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.

Yeah, hi, good evening. A couple of questions. Firstly, while the quarter was weak, the guidance at the upper hand still looks very solid when we just mathematically look at the sequential buildup from here. So is that 7% based on some macro pickup or is it what you see today, 7% is possible? And related to that, Salil, in general, the demand and the growth picked up post-COVID. So are we back to pre-COVID growth rates of 5%, 6%, 7% or FY24 is one of, and we can see a pickup from FY25. And then I have a follow-up, please. Hi, this is Salil. I didn't catch the second one. I'll go with the first question and you can just repeat the second one. On the guidance, what we have built it with today is what we see with the deals we have sold and the ongoing work that we have and then put the range between 4 and 7%. There are different scenarios in which different things happen. We've widened the band to three points given the uncertainty in the environment. We also have a very strong large deal pipeline with some mega deals in the pipeline. Of course, these are always binary, but given the strength of the pipeline, we believe that there is ways that we can achieve the high end of the band of the guidance. Got it. So I was asking the second question was 4 to 7 is almost going back to pre-COVID growth rate. So is it... Is it like the new normal again or we can expect some pickup again from FY25? That is one. And also, Salil, I wanted to ask you on the recent management exits. Just recently, you had two presidents and a COO. Now, all three are not there for whatever reasons. has it impacted the business by any chance and is it what's the new structure? Are you going to replace them or is it the new structure doesn't need president and the COO? So on the first one, as of course, you know, we don't provide a view or a guidance beyond this financial year. Underlying the way we see the business We see two growth drivers, and we are well positioned on growth in terms of capabilities and track record. One is on digital transformation comprising of cloud and other elements, and one is on cost efficiency automation, and an additional element which is on consolidation that comes in through that. We see both of those drivers working. We've seen a reduction in the digital transformation work today. We've seen more in the cost and efficiency and consolidation play today. But going through, depending on where the client is, what the environment is, we've been comfortable with both of those drivers to work over time. In terms of the structure, We have put in place a structure for the delivery organization, which is already rolled out, and in the next few weeks we'll roll out the new structure for our FF team. So we feel good with the leadership pool that we have within the company who are moving up to take a broader role and a larger role, that they will step up and deliver what we are driving towards. Very helpful. Thank you so much.

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

Hi. Good evening. Thank you. I wanted to ask on the growth outlook first. At the midpoint of your 4% to 7% range, can you give us a sense on how much of the backlog is already in hand versus having to go out and convert upon the pipeline to achieve that growth target?

And does the amount that you have to sign in that pipeline to hit the target differ relative to prior years at this time?

Hi, this is Salil. Thanks for that. We don't have a specific sort of number there that we share externally. What I can sort of share is we see through this Past financial year, we've had a good large deal booking, 9.8 billion with 40% net new. And we see a set of very strong active relationships, some of them expanding through the year through other work. And then we saw in Q4 during the quarter some ramp downs. So keeping those factors in mind, we've built the guidance of 4% to 7%, and we see that we have the ability to deliver on that guidance.

Okay. And my follow-up is kind of on margins here. So you cited internal efficiency programs that you're going to progress upon, and I think you're making office consolidation and other items.

is there a stated target of cost reduction that they're expecting to achieve? So a runway of margin expansion? Just trying to get a sense of how you think about the structural margins of the business, assuming the efficiency initiatives you cited. So there we put together an internal plan with targets and, let's say, roadmaps for each of the subcategories that we outline and a few others. And we have a view to drive that through the next sort of a period here in the coming quarters. We have not shared that target externally, but our view is to make sure that we put in place, execute on that program in place and deliver to that in the medium term. Thank you.

Thank you. Our next question is from the line of Ankur Rudra from J.P. Morgan. Please go ahead.

