Infosys Limited American Depositary Shares

Ladies and gentlemen, thank you for holding for the Infosys Limited earnings conference call. We would like to provide you with a few instructions. To ask a question, you may enter star and one on your phone. An operator will check your connection before announcing your turn. All participants are requested to use only handsets while asking a question. Please ensure that there is no background noise while addressing your questions to the management. You may be asked to return to the question queue if you do not have a clear connection. Thank you. The conference will begin shortly. Please continue to hold. Ladies and gentlemen, good day and welcome to the Enphasis Limited Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode. Should you need assistance during the conference call, please signal an operator by pressing star and then zero on your touch-tone phone. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. 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 Anja, hello everyone and welcome to Infosys earnings call to discuss Q3 FY23 financial results. Let me start by wishing everyone a very happy new year. Joining us today on this call is CIMM Minister Faral Tariq, CFO Mr. Nilanjan Roy and other members of the CIMM management team. We'll start the call with some remarks on the performance of the company by Faral and Nilanjan. Subsequent to this, we'll open up the call for questions. Finally, note that anything which we say that refers to our future outlook 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 filings with SEC, which can be found on www.sec.gov. I'd now like to pass it on to Salil. Thanks, Sandeep. Good evening and good morning to everyone on the call. Thank you for joining us. We are delighted to share with you that our Q3 performance was strong with year-on-year growth of 13.7% and quarter-on-quarter growth of 2.4%. This in a seasonally weak quarter for us and amid a changing global economy. We continue to gain market share. Growth in Q3 was broad-based with most industries and geographies growing in double digits in constant currency. Growth in constant currency for nine months of FI23 was 17.8% compared to the same period of FI22. Our large deal value was 3.3 billion, the highest in eight quarters. With 32 large deals, this is the largest number of large deals in our history. 36% of this is net new. Our pipeline of large deals remains strong. Our digital revenues grew at 22% in the quarter at constant currency and are now close to 63% of our overall revenue. Our cost services revenue grew at 2.4%. We are seeing growth in both areas of our business, digital and cost services. This is a testament to our industry-leading digital capabilities, including our COBOL cloud capability and our industry-leading automation capabilities. both of which are resonating with our clients. Our large deals by client are seeing increased traction for automation and cost efficiency programs. Our results reflect our deep-rooted client relationships coupled with client-centric strategy, differentiated digital and cloud capabilities, strength in automation, and the ability to pivot our business rapidly to changing client needs. Our cloud revenues continue to have healthy growth this quarter. Our clients are focused on accelerating the digital and cloud transformation, both to grow and to become more operationally efficient. They trust us to partner with them through the complexities in managing this change because of our differentiated capabilities. Our industry-leading cloud offering, Cobalt, is playing a key role in helping them navigate their digital transformation. Two examples of this. Cobalt is helping accelerate business growth and resilience for large telco and making the decision making more data driven. We're supporting a leading aerospace company by automation of the customer experience area, leveraging a modernized technology infrastructure, driving materials cost efficiency. Strong growth is accompanied by stable operating margin at 21.5%. This was driven by healthy revenue growth and cost optimization benefits. Our operating margins for the first 9 months of FI23 are at 21% in line with our margin guidance. Our voluntary quarterly annualized attrition continues to decline steadily, reduced by 6 percentage points sequentially to well below 20% for this quarter. We are encouraged by the immense confidence and trust our clients have in us. The signs around us around the slowing global economy are visible. Some areas such as mortgages and investment banking in financial services industry, telco, high tech and retail are more impacted and that is leading to delays in decision making and uncertainty in spending in these areas. We are confident that the strength of our digital and cloud capabilities and our automation capabilities will continue to position us well in the market. We are keeping a close watch on the global economy. Driven by our growth of 17.8% in constant currency for the first nine months of FY23 and strong large deal value for Q3, we are increasing our revenue growth guidance which was at 15% to 16% earlier to 16% to 16.5% despite the change in global economic conditions. We are retaining our operating margin guidance for FI23 at 21% to 22%. We anticipate to be at the lower end of this range. Thank you, and with that, let me request Nilanjan to share other updates. Thanks, Ali. Good evening, everyone, and thank you for joining this call. Let me start by wishing everyone a very happy and safe 2023. Q3 was another quarter of resilient performance. Our revenues grew by 13.7% year-on-year and 2.4% sequentially in constant currency terms despite seasonal weakness. Most of our business segments and GEOs grew in double digits