Q3 2023 Infosys Ltd Earnings Press Conference
Speaker 7: This in a seasonally weak quarter for us and amid a changing global economy.
Speaker 8: We continue to take market share. We continue to benefit from consolidation.
Speaker 9: Growth in Q3 was broad based with most industries and geographies growing in double digits in constant currency.
Speaker 10: A large deal value was at 3.3 billion, the highest in eight quarters.
Speaker 11: With 32 large deals, this is the largest number of large deals in a quarter in our history. 36% of this is net new. A pipeline of large deals remains strong.
Speaker 12: Our digital revenues grew at 22% in the quarter at constant currency and are now close to 63% of our overall revenue. Our core services revenue grew as well at 2.4%.
Speaker 13: We are seeing growth in both areas of our business, digital and core services. This is a testament to our industry leading digital capabilities including our Cobalt cloud capability and our industry leading automation capabilities.
Speaker 14: both of which are resonating with our clients.
Speaker 15: A large deals pipeline is seeing increased traction for automation and cost efficiency Ok, so let's get started on AWS, and ask breath light.
Speaker 16: Strong growth was accompanied by stable operating margins at 21.5%. This was driven by healthy revenue growth and cost optimization benefits.
Speaker 17: A voluntary quarterly annualized attrition continues to decline.
Speaker 18: It was reduced by 6 percentage points sequentially to well below 20% for this quarter.
Speaker 19: While we are encouraged by the immense confidence and trust our clients have in us, the signs around our
Speaker 20: are showing a slowing global economy.
Speaker 21: Some areas such as mortgages and investment banking in the financial services industry, telco, high-tech and retail are more impacted and that is leading to delays in decision-making and uncertainty in spending in these areas.
Speaker 22: We are confident that the strength of our digital and cloud capabilities and our automation capabilities will continue to position us well in this market.
Speaker 23: We're keeping a close watch on the global economy.
Speaker 24: Our operating model and offerings are agile to deliver value for our clients in this evolving macro environment.
Speaker 25: driven by a growth of 17.8% in constant currency for the first nine months of FY23 and the strong large-deal value for Q3.
Speaker 26: We are increasing our revenue growth guidance, which was at 15 to 16%. We are increasing it to 16% to 16.5% for the full financial year.
Speaker 27: This despite the changing global conditions.
Speaker 28: We are retaining our operating margin guidance for FY23 at 21-22%. We anticipate to be at the lower end of this range. Thank you. With that, Rishi, let's open up for questions. Thank you, Salil. We will open the floor for questions. Joining Salil is Mr. Nilanjan Roy, Chief Financial Officer, Infosys.
Speaker 29: With that we have the first question from Ritu Singh from CNBC TV18. Hi, thank you. You said you've increased your revenue growth guidance despite changing global conditions. What gave you this confidence? Why the revision up? What about furloughs? Why are you expecting this to be lower than what you were expecting from your comments in the last quarter?
Speaker 30: So what are you hearing from clients in terms of their budgets and these large deals that you say continue to be strong in the pipeline? Are you seeing more renewals or newer deals that you expect to win and a word on nutrition and hiring as well. Do you expect it to continue to trend lower? I think it's the lowest in the last five quarters and also
Speaker 31: Hiring is lower than the previous quarter. Is it because you're anticipating lower growth? Any comment on that as well? Thank you. Thanks for the questions. I'll try to get through most of them. On some of the points on margin, Nilanjan will jump in as well. On the guidance...
Speaker 32: Our focus is really on what we see as we closed out the quarter. We had exceptionally strong growth, Q on Q2 .4, year on year 13.7. For the first nine months we are at 17.8%. And we had a very strong large deals at 3.3 billion.
It's the largest we've had in eight quarters and the number of deals is also a testament to the environment for us. At 32 deals was very strong. Given all of those factors, we saw that it was right to increase our guidance. The point we made also is we do see...
that there is changes in the economic environment. We've called out, for example, in financial services, beyond mortgages, investment banking. We've called out the telco sector. We've called out high-tech and retail. But keeping all that in balance, there were some things that gave us a lot of support.
while we see other factors in the environment changing. But keeping all that in balance, we were ready to increase our guidance.
On nutrition, I think before we go to the margin and so on.
Have you seen a steady?
Quarter on quarter decline for the last several quarters. We believe many of the policies we put in place to make sure that we are more and more aligned to where employees are focused on is helping. And of course the overall environment is also changing in the market.
