Q2 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 <unk>, Thank you and over to you.
Yes.
Thanks, everyone and then compared to that needs.
<unk>.
Financial device.
So somebody can they listen they contained in Bangladesh.
And then if the fed emphatic yes.
And I remember that the senior management team.
Well start the call with some remarks on the performance of the company and then the London.
And then if you'll open up the call.
Finally note that anything.
We say that that's what I would look like if you go to the fall.
Forward looking statement, which must be read.
In conjunction with that is that the company faces.
Nathan this is deliberately not filing for bankruptcy, which.
Which can be found on www dot basically the MBA.
I'd like to pass on the price dependent.
Hi, Sandeep.
Good afternoon, good evening and good morning to everyone joining the call and thank you for joining our call.
Our Q2 performance was strong with year on year growth at 18, 8% and sequential growth at 4% in constant currency.
<unk> was broad based with all industries and geographies growing in double digits in constant currency.
Growth in constant currency in the first half of financial year 'twenty.
Is 21%.
Maybe the first half.
In engineered MTT.
This momentum is accompanied by a strong pipeline of large deals.
And the highest light duty value in the last seven quarters of $3 7 billion, 54% of this wasn't that view.
These elements are a clear reflection of the BP differentiated.
Digital and cloud capabilities, we have developed with a highly relevant to our clients' strategic priorities are.
Digital revenues are at 61, 8% of the overall revenue and grew 41, 2% in the quarter in constant currency terms.
Digital continues to see some strong growth kids, youre seeing acceleration and growth trajectory.
Our services this quarter.
Due to our industry, leading automation capabilities and reflects and interest among clients.
Cost optimization programs.
You also see this in our lives D pipeline with strong focus on cost reduction programs.
While we do not generally shared the specific amount of our cloud revenues.
Delighted to share that in Q2, our cloud revenue was larger than $1 billion showing tremendous strain.
<unk> services, especially our industry leading capabilities.
The real examples of client transformation demonstrates the value we deliver.
First a European telecommunications companies closely engaging with us to accelerate the business rules and prepare for the digital future.
Second in aviation giant is really with us digitally advanced engineering on the product development.
Emerging aircraft programs.
And further fostering logistics companies working with us to secure the cloud environment and build greater resilience in to the operations.
These examples and several other showcase our commitment to deliver value for our clients and the trust and confidence in our expanding digital capabilities.
Strong growth this quarter was accompanied by operating margin expansion of 150 basis points. The operating margin for the quarter was 21, 5%.
This is because of cost efficiency optimization in large deals and currency benefits.
Jim will provide more color on this.
Each one operating margins of 27%.
Tissue is now been decreasing over the past three quarters, including this Q2 on a quarterly annualized basis.
So I think overall demand environment continued to be healthy as reflected in broad based growth and grew backlog deal pipeline. We also see signs of cautious behavior by clients due to macro concerns.
Apart from slowness in the mortgage segment of financial services and the retail industry segment, we talked about last quarter.
She is emerging concerns in high tech and telecom industry segments in the form of reduced spend especially towards the specialty programs.
We are well positioned to help our clients with their digital agenda and a cost agenda growth in our digital and our cost service is demonstrated.
As the macro environment evolves both of these components of our business will help us.
Appropriately position with our clients.
We have initiated a visit.
With focused cost programs within our large deal pipeline.
Our operating model and our teams are agile to deliver value for clients in this evolving macro environment.
In keeping with our capital allocation policy. The board has announced a share buyback of the <unk> 9300 crores.
113 billion.
And an interim dividend of approximately 36940 crews.
$850 million.
H, one performance of 20% growth in constant currency and robust large deal signings in Q2 gives us confidence in James our revenue growth guidance, which was at 14% to 16% earlier, 215% to 16% even as we are seeing emerging concerns that we talked about earlier.
Our ability to grow at strong rates and peak market share gain is a clear validation of the relevance depth and breadth of our serving service offerings and deep client relationships.
We change our operating margin guidance for financial year 'twenty three.
LIFO this year to 21% to 22%, which was really a 21% to 23%.
We anticipate we'll be at the lower end of this range.
With that let me request in London to share other updates.
Thanks, Hello, Good evening, everyone and thank you for joining this call.
Revenues grew by 18, 8% year on year, and 4% sequentially in constant currency.
All business segment and deal with double digit year on year in constant currency.
Particularly in North America grew by 15, 6% Europe by 28, 5% manufacturing by 45% you are asked by 34, 3%.
Vacation by 18, 4% and retail by 15, 4%.
Revenues constitute 61, 8% of total revenues and grew by 31, 3% year on year in constant currency.