Hello. Thank you. The first question is on, I just wanted to get a bit more color, if you can, on the reasons for the very sharpness on revenues and margins versus the guidance. Why did this surprise you, and how much of the demand environment has existed through the quarter versus what probably came in the last 30 days? That's the first one. This is Salil. So what we saw there was during the quarter, as the quarter progressed, we saw on some clients ramp downs on programs. And this was across different sectors, telecom, retail, high tech, and parts of financial services programs. mortgages, investment, banking, asset management. And that is something which were unplanned as we went through. And then additionally, we had some one-time impact, which we saw in the quarter as well. Would you be able to elaborate on the one-time impact, Salim? Yeah, so I think firstly the majority of the decline is volume-led. The balance of the revenue is one-timers, which is a combination of specific client issues, including the impact of cancellations as well, which is just a top-line impact over and above the volume impact. So that's the state of play really for the portal. Okay, thank you. On the guidance, I just wanted to get a sense, looking at, you know, what happened in the quarter and the uncertainty in the environment, are you turning more conservative for the guidance setting process for F24, both on the revenues and the margins versus what you may have done before? And also, along with that, if you can share, what's the visibility that you have at the moment for the full year versus what you may have had, you know, at the beginning of last year? So there on the guidance, we took into account what we see typically as we close the year in March on what we've had in new large deals and overall new deals and the ongoing work that we have across our client base. And that basically becomes the foundation of our guidance. Typically, again, as you know well, We don't have a detailed view of Q3 and Q4. So we have more typically estimates from other years that we use. And that's the same approach we use. We see from what we see as we look out. And the same on margin. We finished the year at 21%. Utilization in Q4 is low compared to what we want to target. We have a very strong efficiency and cost program. But within that program, we are very clear that from an employee perspective, we will continue with our commitment with employees. And so the utilization will go up through the quarters. But in the medium term, we will get that impact back into the margin. And that's how we build the 20 to 22 margin guidance. Just a last question on the leadership. I think this was attended before, but my stab at it would be, I mean, clearly there's been departure, as you acknowledge, and some of them have gone to competition, probably the guys hungrier, you know, peers going forward. Do you think you're losing muscle and increasing the roles and responsibilities of a more concentrated leadership team, at least I've seen from the outside, at a time when the industry is facing a tougher period this year? Sorry, I didn't follow. You said, will we have concentrated leadership? Yeah, concentrated leadership, as in basically more roles and responsibilities, as an example of your door, of LNG's door, versus having three other very senior leaders helping you with a wider leadership team. Ah, okay. What we have seen and what we know is, you know, within the company, there's a very strong a set of leaders across different roles. So on delivery, many of them have now stepped up and clearly any role as you start to step up to delivery leadership within a large company like Infosys becomes more concentrated and that has been announced and rolled out. And the same thing happened with FS where we are rolling that out in the coming weeks. Segment, of course, is a large segment for us. So those will be concentrated in that sense. So we will have a leadership structure with very strong responsibility for several of the senior leaders. Understood. Thank you and best of luck.

Thank you. Our next question is from the line of Kavaljeet Saluja from Kota. Please go ahead.