So we see attrition continuing to go down.
And why the heart is ignored?
On FY24 we have no comments at this stage. We will absolutely look at it at the end of the quarter in Q4. On hiring, we have the number of hiring based on what we saw on the demand and we have also had a very strong hiring for the full year in FY23 and also very strong hiring in FY24.
you mentioned about the benefit of currency so we got a net benefit of what 40 basis points from currency net of our hedges so that was one tailwind for us we got another benefit of about 70 bps from our cost optimizations for instance our subcon costs etc and from a headwind perspective there's about 30 basis points additional spend on our
Thank you.
The next question is from Anisha Jen from ET Now. Anisha sends us questions on text.
Salil, the question for you is there has been a strong execution and deal win in Q3 that led to the guidance upgrade as well. Can we extrapolate this to believe that the client budget will be robust and double digit revenue growth will sustain in FY24?
And could you give us a bit more insight on the trends you're witnessing in Europe and for verticals like BSSI and HITECH?
And Ilynjan, for you there's a question on margin which you just answered. A follow on question on nutrition that is coming down sharply. Could there be a sharp reversal in margins from Q4 onwards? How are the pulls and pushes stacked for margins?
Thanks Rishi. On the first part, I think we talked a little bit about why the margin was increased in terms of what we see in the environment. We are not commenting obviously on the financial year 24 and what the guidance or growth in that year will look like.
What we do see in terms of demand environment is what I shared earlier. We see some areas, for example, the mortgages area or the investment banking area and financial services. We see some areas in telco and high tech and some in retail.
There is more variation we see in the European markets, more concerns on what's going on with the economy. The US market is also there, but relatively less so in the US with respect to Europe . We will see how this plays out because...
This is not a scenario where it's the same for every industry. For example, we've seen extremely strong growth in energy, utilities, that part of our business and we continue to see that in Q3. We saw very strong growth in manufacturing and we continue to see some of that traction in our business in Q3.
This is a question on margin worth attrition. Yeah, so absolutely. So one is, of course, as you know, if you've seen our utilization, in fact, that came as a headwind for us. We have built a large pressure pipeline. They go through our training, like Salil mentioned, into Mysore. And they're on bench. We are training them, rescaling them.
And in fact that will give us some headroom in fact for growth looking ahead. So the question partly about do we need to hire more. So we have a very substantial bench and I think our utilization at about 71.7 is one of the lowest we've had. So we have some headroom there. Looking ahead of course subcon costs we've brought them down.
At one stage we used to be closer to 7% of our revenue, we are around 8.7. Utilization and other factors, we continue to work on pricing. Of course on-site, off-shore, the pyramid itself with the freshers coming in will help us. So these are the levers we will have to deploy as we look ahead in the next few quarters.
Thank you Nilanjan. The next question is from Sajeet Bangat from BQ Prime. Sajeet has a couple of questions. For Salil, he wants to know, give us a sense of the demand environment in North America, UK and Europe .
Have you seen a trend of small deal sizes compared to what we saw in the last two years? Do you foresee a slowdown in deal closures? Lendron, your question is again on margin which has already been answered, so I'm not asking that again.
On the demand environment, sort of similar view, I think we see different demand environment in different industries and even within some industries there is a variation based on the client. We are also seeing much more demand today for...
automation, cost efficiency, operational improvement programs. The size of the deals as we see with 3.3 billion in large deals, we have a tremendous volume, 32 of those deals for this quarter. So we do see a change in the environment.
But we see that both of our engines, the one for digital and cloud driving transformation and the one for automation driving cost efficiency, both are working and both are growing for us.
Thank you. The next couple of questions are from Zee Business, Kushal Gupta and from Harshada Savans from CNBC Awaaz. Both are on client and IT budget spending which we have already answered. I'll ask one question. What is the sense you're getting from your clients in terms of future pricing of deals?
How concerned are you about Europe and what impact could it have on deal flows ahead?
I think maybe the lenses will take I'll take the question in Europe . Europe I think we mentioned earlier there's differences within the European economies we seeing today more more economic changes in the European market relative to US.
On the pricing side, of course, I think we've seen a much more stable pricing regime than historically what we've seen. And part of that has been the high inflation we've seen in these economies as well and also because of the compensation. So some of that we are trying to work with our clients to pass that on and we've had some successes.
