Infosys Limited American Depositary Shares

Ladies and gentlemen, good day and welcome to Infosys earnings conference call. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Sandeep Mahindra Thank you, and over to you, sir.

Thanks, Nirav. Hello, everyone, and welcome to Infosys earnings call for Q1 FY25. Joining us on this call is UNMD Mr. Salil Parekh, CFO Mr. Jai Sangrajka, and other members of the leadership team. We'll start the call with some remarks on the performance of the company, subsequent to which the call will be opened up for questions. Please note that anything we say which refers to our outlook for the future is a forward-looking statement, which must be read in conjunction with the risks that the company faces. A full statement and explanation of all these risks is available in a filing with the SEC, which can be found on www.sec.gov. I'd now like to pass on the call to Salil.

Thanks, Sandeep. Good evening and good morning to everyone on the call. We started the financial year with a strong performance in quarter one across multiple dimensions, including broad-based revenue growth expansion, Board-based revenue growth, expansion operating margins, strong large deal wins, and strong cash generation. Our revenues for the quarter grew 3.6% sequentially and 2.5% year-on-year in constant currency terms. I'm particularly pleased with 7.9% growth in financial services segment, where we are seeing improvement in client spend in North America. All geographies and most industry groups grew sequentially. Volume growth turned positive after several quarters. We also had an improvement in realization. We had another quarter of strong large deal wins with 34 large deals at a total contract value of $4.1 billion. Our clients see us as a preferred partner of choice for consolidation, cost takeout, and efficiency programs. This is also a reflection of our leadership strength. With the mobilization of our margin program, we see positive impact on our operating metrics and pricing. This resulted in our margin expanding by one point sequentially. Jayesh will elaborate on margin puts and takes later on the call. Free cash flow was highest ever at $1.1 billion. Our employee attrition rate was at 12.7%. We continue to see strong traction from our triumphs with generative AI programs delivered through Topaz, Enterprises are focused on their own data sets that can be used in generative AI large language models. As an example, we are partnering with the telecommunications leader to transform the product engineering practices with AI and to elevate both the customer and employee experience. Another example is how we are optimizing and modernizing IT infrastructure services and transforming the IT operating model with AI for a leading bank. We are helping several of our clients prepare for the AI transformation journey by building strong data foundations with robust cloud capabilities using our Cobalt cloud services. Industry analysts acknowledge our leadership in the domain of enterprise-generative AI. We continue to invest in strengthening our AI capabilities and building AI-first solutions for clients. During the quarters, we launched Aster, a marketing suite of AI-amplified solutions for our clients to create brand experiences with enhanced marketing efficiency and accelerated performance effectiveness. Our investment in nurturing a global workforce with AI-first skills and expertise continues as over 270,000 of our employees are now well-trained in building a wide range of of AI-powered solutions for our clients. We are today uniquely positioned as a digital-first, cloud-first, and AI-first brand in the market, and a continued differentiation has helped us being recognized among the 100 most valuable brands in the world by Kantor Brand Z. We have also been ranked among the most trusted brands across US and India. Along with our overall robust performance in Q1 and strong opportunity pipeline, we are seeing early signs of improvement in financial services vertical in the U.S. While discretionary spends continue to be under pressure, our highly differentiated offerings around driving efficiencies at scale and transformation capabilities around generative AI have positioned us well in the market. With respect to our recent acquisition of Intech, we have received the required approvals and have closed the acquisition. Given our strong performance in Q1 and our current outlook, we have revised our revenue growth guidance for the full financial year to 3% to 4% growth in constant currency. Our operating margin guidance for the financial year remains at 20% to 22%. With that, let me hand it over to Jayesh to share his update. Thank you. Thank you, Salil. Good morning and good evening, everyone, and thank you for joining the call today. We entered FY25 focusing on key strategic priorities, including market share gains to accelerate revenue growth and drive margin improvement through project maximus. I'm delighted to highlight results that we have achieved across different business dimensions this quarter, including strong and broad-based revenue growth across all geos and most verticals year-on-year in constant currency terms. Sequentially positive volume growth after several quarters coupled with improvement in realization. Financial services returned to positive sequential growth after six quarters with 7.9% growth in constant currency terms. 