Yeah, hi. I have a couple of questions. The first question is on the guidance once again. Is it back-ended or, you know, the guidance assumes even growth through the course of the year? And related question to the guidance is that given the deterioration in the macro environment along with the huge miss in 4Q, along with weak signings, do you think there'd be, you know, a more watchful in your guidance for FY24? you know, has the process been tightened? Any thoughts on that would be welcome. Hi, this is Salil. On the revenue growth guidance, the thinking is really spread over the four quarters. I'm not sure I would say it's front or back, but it's based on what we see in the large deals today. And also in the pipeline that we have, where we do have some mega deals in the pipeline. So that gives some weightage to the guidance, given where those deals will come. It will be later on in the year itself. The second one, sorry, Paul, was are we more conservative? Is that the point? No, no. Has the process of guidance been tightened or other, you know, forecasting process, has it been tightened given the magnitude of miss in revenues in the quarter, which obviously would have shocked you as well. You know, have you basically, I mean, built in better cushion, greater cushion in your guidance for FY24 or is the process and the underlying assumptions the way it used to be historically? So these are, try to put in place what is a changing or let's not changing an uncertain economic environment which where we saw some of these impacts so those factors have been taken in as we build this guidance okay and the second question that I had is on profitability you know every company would you know I mean want to operate at a certain base level of profitability. Now in Infosys' case, you know, this profitability has been drifting down and the profitability guidance is down to 20 to 22%, which is a kind of a new low. You know, how should one think about the underlying operating assumptions behind these things, you know, and the process of bidding for large deals and how does that deal in with the underlying base of profitability activation rather than assumption that you have. And you know, is this, you know, so how should one think about structural of profitability, if you may. Yeah, so I think that if you step back a bit into the last year and a half, I mean, basically the whole chasing of this, you know, demand side, you know, three, you know, compensation in 15 months, stress salaries, you know, all that in a way has made our structure a bit inefficient, right? And in a way, part of that today is the reverse that you're sitting with, you know, 80% utilization, whereas you want to be at much higher levels. The pyramid is not as efficient because you had to get talent from anywhere when the market was hot. So we've seen a lot of these sort of things during this period where we can identify these profits have gone, you know, driving to 11 and a half percent. So, I mean, we were clear that we had to go behind, you know, getting the volumes in, right? And we knew we had time to correct the margin structure, right? and therefore that's fundamentally what we still believe in. Our guidance is just today at a midpoint that we ended the year at 21 and we have enough flexibility with guidance between 20 to 22 and in a way 21 is just a midpoint of that to take care of you know firstly of course there may be some headwinds coming because of compensation, they could be something on travel. But at the same time, you have levers of improving our utilization at 80%, really, which is probably one of the lowest I've seen. We have other opportunities of improving the pyramid because You know, the higher bench comes with a double whammy of costs. One is you have the ideal cost of the bench, and at the same time, you have a very rich pyramid. So, the moment you start moving fresher into the pyramid, you get a double benefit of cost that the ideal cost goes away from the bench, and your quality of the pyramid improves on the production side, right? So, you're sitting on, in effect, two inefficiencies now. These are the levers we start using. Pricing, et cetera, are still going on in conversations, how we build in Kolarcoa. aspiration continues to be that we continue to look at improving margins from where we are. The guidance is just a reflection of it gives us a flexibility in this uncertain year and we've ended at 21 as we saw consistently during this last year as well. You know, I'm trying to interrupt you in something over there. You know, you see, uncertainty might be there in revenue, but on cost, right? There are only tailwinds, and there are a number of tailwinds that you listed out, and I presume that the labor market has also cooled off. So why bring down the lower end of the bind, actually? Yeah, so I think also some is that maybe some of these weavers will take time to put in because it's a different situation of how much sort of a room you have to deploy levers when you're going at 10% versus when you're going at 4 to 7%, right? So for instance, your threshold, how fast can you deploy them when you're going at 4%? It's a different pace versus what you're deploying at 7 versus what you're deploying at 10, right? So all that will still weigh into the structure. It's not that you can immediately say, I'm going to overnight change my utilization from 80 to 85, or shift the on-site offshore, because In a way, a slower volume regime, you know, has that, you know, overhang on how fast can these be deployed. But like I said when we started that we are putting on these efficiencies that are very visible to us. And we know we can deploy many of these, you know, sort of newer which we have to continue to aspire for higher margin profiles. Okay. Got that. Thank you so much.

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

Yeah, hi. Thanks for the opportunity. Just continuing on Kamaljeet's question around margins, two things. One, what kind of a timeframe are you looking at for this year's wage hike? Are you sticking to first quarter? and what kind of quantum are you expecting? What kind of a margin impact do you foresee of that? Will it be similar to last year, or do you think this could be lower this year?

Yeah, so this will be continuously evaluated. We have built in, like I mentioned, into our guidance compensation, and we will take decisions during the year as we're looking at the market context, the competitive context. So no decision has been taken as yet.

