Q1 2023 Infosys Ltd Earnings Call
Ladies and gentlemen, good day and welcome to Infosys Limited earnings Conference call.
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I now hand, the conference over to Mr. Sandeep My interim.
Thank you and over to you John .
Hello, everyone and welcome them to pick on you talked a bit.
Any case I mentioned events.
Even though I have been in Bangalore.
Joining us today on this policy and in many states that Anthony.
And I don't remember the Genie management team.
And so part of whats on the market and the performance of the company.
The London subsequent to which we'll open up the quantification.
Please note that anything that you face a different thought I'd look to the future to go forward looking statements that must be read in conjunction with the rates that the company faces.
Excuse me the explanation might be lifted up and levering up items a day.
Found on Www Dot if you don't really know.
Two parts one the public opinion.
Thanks, Sandeep, good morning, and good evening to everyone.
On the call. Thank you all for taking the time to join us.
Have you had an excellent start to the financial year with five 5% sequential growth.
24, 1%, sorry, 21, 4% year on year growth in constant currency.
We continued to gain market share with our COBOL cloud capability and.
And our differentiated digital value proposition driving a significant pipeline of opportunities for us.
For example, a premier online retailer in the U S.
Infosys School Board.
Back on the cloud driven transformation journey.
And honestly it got food experience and improve their security posture.
Another example is a European manufacturer who's really imagining their digital workplace and best of breed network security with I T infrastructure powered by Infosys globally.
Did I examples like these are all across the spectrum in different sectors.
Driving interest in school back into the market.
Clients continue to place an immense amount of trust and confidence and emphasis to help accelerate their digital transformation agenda.
On efficiency the group that I mentioned of the business.
The strong growth we have seen in the quarter leaves a robust foundation for the year.
Let's continue should've been broad based across the segments.
This lines and geography.
Each of our business segments grew in double digits with several of them doing a 25% or higher.
In terms of geography, the U S. Geography grew at 18, 4% and you ought to do a 33, 2%.
This indicates a healthy demand environment and is a reflection of how our industry, leading digital capabilities at the end of it for our clients.
Digital revenues were 61% of the total and who at 37, 5% in the quarter in constant currency.
We then did you do like cloud work continues to grow faster.
Cobalt cloud capabilities see significant traction with our guidance.
Our overall pipeline remains strong.
You do see pockets of weakness for example, the anti off mortgages in financial services.
We keep a close watch on the evolving macro environment.
In terms of the changes to the pipeline.
We did not pipeline. We also have focus in addition to the growth areas in digital and cloud cost and yes through automation and AI.
Our operating margins were at 20%.
We have completed the majority of our compensation, giving you for this year.
Jim will provide more details on the overall margin uptake.
Some other highlights of our results.
We signed 19 deals with a large D value of $1 six $9 billion.
This is comprises about 50% net new work.
Onsite mix was at 24, 3%.
As you build capacity for the future utilization was at healthy levels of 84, 7%.
Our free cash flow was strong at $656 million.
Our quarterly attrition declined.
And historically Q1 attrition increases how did you do four points sequentially.
On a quarterly annualized basis, although our attrition declined by one point on a sequential basis, reflecting the impact of various initiatives we have.
Yes.
We had a net head count increase of 'twenty or 'twenty.
21000 employees, attracting leading talent from the market.
This is a reflection of our enhance recruitment capabilities, so I'll, let Brad.
And deeper penetration into various markets.
A coupon cloud capability continues to be market leading.
We have 360 technology and domain solutions.
All of our assets have over 50 clients each.
We have 150 industry focused solutions.
Unfortunately living labs, 50 experimentation plays out and 60000 knowledge assets.
One infosys approach is serving us well and bring the best of Infosys and service to.
Our clients' needs.
Earlier this month, we announced the acquisition of Beach Life Sciences.
Landmark based technology and consulting firm.
Life Science industry.
<unk> brings to Infosys domain expert expertise.
In medical digital marketing clinical and they can do.
With a strong growth in Q1, and I've got an outlook on the buying opportunity and pipeline, we increase our revenue growth guidance, which was up 13% to 15% now to 14% to 16% for the full year.
We keep our margin guidance at 21% 22%.
With the increased cost environment.
He will be at the lower end of this margin guidance. Thank.
Thank you and with that let me hand, it over to the London for his update.
Thanks Helane.
Good morning, everyone and thank you for joining the call. It an early Monday morning.
We had a strong start to fiscal 'twenty three with the robust year on year growth of 21, 4% in constant currency, all our business segments and major deal.
Double digit growth with manufacturing communications.
I'm sure along with Europe region regarding pretty tight.
Good.
Sequentially revenue growth was five 5%, which was led by a healthy volume growth and some occupancy benefit.
Did you see revenues now constitute 61% of food and grew by 37, 5% in constant currency.
Client metrics are strong with increase in client count across every bucket compared to the previous year.
Number of 50 million dollar clients feedback than the 69.
The next potential Centurion.
$100 million likely fees by four to 48, and the number of $200 million lines have grown by fixed and the last one year.
This reflects our ability to deepen my knee across a large client.
Yeah.
What else strong employee addition, before with 21000 to cater to the growth opportunities ahead.
