Q1 2024 Infosys Ltd Earnings Call
Yeah.
Ladies and gentlemen.
Good day and welcome to the Infosys earnings Conference call.
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Okay.
I now hand, the conference over to Mr. Sandeep mine through thank you and what do you yourself.
Yeah.
And then they run them at a complaint because as earnings call Q1, FY 'twenty four.
I think I'll say it on this call as CEO and MD, Mr thought anybody CFO , Mr. Kneeland, Android and other members of the senior management team.
Start the call with some remarks on the performance of the company for the quarter.
And then subsequent to this call will be opened up for questions.
Please note that anything which we see a difference right I'll go for the future of the forward looking statement, which must be read in conjunction with that is that the company faces.
I appreciate the explanation would be that this is a deliberate enough I leave with ACC, which can be found on www dot they said anjali.
I would now like to pass it onto silent.
Thanks, Sandeep good evening and good morning to everyone on the call. Thank you for joining us.
And we had a strong quarter in Q1, our Q1 growth was solid at four 2% year on year and 1% quarter on quarter in constant currency, we had 21% growth in manufacturing, 14% in life Sciences.
The other region grew by 10%.
Operating margin for the quarter was strong at 28%.
They did a robust free cash flow of 619 9 million in Q1.
Our large deals as value for Q1 was $2.2 billion, 56% of this was met new you had one mega deal win in Q1.
Value deals with financial services was 50% of the overall lodge duty value in Q1.
We announced a mega deal of $2 billion value after the close of Q1 and before I do that.
For today.
With a strong large deal and they got the wins we are building.
Well for the future.
Our pipeline of large deals is strong and can and we can do to have mega deals in our pipeline.
We are delighted that topaz I E I N generative AI platform.
<unk> well with our clients we are working on a T generative AI projects for our clients at this time.
The work, we are doing and campuses large language models for software development text document voice and video.
Internally, we have developed generative AI tools using an open source model for software development.
You're working with open source and proprietary generator platforms and models.
We obtained 40000 employees on January two.
We see opportunities for new work and for productivity improvements through this technology.
All of these elements are available within our dual pad centric capabilities.
We see this area of agenda, do they and topaz being really transformative for our clients.
As we look ahead with a large and mega deals successes and a strengthened cost efficiency automation and consolidation.
Feel confident.
In the short term, we see some client stopping us.
Slowing down work on transformation programs and distressed anywhere.
This is especially so in financial services and mortgages asset management, that's been banking and payments.
And in the telecom industry.
You also see some impact in the high tech industry and in parts of retail.
Even as we won two Mega deals recently and I have a strong pipeline of large and Mega deals. We received revenue from some of these and other large deals towards the later part of our financial year.
Keeping that in mind, we are changing our revenue growth guidance for this financial year.
The growth of 1% to 3.5% in constant currency.
Yeah.
As a consequence of a mega deal wins overall, the traction and cost efficiency automation, a differentiated digital cloud and generally would you be like capabilities.
We are well positioned for the medium term and especially towards the end of our financial year and the period after that.
You've launched a broader and comprehensive margin expansion program. The program will work across five areas.
Give me a deficiency automation in January to a I M.
You mentioned, particularly portfolios.
Reducing our indirect costs and convenient kitting and diving value across the portfolio.
Our senior leadership has mobilized on this working on this program with our clients our employees and partners and we're taking steps for the short medium and long term.
While keeping the overall strategic direction of the company by.
We have an ambition to improve our operating margin in the future periods.
Operating margin guidance for the financial year remains unchanged at 20% to 22%.
With that let me hand, it over to London.
Alright, Thanks, Hello, Good evening, everyone and thank you for joining the call.
We can turn to slide 24 in the back drop off I'm talking.
Macro economic environment with clients, because we get the thing the I T spend and continuing to focus on cost and efficiency program.
One revenue growth was four 2% on a Y on Y basis in constant currency sequentially revenues grew by 1% in constant currency and one 4% in dollar terms.
Operating margin for Q1 was 28% 20 basis points lower sequentially. This was primarily due to a 70 basis point benefit from cost optimization, including utilization automation, which was all set by a balanced 90 basis point impact from employee related costs, including higher variable based emotions.
Etc.
Metrics remain strong with the number of 50 million clients, increasing to 79, and 200 million dollar clients at 15, reflecting our strong ability to mine stops clients by providing them multiple peer multiples I live in services.
Headcount at the end of the quarter stood at 236000 employees, which is a decline of 2% from the previous quarter.
Banking portion of attrition has been back filled by training and reskilling existing pool of talent and deployment, especially is consequently, our utilization excluding trainees improved to 81, 1%. They get further headroom for growth, we will calibrate the hiding place 524 based on available pool of employee growth expectation that accretion.