Revenue growth was 21% in constant currency terms, an extra 1000 feet or exon 22.
Client metrics remained strong with year on year increase in client count across 70 bucket number of 15 million dollar clients increased by 15% to 77, while number of 100 million clients increased by 40 39.
Number of 300 million clients increased five two in the quarter two last year, reflecting a strong ability to mine top clients by providing them multiple services.
<unk> increased by approximately 10000 to 345000 utilization, excluding trainees was 83, 6%.
Onsite effort mix remain flattish at 24, 4% quarterly annualized voluntary attrition came down further by another two 5% during the quarter. This is also reflecting starting to reflect a reduction in our LTM attrition numbers, which reduced to 27, 1% compared to 28, 4% in Q1, we expect.
Christian to reduce further in the coming quarters.
Q2 operating margin stood at 21, 5% an increase of 150 basis point Q1 to the major components of the Q on Q margin movement, followed the margin tailwind comprising 70 basis points comprising of rupee depreciation partially offset by cross currency 90 basis points from cost optimization, including largely.
Optimization, RPT increase etc, partially offset by lower utilization 40 basis points from reduction in content, therefore, offset by headwinds of approximately 40 basis points from compensation related.
And in fact.
Q2, EPS grew by 11, 5% in rupee terms on a year on year basis.
Balance sheet continues to remain strong and actually consolidated cash and investments were $4 8 billion at the end of the quarter free cash flow for the quarter was 589 million line conversion of 79% of net profit.
Free cash flow generation is typically lower in Q2 due to higher tax payout in both India and the U S.
It increased by 1% year on year to 38.
Yield on cash balances increased to five 8% in Q2.
<unk> increased by two days sequentially to 65, reflecting higher billing done during the quarter.
The segmental performance, we signed 47 large deals in Q2 with the PCV of coupon seven 4 billion with 54% net new large deals were in financial services or retail communication in energy utility resources and services and high Tech segment.
Manufacturing for life Sciences in London that those vertical.
Reason why 18 wouldn't be America six in Europe , one in India, and two and the rest of their life.
Financial services segment continues to be strong backed by large deal win account expansion in new account opening we continue to see an acceleration in cloud adoption. The FSA client by working with many of our clients and cloud migration cloud management and other cloud related platform deal.
In retail we are seeing focused on consumer engagement supply chain transformation initiative.
Cost of operations legacy modernization and new in store capabilities.
However, some pockets of slowdown in decision cycles, especially for fashion that the retail and general merchandise, where we have a healthy mix of outsourcing and digitally and.
Segment, we have seen healthy order pipeline and deal conversion, but we expect cogs pressure from client side with impact on budgets, especially for critical services due to macroeconomic concerns.
Your computer software and services segment reported robust and steady growth.
The cost take out initiative continuously.
Momentum in the west.
The manufacturing segment, what continues to remain strong and broad based along with a steady flow of UBM. We see continued to expanding by customers driven by the need to increase the security posture migration to cloud increasing productivity by transforming the snack factory.
Turning to smart product and a broader digital transformation initiatives.
And smaller verticals like hi, Tec as well, we are seeing some increasing cautiousness amongst clients around discretionary spend and consequently, there have been some delays in deal flow yet.
But they get the services capability that we have been ranked as a leader in 19, great things in the areas of public cloud.
Design experience automation and data and analytics, we remain committed to maximizing total shareholder returns and in line with the capital allocation policy of returning 85% of free cash over the period. The Bordeaux recommended the following an interim dividend of $16 five zero per share for FY 'twenty three.
<unk> 15 per share for FY 'twenty. Two this is a 10% increase in dividends per share.
Back of equity shares of <unk> 9300, <unk> through open market post approval of shareholders at a maximum buyback price of $18 50.
We believe our progressive capital allocation policy continues to provide predictability for our shareholders.
Although there is a gradual abatement of talent cost pressures. They continue to exert pressure on the cost structure, and hence will need to be conquered by our various cost optimization measures, including rationalization of satcom flattening of the permits increasing automation, reducing on seismic and engaging with clients to increase pricing.
While it's one growth was strong and we expect that to grow to be impacted due to seasonality comprising of furloughs and lower working days.
Revenue guidance for the year is getting to 15% to 16% as we mentioned in the last quarter, earning call earnings call. It by country operating margins would be at the bottom end of the guidance band. We are now narrowing the guidance range of 21% to 22% by FY 'twenty three and we expect to be at the lower end of the range that we can open the call.
Thank you very much ladies and gentlemen, we will now begin the question and answer session.