year-on-year in constant currency. Specifically, manufacturing grew by 36.8%, EURS by 25.9%, and Europe grew by 25.3%. Digital revenues constitute 62.9% of total revenues and grew by 21.7% year-on-year in constant currency. Core revenue saw another quarter of growth reflecting the accelerated client focus and cost takeout. Client metrics continue to remain strong with year-on-year increases in client counts across revenue buckets. Number of 50 million clients increased by 15 to 79, number of 200 million clients increased by 5, while number of 300 million clients increased by 3 over the same quarter last year, reflecting our strong ability to mine top clients. During the quarter, we added 134 new clients. Utilization of student trainees reduced to 81.7%, reflecting seasonality and employees joining the bench post-completion of their training. On-site effort mix remained stable at 24.5%. Quarterly annualized attrition continued to trend downwards and reduced further by another 6% during the quarter. This is the lowest quarterly annualized attrition in the past seven quarters. Consequently, NPM attrition reduced to 24.3% as compared to 27.1% in Q2. We expect attrition to reduce further in the near term. Revenue growth was 17.8% in constant currency term for the 9 months FI23. Operating margin for the same period was 21% in line with the lower end of our previous guidance as called out earlier. QC operating margins remain steady at 21.5%. The major components of QMQ margin movement are as follows. There were tailwinds of approximately 40 basis points due to benefits from rupee depreciation and cross currency offset by lower benefits from revenue hedging. 70 basis points from cost optimization including lower subcons. This was offset by headwinds of 30 basis points from higher SG&E and the balance 80 basis points due to seasonal weakness in operating parameters, higher third-party costs, furloughs, etc. Q3 EPS grew by 13.4% in repeat terms on a year-on-year basis. BFO increased by three days sequentially to 68, reflecting higher billing during the quarter. Our balance sheet continues to remain strong and debt-free. ROE increased by 2.2% year-on-year to 32.6%. Free cash flow for the quarter was 3.76 million, a conversion of 72% of net profits. However, YTD EPS was 1.8 billion, which is implying a conversion of 81% of net profits. Yield on cash balances increased to 6.3% in Q3. Q3 marked the 30th consecutive quarter of delivering positive forex income despite the volatile currency environment. Consolidated cash and investments declined from 4.79 billion last quarter to 3.91 billion, consequent to 1.32 billion being returned to investors towards interim dividend and buyback. We initiated the buyback on December 7th and till date have bought back 31.3 million shares, worth Rs. 4790 crores of 51.5% of the total authorization of Rs. 9,300 crores at an average price of approximately Rs. 1531 per share compared to the maximum buyback price of Rs. 1850 per share. Coming to segment performance, we find 32 large deals in Q3 which is the highest ever. TCV was Rs. 3.3 billion, the highest in the last eight quarters with 36% net new. Seven large deals were in retail, six each in financial services and communication, five each in EURS and manufacturing, two in life sciences, and one in high tech. Region-wise, this was split by 25 in the Americas, five in Europe, and two in the rest of the world. Growth in financial services was impacted due to higher than normal furloughs and some specific project closures. These pipelines continue to be strong and oriented towards cost takeout and tech ops transformation. Our competitive position in the industry, as demonstrated in the past years, remains very strong. Retailers are seeing uncertainty on consumer spending as a result of high inflation, high interest rates, and sector economy. However, at the same time, direct-to-consumer and digital commerce are opening up many new opportunities on the back of our growing presence in leading e-commerce platforms and also our very own Infosys Equinox. We had healthy deal flow in the communication segment along with continued steady pipeline. However, cost pressures and economic concerns continue on the client side impacting discretionary budgets. Energy utility resources and services segments reported strong growth along with friendly level of large deal wins in the quarter. The deal pipeline is strong and on increasing trend versus the previous quarter giving medium term growth visibility. Manufacturing segment continues to be robust, supported by healthy pipelines of deals in both traditional and new technology areas. We are helping clients across engineering, IoT, supply chain, cloud ERP, and digital transformation, including helping clients accelerate their journey to the cloud. We continue to see caution around budgets and spending for consumers in the high-tech segment, especially around distributional spend areas. For digital service capabilities in Quadruxy, we have been ranked as leader in seven ratings for our cloud services, digital engineering services, and sales force implementation services. We have also been positioned as a major player in seven ratings for our IoT and engineering, security, and automation services. We believe our structural lever for medium to long-term work for the industry remain intact, and Infosys is well-positioned to support its customers in their transformational journey. With strong revenue performance in the first nine months of the year, the revenue guidance for SI23 is changed to 16% to 16.5%. Operating margin guidance band remains at 21% to 22% for the year, and as mentioned previously, we expect to be at the lower end of the range. With that, we can open the call for questions.