Free cash flow for the quarter was robust at 699 million and the conversion to the next topic for Q1 remains strong at 96, 6% led by strong collection.
<unk> increased by one day sequentially to 63.
Consolidated cash and equivalents stood at $4 5 billion at the end of the quarter. This is before the payout of final dividends that happened in the first week of July .
P. S grew by six 6% in dollar terms and three 4% in rupee terms, you don't cash balance was $6 seven 1% in Q1.
Do we increase throughput at two 8% in Q1, a 1.8% increase year on year, which is a reflection of our strong cash generation and capital allocation policy.
Large deal momentum continued and we signed 16 large deals in Q1 do you see your $2 3 billion with 56 with a net new three.
C D E and F N.
You are right and communication foreign retail doing manufacturing one in life Sciences vertical.
Why is this a split by living in America or in Europe , and one in either W.
Having two verticals pigment performance financial services vertical with continued softness in areas like mortgage asset management investment banking cards and payments.
Larger Super regional banking clients in the U S have been resilient during this quarter.
Banking clients are focusing on vendor consolidation cost take out and self funding transformation program.
Many financial institutions are looking at outsourcing the non core business that includes taking over existing employed across technology and operations. While the late decision, making is impacting the vertical of recent deal wins and a strong pipeline of and help create momentum and opportunity for future growth.
In retail cost efficiency and consolidation continues to remain top priority for our clients.
There is intense focus on leveraging AI to accelerate digital transformation for enhance customer and employee experience predictive analytics and real time insights.
While decision cycles are longer like beating the pipelines remain healthy and in fact absent process modernization cloud and workload migration.
Communications sector, but the thing continued it back from budget cuts delay decision, making for you what's been the slow ramp up.
The calendar for the client specific due to increasing opex pressures.
Cost optimization and vendor consolidation is a top priority for clients, we're open to innovative solution and.
I ask you about AI to amplify productivity well.
Implying something greater interest and revenue generating services decrease time to market increased product quality and improved customer experience largely pipeline into fuddruckers remains very healthy.
Look for the energy utility resources and services vertical continues to be positive.
The slowdown in decision, making and as your clients are coming to us for large scale transformation programs, such as digital capability for an energy transition and journey to net deal.
Utilities clients are focused on in flight transformation programs are those required for regulatory compliance.
Clients are focused on consolidation and M&A cloud cost optimization and legacy transformation.
That's been an industry cloud solutions in the energy transition area, how does that differentiate in the sector when multiple deals and build a very strong pipeline.
The manufacturing clients are focusing on controlling the spend on awarding deals with a focus on differentiation.
By the volatile environment deal pipeline is strong it has like engineering Iot supply chain cloud ERP and digital lapping increased transaction, there's a need to increase the pace of migration to cloud increasing productivity by transforming to smart factory and transitioning to smart product you are seeing opportunities across auto aerospace and industrials.
We have revised our revenue grew up guidance by FY 'twenty 421 to three 5% in constant currency.
This is due to lower than expected volumes due to ramp downs in discretionary spend coupled with lower mega deal volumes arising from delayed timing and longer ramp times due to regulatory approvals and transition.
Guidance remains at 20% to 22% by 'twenty four.
Continue to a SIFI margins over the medium term if there is a sharp focus on cost optimization and efficiency improvement.
The little mentioned, we have launched a new margin maximization program across the five pillars comprising of what's getting traction with that we can open up the call for questions.
Thank you very much.
We will now begin the question and answer session.
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Ladies and gentlemen, if you would wait for a moment, while the question keyless centers.
Yeah.
My first question is from the line of cover sheets Solutia. Some quota. Please go ahead.
Yeah, Hi, thank you.
My first question is the fact that I know in the prepared remarks, both botox you've mentioned that.
The guidance cut is partly due to busy in volumes or the delay in signing buffer make ideas, but that's what I thought I remember you are the Guy you didn't Oh, you know what.
And it was not pretty good data.
I would probably not pretty good it may not be so we said it was just 4% and 7% was predicated on Oh, my God and volumes flowing through so I'm just trying to understand if you can just be the area of guidance or any numbers. You can just highlight what puts and takes of the cockpit attributable.
Your perception of change in view in the external environment and what closing date is really the you know delayed signings of Mccarthy easier.
Yeah. So a couple of as you know there was a guidance of 4% to 7% across the higher end of the guidance had a larger amount of the mega deal.
And the 4% of cost was predicated a lot on the base volumes, which by default would be in Florida, one quarter two and this is where we have seen discretionary spend cuts.
In quarter, one and.
Clients are and of course in Q2 as well some of that softness continues.