So the hike may not happen in the first quarter. Is that what you're saying?

At this moment, no, the thing has been taken for the hike.

Understood. And at the lower end of the guidance, are you keeping a buffer for some kind of a potential pricing pressure that might come in during the course of the year? Is that the headwind which you see as a major one when you are guiding for a 20% floor?

I don't think coming specifically into some pricing. I think it's just that we are, you know, at 21% and the midpoint is between 20 to 24 just happens to be 21. And like I said, there may be some headwinds, there may be some tailwinds. And of course, the application will continue to do better than, you know, our margins as well. So nothing specific like that in terms of, you know, pricing, you know, contingency or something.

And Salil, if I look at the net new deal wins, probably this was the lowest since we had from the start of the pandemic. I mean, was this mainly due to clients delaying decisions on the awards towards the last 30 days? And are you building any kind of a conversion of this to get to that 7% at the upper end of the guidance?

So there, one of the things we have seen in the pipeline is slowing in decision making so large deals staying in the pipeline longer having said that the net new or even the quantum of large deals as we discussed in the past there is always volatility because these are only deals over 50 million and not everything it's not a full let's say booking value and so we've always seen that volatility in the past We think with the large B pipeline that we have today, which happens to be a very large pipeline and some mega deals in it, we have the ability to drive to a margin, sorry, a growth guidance as we run through the year.

So just to clarify, at the upper end of the guidance, we are expecting some of those mega deals to convert during the course of the year.

I would not be too specific in that to say what it is based on. We do have a large pipeline with Megadim, and we anticipate that some of those will allow us to get to the higher band of the guidance. Understood. Thank you.

Thank you. Our next question is from the line of Abhishek Bhandari from Nomura. Please go ahead.

Thank you for the opportunity. Salil and Ilanjan, you know, this quarter we had certain unanticipated, you know, external events, you know, that led us to miss our guidance of 16.5, especially, you know, after we had upgraded at the end of 2.3.

Do you think you could have considered issuing a profit warning, you know, citing resources beyond your control? Because this time the miss seems to be fairly, you know, sudden and shocking in the third, fourth quarter.

So I think we see the full year, we said 16% and we were at 15.4 and we took 21% margin and we were at 21% as well. So I'm not sure what's the question referencing. where i was coming from you know we had raised the band at the end of q3 you know we signaled you know we possibly had better execution you know under control of course things have changed there are macro situations beyond our control and you know there were some cancellations so as a good person this evolved during the quarter right so the situation also has evolved during the quarter it's not as if suddenly on one day we wake up and suddenly see that the values are down. This is the situation during the quarter as well. Okay. The second question is, you know, Saril, I think in the press conference you mentioned, you know, M&A could be an opportunity where, you know, some of the global companies could consider selling their captives.

Do you foresee, you know, meaningful deployment of capital for that particular purpose this year? Are there enough number of, you know, such captive conversations in your pipeline?

Also on NMA, I think we have with a strong balance sheet the ability to do something small or medium or large. Today we are in, let's say, we look at many opportunities. We will see how those fit in. There are various sort of components to it, strategic fit, of course, valuations which are much more reasonable today, cultural fit of those companies, and the ability for us to integrate that in. And so all of those we keep in mind, and if it sort of meets those points for us, we will look at those opportunities. Thank you, Sajid, and all the best.

Thank you. Our next question is from the line of Ashwin Mehta from Ambit Capital, Private Limited. Please go ahead.