34 large deals signed during the quarter, which is a record number of deals in any quarter. Large deal TCV at 4.1 billion, including 58% net new. Deal pipeline continues to remain strong. 1% operating margin expansion sequentially. Improvement in operating parameters, including 1.8% increase in utilization and lowest on-site mix in 10 quarters. Highest ever free cash flow generation in a quarter, with free cash flows normalized for tax refunds at 104% of net profits. Fifth consecutive quarter of reduction in unbilled. Attrition has remained stable. An increase in return on equity by 1.5% QOQ to 33.6%, primarily resulting from higher payouts to investors. With that, let me now elaborate with details. Revenue for Q1 was $4.7 billion, up 3.6% sequentially and 2.5% year-on-year in currency terms. This included benefit from improved realizations from one time of 0.5%. Operating margin improved by 1% sequentially to 21.1%, led by 1.4% improvement in gross margins on account of strong operating performance across different dimensions. The major components of sequential margin work are as follows. Tailwinds of 2.2% comprising of normalization of Q4 one-timers of 1%. 0.8% benefit from Project Maximus, largely from higher utilization and value-based selling. 0.4% from the improvement and realization mentioned above. Partly offset by headwinds of 1.2% from higher variable pay, higher leave costs offset by currency and others. We continue to drive Project Maximus across the organization with strong intensity. Headcount at the end of the quarter stood at over 3,15,000, with utilization further increasing to 85.3%. LTM attrition was stable at 12.7%. Unbilled revenues dropped for the fifth consecutive quarter to 1.7 billion. Free cash flows for the quarter was highest ever at 1,094 million, a sequential increase of 29%. DSO for the quarter was 72 days compared to 71 days in Q4. Consolidated cash and cash equivalents stood at $4.3 billion after factoring in payout of $1.4 billion towards dividend declared in Q4. Consequently, return on equity increased sequentially to 33.6%. Yield and cash balances were at 7% in Q1. EPR for the quarter was 29.4%, which is in line with our expectation for the year. EPS grew by 7% in INR and by 5.4% in dollar terms on a year-on-year basis. We closed 34 large deals with TCV of 4.1 billion. 58% of this was net new. Vertical-wise, we signed eight deals, each in retail and communication, six in URS, five in financial services, four in manufacturing, two in high-tech, and one in licenses. Region-wise, we signed 21 large deals in America, 12 in Europe, and one in ROW. Coming to verticals, BFSR returned to positive growth after six quarters led by ramp-ups of large deals and absence of one-off last quarter. In the U.S., we see some recovery in areas like mortgage, capital markets, and cards and payments. Overall, clients still remain cautious on spending and are focusing to deliver maximum business value through deals combining transformation, technology, and operations. Pipeline remains strong, and we are working with the clients to accelerate their adoption of GenAI for modernizing legacy platforms, fraud detection, credit process simplification, etc. In manufacturing, growth was broad-based across geographies and sub-verticals like industrial, automotive, and aerospace. While pressure on discretionary spends persist, we see increased benefits of vendor consolidation, opportunities around resolving supply chain, bottlenecks, and rationalizing infrastructure and applications. We see strong interest on GenAI with deep client engagement. Our capability and pipeline in the engineering space will be solidified by acquisition of Intech, which will help us accelerate the segment growth in FY25. Growth in communication was led by ramp-up of recent large deal wins. Overall environment, however, remains cautious with continued OPEX pressure and delayed decision-making. Telcos, despite challenges, are navigating their way by focusing on rapid digitization and reprioritization of spend. Uncertainties in retail sector continue with clients focusing on cost takeouts to fund their business transformation journey. There are opportunities around areas like customer and employee experience, predictive analytics, digital marketing and landscape modernization. While the pipeline remains healthy, decision cycles continue to stay elongated. Environment in EURS continues to be impacted by high interest rates and geopolitical conflicts, which are influencing the spend patterns. While pressure on discretionary spends persist, our differentiation in areas like energy transition, integration business, and human experience is helping us build a strong pipeline. Hitech Vertical continues to remain soft. Thank you very much. We will now begin the question and answer session.