As you know if you have to meet the our quarter, one and quarter two are very critical.
For that really to happen.
That's the biggest reason as we exited the up.
Of course at the higher end there was the impact of Mega deals are and our guidance on both ends up coming down and one of the reason that the top end. It does come down to is also largely also due to the delay in mega deal signing and the transition times, but the pipeline that I didn't say it is very heavily.
We've got two under the belt and we are confident that as we exit the year.
And then I'm just going to try to know when you spoke in the last quarter. You did highlight that <unk> would be weaker and you expect to pick up into Q, whereas right. Now you are saying that are you don't one going to be a strong quarter. So I'm just trying to understand the disconnect.
Connecting commentary.
And part of that question engineers that you now two consecutive quarters two consecutive matches I guess last time around as we're doing a lot of pushback, saying that the environment has deteriorated and have you begun any extra cushion into our guidance.
So what are those learnings are you know in the last two quarters and what are the steps you have taken to ensure that our forecasting process is a little bit more of a Boston.
What the guidance has been that the guidance cut from the last two quarters indicate.
Yeah, So look I wouldn't see us when we give the guidance we see the outlook at that point of time, we have a semblance of what is a pipe b zoom. Some converts ability there's an existing book of business, but like I. Just said in Q1 from a sequential basis, we are lower than where we thought we would end up to be right because.
I said Q1, and Q2, what's critical for us to meet that guidance and we have seen these discretionary cuts.
And clients in some sectors.
Called out right and that's what I would say the base business and on the other side, there's the megawatt deal impact Oh, we've got a good pipeline and some of these deals which were supposed to kick in earlier getting delayed later into the year as we speak.
Oh, okay.
Oh, Okay, that's clear.
A final comment you know hows the pipeline after the conversion of the $2 billion I'd make I D.
Thank you.
Can you just comment though on the pipeline.
Yeah.
So a couple this is all in the pipeline we didn't have a good pipeline of both large deals we have some mega deals in the pipeline as well.
We see a lot of the work that we're doing on cost on the fishing she automation.
In consolidation and those are tracking well with clients.
There are some transformation programs, which are funded from within.
Cost efficiency are those also are something that we're tracking through so we do see a with the two mega deal site.
A good pipeline today of large deals and we have mega deals in the pipeline as well right.
Great.
Just finally, you know is that I'll put it into the guidance a bang in anyway are predicated on future it'd be cool. So it's based on a there. These are closed and after now.
So yeah the way we.
This oh I didn't so our view of the a 3.5.
It's based on what we have closed today in large and Mega deals and then we have a way of estimating based on what we see into the future as an aggregate not not as a one off or not is it binary discussion, but in aggregate with what we see as the probabilities.
And also the probability of win that work.
What will transition into revenue. So those are what we have seen the pipeline are baked into it.
Yeah.
Thank you.
Yeah.
Thank you.
Yeah.
The next question is from the line of Yogesh has advanced from HSBC. Please go ahead.
Yeah, Hi, thanks for the Knick and Hum.
Couple of questions for me on banking.
Banking, a weakness has been there for a few quarters than most other companies actually uniqueness.
Yeah, if you look at decline to send more Stokes theory finance yesterday.
They come and present their data, it's not that weak.
So they didn't that disconnect are you think are they spending more of it is a small less upfront that says Oh this market share loss coming from.
You wish I think are what we see in our financial services banking.
Bottled financial services.
There are different clients of lives that have different patterns.
In terms of their own pressures within their business some.
Some of our clients have had good results, but there are some which are more difficult economic situations.
Also with the mix from geography between Europe .
Asia Pacific and U S.
When you break it down into specific sub industry areas.
When you look at our.
Asset management when you look at investment banking when you look at payments of mortgages. Those are the ones, where we're seeing the impact our sense is generally our clients.
Uh huh.
Not spending on those projects is not there they're spending some of it is typically they're choosing not to spend at this time.
And as the environment changes, we will see how that pattern changes.
Okay. Okay, Thanks, and just a quick follow up.
The revised guidance now.
The new wording I wanted to ask you about.
Even people magazine.
And the guy against against all of them once they get in a flattish growth for the next three quarters.
Would that be too would also mean that for six seven quarters, Nowadays unions would be flat to up so.
So what are the assumptions for the lower end of the guidance I won't get them all.
So yeah.
It has been London was shedding about the guidance. The approach is really focused on what we've seen in terms of volumes discretionary projects.
In quarter in Q1.
And.
And overly then of the actual mega deals and large deals we have already won.
And and we estimate that we're looking at.
Yeah. So some of those views out start dates have moved out.
That is the volume and discretionary project a slowing.
In quarter two.