That decision was particularly strong which resulted in a drop in utilization to 84, 7%.
I'm, sorry, that's what mix in stop with 24, 3%.
Wanted to see N P and accretion.
Me to 28, 4% quarterly annualized attrition declined down about 1% from Q4 levels. Despite Q1, we'd be seeing an uptick due to seasonality.
As announced that yet we havent given competitive salary increases for the very different LIFO Nathan.
Given the supply tightness and highest civilian inflation salary freezes across all geography are higher than historical levels.
The increase is very decent job levels and performance of employees the top performers getting double digit type.
Hi, Ben employees is that being done in fact, if you like.
Q1 margins.
Thing.
Drop over 150 basis points with the previous quarter.
The major components of the sequential margin movement, whereas the law.
Headwinds of one 6% due to salary increases.
0.4% drop in utilization as we create capacity people future, 0.3% due to increases in subcontract blocking that their path.
These were offset by gains even though you're up one 5% due to increased inaki from higher working days, okay, well, that's kind of a client contract supervision and not affect segment, partially offset by discounts.
0.3% benefit from the depreciation benefits, partially offset by cross selling as they had been.
Q1, EPS grew by four 4% in rupee terms on a year on year basis.
Our balance sheet continues to be strong and debt free and so on.
Cash and investments were $4 4 billion at the end of the quarter. After returning more than 816 million to the shareholder through dividend because equity infusion, how do we get to 31%.
Free cash flow for the quarter was 656 million do the conversion of 95% of net profit.
Cash balances remain stable at five 3% in Q1.
Yeah, so declined by four days sequentially to 63.
Including net Unbilled was 82 days, an increase of one day less in Q4.
I think the segmented performance, we signed 19 languages in Q1 with a D. C V. A 1.69 billion. This comprises 50% Mickey we had five large deals in retail and CPG or in high Tech and financial services, and energy utilities resources and services and to weaken manufacturing and communications vertical.
We didn't wait 15, one in Mexico and to Eastern Europe and other W.
Financial services clients are continuing to focus on limiting yourself from experience going back then to transformation and what's the brunson aimed at improving customer engagement, while the order pipeline remains strong as truck you Didnt you have seen some slowness in mortgage lending.
Lending business.
Exactly.
I mean, what's the limiting factor of emerging global development and budgets are flat.
The retail segment the piece I'd be getting confirmation log scale cost take out and improving business continues to be on the right across various sub segment.
Our focus on proactive engagements has had tough in creating a robust pipeline flying some monitoring very muggy macro situation and the impact on back on their business.
Communications segment clients are focused on rapid digitization and protecting the assets I'm sorry about that.
We see enormous potential to partner with them both on the digital transformation agenda as they live in the cockpit electronics.
These pipeline in energy utilities resources and services segment comprises of opportunity around cost takeout window consolidations digital transformation cloud transformation and asset monetization o'clock and got pushed out.
The manufacturing segment, it seems broad based growth across geographies and industry verticals.
The sector is seeing traction across energy Iot supply chain cloud ERP and accelerated cloud adoption.
Well there wasn't going to be ranked as a leader in 90 day things in the area of the Oracle cloud if it would be a smaller public cloud and that people point of view, it's like begins and automation services.
In this supply constrained environment, we've continued to invest in our growth momentum, which required us to high opinion skill talent like five months, even if you're investing in existing employees through competitive compensation increases across deals.
Additionally, we expect normalization across six I haven't had the overhead we will continue to focus on various cost optimization measures, including rationalization of sub cons lapping up the pyramid excuse me automation did you see the onsite mix and increasing pricing, while retaining our operating margin guidance of for any one to three 3% do you expect to be at the bottom end.
The range.
You're guiding for the year has been device before getting to 16% from 13% to 15% on yet.
We can open the call for questions.
Thank you very much ladies.
Ladies and gentlemen, leaving now begin the question and answer session.
One who wishes to ask a question May Andaz star and one on that that's still in California.
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Participants are requested to use handsets when asking a question.
Ladies and gentlemen, we will wait for a moment, while the question queue assembles.
Yeah.
Our first question is from the line of Surendra Goyal from Citigroup. Please go ahead.
Yeah, Hi, Thanks for that good morning, just a couple of questions from my side how.
Firstly, a clarification so the London I believe you said that the contractual provision was largely offset by just comps could you. Please clarify a bit did you mean discounts to the same claim for discounting in general.
Because on one hand, we're talking about the strong demand environment and potential rate hikes and at the same time, we are also talking about comps.
So.
The comment was that it's not the entire always eat up one 5% increase in RPC is a combination of three or four elements. The higher working days, that's not flying contract because he can give us any benefit box will be offset by defense. So it's not a direct linkage of the phones and blind contractual provision it talks to the pink.
In line with if you didn't think the town and these automatically keep on coming but we haven't like I said, we've had come down less.
I didn't negotiating with our clients in terms of pricing.
That's a net impact.
Oh, Okay sure.
Just another question on margins down 360, bips year over year.
Well why do you why is worse than historical trends. Despite all the strong demand that.
We are talking about.
So if you just think about this 360 basis point decline how much of Boston really investment to reach you think can be recouped as we go forward from here.
