting-edge digital innovation globally. Our strategy launched four years ago has served us well. We've delivered industry-leading growth and industry-leading TSR. Looking ahead to the next phase to further enhance our leadership on the digital innovation curve, we plan to expand our capabilities in scaling our cloud business, expanding digital capability, expanding on our automation work, and increasing relevance with our large clients and tech natives. and also strengthen our employee value proposition. Our focus on staying ahead in the cloud and digital ecosystem, the focus on our employees and our cost give us strong confidence for the future. A sustained momentum in FY22, large deal wins, robust deal pipeline, and client confidence give us comfort to guide for 13% to 15% growth in FY23 in constant currency. Our focus now as we look ahead, as we build a new strategy that is looking at cloud and the digital ecosystem, our focus on employees and the costs related to the post-COVID work environment result in our operating margin guidance to be at 21% to 23% for FY23. In terms of our business segment performance, let me go through the highlights by segment. The financial services segment grew at 14.1% in constant currency with eight large deal wins during the quarter and 27 large deal wins in FY22. Our U.S. business continues to lead the growth as we work on large transformation programs. Our overall large deal pipeline in financial services is healthy across the regions. Retail segment growth was at 16.5% in constant currency As clients focus on digital and cost takeout programs, we're seeing integrated outsourcing deals and transformation programs in the areas of e-commerce, revenue growth management, supply chain, product lifecycle management. We won 16 large deals from this segment in the last year and continue to have a healthy deal pipeline. The communications vertical grew strongly at 29.2% in constant currency. We see customer experience, IT and network simplification, lean and automated zero-touch operations, time to market, and integrated data for digital enterprise as the key themes for clients in this segment. Energy, utilities, resources, and services segment growth increased further to 17.8% in constant currency. We see continued increased emphasis on digital transformation especially around customer experience, operational efficiency, and associated legacy transformation. We won four large deals in the last quarter and 18 large deals in FY22 from this segment. Growth in manufacturing segment increased to over 50% in constant currency. There were six large deal wins in this segment in the last quarter and 13 wins for the last year. We are helping clients across engineering, IoT, supply chain, cloud ERP, and digital transformation areas. High tech growth accelerated further to 20.9% in constant currency. We're seeing an increase in deals based on edge computing, digital marketing, and commerce. Cyber security is another area of focus for clients due to increased threat perception. Life Sciences vertically grew by 16.2% in constant currency. Clients are driving digital transformation of clinical trials to reduce cycle times through direct data capture, digital patient engagement to accelerate drug discovery, and reducing costs. In the last quarter, we were rated as a leader in 11 ratings in the areas of cloud services, big data and analytics, IoT and engineering, modernization, and artificial intelligence. We launched the acquisition of Oddity, a Germany-based digital marketing and experience and e-commerce agency. Together with Gondudi, this will further strengthen our creative, branding, and experience design capabilities. With respect to capital allocation, the board has proposed the final dividend of Rs. 16 per share taking the total dividend for financial year 2022 to Rs. 31 per share, an increase of 14.8% over the past year. I want to express Infosys' support for all the people impacted by the humanitarian crisis in Europe. The company advocates for peace between Russia and Ukraine. While Infosys does not have any active relationships with local Russian enterprises, we have a small team of less than 100 employees based in Russia which service a few of our global clients. In light of the prevailing situation, we made a decision to transition these services from Russia to our other global delivery centers. To support the humanitarian assistance initiatives in the region, Infosys has committed $1 million towards Ukrainian relief efforts and is launching a program to digitize Z-scale up to 25,000 individuals. With that, let me hand it over to Nilanjan for his update. NILANJAN KUMARANANAN, Thanks, Salil. Good evening, everyone, and thank you for joining the call. We navigated yet another year of a challenging environment with strong growth of 19.7% in constant currency, which is highest in a decade. The incremental revenue added this year was higher than the incremental revenue added in the previous three years together. This was backed by broad-based growth across segments and robust growth in our digital portfolio at 41.2% in constant currency. Operating margins for the fiscal year were at 23%, which was at the midpoint of a guidance band of 22% to 24%. In the backdrop of various supply-side pressures, we rolled out various measures to reduce attrition higher compensation increases, higher promotions, skill-based interventions, etc., in addition to higher subcoms. Free cash flow for FY22 crossed $3 billion. DSO reduced by 4 days to 67 days. Apex increased marginally to $290 million on the back of continued focus on optimizing the infra-creation-related spends. Consequently, SPF conversion as a percentage of net profit was 103% for FY22. SI22 ETS grew by 14.3% in dollar terms and 15.2% in INRs. Return on equity at 29.1%, improved by 1.7% over the prior year. Coming to quarter four performance, revenues grew by 20.6% year-on-year in constant currency and 1.2% sequentially. Growth was broad-based across verticals and geos and was in double digits. Although volume growth remained healthy in Q4, revenue growth in Q4 was impacted by usual seasonality, slightly COVID impact during the early part of the quarter, and the client-related contraction provision which we expect to recover in the future. This also impacted Q4 margins. Mining of large clients was extremely strong in SI22. 100 million client count increased to 38 compared to 32 in SI21. We had 12 clients giving 200 million annual revenues compared to seven in FY21. We have added 22,000 net employees, including trainees, during the quarter, the highest ever in the company's history, as we make headroom to capture the robust demand environment ahead. Consequently, utilization in quarter four declined to 87%, while on-site efforts mixed in stuff to 24%. Voluntary LTM attrition increased to 27.7%. While NPM attrition continues to increase due to the tail effect, quarterly analyzed attrition saw a decline of approximately 5% after a flattening in the previous quarter. Quarter per margin stood at 21.5%, a drop of 200 basis points versus previous quarter. The major components of the sequential margin movement were as follows. 1.6% RTC impact due to lower calendar working days, Client contractual provision, as explained above, and other writing puts and takes. 0.6% impact due to lower utilization as we create capacity for the future. 1% due to higher visa costs, third-party costs, and other one-offs which we benefited in Q3. And these were offset by approximately 1.1% benefit due to salary-related benefits, including more working days, leave costs, and others. Quarter 4 EPS grew by 9.2% in dollar terms and 13.4% in rupee terms on a year-on-year basis. Our balance sheet remained strong and debt-free. Consolidated cash and equivalents increased further to 4.9 billion at the end of the quarter. Free cash flow for the quarter was held at 761 million and yield on cash balance remained stable at 5.29% in Q4. In line with our capital allocation policy, the Board has recommended a final dividend of Rs. 16 per share which will result in a total dividend of Rs. 31 per share for FY22 versus Rs. 27 per share for FY21, an increase of 14.8% per share for the year. Including the final dividend and recently concluded buyback over the last three years, we have returned 73% of SPS to shareholders under our current capital allocation policy. Our accelerated investments in the last few years in strengthening our digital footprint Enhancing large yield capabilities, localization, talent scaling have enabled us to gain consistent market share. With the activation of digital disruptions across industries, we see further scope to engage more closely with clients and capitalize on the expanding market opportunities. We have identified areas of investments, including doubling down our focus on digital portfolio, scaling our cloud offerings, and further enhancing our capabilities in emerging technologies. We also remain committed to offer a compelling value proposition to employees through refilling incentivization and a holistic career growth. We plan to neutralize some of these through aggressive cost optimization and value-adjusting driven by service and brand differentiation. This, along with post-pandemic normalization of some expenses like travel facilities, et cetera, is reflected in the revised margin guidance for FY23 of 21 to 23%. With the pandemic hopefully behind us, we hope to see many of you in person over the next few months. With that, we can open the call up for questions.