Our view is based on how that plays out between those trends.
We saw the 1% in terms of the lower end of the guidance when you combine that.
And then of course, the high end, we talked about earlier.
Okay. Thanks, Thanks, Thank you.
Thank you.
The next question is from the line of unclear from J P. Morgan Please call it.
Thank you southern thank you for the updated guidance I just wanted to get a sense of the seat loss creep for the next three quarters. There's no more does he took some maybe you could have been 2% to 4% with this aim all guidance, it's zero to one and a half as discussed I'm just curious about the discretionary cuts and he believes you reference in your guidance.
Jed description how does this happen more towards the latter half of the quarter has that'd be the leader or a change over the course of the quarter.
So they are I'm.
The way we've seen it is there would be no difference in the pattern at the beginning or the end of the quarter. It's small.
Focus on the industry that that'd be referenced.
And in our opening remarks between the London and me.
We have seen.
In different places the discretionary work and some transformation work, where it was either slowed or stopped based on different industries.
Okay and also just wanted to get a sense of maybe asking this in a slightly different way.
Keep the guidance changes cause quite a drastic is this just the changing environment of spending.
Over the course of the last few months or is this also a difference in the way you measure the likelihood of success within the deal ramp up or the win rate of future deals just curious about that and if this guidance is more conservative and even eight anyway versus the last time you said it.
Yeah.
So that.
It's a combination as you pointed out of the environment in terms of the discretionary or transformational projects in the quarter.
And then some of the Mega deals and large deals.
We saw a delay in decision making in closing.
And also delay or changes in the start time or ramp up of the.
Profile of that.
We've actually not seen any change in the win rate and in fact.
Internally, we had a good good win rate in Q1, and we continue to see a good traction whether it's consolidation cost efficiency on the win rate side.
I appreciate that just one clarification, if you could I know this $2 billion framework agreement that you referenced is the second large deal could you clarify if this is a fully contracted and is this type of deal. Historically also been disclosing the O T C. V's over the last few quarters of yours.
Oh the D.
We have first made the announcement.
Sure you've seen we have completed the contract.
The signing of the deal that's when the deal was announced.
These types of deals will also included in the past within a large deal mix are of course in the past there was no.
I meant of disclosing the specific values.
Okay understood last question if I can on margins are different obviously flat. This time and you know it doesn't seem like you've done well given what the growth has been the five point margin maximization plan. You've highlighted is this are you playing offense or defense on margins in other words is it puts us confident about potentially expanding margins in F. 'twenty four.
Or is this more of a margin defense because growth outlook doesn't look very strong like you said the lower end.
Yeah. So like we said I mean this is a two year program. We have started a quite comprehensive it's just not looking at cost looking at our portfolio and this is now being led are supposed to me by dish would bring deep tracks totally does.
Of course, our aspiration continues to be that we will aspire for higher margins and maybe you ought to date. So I mean from that perspective it is offensive.
Arnaud fans that want to offensive, but all in all.
The thing to increase our margins that's the intent.
I appreciate it thank you and best of luck.
Thank you.
The next question is from the line of Affordable Prasad from <unk> Securities. Please go ahead.
Yep, Thanks for taking my question I.
I was just wondering abroad.
Our guidance in the last quarter, you had been at Ford well, achieving top end basin pipeline and the factors that kind of binary.
So does baidu factors still in the pipeline are all African Wattenberg transition is taking longer so what I'm trying to get at is Oh, it shouldn't be really reconcile the change in revenue valued in the last three months.
Between dealer and volume cockpit, which is that as long as it's just kind of a million dollars.
So they are.
We've already announced two Mega deals, which is a positive we have a large and mega deals in the pipeline.
The way we've seen it is really.
The two points, you mentioned, which is the volume discretionary work in quarter.
And the delay in the start of the realization.
Conjugation of some of the large and Mega deals are those or whatever what have translated to the change in the guidance.
Anyway that you could those factors how much of an impact would that have been.
Yeah.
We will not be in a position to quantify that further between those two are unfortunate.
So okay, and just Oh, how would you characterize the business environment in your client conversations at the end of the quarter as compared to how it was at the beginning of the quarter.
So they are it's it's a really a the way we see it is.
Our pipeline for large and Mega deals is in excellent shape as we close the quarter.
We see good traction.
Paul a mega deals and large deals the focus is much more when you're talking to clients on efficiency or cost of consolidation.
Or a real traction with them, we seem less discussions on digital transformation.
And then.
In general across the client base for those industries that I referenced in the opening remarks.
We see where there are discretionary programs, where the client feels that they can slow them or pause them for some time, we see that action.
Those are the two sort of actions we're seeing.
Very good traction in fact on the large and Mega deals.