Anyone who wishes to ask a question may and the star and one on that that's still in California, If you will.
We should remove yourself from the question queue.
You May press Star in June participants questions.
When asking a question.
Anyone who has a question star one.
We will take our first question from the line of course.
From Jpmorgan. Please go ahead.
Hi, Thank you and good evening.
The first question is you mentioned the macroeconomic conditions in that context could you elaborate how realistic are considered because your guidance is for the second half.
And also what has been the nature of the client conversations in the last month or so and have you.
Any sort of impact on the pipeline refill rate and disputes.
Thanks closed the facility.
On the guidance.
I think that what we saw was very strong large deals in Q2.
Great.
Growth in Q.
Q1.
Q2.
We continued to see overall.
Overall.
Pipeline for large deals is quite strong.
In fact, it's largely done with bars in the last couple of quarters.
We also see the macro points that I shared earlier, specifically mortgages in financial services, some aspects of retail high tech or telecom.
So keeping all that in mind.
Kim with your view on the guidance, which is.
From the 14% to 16, moving it to 15 to 16.
Is it higher than on sandbox.
The conversations with clients.
We've seen introduced this quarter.
Digital business has grown over 30% and that's cost services has also grown our we see in our pipeline a good focus on cost programs.
And on the growth programs.
And there are clients in different sectors and different intensity looking.
Looking at both of those and so the conversation depends more on the context of the client is and we feel that given these two engines that we have and we are.
Somewhat well prepared for the evolving macro environment.
Thank you.
Engine till it's great to see the margins back in the band in the.
The extent of margin recovery in the quarter.
If there were any special interventions that we're taking that drove this change in the quarter.
Perhaps with respect to wage increases or something else and if there's any one offs within this thanks.
Yeah.
And I think our cost optimizations and continues to chug along well.
I think I'm looking on the pyramid working on.
I think I mean, it's not something we feel very I couldn't do it all with the new numbers Q on Q.
So I think it's been overall, the continuous focus of Clos and we've seen that kind of thing.
For the year as you know.
Seven and you know.
We have a guidance of 21 to 'twenty two and we said we'll be at the bottom end of that range, but we still have a ways to go out and of course. This is going to continue to be the conversations on pricing, except other client that continues to be like I. Just mentioned in the earlier press conference at discounts definitely have come down and that's something that we can push out you know salesforce team.
How to grow and approach clients on this for like I said before long haul in pricing, but a piece of detection desktop around it.
Just one clarification in your margin when it comes if you'd highlighted before the impact of compensation and pieces seemed a bit light is there any change in the compensation.
Change your trajectory over the next two or three quarters like if you don't mind, maybe elaborating that part of the call.
Sure.
No there was nothing because this is largely for the Q1 had the biggest impact.
More for the mid to senior level folks. So I don't think there's anything unusual.
Unusual in that.
Okay. Appreciate it thank you investment.
Thank you. Our next question is from the line of Moshe <unk> from Wedbush Securities. Please go ahead.
Hey, Thanks for taking my my question and a good quarter.
Hum.
For clients being cautious young longer sales cycles.
The closures are real.
So hakapik deferrals or project cancellations.
We're not there yet, but obviously this would be us claim that 2008 kind of slowdown playbook. So I just wanted to get some more color on Dol.
Hi, Moshe sorry, I couldnt hear properly the dish.
This food was.
Hello, there any project cancellations or other such things.
The quarter, if that's the question.
We didn't see any project cancellations in the quarter, we saw some slowness.
In discretionary spend.
Again.
Micro segments that I've mentioned for example in high Tech we saw that we saw some in telco.
Mentioned last quarter.
And mortgages within financial services.
And the retail Pops will be doing this or that and that's how we saw it.
This quarter.
How would you categorize the discretionary spend is it predominantly cost take outs.
Should look for.
That.
The discretionary spend a mall spend rich.
Rich.
The transformation programs is the way we see it.
For the cost programs those are different more targeted of expenditure.
Okay. Okay do you have any views about the budget cycle for next year.
I think we will see any sort of slippage I E rather than budgets being all set and ready sometime by.
By January and maybe see some sort of a slippage there because of the macro.
So today, what we have seen is within our large deal pipeline.
There is.
A large number of.
Real exams, which are cost related and we see our own cost services growing.
It shows that there is an interest from clients on board.
Some elements of digital and now also on elements of cost.
The budget cycle. This is the quarter in which we will start to get a sense for the calendar year budget.
It's not something that we have.
Within our grasp from the previous quarter, but in the next few months, we start to see that.
Okay. Just final point, just a slight detail can.
