Infosys Limited American Depositary Shares

Ladies and gentlemen, good day and welcome to the Infosys 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 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 Mrs. Sandeep Mahendru. Thank you and over to you, sir.

Thanks, Indra. Hello, everyone, and welcome to Interface Financial Results for Q4 and FY20, please. Joining us here on this call is CAO Mahendru, Mr. Phelan Parekh, CAO for Mr. Malanjan Rai, and other members of the CMO Management Team. We'll start the call with some remarks on the performance of the company for the recently concluded quarter in Rio by Salil and Milindan, subsequent to which the call will be opened up for questions. Please note that anything that we say that refers to our outlook for the future is a forward-looking statement that's not suited in conjunction with the rest of the company's cases. A full statement explanation of these risks is available in our filings with ICC, which can be found on www.icc.gov. I'd now like to pass it on to Salil. Thanks, Sandeep. Good evening and good morning to everyone on the call and thank you for joining us. For the full year, financial year 2023, we had a good performance with growth of 15.4% in constant currency. Our digital business grew 25.6%, now being 62.9% of our overall revenue. And our core services grew as well at 1.9%. We saw broad-brace growth across our business segments with most in double digits. We had 26% growth in Europe and 12% in the U.S. We had 95 large deals with a value of $9.8 billion for the year with 40% net yield. Our operating margin for the full year was at 21%. We generated free cash flow of $2.5 billion in the year. Our attrition has continued to decline in each of the quarters through the year. We are leveraging generated AI capabilities for our clients and within the company. We have active projects with clients working with generated AI platforms to address specific areas within their business. We have trained open source generated AI platforms on our internal software development library. We anticipate generative AI to provide more opportunities for work with our clients and to enable us to improve our productivity. In Q4, we saw changes in the market environment. During the quarter, we saw unplanned project ramdowns in some of our clients and delays in decision making, which resulted in lower volumes. In addition, we had some one-time revenue impacts. While we saw some signs of stabilization in March, the environment remained uncertain. This led to a Q4 year-on-year growth of 8.8% in constant currency and quarter-on-quarter decline of 3.2%. Our operating margin was at 21% for the quarter, and we had 2.1 billion in large views in the quarter. generated 713 million of free cash flow in the quarter. A pipeline of large deals is extremely strong. Several of these are mega deals and several of these opportunities are for cost and efficiency programs and for consolidation projects. Some industries such as financial services in mortgages, asset management, investment banking, telecom, high tech and retail are more impacted leading to uncertainty in spend and delays in decision making. The U.S. is more impacted than Europe. Keeping in mind the current environment, we have further expanded our internal efficiency and cost program to work on our pyramid, onsite ratio, automation, travel, subcontractor, office consolidation, and on pricing. We anticipate this program will build a path to higher margins in the medium term. We are committed to investing in our people in this period. We are committed to working with our clients as we deal with changes in the economic environment. Based on our sustained momentum in financial year 23, a strong pipeline of opportunities, especially focused on cost efficiency and consolidation, while also keeping in mind the uncertain Our revenue growth guidance for this financial year is 4% to 7% in constant currency. Our operating margin guidance for this financial year is 20% to 22%. Thank you. With that, let me hand it over to Niranjan. Thanks, Anil. Good evening, everyone, and thank you for joining this call. FY23 was a year of two hogs, mirroring broader macroeconomic conditions. Growth was extremely strong in H1 with 20% year-on-year constant currency, which reduced to 11.2% in H2 due to the slowdown in verticals like telecom, high-tech, retail, and parts of financial services. Q4 came in slower than expected due to some specific client ramp-downs in discretionary spend and delayed client decision-making on new deals. In addition, we had some one-off revenue impacts including project cancellations, etc., Despite the above, we closed FI23 with a strong 15.4% growth in constant currency, leading to continued market share gains. Operating margins for Q4 and FI23 were at 21% in line with our guidance. Free cash conversion to net profits for FI23 was near 85%. FI23 ETF grew by 1.3% in dollar and 9.7% in INR terms. Client metrics were strong with the number of 50 million clients increasing to 75%, 100 million client counts increasing to property and 200 million client counts increasing to 15. Long-term LTM voluntary attrition declined to 20.9%. Quarterly annualized attrition reduced by over 4% sequentially and is the lowest in the last nine quarters. This is also well below pre-pandemic levels. Coming to Q4 performance, revenues grew by 8.8% year-on-year and declined by 3.2% sequentially in constant currency terms due to the reasons mentioned earlier. Utilization declined to 80% on the back of softness in