Yeah.
I put it all does this answer your question.
Yes, yes. Thanks.
Thank you.
The next question is from the line of command Rakesh from BNP Paribas. Please go ahead.
Hi, Good evening My question my.
My first question was more of a clarification. So can you just confirm Ross.
It's often exciting revenue growth guidance is at the scene, which was last fiscal year, which is this year or have you changed some of the other change where the processes that you follow.
Yeah.
I don't because this is Sally should be following the same approach that'd be followed over the last several years.
As we build a.
So the outlook of our guidance that'd be shared with the market.
Okay. Thanks, My second question was on the market. So this quarter. We had played the claim or the margin sequentially you know really take it easy.
Right now so how confident are you on holding on to their current margin North of Boston, you had last year being very cost saving program almost like you are going to.
Are there it would be moored off headwind gone deeper and stronger margins.
As you saw my margin walk right, we actually had a 70 basis point benefit from utilization cost optimization. So we are seeing the tail end of that and a big part of that we've actually put back into employee employee.
Compensation, which is a variable pay that's a big part promotion. So it's not that we're losing back to the market. That's a conscious decision for us to plow it back towards our employees. So as we look ahead are you know we are actively considering a compensation hikes I'm gonna be bouncing up that's a conflict for eylea.
The new program, which kicks in a we think an optimization really give us the necessary tailwind.
To be well within the margin guidance band.
Thanks for that last question was on own belt volume coming attributes you keep so last quarter. We had the discussion you had talked about that volume through the quarter you were seeing signs of improvement in this quarter you have seen performing much below yard expectation so what we.
We told them specific buckets, you're seeing the weakness basically use it more Frank I think what would be interesting.
But she's working a material weakness.
It is a client specific like this time in fact, we saw slightly more resilient in the U S based clients Europe turned out to be slightly weaker.
So it is very client specific actually oh across I mean all of it.
That's one of the leaky bucket in a number of clients you know there's no large a ton of a drop off.
And this is likely but that's where I'd say the discretionary part right. So it is you know some programs, which can be put back in our discussion of the nature of those other ones we have seen.
Thanks for that.
Thank you.
The next question is from the line of James Friedman from Susquehanna. Please go ahead.
Hi.
<unk>.
Silly I think many investors are wondering so would appreciate your thoughts on does.
Does it seem to you that the soft demand it was primarily due to macro factors, which are presumably temporary.
Is it potentially something more profound.
Perhaps related to the relevance of services.
My chair. So is this just macro and it's going to go away or is it a question of services itself.
So this is felipe thanks for the question the way we see it today.
We see this this demand environment, especially on discretionary.
We've been discussing so far as a function of the macro environment we.
We can see for example, if you look at a different industries manufacturing growing at 21% other industries doing well, whether it's financial services weekend.
So our service portfolio.
We believe works well.
Already transformed the company moved it a predominant predominantly into a digital business that we have.
Very strong on cloud with a cobalt offering.
Now regenerative AI and broadly with AI, we've launched our Topaz I'll frame my sense is that those are resonating well with clients.
And the places where we see the constraints have been more with the macro even some of the large and mega deals you're winning we're winning against.
Fairly intense competition wherever we are demonstrating our capabilities, whether it's some transformation are on cost efficiency of consolidation.
Okay. Thank you for that context, I'll jump back in the queue.
Thank you.
The next question is from the line of reshaped Punjabi from Nomura. Please go ahead.
Yeah. Thank you I have two questions. So first of all Sterling Congrats to you about this 2 billion Mega deal.
If you could share some more details on this project given that it's probably been diagnosed no announced anyway globally is it would be also loosens deal or you know there isn't elemental.
E hardware along with it and do you think this is really getting to revenue translation more than just I came up with this year.
So thanks for the question.
On this specific deal what we have shared in the public domain.
I suppose the filing with the stock exchange.
It really focuses on work that we're doing.
Is it related to AI and automation led development modernization and maintenance services.
We don't have anything more to add to that.
Comment.
Okay.
Sure do you think this goes into revenue calculation is picking up.
Yeah, So again.
We don't have anything more on this specific deal that it's more of the general comments, we had talked about the large and mega deals that we do see in general across a large and mega deals.
The the revenue.
Coming through in terms of the transitions and revenue realization are more towards the later part of the year.
Got it. Thank you. Thank you. Thank you for that and then my final.
Second question is to you know so you commented that you don't be salary hikes are under active contribution. So do you think this year the hike cycle could differ compared to what you should look like and I don't even know it could be more linked to when the growth comes back we probably will be more but you know what you can do it gives me high school in place.
Well like I said, though we are considering everything and I think to add more than that really in terms of timing or anything like that.