Can we get the number in terms of subcontractor costs for the quarter as a percentage of revenues.
Just a second.
We don't think my mind alright.
Okay.
Okay.
Low likelihood.
Six months.
Alright, Thank you very much.
Yeah.
Great.
Yes. Thank.
Thank you very much.
Thank you.
Next question is from the line of Ashwin Mehta from Ambit capital. Please go ahead.
It's like Super Bugs.
A question on <unk>.
We are in the manufacturing.
So to your margins.
Margins, because the hydro one 6 million incremental revenue as I said.
I would say maintain profitability bumped up violate newsworthy.
That seems to have inbound markets.
So the one thing today.
What exactly is happening there and then you got application.
Yes.
It is now available.
So I think on a quarterly basis.
<unk>.
Yeah.
Yeah for the manufacturing margins are I think are the same question I think many of you had in the previous quarter.
Okay.
So we have worked on making sure our manufacturing I didn't read across.
Deals large view than that to show that yes, we have plans on how deals are all paid up Diamondback campus, which it has over the last four or five together, how we of course like we went out with margin improvement.
And of course, the other cost optimization levered across both across the entire.
Manufacturing it's healthy.
The second question I didn't really get all of them.
If anything they're really cloudy, but I remember you mentioned about the delay.
Is that dynamic.
It's one quarter, it's a good quarter 1 billion plus.
Okay.
I think the model.
Thank you.
Our next question is from the line of Jamie Friedman from Susquehanna. Please go ahead.
Okay.
Hi.
Again, let me echo the congratulations on the robust results.
I'm, sorry to come back to the macro surreal, but in the institutes that there were a recession is that contemplated in the guidance.
Okay.
Do you want to answer your question.
The way we've looked at it today is.
The guidance is for all financially over to see more quarters.
We've kept in mind.
What we've done in Q1, and Q2 and the very strong large deals a number that we had in Q2.
54% mezzanine.
We also kept in mind, the seasonality, which I know all of you know for example in this our Q2, there will be some impact with furloughs and typically our infosys has.
And more seasonality in Q T in occupancy in Q4.
And then we built in what we see today of the macro environment, specifically are those industry segments that I talked about where we see some were destroyed.
Keeping all that in mind, we built this guidance.
For the revenue growth.
Given given where we are.
What we factored in.
Do the guidance.
Great.
Okay, and then in terms of the.
Potential transition from transformational work to cost containment.
You're.
Obviously very well positioned for both.
Is there.
Gross profit or margin difference.
For the same quarter Merck work like a dollar.
Transformation versus a dollar cost containment, how do we think about the margin implications from that transition.
Yeah.
So that's first.
As you pointed out.
<unk> growth today in both of these engines, which is a huge positive for infosys.
It's something that we are very differentiated from many of our peers.
The margin profile is not human differentiated on the type of work.
There are different scenarios in the margin profile for.
For example, depending on the scale of the impact the industry the geography.
In general we will see that in the aggregate levels of aggregate cost program in aggregate.
Transformation programs, we'd have a similar margin outlook. So we don't consider today did that.
It has.
Has any positive or negative impact on margin.
As the London was pointing out we have a very strong internal cost program, which.
And he and the team have put in place.
And that will continue to give us benefit in.
Either of these scenarios.
Thank you so much I'll jump back into queue.
Thank you. Our next question is from the line of Bryan Bergin.
Please go ahead.
Hi, Thanks. This is exact easement on for Brian .
First question.
So maybe the question of Lisa, let's switch to a handset.
Okay.
Thank you.
Yeah.
Hi, Thanks.
First question that we have is on the revenue per employee.
Employee it looks like its trended lower for multiple quarters now can you give us a sense of that that dynamics here, what the expectation is going forward.
Yes, So I think this is actually reflecting our utilization.
Well like.
Like I mentioned in fact pricing has been stable to positive this quarter, but revenue per employee is a crossing tayo. It's founded the company enviable for mutations in both in our training program that MISO and on the bench for the forget the mathematical number around revenue per employee did not indicating anything about pricing really.
Okay, and I was going to be now.
There's also a cross currency impact as well as you can imagine because only 65% of our revenue guidance.
75% on currencies outside dollar depreciated.
I appreciate it's a different appeal metric.
Also automatically come down.
Understood makes sense and our follow up is more of a broader one on the macro so more industries are seeing caution now hurt.
Hi Tech and telecom.
This quarter. In addition to what we heard in the prior quarter are there any other specific areas that are expecting to get worse.
Going forward based on line of sight here.
Yeah.
And Brian This is <unk> I think.