Yeah, it's not like we think feel really what you can see we knew we were having some benefits in a way off.
We are back ended up Goldberg, our utilizations are very hockey, but really if you get to things like we've never operated before.
D I b.
The benefits of valor and they kicked off now we are seeing that more and more of that has been coming back. So that's something we can lever. It all went away it off in in nausea.
As we see the demand while you're in my head I think they vary all that in terms of our ability to support this demand we supposed to be up to Ohio, we have to be competitive lethal reactivity did that get through wage hike.
In a calendar year 2021 and.
Have you already rolled out in March.
They didn't want him to hop, yes, we've done three substantial yoga and that could even September last year, and so we did our skill base.
You can continuously investing behind that.
We know that to capture this demand do you have to be opinion, we have to go behind the one you wouldn't have seen some data supporting costs were actually you know from an industry, leading six types of it shouldn't be a closer to 11%, but again, we do have some things will over a period of time do you have a lot of optimization, but he was right and we don't want to leave a five year demand on the table.
Because of our short term cost pressures and we came up to my Oh, well this year and over the future as well.
You're quite confident and that's why we have talked about we will be in but really wanted to forget the bottom end of the range and of course, if you have 20% to be a we will see that improvement as we get those vessels.
Sure Thanks for that I'm getting back in the queue.
Yeah.
Thank you. Our next question is from the line of Moshe.
From Wedbush Securities. Please go ahead.
Hey, Thanks spectacular numbers, especially on the revenues side of the business.
Just a follow up to the last kind of topic or a question about margins.
A lot of pushback on that from your perspective, you know looking at the levers that you kind of highlighted what do you think is the biggest potential lever here for you to be able to kind of catch up to the to the to the margin range that you mentioned.
And then I have a follow up after that.
Yeah, So most very high.
Firstly, if you see you don't have margin profile, how if ive seen sites lined up for US has been this utilization and in fact hiring 21000 net adds.
During the quarter, which is well above our volume and that is to create the buffer so that when people get infected.
We are able to train them and they know would it be that upside is able to put them into production right. So you don't just hire actually I wouldn't expect them to start contributing from day one.
We are very vigilant about that they'd go to augment it with cleaning in mitral and then he said that so that's one big part of you know where do you think we can start improving as of hiding it brought up automatically you can see the stabilization that's not fun cost like as a person to get revenue.
Different degrees every quarter value, you know sort of flattening out I live in the future.
The what are the coupons got together and being able to hire a fact that we should see benefits coming out of that.
He didn't make benefits will continue to happen for us why she has seen some adverse impact of the on site. The movement because like he has got a little let's see that book picked out but we think this is more of a you know a bearish in terms of uptick because we invented and story all.
We're taking our cost out and are having a more offshore mixing the entire cost optimization that can come into a benefit, especially in this environment. Our wax off take out is becoming a big PV across our client, but we hope we can have multiple.
Yes pricing is another thing we've been talking about.
The impact of our pricing in terms of it sounds like that's all the way back to clients in terms of go lives in terms of in our renewals happened now getting to be that much more along with them Oh, you know what impact that again, but I think at least the conversations that started in right.
You know all of the segments and you can get similar and three o'clock. So I think you can get.
We don't focus on.
And that's something we've done well over the years, you've seen that would be.
To be very little forcefully.
Forceful in terms of like what are you shouldn't be exercises.
Okay, and just as a follow up just remind us what's the sensitivity for margins versus utilization rates I E. A hunter.
Basis points expansion in utilization rates, what does it mean to margins in terms of sensitivity. Thank you.
Yeah, So I think it depends on by which level if utilization. So there's like complicated. Its you know you'll have a different utilization and onsite different game offshore and then be in fact, a picture of it but it made them that utilization. So it's okay.
It's a complicated how the mixed changes like I just thought I'd.
To give you off the number of you know what 1% will lead to but to give you a good logging back what we lost in this quarter.
Ah I think 40 basis points, although you've likely seen in margin.
Yeah.
Alright, thanks for the color.
Thank you. Our next question is from the line of Jackie.
From BNP.
Please go ahead.
Hi, Good morning. Thanks for taking my question. My first question was calculation on the margin side, so it'd be kind.
The end of the fourth quarter, our Nuggets king brokers like across the industry.
Once the management fee I think the teachers compared to that at the margin performance appears to be a sharper decline.
What do you think would be the reason behind that.
The higher than expected demand.
I do use of some contracting that you've done what do you have time in there or is it more supply you say driven by the pressure was higher than what you had planned for it.
To the quarter.
Yeah, you're talking about I think but do you feel about the industry.
Anything one way you could give us color on because the trend has been recently.
Yeah, I think yeah. So we don't know, but anything that you might be somebody who doesn't operate in a vacuum.
Are they being the attrition trends are pretty much very similar across the industry, but the good news like we said is that if they hit rates coming down.
Iraq water they shouldn't forget it actually below our LTM figures.
That being said, we already runs up and down.
In some cases, we were 5% in the previous quarter and we were flat. So I think this is more b the reported LTM across its more of a catch up effect.
And that said you will see starts stabilization the effects that it will start coming in and getting permitted so that benefit in the way it should.