Yeah.
Okay got it thank you and all the best.
Thank you.
The next question is from the line of Moshe country from Fed push Securities. Please go ahead.
Okay. Thanks.
In general it seems like Europe has been holding up really well relative to most of you got two minutes. So it's very choppy. So it's previously handset.
That's very clear yes.
Yes.
But so far Europe has really been holding up well much better than the U S.
Can you talk a bit about what you're seeing in Europe , maybe areas, where you are seeing some strength in terms of vertical.
You mean, the U K is a big part of it and.
And does that shrink continues based on what you're seeing I E. Europe still holding in there or is it also slowing down that's my first question. Thanks.
Okay.
Sometimes of your question. This is Felipe we saw good traction and we've seen that over the last several quarters in yogurt as you pointed out have you seen that especially in the manufacturing segment and we've had good traction in multiple geographies in Europe should be that a good traction.
In the Nordics.
We also announced a strategic win in the Nordics, which was public a few weeks ago.
We have good traction.
In Germany as you referenced.
Good traction and in U K it should be that.
Oh, good good traction so far now the macro environment, we see as the London also pointed our earlier is definitely something that is affecting overall are in Europe . So we are seeing within the segment to speed up things for example, a financial services and the.
Sub segments there.
In telco.
In some parts of retail doors being impacted in Europe as well.
We'll see how that plays out into the future.
Okay and then my follow up is about an article that came out this week and the local media in India.
Adjusting but theres an uptick in demand.
For a lateral hires.
The industry and these hires will probably start happening and boom.
In the coming.
The month of October and on.
Is that what does that make sense to you versus what you're seeing out there in terms of demand and pipeline and the ramp that's kind of.
He said, it's gone slower than expected.
So for us there.
The my sense is again some of the comments you might have heard earlier from the London eye utilization has gone up due to head count number is reviews and we believe we have some headroom for the utilization to go up further so that that would be the context.
And in which we are operating.
Understood. Thanks for the color.
Thank you.
Next question is from the line of smoking Cook from multilateral small financial services. Please go ahead.
Yeah.
Yeah, Hi, thanks.
And then just wanted.
I wanted to kind of put a little bit for a little on the change in the guidance and I'm just focusing on the lower end of your previous guidance.
Hum.
It does not look like the Miss in Q1 from what you guys kind of thinking about last quarter was that meaningful.
For the guidance at the lower end to come down so drastically.
So is it fair to assume that Oh the <unk>.
Incremental slowdown, which you had because more content there Doug I E Q2, or was there an expectation of the meaningful pick up.
And the business in the second half.
It is now no longer there.
So on the guidance.
Again, some of the comments that the London shared earlier.
We saw a.
In Q1, the volume and discretionary projects slowing.
And based on that plus there.
The delay in some of the large omega to use starting up in terms of revenue.
We felt.
That that would that has given us the view of the lower end of the guidance.
What we see are really.
It really is a function of the way the volume into discretionary project evolves.
The macro environment.
As we look out.
It's changing as we see things, which are from U S to Europe to Asia, but keeping those those factors in mind is how we built that lower end of the guidance.
Yeah.
Sure.
Similarly on on similar track is did a you.
We know something we need to kind of see visualizing themselves tend to deal with large D. C V, which we disclose up your commentary on pipeline and large deal wins continues to remain very robust but.
There is a favorite of being that you are kind of talking about from a discretionary side, which would be coming out of the large deals number. So can you share the impact on what all D. C V or is there something that you would kind of start to your existing simply because.
It's giving them the shooting children. When you look at only the large deal with it.
So they are there are some distinctions.
But what we are seeing in the large deals are mega deals wins.
In the pipeline and what's more recent in the past quarters.
There's more than cost or the efficiency of consolidation.
So that work is continuing what we their friends on the slowdown is more on discretionary projects, which are projects of transformation projects.
Richard from before which could have been paused or slowed down by the client and specifically in the industries.
Absent the impact those are the ones. We are seeing so theyre not in a sense are correlated with the large deals that we're looking at today.
Yeah.
Sure and it's what I mean.
Austin clarification.
Is there any impact in terms of your good guidance from any clients that's the issue.
Minutes, basically a linear kind of altered in Utah.
Terms of playing the in sourcing or are there no kind of slowing down our business.
Business to you in any way.
So they are well on the London wasn't referencing two is not that it is client specific as you know one or two clients. It was more in terms of clients within that industry.
Industry vertical and mall now shifting.
And then what we had in the U S to the European market. So it is not that we have a specific one or two clients wherever you seen this impact showing up from there.
Yeah.
Sure I think that's a helpful. Thank for taking my question, So you've got kind of a kit.