What we are seeing today is in the areas that you just mentioned.
And that reflects in some of the discretionary spend which is slowing.
Also see.
That the large deal pipeline is at a very strong level, we see somehow.
Some balance in the cost programs also becoming a part of the large deals pipeline, but in terms of the macro and we can see those areas as of today there'll be a watchful.
And.
Sort of making sure we are.
Early signs if any other areas.
So there's sort of a point in the future.
Thank you.
Yeah.
Okay.
Thank you.
Our next question is from the line of Keith Bachman from BMO. Please go ahead.
Hi, Thank you for taking my question I wanted to ask you about the sensitivity of your margins to revenue growth.
And more specifically what it wanted to see if you could address as we look out over the horizon of the calendar year 'twenty three.
If revenue growth were to serve as something like 10% just to pick a number.
How sensitive is that growth rates margins and specifically what I'm asking could you, let attrition inboard lower sub cons.
Could you could you reduce.
The subcontractors and or just let attrition take your head count lower such that you could maintain your 'twenty one.
<unk> kind of operating margins or just any characterizations on how.
How we should be thinking about the sensitivity of operating margins to the growth rate, which I think you can tell by the question a lot of investors concern growth will continue to slow as we look a little bit longer term than your fiscal year. Thank you.
Yeah, I think you also.
Third most of the question the hotels. The reality is that we can take our operating margin quite fast.
Mentally.
Benefits business the operating leverage.
Element is quite small compared to other fixed cost businesses, where you can in terms of more of a point like you've mentioned right.
Take off lateral during takeoff pressures.
Attrition based upon all of these four literally by quarter, you can pivot and even to get our cost structure in line. So I don't think it's a big.
And unlike the high fixed cost in that people in that sense I think in the Boston we've seen it a perfect example, I would say looking at the Covid period ran six months pretty much everybody in the industry when they were seeing negative growth.
Pivoted Keith on the margin front, but we didn't see during that time.
Nonetheless, even the Florida growth at that time be ready to pivot our entire cost money.
Okay got it and just be clear I wasn't asking you to guide margins I was just asking for the sensitivity, we think about but I think you answered that.
You can manage your cost structure.
<unk> of the revenue growth rate.
Sustained margins, even if growth were to slow okay, okay, and any comments more specifically on.
How we should be thinking about attrition as you exit the year, you said you would move it lower but.
Should we be thinking kind of a point a quarter or how should we be thinking about attrition as we look out to the end of your fiscal year and that's it for me. Thank you.
Yeah. So I think it's a little maintained three consecutive quarters of decline two 5% decline in this quarter itself.
The indicators improve going into Q3, because we have in other geographies like a 90 day notice period and that gives us a reasonable view of what's coming ahead and.
And we can deliver that.
Does that figure into the Cushing breakdown.
Okay. Many thanks.
Thank you. Our next question is from the line of Sandy from <unk> Securities. Please go ahead.
Hi.
The opportunity I just have two question I really wanted to understand the kind of decision and wanted to understand how the mix between cost optimization and transformation being claimed change since last few quarters and has there been any other increase now as compared to before.
So thanks for the question Kelly.
First.
Under Landini pipeline itself.
Are you asking on the PCB the declared last week.
Okay.
But the trend between the ECB action.
For the large deals and have them in the kind of change between cost optimization.
Yes.
Sure Dan.
<unk>.
On the large visits.
We have looked at it within.
On our numbers, but thats not information that we shared outside what I can share with you is what we see in our pipeline today is.
Good focus on cost programs and we are also seeing because of the growth of core that I shared earlier that we have both sides are growing of course digital growing over 30% with you also as you know the cost programs, which are a reflection.
<unk> also growing.
Thank you last question and then if I can undo pricing right. So definitely just when netting more than the 190 narrow pricing conversation has been how they have progress since last two quarters and right now.
How are you building in thank you.
Yeah.
Yes, so like we said you know a positive book losses.
I expect the fake is whether there's a new deal or a new one.
SPD lizard at PNM Kahala lots of it is really really complex, but one message clearly I've said is that we have that because we think discount which used to be a quite.
A lot of pricing in terms of renewals et cetera that definitely has come down to a lot more focus.
On the client and the client talked I appreciate that because they're seeing the same impact on the attrition et cetera. So.
That's one of the things you feel cooler than we are.
More the.
A large implementation of that being able to push any of the cooling season.
Some cases it is.
Which were more valuable customers in terms of the little rate side, what are you able to offer to clients in terms of transformation.
So like I said, it's varied across clients, but like I said it is going to be a long haul we've never thought it was going to be easy and that continues.