demand. We expect the utilization to improve gradually in the coming quarters as pressure starts getting deployed. We will calibrate the hiring for FY24 based on available pool of employees, growth expectations, and attrition trends. Q4 margins were 21%, which is a decline of 50 basis points sequentially. Major components of sequential margin movements are We had tailwinds of 50 basis points on cost optimization, including reduction in sub-con. 60 basis points benefit from reduction in PSPS, which is post-tail-stick customer support. Offset by a headwind of about 70 basis points from a drop in utilization. And the balance, 90 basis points with a combination of revenue one-timers, as mentioned above, partly offset by other savings. Q4 ETF grew by 0.2% in dollar terms and 9% in rupee terms on a year-on-year basis. Our balance sheet remained strong and debt-free, consolidated cash and equivalents to that $3.8 billion at the end of the quarter. Free cash flow for the quarter was robust at $713 million with a conversion of 95% to net profits, yield on cash balance of 6.6% in Q4. The board has recommended a final dividend of rupees 17.50 per share, which will result in a total dividend of Rs. 34 per share for F523 versus Rs. 31 per share for F522 and increase of 9.7% per share for the year. Including the final dividend and recently concluded buyback, we have returned 86% of FCS2 shareholders over the last four years under our current capital allocation policy. In Q4, we completed the open market share buyback of Rs. 9,300 crore rupees buying back 1.44% of shares at an average buyback price of Rs. 1539 versus a maximum buyback price of Rs. ROE increased to 31.2% in net fight 23 from 29.1% in net fight 22 as a result of higher payout to investors. Coming to segment performance, large yield momentum continued and we signed 17 large yields in Q4. TCV was $2.1 billion with 21% net new. Five large deals were in manufacturing, four in FS, three in CRM, two each in life sciences and high tech, and one in EURS. Region-wise, this was split by 10 in America and seven in Europe. In SI24, we find 95 large deals with CCV of $9.8 billion with 40% met new. Coming to the vertical segment performance, Financial services vertical was impacted by budgeting delays at the start of the year, led by macroeconomic uncertainties coupled with softness in mortgages, asset management, and investment banking. However, a strong pipeline and large deal wins in areas like infrastructure, production support, cybersecurity, and business operations is emptying in better visibility for SI24. We have a very diverse portfolio of clients in the U.S., and hence, exposure to multiple regional banks is less than 2% of our overall revenues. We do not anticipate any material impact on our operations as a result of recent news in regional banking segments. In retail, there is heightened focus on accelerating digital transformation to enable top-line growth with rigor in ensuring budgets get spent on right programs to maximize ROI. While there is some pressure on distributional tech spending, companies are prioritizing investments in key areas such as e-commerce platforms, supply chain management systems, and customer engagement tools. Manufacturing segment continues to ramp up of large wheel winds and benefits of vendor consolidation. There is increased focus on digital spend including opportunities on ER&D, 5G, and industrial IoT. Increased energy prices and interest rates coupled with continuous supply chain destruction is impacting spend on the run side of the business, especially in Europe. Communication segment is witnessing increased vortex pressures, cost-cutting ramp-downs, and delayed decision-making. Demand for ideas and solutions are moving from cost take-out to revenue growth side with heavy focus on customer success. Cloud and mobility remain top drivers for 5G adoption. Overall pipeline remains strong, which gives us the confidence of growth opportunities in the coming quarters. The positive momentum in energy, utilities, resources and services for F520C was supported by large deal wins. Our renewed strategy to revisit our offerings and developing integrated energy as a service solution and a focus on a journey to net zero initiative has positioned us well ahead of competition. While we have seen delays in kicking off discretionary spend projects, the cost takeout and vendor consolidation initiatives continue to take momentum. We expect our revenues to grow by 4% to 7% in constant currency terms in FY24. Our pipeline of large deals remains extremely strong with increased focus on cost takeout programs. Operating margin guidance stands at 20% to 22%. The margin guidance factors and growth assumptions for FY24 impact of utilization, employee cost increases, further normalization of costs like travel, facilities, etc. And we continue to focus on various cost optimization and efficiency improvement measures. As we look beyond FI24, we believe we have various levers to generate more efficiencies like improving utilization, reducing subcons, improving pyramid apart from growth acceleration and potential pricing increases which will enable us to aspire for higher margins over time. With that, we can open up the call for questions.

Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. Participants who wish to ask a question may press star and one on their touchtone phone. If you are 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. Our first question is from the line of Yogesh Agarwal from HSBC. Please go ahead.