Thought we bring into the cost structure right because they live their day, if you're splitting its actually as you have less attrition, but the fed hike would you have to give a lecture and highest since come down like learning businesses. In fact that impact should come down are these other things that really play out in our favor.
I said you know you can be these numbers of declines pretty much across our industries.
But we have I think a very very sharp cost optimization program in a way that's really growing up at a decent headwind.
I'm going to fill it up it's just a place like Fisher was higher than what you are expecting.
Hum.
My second question.
I think I think there's no question about that in terms of if you like.
See our attrition and I don't make that the graph hiring has been very high end up walking back there in terms of effective and all you have to offer. So it is a way to that overall industry issue led from the demand side.
Sure.
Second question was on visa condition. So we already have a pretty strong life sciences sectors.
So what exactly we are looking and targeting to get help from this acquisition.
Beast in multiple thing this is a business which is.
Very high end in the life Sciences area.
When we launch our strategy a few weeks ago are just at the start of the quarter. We had shed also a new focus with an expanded focus on Europe and Denmark for US is a very strategic market. The whole Scandinavian market is a very strategic market for us and so that's it.
Second area that did benefit as I said and we also see clients are using the capabilities of base as a starting point and then that leads to large technology transformation digital transformation that helps us overall in terms of scaling up or that segment. That's the segment.
Which we feel is a strong segment for the future and where we have a in our view underweight in percentage terms. So we want to enhance that with her deep existing capabilities.
Got it thanks, a lot for that.
Thank you. Our next question is from the line of Keith Bachman from BMO. Please go ahead.
Hi, Thank you very much my first question is I wanted to get.
Your views on how you think wage inflation will impact the balance of the year.
And what are the you know what.
Tensions on that to your margin model. So you mentioned that attrition has in fact moved lower do you think a attrition continues to move lower and.
How do you think wage inflation.
Will unfold over the next call it three or four quarters and be a force.
In the in the gross margin equation, and then I have a follow up.
Yeah. So I think like we started last year, we've raytheon that could be have to be competitive in the market. So we did the first hike in January of 'twenty. One then we'd have been mixed hiking July of 'twenty, one and get their follow up.
Talent in September of 'twenty, one and you know we have not wasted one year, we've actually gone ahead and done at a majority of a rate hike from the March or April this year.
Carry on effect in terms of more maybe excuse me if I am ready to see me a fourth we can happen in July but not in the same margin impact of quarter, one which was very broad based.
But other than that I think we think that you got quite competitive.
You can see in the mix.
Also get a lot of that truth I'm not aware there have been thoughts of hiring like crazy because they can make in a video compensation, though were all needed every compensation, many cases going up as well.
But I think overall.
Overall, I think we feel very somebody didn't like it in terms of Ah got more like high single digits and you know what.
These deals also because of high wage inflation across we havent, given very competitive hikes on something which we've not done in this kind of environment and inflation environment. Before so these are very are.
Much higher than what we do in the past, but do you think this is something which has been signed up in good stead in terms of attrition and like I said, it seems like sort of three quarters of the accretion benefit.
You know what if we didn't have time flowing in.
Okay. Okay.
We cover a number of software companies software companies have started to say, they're seeing pockets of weakness with demand elongation in sales cycles.
It doesn't sound like I know you made one very specific industry comment, but it doesn't sound like you're seeing this same any kind of iteration on the demand side.
Particularly on the negative side, but if you could just clarify are you seeing any elongation on the new business front, and yes, or no and if the macro does weekend will that in fact help your wage wage situation and that's it for me. Thank you.
I'm. So thankful that this is a little a couple of points that you raised I think.
What we see on the demand.
Pipeline that has to be for a large deal is larger than what we had a three or six months ago.
Having said that we of course recognize what is going on in the global environment, and we mentioned a couple of areas.
We didn't he Gale you also mentioned I should within financial services mortgages too, we see pockets, where you see some impact.
In fact I mean.
Who knows.
Discussions are we see a little bit yeah. It's.
It's the wing and the decision making.
The pipeline remains strong for us today.
Also the two types of beans, one is do you regeneron digital transformation or cloud, which are growth oriented for our clients and driving to what they wanted to do with their customers and their supply chain.
They want to make an impact in.
The second is on cost we have a very strong play on cost and efficiencies through our automation work through our artificial intelligence work, where we can really impact the cost is in the deck.
Landscapes of our clients. So those are the areas, which we are already very active with it within this environment and given our positioning we feel good that those will start to come into play as the windy environment genius with today. This is this is all we have seen the demand.
No no.
Other question was.
That type of change.
Image Oh.
Is the macro as long as you don't have a clear view of where that can go because it is a function of you know how the macro evolves and what happens of course are you guys seeing attrition stopping to come off a little bit, but that's really a clearly have a positive impact for us so good to see.
Like the competition, where the timeline is not clear it depends on how the macro events.
Okay, great many things.
Thank you. Our next question is from the line of.
From Investec. Please go ahead.
Hi, good morning, thanks for the opportunity.
Hi, two questions. So one.
Is from a margin perspective, what we saw as one off in the previous quarter, which included visa and this contract provisions are both of them have been sort of all set in this quarter is that a fair understanding that's the first <unk> second is in terms of salary increases.