Thank you.
Thank you. Our next question is from the line of Kumar Rakesh from BNP Paribas. Please go ahead.
Hi, good evening team and thanks for taking my question My first question.
Cushing, where you too.
I'm just kind of on the Devon site. So so we have seen quite a sharp acceleration in these pressures, especially in their duties trade returns almost a very good quarter on quarter and right Arabia soon.
At the same thing we are talking about some question coming in.
The Iraqi crudes and some of their clients, taking more cautious times. It's in that context, what is the trading their used shopping could even argue BD. Then is it that these discussions for caution is still at <unk> and you had you could see the impact of that in their diligence on these concerns are getting compensated by a higher corporate center.
The concentrate.
Thanks, a lot because they are selling.
<unk>.
The deal wins I think represents.
The strength that we have on both sides of the capabilities on discipline and non core automation.
And so what we are seeing today is we have the ability to be appropriate for clients, depending on what macro they are facing and as the overall macro evolves. We have both sides, let's say ready for that.
And then my sense is we have a sort of a differentiation from our peers.
With this approach.
We've also put a little bit more emphasis within our pipeline.
We're actively looking at.
Automation cost.
With our clients.
So that it was driving it having said that.
It's also to be kept in mind that large deals are these which were $50 million for us and we've always maintained that these are not there is there is no sort of quarter on quarter trend on this it's more to look at a four quarter period and gives you a sense, but that's also something to keep in mind.
Got it thanks for that.
Second question was what inning do you have comfortable margin bank, alright, Martin coming two or 321% and.
And we have already been 21, 5% in this quarter, so would that effectively in place we are not expecting.
<unk> margin improvement meaningful from here on and that is in the context and when we are talking about that that's a place eight concerns have started eating in our subcontracting cost is also coming down.
So very <unk> to sneak in display trade issues are one thing, but we do not expect margin to expand from here on Tuesday.
Yes, so I think firstly BRL 27.
<unk>.
Thanks, Ron.
And like we said better than the guidance of 21% to 22%. We also going into Q3 Q4 in a seasonally weak quarter because of lower than working data and build a state of rare dropdown margin yet we are seeing some other benefit.
Which we are getting from our lower attrition figure and all these basically playing through the guidance, which we have given.
Yes.
Alright. Thank you back on track of my question.
Thank you.
Next question is from the line of the page Menthol from <unk>. Please go ahead.
Thanks for the opportunity two questions first of all to more dressy means revenue could predict to.
Which you have in place right.
Hum.
Listen you alluded some of those segments each other nicely to be soccer.
Even after considering there seems to be some sizable motor or something which is happening in the next few quarters.
So you see them towards some sense are there any specific.
This new video is getting more of the weakness of client specific situations.
Second thing is about the building now even bigger.
The workforce efficiency program and of course the cost programs.
Sorry.
Uptick kind of do you think it would lead to higher <unk> clauses in the next few quarters.
And in Mega deal that you can let's say how the Mega deal pipeline is picking up and if you can provide some properties or clients or do you think to take those kind of things.
Yeah.
Hi, This is Paulo all of it the first one I think.
Talking about the future Q3 Q4 growth in the segment.
If that's the question, we don't do the more color for future growth closely by quarter All my segment.
Overall.
I go back to what we said earlier.
That the macro environment.
As rich said, we are looking at with more caution.
Overall demand these large deal pipeline is strong and.
And both sides Alpha.
And Jim both engines are doing well digital and core and automation.
Uh huh.
Then ive been following the next point.
The second question was about the cost efficiency program or of course, they called them to meet their logging PC because of senior and order frequency.
Frequently the length that you're expecting.
That makes me most tilting toward those program compared to our digital program.
The ability to even be so an uptick which we have seen even in Q2, which is let's say one quarter or how you kind of build to suit.
Yeah.
So on the cost optimization follow what you're saying.
Or do you see.
Good discussions of that top line.
In some of the industries we serve.
See more of that.
And others.
Moderate level, so that's where we have seen.
Good traction, which is also showing up in the growth of core services.
<unk>.
Again to us.
Quarter by quarter. It can go up and down because these are these over $50 million in these deals take some time to build up as the London shattered a 27 days in Q2.
But if I look more on an annual cycle.
There's a good way of looking at large deals across but on a quarter on quarter basis, We don't Uh huh.
However, like our simple where we forecasted it can go up and down.
Let me just basically do you think the size of the deal between digital and cost takeout.
By nature of course take there'll be neutralizing in places, where you don't see any such thing.
Or the size of the deal sorry, I did not follow that.
