Infosys Limited American Depositary Shares

Ladies and gentlemen, good day and welcome to Infosys Limited Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode. 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 and then zero on your touchtone telephone. Please note that this conference is being recorded. I now hand the conference over to Mr. Sandeep Mahindra. Thank you, and over to you, sir.

Thanks, Simba. Hello, everyone, and welcome to Mr. Dhoni's call to discuss U-123 financial results with Sandeep and the IRB in Bangalore. Joining us today on this call is UNM Minister Sharan Parekh, CFO Mr. Nilanjan Roy, and other members of the senior management team. We'll commence the call with some remarks on the performance of the company by Sharan and Nilanjan, subsequent to which we'll open up the call for questions. Please note that anything which we say that affects our outlook for the future is a forward-looking statement. that must be read in conjunction with the risks that the company faces. A full statement and explanation of these risks is available in our findings with SEC, which can be found on www.sec.gov. I'd now like to pass on the call to Salim.

Thanks, Sandeep. Good morning and good evening to everyone on the call. Thank you all for taking the time to join us. We've had an excellent start to the financial year with 5.5% sequential growth. and 21.4% year-on-year growth in constant currency terms. We continue to gain market share with our COBOL cloud capability and our differentiated digital value proposition, driving a significant pipeline of opportunities for us. For example, a premier online retailer in the U.S., leveraged Infosys COBOL, to embark on a cloud-driven transformation journey to enhance the customer experience and improve the security posture. Another example is a European manufacturer who is reimagining their digital workplace and best-of-breed network security with IT infrastructure powered by Infosys Cobalt. There are examples like this all across the spectrum in different sectors. that are driving Infosys Cobalt into the market. Clients continue to place an immense amount of trust and confidence in Infosys to help accelerate their digital transformation agenda, both on efficiency and the growth dimension of their business. The strong growth we have seen in the quarter lays a robust foundation for the year. Growth continues to remain broad-based across the segments, service lines, and geographies. Each of our business segments grew in double digits, with several of them growing at 25% or higher. In terms of geography, the U.S. geography grew at 18.4%, and Europe grew at 33.2%. This indicates a healthy demand environment and is a reflection of how our industry-leading digital capabilities are relevant for our clients. Our digital revenues were 61% of the total and grew at 37.5% in the quarter in constant currency terms. Within digital, our cloud work continues to grow faster, with our Cobalt cloud capabilities seeing significant traction with our clients. Our overall pipeline remains strong. We do see pockets of weakness, for example, the area of mortgages in financial services, We keep a close watch on the evolving macro environment in terms of the changes to the pipeline. Within our pipeline, we also have focus, in addition to the growth areas in digital and cloud, to the cost areas through automation and AI. Our operating margins were at 20%. We have completed the majority of our compensation review for this year. Nilanjan will also provide more details on the overall margin update. Some other highlights of our results are we signed 19 deals with a large deal value of $1.69 billion. This comprises of 50% net new work. Our on-site mix was at 24.3%. As we build capacity for the future, our utilization was at healthy levels of 84.7%. Our free cash flow was strong at $656 million. Our quarterly attrition declined. Historically, Q1 attrition increases at three to four points sequentially on a quarterly annualized basis. However, our attrition declined by one point on a sequential basis, reflecting the impact of various initiatives we have put in place. We are a net headcount increase of over 21,000 employees, attracting leading talent from the market. This is a reflection of our enhanced recruitment capabilities, solid brand, and deeper penetration into various talent markets. Our COBOL cloud capability continues to be market-leading. We have 360 technology and domain solutions. Five of our assets have over 50 clients each. We have 150 industry-focused solutions, 20 Infosys living labs, 50 experimentation playgrounds, and 60,000 knowledge assets. Our one Infosys approach is serving us well to bring the best of Infosys in service to our clients' needs. Earlier this month, we announced the acquisition of Base Life Sciences, a Denmark-based technology and consulting firm in the life science industry. Base brings to Infosys domain expertise in medical, digital marketing, clinical, and regulatory areas. With a strong growth in Q1 and a current outlook on demand opportunity and pipeline, We increase our revenue growth guidance, which was at 13% to 15%, now to 14% to 16% for the full year. We keep our margin guidance at 21% to 23%. With the increased cost environment, we will be at the lower end of this margin guidance. Thank you. And with that, let me hand it over to Nilanjan for his update. Thanks, Talal. Good morning, everyone, and thank you for joining this call on an early Monday morning. We had a strong start to fiscal 23 with a robust year-on-year growth of 21.4% in constant