Is oh is it only for the associate level this quarter and if so then the question is that are we have one lakh 45000 associates of GNC and below and some 130000 people in the middle level and gender understanding is mid level, obviously, the as a percentage of the employee comp.
Cost it should be hired so they thought it was a wash we didn't have to go to margin had been to be higher next quarter. If you could just help with that thought buses that'd be very helpful. Those are two concerns questions. Thank you.
Yeah.
As I said in the module work, we had a benefit of 50 bps from.
I'll keep P, which is a combination of looking at the contractual provisions.
Partially offset by the sponsor have you seen that benefit back.
There's more.
You said that hasn't been awarded we have stopped the benefit that's flattened contractual provisions clearly are the other one on Veeva travel I think they were largely you know offset against each other up and what are the other question.
On the outlook on Vegas.
I guess I'd be betting for most of our employees right.
Put up to mid level and more of the senior level is what we're going to roll out in July and that.
That in fact will be far less than 6%.
We've done it because it's much more broad based.
Sure So both associates and mid level happened in this quarter itself and it's not only associates.
None of them are supposed to get that mid level correct.
Perfect perfect. That's very helpful. Thank you so much.
Thank you. Our next question is from the line of Bryan Bergin from Cowen. Please go ahead.
Hi, Thanks for taking the question I wanted to just dig in on the commentary around pockets of weakness. So heard you mentioned mortgages mentioned I guess, a sub component of retail can you just give us a sense quantify what mix of your business is actually seeing some slowing decision, making you know is it five.
Or is it 10% or so less than even just help frame.
Or quantify areas I've ever seen pockets of weakness.
Yeah.
So to answer your question this is felipe.
We don't quantify typically you know what the a.
Part of our financial services mortgages or are the other areas, which are impacted we announcing bucket. This is not a across our whole business.
The way I would sort of look at it is.
With all of that given our pipeline we've increased our revenue guidance. So that the majority of our business is still seeing good demand, it's really buckets without quantifying that that's how I would give you a context to it.
Yeah.
Okay, and then just a follow up on margin.
You gave sequential changes can you give us what the year on year changes in operating margin at the different categories.
That's largely we know it was the comp related.
Me about 350 basis points. That's the biggest one we got and this was offset by some rupee benefits which was also.
Ah benefited by both golf I wouldn't see us when it's all said probably half of that and then we got some benefits of cost optimization, we've got permits on lower utilization, but do you have the broad things, but the biggest one was the bump which was about 370.
Yeah.
Alright, thank you.
Thank you. Our next question is from the line of Sandeep.
From Goldman.
Please go ahead.
Yeah. Good morning, gentlemen, thanks for giving me this opportunity I have just one question on margin ideally the strong growth at the headline level should have translated into some operating leverage but that doesn't seem to be happening and millennium. They seem to be able to view will change.
Our focus on margin optimization that can meet or beat what is the risk to that and hypotheses. Because this gross margin paradox seem to be a mirror reflection of what is happening in the U S and U K now very tight job market very heightened dominant but very little had been particularly in down to the bottom of the bottom line level. So sooner. Rather later this nominal growth reach me cool off and on site job my fix and some stuff like Clos.
I thought he candidate but back in India, a job market may not be as much of a free market as it is in UK and U S. But maybe some sticky elements, both that head count and wage level translating into negative operating leverage as demand moderates. So what is that risk that's margins still remain structurally lower than even the prequel with you whether it's going ahead, because demand tends to be more cyclical than some of the supply cost.
Tend to be more sticky.
So there are a couple of things one is that many of these cost increases finally be bought Boston decline going be one right. So if I have to give them a rate hike on all my existing beef right. They will come up for renewal right.
When you have a good discussion when youre doing new deals automatically.
Litton industries, how they believe they can do their reach profile. So these things will automatically be flowed back there's no free lunch with anybody right. So that's one thing that really happened over a period of time.
But that's more of a you know what I mean.
The point I'm, making but in terms of states have gone right.
Did that six six enough within desktop quantum legacy being at about 11.1 per se right. There's no reason for us to be at these levels, because we know what's the wage market.
They're all demand environment, our recruiting picks up we can replace these are funded by one head count put more back into projects and this is something we've been doing but even in the past as well. So I think the lever well known for US are we know how utilization was up in the Midwest.
So we're quite confident in our go forward model of taking out costs from older wells faster.
Yeah.
But just one more question if I may. So then we see the pipeline those are larger now I'm just curious if the pipeline is getting bigger and bigger because solve the decision making is getting slower or is there any correlation between the two.
Sure. They are this is ilene the bid pipeline what you're seeing.
There is appetite and you go buy a different industry for digital transformation programs for large cloud programs what programs would start to the led to cost inefficiencies. That's what is in the pipeline. It's not a function of the timeline are which are the delays that you would have seen.
Which is causing an increase it is very see traction with more and more clients are.
Discussions are as of today.
Now, we will see how that evolves, but that's the outlook we have today.
Thanks, Dan and thanks, that's it from my side all the majors.
Thank you our.
Our next question is from the line of.
From JP Morgan. Please go ahead.
Thank you for taking my question first.