Thank you very much. We will now begin the question and answer session. Participants who wish to ask a question may press star and 1 on their touchtone phone. If you're using a speakerphone, please pick up your handset while asking a question. This is required to ensure optimum audio quality on the call. Should your line have any disturbance, you may be asked to return to the question queue if you do not have a clear connection. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Moshe Katri from Wedbush Securities. Please go ahead. It looks like Mr. Khatri's line has dropped. In the meanwhile, we'll move to our next question. That's from the line of Nitin Padmanabhan from Investec. Please go ahead.

Hi, good evening, and thank you for the opportunity. My question is around the increasing cost of software packages that's up by almost $69 million sequentially. How should we think of this cost? Do you think this incremental 69 will be a tricky number out there, or do you think it sort of represents a headwind and it sort of comes off going forward?

And is this sort of a pass-through in nature? That's the second sort of clarification on the changes.

Thank you.

Yeah, so I think these 69 million is a combination of software and other deals which we do which have, you know, DAS services, et cetera. It could be infrastructure. So these are part of an integrated services offering, right? So these come with both a MANFA component and sometimes they also come with, you know, an attachment of these services. That's the way that we do it. It's an integral part of our service offering and I think, you know, looking at, we'd like to see where we end up for the quarter full, but I think this is part of our overall offering and it's actually giving us traction in the market in many of our service lines. Sure. So it is a pass-through in nature, in a way. Is that correct? And basically, at least earlier in the past, you had suggested that the new level would sort of sustain. In the new operating model, this is sort of a sticky thing that continues. Is that fair? Longer term? An integrated offering. Like I said, this is integrated with our services offering. So they are not just standalone deals we do. They come with the service element as well. So that's the way I have to look at these deals.

Sure. Thank you so much and all the best.

Thank you. Our next question is from the line of Brian Bergen from Cowen. Please go ahead.

Hi, good evening. Thank you. I wanted to just clarify some comments that are on demand. So I'm curious if you would say there's a material change in the way that clients are behaving now versus three months ago when you reported 2Q. Because the areas you're citing weakness, I think, were the same ones, the pockets of weakness that you talked about. I'm just trying to understand if you think there's been a real change to spending and contracting there or more broadly the same.

Hi, thanks for the question, this is Salil. What we are seeing today, in addition to what we said last quarter, for example, in financial services, beyond mortgages, we see the investment banking side of our clients as well showing an impact of the economic environment. And then in telco, high tech, and in retail, in some clients. So we don't see a material change, but there are within financial services one more area that we see some of the impact coming in. Having said that, we have, for example, clients in energy or utilities or manufacturing. Those industries are still looking quite strong in terms of their outlook.

Okay, that's helpful. And then on the large deals, the renewals were a big component of that PCV and you've also cited benefits from consolidation in the commentary. Are you taking any different approach as it relates to proactive renewals to try to drive more vendor consolidation opportunities?

Some large deals, as you pointed out, we've had a very strong result, 3.3 billion and 32 deals. We see the focus which we had on transformation continue, but outside of the industries that we discussed before where there's some impact. We see huge cost automation, cost efficiency plays across all industry segments, and there we have, we believe, very strong capability which is helping us. And within all of those discussions, we see areas where there's vendor consolidation The approach we've put in place is similar to what we've had in the past. However, we see, given our market share gain over the last several quarters, many clients are looking at us when they start to narrow their list in the vendor consolidation.