currency. All our business segments and major NGOs recorded double-digit growth with manufacturing, communications, and shore, along with Europe region, recording 25%-plus growth. Sequentially, revenue growth was 5.5%, which was led by a healthy volume growth and some RTP benefits. Digital revenues now constitute 61% of total and grew by 37.5% in constant currency. Client metrics were strong, with increase in client counts across revenue buckets compared to the previous year. Number of $50 million clients increased by 10 to 69, creating the next potential centurion. Number of $100 million clients increased by 4 to 38, and the number of $200 million clients has grown by six in the last one year. This reflects our ability to deepen mining across our large clients. We had another quarter of strong employee additions of over 21,000 to cater to the growth opportunities ahead. The fresher addition was particularly strong, which resulted in drops in utilization to 84.7%. On-site effort mix increased up to 24.3%. Voluntary LCA nutrition increased marginally to 28.4%. Quarterly annualized attrition declined by another 1% from Q4 levels, despite Q1 usually seeing an uptick due to seasonality. As announced earlier, we have given competitive salary increases for the majority of our employees from April. Given the supply tightness and high prevailing inflation, salary increases across all GOs this year are higher than historical levels. The increases vary based on job levels and performance of employees with top performers getting double-digit hikes. Salary hikes for other employees is doubling than effective first July. Q1 margins stood at 20%, a drop of 150 basis points versus previous quarter. The major components of the sequential margin movements were as below. Headwinds of 1.6% due to salary increases, 0.4% due to drop in utilization as we create capacity for future, 0.3% due to increases in third party and other costs. These were offset by tailwinds of 0.5% due to increase in RTP from higher working days a reversal of a client's contractual provision in our FF segment, partially offset by discounts. 0.3% benefit from rupee depreciation benefits, partially offset by cross-currency headwinds. Q1 EPS grew by 4.4% in rupee terms on a year-on-year basis. Our balance sheet continues to be strong and debt-free. Insolidated cash and investments were 4.4 billion at the end of the quarter after returning more than 815 million to the shareholders through dividends. This has led to an increase in ROE to 31%. Free cash flow for the quarter was $636 million, which is a conversion of 95% of net profits. Yield on cash balance remained stable at 5.3% in Q1. DSO declined by four days sequentially to 63. DSO, including net unbill, was 82 days, an increase of one day versus Q4. Coming to segmented performance, we signed 19 large deals in Q1 with a TCV of $1.69 billion. This comprises of 60% net new. We had five large deals in retail and CPG, four in high-tech, three each in financial services and energy utilities and software and services, and two each in manufacturing and communications verticals. Region-wide, 15 were in America, and two each in Europe and ROW. In financial services, clients are continuing to focus on building customer experience, contact center transformation, and virtual branches aimed at improving customer engagement. While the order pipeline remains strong across regions, We have seen some slowness in mortgage, industry, and lending business due to increased interest rates. We remain watchful of impacts of emerging global developments on budgets of clients. In the retail segment, the pace of digital transformation, large-scale cost takeouts, and improving business resilience continues to be on the rise across various subsegments. Our focus on proactive engagement has helped us in creating a robust pipeline. Clients are monitoring the emerging macro situation and the impact of that on their business. In communication segments, clients are focused on rapid digitization and protecting their assets from cyber threats. We see enormous potential to partner with them both on the digital transformation agenda as well as on the cost takeout front. Deep pipeline in energies, utilities, resources, and services segments comprise of opportunities around cost takeout, vendor consolidation, digital transformation, cloud-led transformation, and asset monetization across industry sub-verticals. Manufacturing segment is seeing broad-based growth across geographies and industries sub-verticals. The sector is seeing traction across energy, IoT, supply chain, cloud ERP, and accelerated cloud adoption. In quarter one, we have been ranked as leader in nine ratings in the areas of Oracle Cloud, SAP S4HANA, Public Cloud, Industry 4.0, Employee Experience, and Automation Services. In this supply-controlled environment, we continue to invest in our growth momentum, which requires us to hire premium-skilled talent, while simultaneously investing in existing employees through competitive compensation increases across deals. Additionally, we expect normalization of costs like travel and other overheads. We will continue to focus on various cost optimization measures, including rationalization of subcons, flattening of the pyramid, increasing automation, reducing on-site mix, and increasing pricing. Whilst we retain our operating margin guidance of 21% to 23%, we expect to be at the bottom end of the range. Review guidance for the year has been revised to 14 to 15 percent from 13 to 15 percent earlier. With that, we can open the call for questions.