The first question is what's the level of conservatism or realism, and choosing to both the revenue and the margin guide this time.
Part of that does on the revenue guide given the potential macro headwinds ahead of us and he asked me from the second half of this year and similarly on margins, we still have another one the wage hikes, which can impact margins by maybe as much as 100 basis points. If I look at the wage hike impact so far and a similar ratio between the first and second rounds in the previous years and also keeping.
I've traveled and facility costs. Thank you.
Oh hi, good. Thanks for the question. This is Sandeep, let me start off and then they wouldn't have if he's going to add.
On the guidance for goods as we've shared in the past.
The approach we take is we see how things are as we look at the financials yet to do.
What we saw is in Q1, we had extremely strong with revenue growth cycling 5%.
We also had underlying volume growth.
Which was very strong.
N D C. The outlook there do you have clarity looking ahead for some period of time and then instead of estimates that we have for the rest of the financial debt and also looking at how typically each two works versus each one and then putting in.
Some views on where the end of the year.
Based on that we felt comfortable to increase the revenue growth guidance.
But it's been limited we're realistic that that is the approach we take.
To make sure that we then share what we think the revenues, but it looks like.
On the margin I'll start off and then they're not going to talk a little bit about the wage component.
We've done well on the margin.
We've made sure that we.
Work to get all of the leaders in place to be.
Our approach to driving cost efficiency isn't.
Several levers are that you didn't mention.
One of the bigger ones, we've got the bulk the vast majority of our compensation increase already done in Q1, so yes, there's a small component.
It's not really a huge component that will come up then we see a steadily other areas, which will help us do.
And yes.
Focus.
Sub contracting books are there areas, where you can focus on discussions with clients.
Regent cruises.
The areas, where we're doing work, which is driving significant impact for clients and so we think there are a set of doors.
That's going to help us through the margin discussion that we've been focused on this financial year. Other approach very much is to make sure that's needed in a high margin business and that's the underlying theme that we're working with.
It does.
Given where we are given the inflation around the world.
We thought it was clear to make sure that we communicated that our integrated to the market.
Anything else you feel that one of them.
Okay. Just a quick follow up if I may on margins.
Are there any one offs in the margin. This time asked another way what would be the pro forma margins. If the provision reversal what was not to happen and related to that can you see that 20% in Q1 should be the bottom of margins going forward. So that we can get if you can get back to 21% for the year realistically.
Yeah. So I think we've mentioned the margin walk at the beginning of the fall well if he had 20 Indian writing at the bottom end up for anyone to mathematically it takes up to it.
Bringing forward, absolutely Oh, I'm going to have even after people improvement quarter on quarter.
Okay. Thank you investment.
Thank you. Our next question is from the line of Ravi Menon from Macquarie. Please go ahead.
Thank you all gentlemen, congratulations on good set of numbers so as long as your thoughts on how broad based in North America.
Well see how things such broad based growth sustained for a long time until you called out some headwinds in vehicle.
You went up quite a bit of revenue.
So if you could give some color on how sustained so but the background of it does that and secondly.
The pyramid.
Casino market pick a fresh hundreds last year, so had hoped that some of that.
I have come into production and that helped us offset.
The margin had been tough to this quarter, but it looks like Oh.
Do you want to utilize it.
It doesn't look like much of that has happened so we could give some color.
Yes.
Yeah.
Uh huh.
Sadly I didn't catch the first part of the question that I think it was about demand, but maybe you could just.
So there'll be yesterday.
It was around the demand how broad you know we've seen broad based revenue addition across verticals in North America I'm curious if you're seeing the pipeline also along similar lines or are there any specific what it sounds like you see some softness starting to come in.
Yeah.
Yeah. So the softness we are as these actions.
E C.
See some pockets of softness within our overall business. That's why we want to be very clear that that is something that is.
Has there been a couple of examples you shared a well in financial services and he did but there are areas.
You see that.
However.
Once we see that.
We also have a view and you see it in our pipeline.
Pipeline is strong there are areas, where we see some good good traction as well and it's a mix of the growth and the cost opportunities, but they're not frankly.
And I think the second one was about the we didn't need it.
So yes, we've hired a lot of because last year on many of them also have gone into gaming I think because we had the previous yard there was nothing really in the pipeline in terms of hiring.
In fact, if you see our utilization, there's a 2% gap between the excluding thing, even including bringing numbers Oh no year on year basis, as we continued to deploy them into projects and like I said you can't overnight.
Project, what's actually happening and that's why it's important to build the pipeline in the ground.
It didn't go through the trainings and putting them into production bench and then.
<unk> moved them into projects as well so that benefit will come in and if you think back slowly coming in but it is important to invest ahead right. If you get to have guessed. It would be probably you know are sub optimizing in terms of how fast you can deploy so that's why we have made these investments because we know it will take time for the sake of doing but it's important to make there.
Mrs went ahead.
Thanks, and then one follow up on my back of the song loss Kratos contractual.
Revenue did you recognize all of that the scorecard harvest is still something that.
Yeah. It was all recognized in Florida.
[laughter].
Thank you. Our next question is from the line of bunkers from CLSA. Please go ahead.