Okay. Thank you very much.

Thank you. The next question is from the line of Apurva Prasad from HDFC Securities. Please go ahead.

Good evening. Thank you for taking my question. Salil, I'm not asking for any guidance for 24 or ahead, but would appreciate your comments and generally the visibility that you have for the year ahead. So how different would it be versus typically this time of the year? So perhaps any comments on pipeline or pipeline to TCV conversions? Thanks for the question. I think, as you rightly said, we are not in a position to provide the guidance for the year which starts in April. Pipeline, we have a very strong large deal pipeline. So we are feeling good that the pipeline is at a level which is in good shape. We see good traction of large deals and we've seen more and more sort of relevance connect with our clients on the cost efficiency and automation case. And in the areas, in the industries where there's economic support, a good traction of cobalt and the digital transformation case. So the pipeline is looking quite good today based on what we see in the deal flow. got it and and uh suddenly called out ib mortgage in parts of telecom high tech and retail but is there any vertical trend for these uh between transformation the ones that are transformational nature and deals that are more on the cost optimization uh across the world because the second part too that is uh do you see any moderation and new client acquisition channel with more vendor consolidation deals happening. This was something which had very strong traction more recently. On the first part, we see some of the growth transformation plays impacted in those industries that we talked about. For example, mortgage investment banking, retail, high tech, etc. The cost efficiency plays everywhere. We see that even in programs where let's say in the energy sector or manufacturing. In many places we see essentially clients looking to use the costs efficiency to fund the transformation because in many cases they still need to drive a digital or cloud transformation to keep their market growth or their client connect, customer connect going. So that's how we see that play right now. And Salar on the other part on the new client acquisition with more vendor consolidation Yeah, there on new clients, we've seen, while we don't disclose the number, we've seen a very good new client acquisition in Q3. And vendor consolidation and discussions, so there's no contradiction in those two, at least both are carrying on. Within our sales expansion, a new client acquisition continues to be important as well. Vendor consolidation, what we're seeing is on several discussions, clients are looking, especially if they have six or seven vendors, they want to narrow it down to one or two or three, and we are appearing to be beneficiaries in quite a few of those discussions.

Got it. Thank you, and all the best. Thank you.

Thank you. Our next question is from the line of Mukul Garg from Motilal Ostwal Financial Services. Please go ahead.

Thank you. I hope I'm clear.

I'm sorry to interrupt. Your audio is a bit muffled. If you're on a speakerphone, please switch it to handset or something.

I hope this is better.

Yes, sir. Thank you.

Sure. So, Salil, I had two questions.

First, on the strong TCE wins this quarter, can you at least qualify how much of the strength was on account of share gains which you guys have made versus the resilience which is there on the technology spend? Because if you look at the broader market commentary and you have also highlighted retail as one of the weaker areas whereas you got seven large deals in retail. So if you can just help us break out these two to get a sense of the deal in momentum. So there I'll start with that. This is Salil. I think the large deal momentum for us is really a function of What we've seen that we've put in place, we've still within this mix of 3.3 billion have digital transformation deals and we have cost efficiency automation deals. What we mean by some of the industry call-outs, for example, retail or telco, is there are some clients. It's not everyone in that industry, but there are some clients which are getting impacted by the economic environment. We've been quite focused. We have a broader portfolio. For example, we saw that in retail we had those large deals there. It's a mix between transformation and cost efficiency automation. And so many times when clients feel an impact of the economic environment, there might be a greater need for the cost efficiency play as well. So we are ensuring that both of those engines continue to work well with our clients. Right, and another question was on the margin side. You know, you cited for margins in 2021-22 band with margins towards the lower end. Can you just help us with the, what are the pulls which you are seeing on profitability given that the supply scenario is easing rapidly? Is there some portion of the pressure, you know, which is on account of the higher share of cost efficiency deals, which you guys are winning with initial ramp up cost. Because if you look at Q4, you know, obviously Q3 also had the pass-through business which got impacted. I'm assuming, you know, as Milindan mentioned, there was some seasonality to that. Yeah, so I think, like we mentioned, the reason for Q3 margins, we've already gained a breakdown. So as we look ahead to the lever that we have on is, of course, utilization, right? And you've seen that in 81.7, this is probably, I think, at least in the last two to four years since I've been here, it's been the lowest. So that's one lever which we have. And as we start putting these pressures onto the production floor, right, you will get a pyramid, automatically a pyramid benefit, right? So that'll be a, you know, double value impact for us. We also have subcons today. We dramatically reduced our subcons, literally in three quarters. We were 11% plus. We're at 8.7. Historically, we've been at 7%. You know, if you look at our pricing, it's been quite stable and historically, you know, this was one lever we used to always drag down, you know, repeatedly to get discounts on renewals, etc. And as of now, we haven't seen that at all. We continue to push with clients on, you know, where all we can get price increases. So we are seeing automation in terms of our own workforce continuing to operate that and that's a steady lever which we have. So we are continuing to see these levers in our, you know, armory, so to speak. as we depend and we will continue to deploy them. Right, so is it fair to assume that we should see at least better profitability in the next quarter given that we have a number of levers with us? Yeah, so we've given a guidance for the year. You've seen, you know, in the first nine months and that should give you a good indication of, you know, yeah, good Q4B. Fair enough. Thanks for taking my question. I'll get back into the Q.