One of the things is of course things like discounts have actually come down over the years. So I think this is a discussion we have by each client and I think that's something which we will continue to work on irrespective for the year ahead.
Thank you.
The next question is from Reuters news from Nandan Mandiam
Hi, Salit. I just want to know how long do you expect the softness in the FSI to persist in the US? And also if you could give us an insight into how you sort of maintain around the same growth in Europe ? And lastly, could you give us an insight into what the FY24 hiring is going to look like both in the fresher and lateral terms?
There are parts of it, for example, mortgages and investment banking where we are seeing some constraints on what they are doing with their business. There are other parts of financial services which are not seeing those same constraints. We have places where because of consolidation of partners we are actually seeing some growth.
across some clients as well. In terms of hiring, we have no comment today on our plans for FY24. Those things in any case we not comment on the hiring number. We will at the end of the quarter lay out the guidance for growth and margin for next year.
under European standards.
On Europe , I think we are fortunate to see a very strong growth in Europe . We've had a good focus on that geography for the past several years and we continue to see traction from some of the work and programs that we started a while ago.
We are fortunate to see a very strong growth in Europe . We've had a good focus on that geography for the past several years. We continue to see traction from some of the work and programs that we started a while ago.
The next question is from the New Indian Express, Oma Khanan.
Thanks Rishi. Good evening gentlemen. Congrats on a strong quantum. Yeah, yeah. So do you expect time spending, you know, to come down and Q4 and whether this include reduction in workforce and also one more on automation that you spoke about just now.
So Infosys has good capabilities on automation, AI, MI, and how you're looking at this AI chatbot as you have invested in OpenAI also. So what will be the future? How does the future look like in AI? And how this will actually help in servicing your clients better.
Thank you.
I think the first part of the question was more on what we see the clients spend in Q4. I think our sense is the points that we've laid out with respect to different industries and different clients is what we're seeing right now in Q4.
What we see going ahead, we will describe for the Financial Aid24 as we come to the close of this year.
In terms of automation, we made tremendous progress and that's one of the reasons because we've used artificial intelligence machine learning we've benefited from
clients needs to be more efficient with their technology spent and we've been at the forefront of what is going on with automation and that's really the reason why we see both digital business and a core services business growing.
On OpenAI, there several years ago Infosys had supported this initiative in a very small way through a donation. We see the progress they made. Huge congratulations to what they've done. We have examples where we are using...
chat GPT with client situations and that is starting to further increase productivity and automation.
Thank you.
The next question is from Haripriya Suresh from Money Control.
Hi, good evening. I have one follow up on ChatTBT. Just wanted to understand if Infosys at some point, I know OpenAI has since shifted from non-profit to for-profit. Will Infosys look at putting more money, and how do you think it'll impact coding and service delivery as well? Another question is, you had a very strong quarter, but do you think we'll go back to single digit growth?
focus and commitment through the past several years on automation, artificial intelligence, machine learning. We have no plans today which relate to anything in terms of an investment in any activity but we are looking at the way to really work with
and partner with and there are many technologies which enable way to do low code, no code, enhancement of or efficiency of building code faster. So we are working with several of them to make sure that we work with our clients on it.
On growth, we don't have a guidance for FY24 at this stage. What we have is really the focus on Q4 and for FY23.
On the pressures, I think the 50,000, we are short of that now, but I think we should be around that number by the time we end the year. So we have continued to hire.
I think about 46,000 I think we've done if I'm not mistaken.
Thank you. The next question is from Veena Mani from the Times of India.
Hi, good evening gentlemen. So a couple of questions on the HR front. With attrition coming down with the pressure on giving out more bonuses and increments ease out for you and also on this quarter's variable pay I'd like to ask you...
trainees, it's at 881.7. Is it largely because even in the existing projects, clients want to ramp down, want to bring down a number of build resources?
Why is it exactly So? It the second and end the first 1, So eighty one point seven. Largely because of our pressures bench- that is the biggest reason- and because we have been havingiring so many sures through the and putting them into training. So there is no reason that over a period of time they will start going into production, because you cannot overnight put a new project and have them all the pressures and, like we've talked about the path, an investment you are ready to make because youcannot overite.
to each quadrant performance.
Yeah, that's been going on, yeah absolutely. In fact, one of the projects of helping us during this attrition has been this whole project internally about predictability of promotions and that continues unabated as people reach a certain seniority and in certain levels we are continuing that.