Hi, thanks for the opportunity. What is the nature of this one-off client issue? And when this reverse out, like we saw last year in the same quarter, where we took a client contract provision. Secondly, is it a single client or multiple client issue that we are talking about? And in which segment have you seen this client issue? And I have a follow-up. So, like I said earlier, this is one of client issue, revenue issues, and there are a number of clients. It's a mixture of clients and some of it is a provision against them. Some may come back, some may not come back. And some of it is also linked to cancellation, right? Because the revenue impact also beyond the volume impact of cancellation. Yeah, I mean, it is, there's a mixture of clients there. And the 10% decline that we've seen in US telecom, is it related to this, these client issues? Because that appears to be a pretty steep decline. 10% decline in? In the US telecom business of yours? Yeah. No, I don't think anything specific in coming out of these issues really. Okay. And the last one is, if I look at your guidance, it implies a 2.9% sequential growth over the next four quarters. The last we saw this X of the COVID surge was in FY16. So what drives such a high growth comfort for us in an uncertain environment? Thank you. So the CQGR requirement for your top end of guidance is around 2.9% sequential every quarter. This is something that except FY22, we've seen last in FY16. So in an uncertain demand environment, what drives such a high growth comfort? What we've seen with our guidance is we have some good large deals that we closed in the previous financial year and we have a pipeline which gives us large pipeline, several of them mega deals, the opportunity to have those come into our mix and give us a flow through the year. So would you say the sub $50 million deal flow is where the traction is much stronger than what appears in the greater than $50 million deal flow that we announced typically? We don't have a view that we share typically on the non-large deal. But our large deal is one of the components that we use to build out the guidance. Sure, sir. Thanks a lot and all the best.

Thank you. Our next question is from the line of Gaurav Ratheria from Morgan Stanley. Please go ahead.

Hi. Thanks for taking my question. So first is a conversion of the order book to revenue. If I look at your fiscal 23, you entered the year with a net new deal win of roughly $3.8 billion, which generated incremental revenues of $1.9 billion. You're entering fiscal 24 with a net new deal means of $3.9 billion, which is pretty similar to last year.

But the guidance implies incremental revenues of $1 billion at the midpoint.

Just trying to understand that what has changed that is driving significant downtick in the incremental revenue with a very similar net new deal wins in your book yeah so I think also part of it is the net new wins and the phasing of that right and I think in FY22 you would have seen them more towards the you know throughout the year and if you're seeing in FY23 I think the last quarter, for instance, somebody has also mentioned has been a weaker quarter because there's usually a four to six month gap between that deal win before it comes into revenue. So I think partly is the phasing, but the underlying, I think we've had strong deal wins on both sides and a percentage of net new. I think part of the question is the way the net new has shown during the year.

So it's to do with the ACV

growth being weaker than the TCV growth is that like a fair understanding could be could be also timing of it right so I'm just saying that in the net new like for instance in quarter 4 as somebody has mentioned is about 22% so that will reflect in FY24 going forward initially and then of course as new deals ramp up that's a separate volume impact but the phasing of the within that is also to be seen of where did the net news come All right. The second question is around the comment that you made around the stabilization that you have seen in March.

So is it fair to say that your guidance is assuming things are likely to improve sequentially from here on and this is the worst or it's difficult to say that the worst is behind us?

Yeah, at this stage we are not saying any of those things. What we are saying is we saw some signalizing that the environment is uncertain. So we are watchful and agile. And one of the reasons we've expanded the margin, sorry, the growth guidance band to three points is to take that into account. Sorry. Last question from me on the margin. So how much of the margin downtick is

primarily a cost-led issue which will rectify over a period of time and how much it is kind of flexibility you have given to yourself to go after the deals which may have a fundamental different contract profitability. Thank you.

Wow, that's a fantastic question. Like I said, we explained how we've done the margin guidance. We rendered at 21. That is the midpoint of 2022. We have some headwinds. We have some tailwinds. And this margin allows us that flexibility as well as what we can do to inspire to improve that. Thank you.

Thank you. We'll take a next question from the line of Sudhir Guntapalli from Kotak Mahindra Asset Management. Please go ahead.