Thank you. Our next question is from the line of Sudhir Guntapalli from Kotak Mahindra Asset Management. Please go ahead.

Good evening, gentlemen. Thanks for the opportunity and congrats on a good quarter. Salil, during some of the previous macro uncertainties like Brexit, within a few weeks of the vote, we had seen some of our large clients cancelling and ramping down projects. This time, even on the tough comps, the pace of growth moderation is much lower than what many people have been anticipating. And many forward-looking indicators like deal wins, pipeline, and CIO surveys still continue to be very strong, even 11, 12 months into this macro concerns. So having seen the previous three to four macro downturns, how do you nuance the current cycle, especially on the variable of the resilience of IT services spends?

So thanks for the question. It's always difficult to sort of compare across cycles. From the perspective of Infosys, my sense is what you mentioned earlier, which is we are seeing the pace of change when there is change within an industry or a client to be not rapid. We are also seeing that the opportunities for cost optimization and efficiency are expanding within the work that we are doing. In many ways, we are in a good position to be able to work on both sides. While it's difficult to predict the way the situation in the economy will evolve, we feel quite balanced. Our sales team is quite agile. We've pivoted quite quickly and developed various sort of points of view on different efficiency scenarios in different industries that we feel comfortable that the pipeline is looking good at this stage, and we will continue to work on that.

Sure. Thanks, Alil. So is it a right understanding to say that we are now in a much better position to navigate this macro weakness probably through, you know, more than enough compensation from the cost efficiency deals and vendor consolidation deals? Is that a correct interpretation?

The way we see it is we have both components, at least the two large components of what clients are looking for. We have good industry-leading capability. So it's really a function of how a specific industry or sub-industry or a client will live on. But we have positioned ourselves to make sure that we can support our clients in that area.

Sure. Thanks, Salil. All the best for the future.

Thank you. Our next question is from the line of Moshe Khatri from Wedbush Securities. Please go ahead.

Hey, thank you, and Happy New Year, and congrats on strong execution in a pretty tough environment. I have a three-part question. First, March guidance upgrade is pretty unusual from a seasonality perspective and given the macro concerns. So it seems that you have better visibility. Now, can you share any views on the budget cycle itself? We were kind of concerned over slippages, maybe a month or two, budget delays. Are you seeing any of that, or do you think the budgets will be awarded or finalized on time this time?

Thanks, Moshe. This is Saleer. On the budget, so far we've seen in some clients and especially in the industries we've called out, some areas where there's been slowness in deciding or some sort of changes, especially on some discretionary work. high tech, for example, mortgages, investment banking, all of those ones that we mentioned before. But we don't see a broad-based change. Equally, we do see good sort of let's say behavior with the budgets moving ahead as in the past with energy, utilities, manufacturing. So it's not like a one answer, but it's a little bit by industry or sub-industry somewhat different.