No I don't think so because sometimes.
The very large digital transformation program or the client and sometimes there could be a lot.
Large modernization plus cost efficiency program.
Sometimes there could be only cost efficiency program. So there is not make one larger and one is smaller labor.
Thank you.
Thank you. Our next question is from the line of Nathan Padmanabhan from Investec. Please go ahead.
Yeah, Hi, good evening, thanks for the opportunity.
No wonder ask on Hum.
Declined performance this quarter. So I think most of the revenues have come from the non but non top 25 and top granophyre has been relatively soft.
Wanted to do with the talks on that.
What is being done.
Do you see that softness continuing and do you think.
The remaining can sort of hold up.
So that's the first question.
The second one is how do you think it could be I think one of the past two years.
There are a lot of smaller size deals that sort of what the reasonable.
Overall, and that sort of led to faster velocity and deal conversion redeemed to revenue conversion.
I do think in the new sort of set up there and it's more cost optimization.
<unk> been through their new conversions would slow down our business.
Thank you.
I'll start with the second round.
In January .
At a higher level there is no big correlation between the conversion of <unk> to revenue.
Sometimes there is immediate large impact because it is early transformation. Some time, there is a big transition and other times, it's more draw.
Drawn out in the size of these specifically large b, which are more than $50 million. There is no really like a conversion like that which is you can correlate it to something.
And the first point wasn't I think.
Product line right.
And what about the 25 clients declined from $36 three two public tender pipeline three no I don't think there's anything reading and that can take almost looking at for the first time, but one thing to be kept in mind that that's got to be applicable. During this time right. So they could be clients in certain geographies.
Like Europe across our could be in the mix.
But nothing we have seen and usually in the top 25 going down or anything like that.
So fair enough just one last quick one from my end.
Big is capital markets product within the financial services piece and because I.
I thought that should normally be a cause for concern, but I haven't heard about any of the call. So far but just wanted your thoughts on the thing.
Yeah.
Sure Dan.
We typically don't break up the.
Segment beyond what we're doing in financial services.
A very good business in capital markets.
Ross the one, but all financial services as our retail insurance asset management and capital markets among other things.
But we're doing this long enough that you're seeing within that piece of it.
But that wasn't the carload at all.
Theory.
Then we are not so.
So the one we called out.
At this stage were related to the weather.
I said earlier, which was on.
Mortgages in financial services.
So retail high tech and telco.
Yeah.
Sure. Thank you so much that longevity there.
Thank you. Our next question is from the line of Sandeep Shah from <unk> Securities. Please go ahead.
Yeah, Thanks for the opportunity.
Okay.
This is maybe the question.
Yes.
Thank you.
Yeah, and I am actually isn't all that different thank you.
Yeah Yeah.
If I look at beans.
Keep it up.
Hum.
Lastly, please guido.
Thanks.
I'm sorry, Mr Shah.
Yeah.
Again, maybe.
If you can to rejoin the queue.
It might be you know this is a better one this is fine.
Yeah, Yeah. So can I just start now yes. Please could you repeat the question. Please yeah, yeah. So the ask Craig to achieve the guidance is zero to one 2% in the next few quarters, which look software. Despite the strong beta. There is also we are talking about more cost optimization leads coming along but did you lose deals.
So is it.
Specific issue or is it higher than a normal for load out of your factory or this is more a conservative way of looking at things because it'll be higher macro issue in Michigan and I have a follow up which I will ask Luca.
Sure Dan.
Oh first.
What we are seeing.
Typically.
As you know the.
Q3 has furloughs, we have not estimated anything higher or lower.
Essentially.
So there was submitted estimate to previous years.
It can be a half both Q3 and Q4.
Well have more seasonality for us in the past deals. So that's what we've estimated.
Then further macro what I shared earlier.
Sort of pillar <unk>.
We've put as.
We will be developing the guidance and then we factored in the language. So there is no additional.
You can say, whether it's conservative or not conservative it's those factors we've taken into account.
And develop the guidance.
Yeah, and we call out is the <unk>.
<unk> been in London, So if I look at you are implying.
Big margin guidance of 21, three in the second half versus 21 five in the second quarter.
This is a Q on Q decline versus in the London, your first quarter or so.
Q4, <unk> increase in the market and we are in terms of the utilization as the less likelihood of your sub contracting costs likelihood of lower pass through cost, but is it fair to say then on marketing work underway to do that.
Usually cost headwinds, which we should be available.
Well I don't think it's conservative I think are realistic and that margin predictions, we see I guess, that's certainly a headwind.
We see some impact.
Like I said some of the attrition impact will come to those are more longer term impact.