Good evening, thanks again for the opportunity. Couple of clarifications due to unplanned ramp downs and cancellations as you said we have seen a sharp 3.2% fall in the revenue. However, margins fell just 50 basis points and even based on the apportioning of margins we gave utilization and cancellation had impact even so much in proportion to 3.2% fall in revenue. this decline of this magnitude should have entailed a much bigger margin impact given the cost recalibration is difficult in the near term. So, just curious is there any sizable pass through element which should have gotten rolled off which would have also led to the revenue decline or is there any deferred cost component which will come and hit us in the subsequent process? No, so we as we went through the margin walk earlier to go back to script. I think they are quite clear of how the margin has moved from 21.5 to 21. Sure and the second part of the reason why I am also asking about this pass-through component is the SVD scare and sentiment overhang sort of unfolded from 10th March post which there were 12 to 15 working days and the revenue was almost 3.5 to 4% short of guidance. or expectations which means there is a 180 million dollar revenue stream. Looks quite a bit for 12 to 15 working days of invoicing. So, again put it conversely is there a deferred revenue component which can come in the subsequent quarter since you also mentioned somewhere about a provisioned digital of 1 year. No, I am not getting clear your question really. No what I was asking was this the in general the macro sentiment overhang and quoted in the last. No no I think did you say that whether all this shortfall of three and a half has happened in the last like month or something like that. No yeah so you are saying the three and a half percent shortfall is evenly spread from the beginning of the quarter itself and not necessarily. Yeah, of course, the one-timer is a different issue, but the majority of the drop in revenue is because of volume. And like Pharrell said, this was pretty much after 15, and we've actually seen March stabilizing. So it wasn't the initial half of the quarter. Okay. Thanks.

Thank you. Our next question is from the line of Surendra Goyal from Citigroup. Please go ahead.

Yeah, hi. Good evening. So my first question was on the revenue guidance. Just wanted to confirm that the guidance is all organic. Yes, the guidance is all organic. And the second question is on margins for Nalangian. So while I understand that your guidance is always annual, but how do you really think about medium-term margins, right? So the common question we have been getting from investors, given the direction of margins, is can it be 18% a couple of years down the line? So I know you can't quantify it, but just wanted to understand how you guys think about medium-term margins. Yeah, I think I explained it earlier on the question to Kabul as well, you know, You have to step back and you see during this period of COVID, for us to go after in a very talent-constrained environment, the impact on the cost structure of the company all across, per capita cost went up. Pyramids got a combination of compensation, sketches. Pyramids got eschewed. you know, basically fundamentally you are going behind these large beams. You don't have time to really optimize on all these levers upon, you know, the report 11.3%. All these inefficiencies we saw, but like we continuously said during that period that we knew that we had to go and grab that volume and we would have enough time to subsequently as we start, you know, unwinding those inefficiencies and this is a cost optimization program we run throughout, you know, and that's where We still think these inefficiencies still exist across utilizations across this one. I mean, we're sitting today at 80%, as we mentioned, and it's got a double value on cost, like I mentioned earlier. So these are things we will continue to target on and aspire to improve our margins, and 2022 really gives us that flexibility, and 2021 just happens to be the midpoint where we ended the year. I guess my question was more medium term because in good demand scenario, margins go down because of supply side issues and in bad demand scenario, possibly they go down because of either pricing or whatever other reason.

Thank you. Our next question is from the line of Keith Bachman from BMO Capital. Please go ahead.