Understood. And then you, in the press conference, you mentioned that about a third of your new or a third of TCV came in from new logos. Can you remind us, is this within the range of what you've seen in the past in terms of mix of new logos versus reveals?

Oh, sorry. I'm sorry. You're referring to large deals, $3.3 billion, that was 36% net new. That's in the range of where we do some quarters, it's lower, some quarters higher, but this number is not unusual.

Okay. And then the final question is for Nilanjan. When we met in Bangalore back in December, you pointed to pivot in the nature of the new deal flow towards, as you said, cost optimization, vendor consolidation. Obviously, this is what you're saying. Are these deals typically less dependent on clients' budgets, given the fact that you're kind of taking over a specific function with the objective of kind of reducing delivery costs? And is there any difference in profitability levels here in terms of these projects versus some of those projects that you've been doing in the past two years? Thank you.

From that, I think the way you describe it, these are not fully correlated with the budget of a client. In many instances, these are areas where given the evolving economic situation, clients are looking to reduce their tech spend across the enterprise. In many cases, use some of that savings to fund transformation programs. Sometimes that's coupled with vendor consolidation. There are clients who may have five or six vendors When we benefit from the consolidation, we see tremendous efficiency that can be created. Our automation tools become quite useful. We've typically had automation on our ongoing programs that give an annual benefit, but when we see something of scale where we've not been involved earlier, we have an ability to provide a much greater benefit. In aggregate, the profitability of these deals is within the range of the rest of our company. And especially as we more and more over time leverage the automation tools and our capabilities, we see these becoming stable, high-profit deals.

That's very helpful.

Thank you.

Thank you. Our next question is from the line of Pankaj Kapoor from CLSA. Please go ahead.

Yeah. Hi, thanks for the opportunity. Uh, so my first question is on the smaller deals, which are less than say 50 million PCV. If you can give some qualitative color on, on how do your win and pipeline in that basket has been moving, is it higher, lower versus say what it was six months back?

Thanks for the question. We don't typically disclose, uh, uh, much about, uh, those, those deals, uh, overall, we have a good healthy pipeline when we publicly disclose more about the larger deals. Understood.

And Salil, my second question is on these cost takeout deals. Can you give some sense on how the pricing in such deals is behaving? Are you seeing the pressure there more than normal either because clients are pushing for more discounts or because of competitive intensity?

So there the pricing in Q3 we've seen quite stable within the mix. We've not seen a change. Typically it's really a function of what type of focus that clients have, which industry they're in. But we've not seen, at least in Q3, uh in in the deals that we have closed in the discussion we've had a big big change on that it looks stable at this stage understood thank you and wish you all the best for 24. thank you thank you our next question is from the line of uncle rudra from jp morgan please go ahead hey thank you and uh strong numbers guys um just a couple questions i want to understand something a bit better I think one of the comments that you made earlier, and I'm going to try to answer this question a little bit now, you mentioned in previous calls over the last year that the mix of bills was changing into other smaller bills, and that was showing up in strongly despite headline PCV declining. Ankur, we couldn't hear anything. Ankur, we'll have to go on a handset or something. We couldn't hear you. Your voice was very muffled. Is this better? Yeah. Okay, thank you. So I was saying that, you know, I'm going to try and punctuate this question in a different way. You'd mentioned in previous calls that the mix of deals was changing in favor of smaller deals. And that's why the headline PCB was declining, but the growth was still quite healthy. This time, of course, both have done well. Do you think the mix of deals is still the same as it was in the last year, before this quarter? Hi, Ankur. Hi, this is Salim. I'm not clear on the mix of deals from the previous discussion, but just looking backwards, we see the mix of deals remaining in good shape across the board. There are some quarters in which there are, you know, disproportionate number of larger size D. But in general, we don't have a pattern in that, at least that's evident in Q3 here. Okay. All right. The next question I wanted to check, again, was on the U.S. business. The headline group seems to sort of slip down to close to, you know, low double digits. Whereas the previous group has been led by very strong performance in Europe and manufacturing. Do you worry about the U.S. business? It's sort of slower than Europe, which is not the case in the rest of the industry for many of your peers. So there, Ankur, we've had very strong growth in the U.S. at over 10% in Q3 constant currency. Europe, of course, has been a standout in the growth that we've had. We feel the traction, the pipeline, the work remains pretty strong as we've described earlier across the two dimensions, transformation and cost. across the geographies. If you look at the economic situation, we do see the European side a little more impacted, but we see good traction on the pipeline on both sides. We had a very successful Europe program over the last 18-24 months, and that's also helping us with the growth in this quarter. Also, just to add, I mean, out of our 32, large deals with quarter 25 are actually in the Americas. So, I think it's a very strong pipeline there. Understood. Maybe a last question over here was on pricing and contract profitability in the projects you're doing right now, especially the large number of big deals this time you signed. How's that trending? Is that improving, staying the same, or maybe becoming a bit lower than before? These are for the new deal signing? Yeah, the new deal signing this quarter. How is that trending versus before? I don't think anything unusual. Yes, absolutely new deal. I mean, since many clients want their productivity, efficiency up front, so we always see that, you know, the initial part of these new deals will be lower than portfolio margins. But like we have shown in the past, you know, at the same time, our existing deals, tenured deals, are reaching higher profitability and that aspect some of this pressure which is coming from the newly signed deal the margins will typically be lower but nothing unusual on the trend okay appreciate thank you for the color investment thank you our next question is from the line of the board single from nivama equities please go ahead hello yeah hi uh thanks for taking my question and congrats on a solid quarter