Some of that when we look upon the setup and also have you.
The seasonality of the volume of course, the knee was in that sense, you don't have growth hasn't evolved.
In terms of operating leverage and the question came to dramatically change your margin profile for SG&A for instance.
As long as I can where you have some operating leverage so neither multiple thing and that's all factored into the cigarette, but given our experience and full year.
Okay, Okay, and just last thing on the variable.
It looks like in the first quarter, he might've featuring people, saying how long is the video.
The second quarter or is it a headwind or tailwind on that launch.
Okay.
Some valuable we don't.
Sure that number externally.
As you know we will come.
Come back with what we do from an internal basis, when we disclose it <unk>.
Okay, Thanks, and all the rest.
Thank you.
Our next question is from the line of monarch the nature from JM financial. Please go ahead.
Thank you for the opportunity just had one clarification question related to the margin performance, Although I think remains this quarter didn't really.
When looked at that once you do an interconnect subcontracting expenses are down by about 20 bps.
Wind in your opening remarks, you said as she makes upon countries are down 40 bps to just to understand if some of the <unk>.
Nike is cost optimization.
Being captured in the cost of funds.
Okay.
Well, so I think that is the cost up as opposed to bigger revenue, but the impact on margin as well.
Let me update the subcontractors of oil in place, but it's not a mathematical impact.
Subcontractor costs coming down from 11 to 10 buyback broken it we think we can bring them to contact us zero margin and growing by 10%.
Because that's a premium you're paying with a contract that is impacting our margin.
Back to Hollywood.
Sure and one last question was with regards to the hiding that fits into the year.
Let me take the full year and how you can debate that.
In terms of the patient intake how should how are we thinking about the pressure of the intake is picking up a year given the fact that there'll be some you've got imports.
For companies in the sector.
Especially on belief.
Yeah.
And so we had like I said, we had 40000.
At planning and we will be above the 50000 plus.
Let me get back later.
But we will go above 50000.
Thank you and all the rest of the pizza.
Thank you.
Our next question is from the line of Ravi Menon from Macquarie. Please go ahead.
Hi, Thank you in conjunction with excellent margin performance this quarter, especially considering that the utilization has dropped or could you talk a bit about how you see headroom for utilization and margin improvement.
Attrition has started to decline.
Yeah, So I think at three six.
We are.
Other than what has historically been but part of it.
He is back.
Fresh everything we have gotten we have wanted to make sure that they are learning what bucket upgrading facility in MISO class on the bank. So.
We are very cognizant of not putting them into projects on day, one and therefore, we are ready to take a hit on the margin than the utilization on account of this because this would be more the long term investment for us.
End of the day, we strongly believe the industry can only go through the session.
Nick.
Year on year, and that's an investment grade Omega and over a period of time of partly more weekend.
Demand picked up and to be able to obtain and then we can repeat them into projects. So yeah quite comfortably.
And of course, we want to get difficult really to kick back towards a more comfortable 85 area.
And what are you talking about country I'm starting to emerge in industry verticals like retail high Tech telecom and the market sub vertical how are we actually started seeing project cancellations or I'll be just seeing slower decision, making for new programs.
And I said today, we are seeing a band there are discretionary.
Work that we see slowness in that area.
We will keep.
Watch on anything else that starts to develop.
Those are specific industry verticals.
So should I read that there have been no cancellations yet.
Yeah.
So we don't see.
Cancellations are program, we see slowness in the discretionary.
I'm proud of the programs.
Great. Thank you so much and best of luck.
Thank you.
Ladies and gentlemen that was the last question.
Now I'll hand, the conference back to the management for closing comments.
Thanks, everyone for joining us just a few comments from me.
To close out.
In summary first.
We really ever bought suicides, both engines and our business digital and call growing which is.
Very strong for us.
<unk> capabilities, and cobalt are resonating and God and automation.
Believe we have a leading industry, leading set of capabilities and that makes us ready for the evolving macro environment.
We had large deals of $2 7 billion, which we are delighted with.
And we had a very strong margin performance at 21 five as a.
Margin is clearly part of our focus.
And we have a strong.
Turning the cost program that will help us drive all of these things.
Attrition is coming down should we see a huge impact of the initiatives that we put in place some time ago.
So overall, we see we are.
We had a good quarter and we are well positioned for the environment that's coming ahead.
And whichever.
In a scenario that evolves in that environment.
You all for joining and we'll catch up in a quarter or so.
Thank you members of the management.
Ladies and gentlemen on behalf of Infosys Limited that concludes this conference. Thank you for joining US and you may now disconnect your lines.