Yeah, Hi, thanks for the opportunity a sudden can you give some color on the overall order book since either portrait D. C. V would be give that covers only 15 million plus D and may not really be depends intuitive so any quantitative or qualitative comment on the scale and how the overall order book has grown.
To put it.
Ah. Thanks, Thanks for the question because as you know we share their lives.
When the number we don't publish.
Publish the overall D b.
Now, having said that the main sort of context I would put it is the increase in the growth guidance that we've provided that factors in that sense all of the inputs that you may be looking for.
Which then comes from essentially a very strong.
Q1 execution, the five 5% 31% growth.
And then Oh view that we have on what we see in the coming quarters.
And overall our view.
How do we look at each one each to.
Makes a within the company that is sort of broadly how we looked at it.
On the large deals are.
You should.
She had this in the box.
Typically this is a number which is a little bit more volatile because we all need it all deals which are larger than $50 million.
So that's really the way.
You can look at it.
Fair enough. My second question is on the profitability and be manufacturing vertical via the margins has been coming down and in fact, the last three quarters, probably damn hawk. Despite a very strong revenue growth I understand this could be because of a very large deal which is still ramping up there.
Can you give us sense, how deep profitability curve in this vertical called shape over the next two three quarters, what I'm trying to understand is that has it bottomed out now or you think that does this.
This would potentially go down put them. Thank.
Thank you.
Yeah.
Yeah, So I think without specifically, commenting I think.
Any particular deal I think for part D. It is when you think the revenue growth, which has been quite spectacular.
Segment.
Has been led by large deals and as we've talked about allowed dilip routes.
You know from day one.
I would like to see savings, but we are very clear that over a period of time that we had a lot of cost optimization because on day. One you couldn't not from the cost structure right right as clients may offer the savings, but we will work with enough time to lever, which we continue to deploy on all these large deals and then if I go back to the last three years.
For you then factor in the lobby so decided he started you've actually seen an increase in margins over that so there's been no even though there's only publicly correlation in terms of thing with a large deal the dilution because we continue working on taking more trucks through the system and we've got factored into our entire in a bid process. We look at our you know how we've done.
Optimize onsite offshore, but many of these projects acquired dramatic automation, we can inject that through all our services, which we are providing are we know how the pyramid work. So the other things, which we know are you know you know over the lifetime of these large deals.
And that's something we know we can deploy so that's something.
Something you know without getting into specific lean manufacturing.
What we do well.
Okay. Thank you and wish you all the best.
Okay.
Thank you. Our next question is frontline of Gordon.
From Morgan Stanley . Please go ahead.
Hi, Good morning, Thank you for taking my questions. So firstly is there any difference.
Your friends in the client decision, making behavior in U S versus Europe , and science and the reason is that I'm asking is the U S. You seem fair bit of broad based growth across segments, but when we look at Europe . There is a weakness specifically in retail and communication vertical, whereas the other two verticals energy side high Tech is growing.
So just trying to understand are there any specific pockets, especially in Europe , where you kind of see a decision making behavior has changed compared to the U S market.
Oh, Thanks for that question. So today, we are not seeing that ER, which is la geography does as you're describing we see some which is more a globally our industry base.
Our client base as you know well.
Mainly a U S Europe and Australia, so not so much a color which is more geography related.
Yeah.
Okay second question on margins.
Look at a lot and Oh, you explained very well the supply side and cost related factors, which has led to this but you said it all of a sudden element of expectation of pricing increase that has been tapered down.
Which has led you to now take down margin outlook to the wording and is it fair to say that with all the cost levers that you have in place the exit margin should be better than the lower end of the guidance. Thank you.
Yeah, So I think when.
When we do our part of margin.
So the combination of the fact that we looked at and that we can keep on changing dynamic.
What happened in the previous quarter or when do we see as the outlook what's happened on popcorn wage inflation, so that mix continues to change and evolve.
I'm going to push hard on somebody in terms of accelerating some programs.
And going back to the whole you know if the activity at <unk> and we are thinking you're going to be at the bottom end of 'twenty. One I think that should give you a good things off the Madden margin trajectory for the rest of the deal.
Thank you.
Thank you our.
Our next question is from the line of.
From Nippon India. Please go ahead.
Yeah, Hi.
Just one this month.
Within the quarter do you have to lose your.
Great.
And on demanding trade. So this is despite rupee depreciation then your food despite.
Accretion coming down in last two quarters. So what is tough, but I used internally in your own expectations for them to bring it down to the loading.
Yeah. So I think like I mentioned, it's a very dynamic and moving you know if I could.
The full cost completely what is the impact of attrition how long ridge I think I'm in for new hires. So it's very dynamic August pricing play out well.
And that can be.
A very fluid situation, but like Randy wanted to Greenfield MDI within bag with a plus at the bottom end of it.
And we remain committed to our you know from there.
I forget plenty to do all our various optimization factoring the clock back to what we see in terms of wage inflation are there could be potentially benefit itself would be if at all.
Combination of all of this into death hookup.
And what could it wouldn't be good.
Would it be the beach or didn't meet the eye using benefit coming through.
And any any one highlight compared to what you were expecting to start off.
Well, it's a combination of things and I won't say surprised but I think like I said, it's a fluid situation and we remain agile that's more important.