So some of my questions, I have just two questions. One, I wanted to basically get an idea on, I mean, we've seen attrition coming down in this quarter quite sharply, and as you mentioned in your opening remarks as well. So, I mean, how do you see the trend of this attrition going forward, of course, downwards, and how do you believe the benefit of this could actually percolate to our margins? Again, not asking for objective guidance of a number, but in terms of the direction, do you think it's going to aid our margins, or do you think most of the impact of this is already built into the numbers that we have currently? And my second question was mainly on the geography of Europe. so just wanted to pick your brain on how the conversations with the clients are happening in that part of geography geography specifically if you could maybe break up between continental europe eastern europe and maybe uk and which pockets of those geography do you think are looking more softer or is there more of the decision making in that part of the geography

I think the first one on the lower attrition, absolutely we are seeing this coming down and like we said, even in the future in the next quarter at least until we're picking the latest initial figures, we are seeing this coming down. Absolutely this should have a positive impact on margins. I mean during the year, whether it was stretch hiring on laterals, whether it was the compensation hikes we did, you know, that really impacted our euro near margin story. So as we're looking ahead in attrition, as an impact both of the macroeconomic and also the internal policies we are doing in terms of promoting within etc. should benefit us looking ahead. On euro, I think the way we see some color first, 25% of our business is euro and there are a few countries In the countries we operate in we see some slowing, some economic impact in Germany. There is some in the UK, less so in the Nordic countries at this stage. But overall, the coloring is a little bit more by the industries that we mentioned earlier in the call, which are across sort of on a global perspective. But relatively, Europe seems a little bit more impacted today than certainly the US.

Got it, got it. If I can just maybe drill down just a little bit more. Any specific colors that you can provide on European retail and European manufacturing segments?

So there, we don't necessarily provide that much sort of granularity, but the sort of same comments on a global level on manufacturing. that we mentioned earlier and for energy which is looking stronger and more sort of let's say attention to the economy on retail in this case.

Got it, got it. And the softness in retail, do you believe it is, as of now, confined to the retail stores and would maybe percolate? And in your discussion with the clients, do you see percolating down to the CPG companies and probably other ones as well? Or as of now, it's limited to the more of the retail stores that we're talking about?

So within retail, we've not called out any specific sub-segment, at least in our commentary. We've not gone down to that generality in our public statements.

Got it. Great. Thanks for taking my questions and I wish you all the best.

Thank you.

Thank you.

Our next question is from the line of Sameer Ghassani from ICICI Credential Asset Management. Please go ahead.