Yeah.
Thank you.
The next question is from the line of Surendra Goyal from Citigroup. Please go ahead.
Good evening.
So that you don't share data point, but could you give us a directional sense of how E. C V annualized contract value 10, so would have a mood called wood compared what you like.
Given the changing nature of.
Woods.
Margin may go cost take out.
Thanks for the question to the end of the.
We are not in a position to share that information.
Okay I'm on this recently announced.
Uh huh.
Yeah.
Yeah.
Oh.
The one that was announced after the quarter before the results.
Yes, yes, yes.
Okay. So again, we are not.
Announcing the net new in this specific deal.
What I mentioned earlier was the type of work and that that's what we can say in addition to what we filed with the stock exchange.
Sure. Thanks.
Thank you.
The next question is from the line of pressure in Kolkata from Victor. Please go ahead.
Yeah.
Yeah, a couple of Oklahoma, because she was Linda so when looking at the revenue growth guidance. This year. It seems will be growing to be a voice can be a vehicle that could track even in terms of the deciding on management compensation. How do we think about that I mean are there things that we need to do in order to regain the kind of comps.
Taking this into market so.
Continue to Oh did or you think it's all done don't don't do discretionary demand being weak and therefore, there's nothing much that you can do and we just need to wait for the cycle to come back.
That's the first question.
Okay.
So that.
We.
Have a view with a portfolio that it's a portfolio of services that works well with our clients.
Absolutely.
Density in the client environment with a large and mega deal wins to be back into the growth mode that we've been.
In for the last several years.
You also have a as you know a high base.
Comps in Q1 of last year.
It was a 21% growth a year.
On your on the previous year.
That is the the environment.
Are the other peers, but not that so all of those factors coming into play.
We're very much of the view that we have what we need and we are continuing to go into new areas like generally a D V. I O continue investments in cloud to build out what we want what our clients are looking for to continue with the growth situation.
Okay. Thank you. So if it is kind of more about the external environment and what would be a good kind of a leading indicator that you would use maybe internally to figure out does this week discretionary demand fees is going to come to an end.
So internally we have several in the elements. We look at these are not typically.
Data we share externally.
In terms of the overall sort.
The translation of that is work with translate into the guidance then.
Alright, yeah, which is presenting a bit of a big picture.
Alright, okay. Thank you much.
Thank you.
The next question is from the line of Brian Hogan from TD Kelvin. Please go ahead.
Hi, Good evening. Thank you I wanted to ask on the margin expansion program. So I understand this is a two year initiative.
Give us a sense of materiality to just how are you thinking about the potential cost savings or an approximate margin expansion potential that you expect to achieve from these colors.
Yeah.
Yeah.
Don't really quantify it because I think they get called.
Crack a pricing and a more holistic sort of value based selling approach our that's a big one.
Are we know from a pyramid perspective are we have a lot of scope as well, we understand but generate a V. I N. Our ongoing automation project, which we have that.
Musically actually with getting rid of me I read things, we can up the productivity from a baseline even more.
Of our portfolios are not.
Mix, how do we improve our margins that were dedicated hit.
His team looking at these accounts and finally, the indirect cost side and how do we keep a cap on that looking at more efficient buying procurement.
Savings et cetera, so it's quite a holistic approach like I said across 20 tracks a and b.
That's even a kicked off a con quantified the you know a number at this stage, but likelihood aspiration continues to be to improve our margins in the medium term.
Okay.
Okay.
Then my follow up I understand you've got a lot of questions here on the fiscal 'twenty four growth outlook, just trying to clarify everything here and maybe tie all of these questions. Together is it right to say that at the low end of your 24 growth guidance that you were assuming a worsening of volume reductions and a worsening of decision making.
Pace for the balance of the year and then at the upper end that'd be decision, making improves just trying to really get to the point or are you assuming more of the same any improvement or further deterioration within this range.
They are the way we've constructed this our guidance.
We see that that is.
James Oh, the difference in the environment in the decision making.
We have seen some of the impact in some of the industries that I that'd be shared earlier.
And we will see how that volume discretionary work.
Translates itself overtime should.
So we baked in some range of possibilities are into that you wanted to see how it goes possibilities play out.
Yeah.
Thank you.
Thank you.
The next question is from the line of Nathan Fund monopoly from Investec. Please go ahead.
Yeah, Hi, good evening, thanks for the opportunity.
So Oh, and then D employee head count is down 3% over the last two quarters.
Bart the absolute employee cost is up 2%, so what explains that dynamic.
Yeah. So like I said this time, we have put.
About 90 bps, I think off and back to go and see the entire thing in employee cost.
Because even third party costs have come down, but if you see about 90.