Thank you. The next question is from Sai Ishwar from the Economic Times. Hi gentlemen, good evening. So, Salil, in the press release you said you've gained market share. Could you actually explain in which markets or in which, you know, functions are you gaining market share?
And also about the deal win, it's come at an elevated number right now, right? So do you think going forward it is sustainable? And also could you tell us what worked this time? Do you think your automation capabilities helped in terms of winning a lot of cost based deals? Could you just give us more color on the deal pipeline and the wins? Thank you.
So on
What are the reasons for some of these deals that we are winning or the size and scale of it? I think you are absolutely right. The automation piece, the fact that we have a real strength and industry leading capability has absolutely helped us.
We think we're gaining market share because if you look at the growth, average growth over the last 12 months, 24 months, 36 months, including in this quarter of the industry and you look at our growth, we think we're ahead of the average.
So we are gaining market share from people who are below that average. And it's in multiple areas. We gained tremendous market share on cloud because of cobalt, on the digital areas, on data, on analytics, and also on cost efficiency and automation because we have the ability to take...
New Year, first of all. So most of the financials have been asked. So I have something from a technology point of view. Last year, we spoke a lot about metaverse, right? Infosys also has invested into it. So how do you see the adoption among?
Is it still in the initial phases or have you seen the adoption pick up? That's one. Number two is that last year we also heard a lot about moonlighting, right?
So over these months, has Infosys firmed up any policies around moonlighting yet?
That's it. Thank you.
So on meta, I think we are starting to see as we discussed last time some projects, some programs especially as it relates to AR, VR in a manufacturing context, on a shop floor context.
in an education training context and maintenance context. It's small right now so it's not a large part of what we do, but we are seeing a steady sort of improvement on that. On people doing gig work, we made a clear statement a while ago. We are very much of that same view.
maintain, but outside of that we want to make sure that the employees have the ability to do some of this to improve and enhance their learning.
Thank you. The next question is from Haripriya Suribhan from the Hindu Business Line.
Hi guys.
Kothari, you spoke about client spending, but specifically when it comes to cloud, we hear that people are looking at taking a look at their cloud spends and maybe even rethinking how much they're spending on it. So what is it that you see on that front? What is your reading on it? And given the current environment, are customers looking at vendor consolidation and would that be helping you going forward?
On cloud, it's a significant part of what we see within our digital portfolio. We have seen good growth in digital all through the year and including in Q3. We don't spread out the cloud growth specifically, but it's...
in good shape for us as the cloud business is growing based on COBOL. Overall, we have seen that there is a focus in some of the industry or sub verticals that I mentioned earlier where there is more attention to what should be done with these transformation programs.
and much more focused now on how to be more cost-efficient. So that's going on as an overlay, but the cloud remains a strong part across all industries.
On vendor consolidation we see a tremendous benefit for us. We see many large enterprises starting to look at things which are more in selecting a very small set of partners and in many of those cases, we see a tremendous benefit for us.
Infosys becomes the preferred partner for our clients.
partner for our clients. Thank you.
We'll move on to the next set of questions from journalists who sent on text.
The first is from Joshi Mendonca from ET Prime. Joshi's question is, one thing that we have seen is Salesforce talking about a slowdown and there is talk about a slowdown on the hyperscaler side as well. Given that you are strategic partner to these companies, what are you hearing from them and your clients about the cloud?
which has been a big driver of growth. The other question is, given the uncertainty, could you give any color on how close to the growth your customer teams or any steps that you have taken to be able to capitalize when we see an upturn? On the cloud, I think it's similar to what we were just sort of mentioning essentially.
movement today already with cloud with all of the components of our cobalt capability, but in some other industries it's less so and therefore overall there's obviously less in that.
In terms of the uncertainty, could you give any colour on how close to the growth your customer teams or any steps that you have taken to be able to capitalise for the time when we see an upturn?
So there I think we are positioned well with the fact that we have a very strong digital transformation capability and even today that our clients are looking at it that capability will become more and more critical as and when the overall economy also changes.
Thank you.
The next question is from Shobhitas from Mint.
The question is, the per employee consolidated revenue declined further to $54,000 level, down over 6% by OY. Does this show that employee costs have still remained high in the sector despite falling attrition rate? And is this something that we expect to see coming in the coming quarters as well?
For Nilanjan, a couple of questions. You have raised guidance for FY23 on the back of a strong quarter. However, the number of active $100 million plus deals reduced by one during the quarter, is that a factor of uncertainty coming from North America and Europe ?