Thanks for the opportunity. Just one question around Europe again. If I look at your commentary around regions in North America with Europe, Europe looks more cautious overall. But if I look at performance in the last few quarters, I think Europe has been performing better than North America as a whole. So do you think this impact of the cautiousness is yet to reflect in the numbers and you would see more growth trajectory would be a little more affected going forward I'll talk to you around that. Thanks.

I think in Europe there is two different things. We've had a very strong Europe program, both on transformation and cost over the last 18, 24 months. So some of that comes through in the benefits we see even in this quarter. The commentary or the view is more to share what we're seeing in the economic activity. Again, we see the coloring more by industry which is a little bit global as opposed to just specifically across the board in the geography. Do you think the outlook that you're giving will reflect in the numbers in the next few quarters?

because till now it has been an afterthought for the overall portfolio. Thank you.

So we've given a view on Outlook only up until March this year. So we will come up with guidance for the next financial year at the end of this quarter.

Okay, that's a message. Thanks.

Thank you. Our next question is from the line of Girish Pai from Nirmal Bank Equities. Please go ahead. Mr. Girish Pai, could you please unmute your line and go ahead with your question? As there's no response from this connection, we'll move to our next question. That's from the line of Rahul Jain from Dollard Capital. Please go ahead.

Hi, thanks for the opportunity. Firstly, you know, we commented that manufacturing is doing well for us, but actually the vertical is doing exceedingly well in the European region where it's up 60% YOY, but it's much weaker in the U.S.

where it's up 7% YOY.

So what is that we are doing so well in Europe? Is it led by a few very crucial deals or it's more holistic and why it's different in the U.S.? ? So thanks for the question. Within an industry, we don't typically comment on a client or multi-client level activity. But we do have a good traction, as you pointed out, within a European business in manufacturing. Okay. And another thing was on digital revenue for the quarter itself. 17% YOY or let's say CC would be 20 or 21%. This is like slowest ever since we've been giving this time series on distilled revenue. So is this bit worrying or is it more because of the furlough than any other factor? It's partially due to some of the changes that we were discussing earlier on where in certain industries and sub-industries we see much more attention to the economic environment and there we see some of the digital or transformation work being slower, where we see much more focus across the board on the cost and automation plays. And lastly, if I can, the margin impact for low was too high in the quarter. How has this shaped up in the current month?

Are these clients resumed to normalcy now or the pain remain extended in Q4 as well?

We'll have to see how it goes. It's a bit too early to say what's going to be the Q4 outlook on that.

Okay. That's it from my side. Thank you so much.

Thank you. Our next question is from the line of Girish Pai from Nirmal Bank Equities. Please go ahead.

Thank you for the opportunity. I just wanted to understand with cost optimization deals more on the pipeline and in the TCV, has the average deal tenure gone up in the last couple of quarters? So thanks for the question. We don't particularly comment on the deal tenure in terms of public statements. You said that the third party items have given you a lot of traction in terms of getting these. Now, the number has gone up from about less than 2% of revenue to almost like, I think this quarter it's come to almost like 6.5% of revenue. Do you see this number going up in the coming quarters and years? Like I said, our offering is quite holistic. In some cases, like I said, the cloud-based deals come with services. They could be licenses. They could be DAS services. So more and more integrated deals. And when you go to IT as a service, which is really very holistic, you could see this. But this will vary from quarter to quarter. You could have some quarter to top. But there's nothing to say that in the long run that this is going to be a bit early to say that. Okay and lastly from a competitive landscape perspective in the vendor consolidation deals, who are the ones losing out? Are these the global MNCs or these are typically CO2 vendors? Again on those, we don't specifically comment on where we're getting the benefit of the consolidation. We are seeing some benefits coming through with large clients. Thank you.

Thank you. Ladies and gentlemen, that was the last question. I now hand the conference back to the management for closing comments.

Thank you. So thank you everyone for joining us. This is Salil. Fantastic to have our Q3 close out. 13.7% growth, 21.5% operating margin, 3.3 billion in large deals, very happy with that outcome. We can see guidance increase on our growth for that. And we can see both sides of our business on transformation, digital work, and cost services, cost automation working well. And so we feel good with the current environment and how we can play and support our clients on both sides. Thank you all for joining us and look forward to catching up during the quarter. Thank you.