Basis points actually more than one 127 90 basis points is actually in light cost variable pay is a big one which we have upped our consciously in this quarter a little bit of promotion and then there are the other items are balancing items yeah.
Yeah cool.
Just a clarification did so well in the context of the deteriorating environment than attrition sort of funding dumps and was that employee cost could be something literally easier to manage.
And obviously because the performance comp.
White performance incentive law, a debatable on suits would be lower so what's driving the dynamic on higher variable pay and be compensation.
So we look at this Holistically I think I mean, we are here.
We don't look at this one quarter and decide are these decisions we're looking at the overall environment.
And I don't accretion et cetera, and that's a decision we collectively take it's just not in a quarter to quarter basis.
We have enough headroom in our utilization are to grow our volumes and are therefore, the accretion, which we see is not entirely replace bilateral lighting a part of that happens through lateral lighting and we continue to reskill and move up our fresher maintain rotate people through project, so that a benefit to be.
To get and like I said would be you know 70 bps benefit, which we have seen is coming partly because of improved utilization right.
Sure and lastly, I'd be Duane 1 billion dollar deal that we announced are in.
In which vertical is that.
That'd be helpful.
Oh, no we don't mention that are really on what vertical.
Thank you so much and all the very best.
Thank you.
The next question is from the lineup for the poor singer from Novatel equity. Please go ahead.
Yeah, Hi, good evening, Thanks for taking my question.
Two questions from my side, one was all harping on that I didn't talk again.
I mean for example, I think all the time.
There have been positive.
He is kind of a benchmark hugging dusky microscopy bias.
Thanks Ben.
I mean on the shop side.
So just wanted to understand that.
But putting on hold of discretionary spend that he shows that you've mentioned that caused us to north of Baghdad.
How do you see that somebody Infosys specific thing or do you see it's more of an industrial across the board that maybe other companies are not seeing it right now they might be falling through the next few quarters.
Is it something in the Omnichannel part of portfolio, because I'll get you probably feel that people just.
Because I mean, the last three months.
They might not have been.
Defense.
Hum.
But it's nice to see you haven't seen that kind of wholesale change in common thing of the past three months my any let's say so do you like to basically give some color on how reasonable is this oh.
I mean that has caused us to do.
So he is a company that doesn't cause all of industry.
So that.
My sense is if you look at our Q1 number.
We have 1% quarter on quarter growth, which from what I have seen across the industries.
One of the strongest quarter on quarter growth.
We have a clear view of what what we see as we've been discussing on large and Mega deals is giving us a strong growth.
Growth orientation later in the year.
We had some discretionary work, which is a slowing in in Q1 so.
So I I don't have a sense for the other.
Players, but that that's how we see it.
Look at Q1, we have a good outcome in terms of a solid quarter.
And and I'm looking at the industry maybe.
The higher growth Q on Q, then than many others.
Cortex is lumpy and in terms of conversations with our clients.
Sometimes the conversation but I.
I think you had mentioned before in the call as well.
I mean I mean.
How I mean, what is equal.
So you shouldn't like what this business used to be part of it is on hold.
Do they want to do it given the weak market at this point of time.
Do you think about the part b that they need this kind of Oh spend at all of those Oh no decisions have been question. It sounds like the beginning with what exactly is the nature of the conversations with the clients.
Things on board.
Yeah, what we've seen is again in the industries.
Before whether it's financial services Telco high Tech clients all the industries are going through.
A difficult environment themselves in the macro they are looking for.
Help or support from the partners like us where they put some projects, which they perceive to be not immediately relevant for them.
On the Baas are slowing those are the discussion he works that slow down and we will see.
As the environment changes like what happens.
Got it.
Thanks for taking my question I'm sure all of Us.
Thank you.
Ladies and gentlemen that would be our last question for today I now hand, the conference back with the management for their closing remarks, Thank you and over to you.
Yeah.
Thanks, Oh this is Sally and I just wanted to close out a pancreatic he ran for joining US are in summary for US really we've had a solid Q1 very good Q on Q growth solid margins excellent large deals and mega deals wins are they.
This sets us up very nicely with some of the delays and the volume slowing more for the later part of the year.
We've also got a incredible traction and generate the AI with 80 projects and the Topaz work resonating with clients.
I'll put in place a stronger program on margin expansion, which is in play now putting all of that together.
We see this as of yet.
Make that difference are translating to mega deals and large deals and as we come towards the later part of the showing the realization realization of all of those so thanks again, everyone for joining in and look forward to catching up at the next quarterly call.
Thank you very much and most of the management.
Ladies and gentlemen on behalf of Infosys that concludes this conference. Thank you all for joining US and you may now disconnect your lines.
Yeah.
Yeah.