Do you expect such large deals to remain muted or even decline through the next quarter? This was already asked. And there is another question. Revenue from India saw a 5.4% YOY constant currency decline, while the rest of the world, including Europe , saw growth. What is the reason for such movement in market metrics?
So India is a very small portion of about 2.5% of our global businesses from India and a lot of the work we do with our clients is also volume and transaction led so you will see these pluses and minuses on a quarter basis on the growth figure. Like I said, it's only 2.5% approximately our revenue.
The second one was about the revenue per person. I think that's just a reflection of our utilization over the year, which was about 88%, and now we are at 81%. So that's just a map of the overall RPE as such. So our margins have, like I said, quarter on quarter remain stable. So that's a...
Different way to look at the metric because we've also hired freshers during this time who are sitting on bench and are training in Mysore But from a productive perspective we have seen that Utilization factor come down by only about one and a half bps one half percent during the quarter. There's something else? That's right. Okay
Thank you. The next question is from Shivani Shinde from Business Standard. In continuation to the earlier question on cloud, can you give some colour on cloud deals? If cost transformation deals have gone up, why is the core revenue down in reported terms? Also, can you give some colour on the TCVs won this quarter?
On the DEU's first
The reported term has a lot of currency in it. So we always look at our business on a constant currency terms. We think that's a metric which is more stable and more indicative of how the underlying business is doing. So the key for us there is the core is growing.
this quarter on a constant currency basis. We don't typically give out the average TCV on our deals, but the reality is we have a huge large deals number at 3.3 billion, and that makes a big difference.
as we look ahead into what is going on with the future of the business. On cloud deals, those really come back to what is...
the view of individual clients and within industries what's happening and then the overlay of the cloud as an ecosystem.
Thank you. The next question is from Rishabh Shaw from The Informist. For Salil, you said Europe sees more stress but segment revenue shows the region's share of revenues going up. Going forward, do you see that changing? And what are the reasons that drove large deals even as you said there were delays in decision making?
Where on Europe ?
To the earlier question about what is the overall economic environment, we see the economic environment across the world slowing. Within that relatively Europe seems to be more slowing than the US today. For our own work...
Europe is very strong, we've had a really good platform there put in place over the last 18-24 months and we are seeing the benefits of that coming through today and also some of the large programs that we launched in that last 18-24 month timeframe.
Thank you. The next question is from Debashish Mahapatra from Deccan Herald for Nilanjan. Despite a fall in attrition and benefits coming from operational efficiency, why did operating margin not improve in Q3? Why are large deals margin dilutive in nature?
When can B C revenue per employee inching up? I think I have answered many of those, So we have given our margin work on the 22% sequentially as well, and the other one was on large U perform value. We see our overall strategy of the last four year since the large deal.
you know, strategy was put in place, you know, at 21.5% we actually well above where we started in FY18. So, despite all the large deals we have seen that, you know, as we go through the deal cycles, we've seen the improvement in margins and of course new deals come into the funnel with lower margins, but that's a...
mechanism we have actually mastered and I think that's something which we do every day.
Thank you. The next question is from Rohit Chintapalli from Business World. This is a similar question in case you want to add any more color to it. Your revenues from North America have declined sequentially and they've improved only marginally in Europe in Q3. This is in line with ICRA's report that predicts moderation of growth in the IT sector over medium term.
in Europe and in North America. Of course the growth rates are different, but we are seeing a very strong pipeline in all the markets like Salir has mentioned.
Thank you.
The next question is from Harichand and Arakali from Forbes. Two questions, one is on hiring in the context of looming recession that I think gentlemen you've answered. The next question is while there is the nuance of Infosys, Cobalt and other such capabilities which may be useful to clients, overall what does the recruiting scene look like in the coming few months?
On recruitment, I think we have already mentioned first that we are increasing our growth guidance. We've talked about the recruitment that we've done across this year already. And as we see the demand environment building up, as we see utilisation inching up.
We will make sure that the recruitment, utilization, and the way we are training all of the college graduates makes it an efficient model for us to grow with.
Thank you. With that we come to the end of this Q&A session and the press conference. We thank our friends from media for joining us today. Thank you Salil, thank you Nilanjan. Before we conclude, please note that the archived webcasts of this press conference will be available on the Infosys website and on our YouTube channel later today.
Thank you very much and have a good evening.
Thanks for watching!