Rather than anything else.
And coming to come into pockets of weakness, we just pointed out repeatedly Martin can you give some color on applying for the <unk> all seem to be shooting, making onto new deals not kicking converting or are they existing beans, which had been the moon, they're not getting ramped up one thing to send something weakness.
So there are within the areas of that.
That bucket that we describe their lease he is looking for example, if you look at the mortgage situation.
Volume they are in the market, meaning the client volume.
As a macro level has gone down in the.
European or U S market. So I'll work, there Ah is proportionally reduced but the overall point, which I said earlier.
See some slowing in decision, making but nonetheless, the pipeline it remains today.
Good position that allows us to increase the guidance.
Okay and last one on your <unk> B V.
And if the M D C T O deal wins are down sharply.
If you see large trading for a full quarters worth of the previous four quarters and you can only find out just the beach because from D. A.
Morning, a couple of quarters, so four quarters back.
Don minimum by 15%.
What how do you.
Connect boost to Deutsche Bank deal and.
Maybe we could even go down but your deal pipeline is already behind us.
Other beacon was suddenly shoes, dropping then more broadly speaking.
There are on the large deals we typically are.
<unk> always said, we see some volatility could be there Richard.
Which are larger than the ones we share this number with your larger than $50 million in value.
Lucy.
The pipeline being larger than where it was and what we referenced in some areas a slowing of it but we don't see any change in the other parameters on the pipeline.
Yeah.
Okay.
We should go do it.
Thank you. Our next question is from the line of money from JM financial. Please go ahead.
Hi, Thank you for that bought Synthes and sorry for the people on that much in Cushing once again, but just wanted to understand how should we be thinking about.
Thank you mentioned, all the improvement and take them into modules to the manufacturing vertical given the sharp drop that we've seen over the last two quarters and how does that feed in terms of the wound.
Yeah.
If somebody else has asked a similar question and without going into specifics, we have seen that group coming out of our large deals in manufacturing and like you said.
As we look at that in Europe . These logging in some cases, they start off with a lower burden portfolio margins are bigger clients me alcohol savings upfront, but we have a very small pocket planning thumbs up over quarter on quarter. When do we need to do to bring back to profitability because from day, one try and come to us because they know that.
Can optimize the cost structure.
So that's something which is going to tell you what.
What we've been doing since we started the last <unk> decided you like and we've seen margin improvements over that period, so I didn't get quite.
We're confident of the future profile of these businesses.
Sure. Thank you.
Thank you. Our next question is from the line of from <unk> Securities. Please go ahead.
Yeah. Thanks for taking my question Southern Sudan.
Mega deals, while you're investing frequency tends to be lower than it's been the wildcard enforces that'd be cool to northern comments on Mega deals from a pipeline perspective.
And secondly on pricing how has the ability to get price increase.
Versus last quarter do you see any changes to that.
Yeah.
Well the Mega deals are I think again, we don't share anything specific oh in terms of what we publish that.
The color from my side is we have a mega deals in our pipeline that's oh.
Context.
On the pricing we've seen pricing currently are holding.
In addition values.
For this quarter for Q1.
My sense is we have seen examples that they loved and was sharing earlier.
We are working we have worked with clients to demonstrate to them.
The impact of competition and cheeses.
And that has translated to a core level of price benefit because we've added examples where every bad.
Increases, which unrelated from more of the digital.
Hi high value work that we are driving for clients. We now have to make sure we take that across our whole portfolio.
And see the benefits coming in.
Our business typically.
The salary increase happens.
Really all the time and these things are where we've not seen a high inflation environment like this.
For over 40 years in the western market.
It takes a longer time than that.
What as.
Is it hasn't been shed is part of what we've put in place to support that margin as we go ahead.
Thank you for that.
Thank you, ladies and gentlemen that was the last question.
I'll hand, the conference over to the management for closing comments.
So thank you everyone is selling the.
Thanks again for joining us for this call I just wanted to summarize with a few points first.
We had industry leading growth in Q1.
$5 five per cent quarterly 21%.
Johan here.
Clearly see tremendous market share gain.
Driven primarily by the strength of our digital and the cloud cobalt a capability set that is resonating with our clients.
We highlighted there are pockets of weakness and we are aware of the environment around us.
Do you see in our pipeline both growth opportunities in digital cloud and cost opportunities in automation.
With all of that we increase the growth guidance for the full year.
You're now seeing attrition coming down on a quarterly basis, you see many of the initiatives you put in place are starting to.
Create some impact.
We have leveraged for the margin several that are the London shed.
Large programs will transition to a steady state.
Because of our increases in compensation costs.
Pricing.
Peter made adjustments as we have all these hires joining.
Production environment, the subcontractor usage and then several others on the cost side.
Given all of that we feel we are really well positioned to work with clients on their growth and cost opportunities and have a margin profile that is.
Something that's sustained the high margin approach of the company.
So we're looking forward to this year with strength.
Strength and optimism and once again, thank you all for joining us some catch up in the next quarter. Thank you.
Thank you members of the management.
Ladies and gentlemen on behalf of Infosys that concludes this conference call. Thank you for joining US and you may now disconnect your lines.