Yes, thank you. I had two questions also. Could you talk about what the growth rate of the backlog in the pipeline was during the March quarter and how that differed during the December quarter? I'm just trying to understand the magnitude. You called out volume as the major driver, but how did it impact the overall backdrop? And within that context, could you give us a sense of, you call that the several one-time events for customers. Could you give a quantification about what that was in the quarter? So we don't quantify that, but like I said, the majority has been because of volumes and the balance has been because of the one-time of the clients, some of them related to cancellation and other, you know, provisions. Okay. You don't want to give a characterization that won't, you know, those cancellations or a quantification of it? No, I don't think anything else we have to add. Okay, okay. I wanted to, my second question then relates to pricing. And the previous question, I think, was trying to get at this, and I'm not sure I understood the answer. But if you think about the guidance that we provided, On the one side, perhaps I would think that you get COLA benefits associated with your contracts, but a lot of your customers, frankly, are experiencing the same economic weakness you are, and therefore could negotiate in the tougher pricing as we look at over the next 12 months. In other words, want price reductions because they're experiencing economic pain as well. So maybe just talk, how are you thinking about like-for-like pricing as you look out over the next 12 months in terms of the forecast that you provided, or the guidance, excuse me, that you provided. Yeah, so I think if you see pricing in general, and I won't say, you know, how many of the pricing elements have been built in. So this is a program we started about a year and a half back. And it's a combination of two or three things. One is, you know, the renewal discounts, which clients come back when the program's ending. and basically after productivity increases at the renewal stage which we are just usually calling discounts now that is something which we have really curbed over the last with a few years uh basically pushing back on the renewal because there are other ways we can get productivity as well so that's something which has actually uh you know stemmed quite a lot uh in fact clients understand that we have to also provide for our own talent and this hot talent market to compensate their teams. So that's something which they've learned to appreciate as well. So that's one part of it. Second is a program which we run on basically digital pricing where they're going after new digital deals. And this is a combination of, you know, how we've changed that pricing model into linking with, for instance, the newly acquired subsidiaries which have higher pricing. It could be more thought-based pricing, outcome-based pricing. There are new innovative pricing constructs for that second. Third is simple hygiene work of, you know, having COLA clauses into our, you know, MSAs. And of course, how much you can execute and implement is a different question, but at least with that in deals going in, at least you have a starting point to negotiate with the client as well. So it's all three we look at in terms of existing deals, new deals, and renewals. And of course, you have clients where you have the ability to push this through a great level, some clients offer that. to be plowed back into the employee set. In some clients, it depends on markets, of course, who are going through their own, you know, sort of concerns on their environment, it may be more difficult. And therefore, it's literally also for courses in which we go literally client by client to see where we can get an improvement in the underlying RPP realizations. And so what is the underlying assumption associated with the guidance for FF.4 and how is that different? and what you've experienced. We don't break down our guidance into volume and flight, if you want to call it that way. I'd say, yeah, more just directional. Is it the same, better or worse, just kind of directional programming? Yeah, we would expect pricing to improve, right? Now, I can't give you a sense of, you know, versus last year, how much will this improve, but yes, we have pricing improvements built into our overall plan. Okay, fair enough. Many thanks.

Thank you. Our next question is from the line of Abhishek Kumar from JM Financial. Please go ahead.

Hi, good evening, and thanks for taking my question. We have seen some divergence in the client behavior that we have talked about, which is what some of our largest peers have spoken about. One, we have seen March stabilizing, like what we heard yesterday, that March actually deteriorated. And second, the discretionary spend for peers has actually got deferred and not canceled. But we have seen certain cancellations in the projects. So, in that context, just wanted to understand the nature of, you know, these projects which are being canceled. Are these discretionary or there are also consolidation being . So, what we shared was some of the projects or programs were stopped in an unplanned way during the course of the quarter, these are not resulting from vendor consolidation. These are resulting from decisions that the clients have typically made on their spend given the environment that they have faced. Okay. Okay. Sure. Thank you, Anil. Okay.

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

Over to you, sir. So thanks, everyone, for joining us. As we shared through the call, first, for the full year, we had good growth, good margin, good cash collection. We saw during the quarter some situations which were a new situation within the quarter with the changing environment. We have a strong guidance for next year, 4% to 7% of growth. We have a good guidance on margin. We've put in place even more emphasis on a cost and efficiency plan which has many components at a detailed level. And we look to see that benefit come through over a multi-year period and aspire to higher margins. And we have an extremely strong pipeline with large deals and some mega deals, especially on cost efficiency automation. With that, we feel the business remains in a good position and we have the ability to work through different environments on digital transformation and or on cost efficiency consolidation as the course of the year develops. So we look forward to executing on that and connecting with you at the end of this Q1. Thank you.

Thank you. Ladies and gentlemen, on behalf of Infosys Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.