Q1 2024 Infosys Ltd Earnings Press Conference
And on behalf of Infosys, I'd like to welcome all of you.
We request one question or let's say restricted number of questions from each media house to accommodate everyone over the next hour.
With that, let me invite our Chief Executive Officer, Mr. Salil Parekh, for his opening remarks
Over to you, Sandeep.
Thanks Rishi and good evening, good afternoon, welcome to everyone that's here. It's always wonderful to have all of you here with us on the campus. I'm sure you've seen there's a lot more people on the campus as well and we're also benefiting from that.
We've had a very strong Q1. Our Q1 growth was solid at 4.2% year on year 1% Q1Q in constant currency.
We had 20% growth in manufacturing, 13% in life sciences, our European business grew by 10%.
Operating margin for the quarter was strong at 20.8%.
A large deals value for Q1 was at 2.3 billion. 56% of this was net new. This included one mega deal win.
We also announced a mega deal with a value of $2 billion after the close of Q1 but before today before our results.
With a strong large deal and mega deals wins, we are building well for the future.
We are delighted that Topaz, our generative AI platform is resonating well with our clients. We are working on 80 generative AI projects for our clients at this time.
The work we are doing covers large language models for software development, for text, document, voice and video.
Internally, we've developed generative AI tools based on open source model of generative AI platforms that are focused on software development. We've trained 40,000 employees in this area and we see generative AI and Topaz being transformational.
for all of our clients.
In the short term we see some clients stopping or slowing down transformation programs and discretionary work. This is especially so in financial services, in mortgages, asset management, investment banking and payments.
and in telecom. We also see some impact in high-tech industry and in parts of retail.
Even as we run two mega deals recently, we have a strong pipeline of large and mega deals. We see 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 to growth of between 1% to 3.5% in constant currency.
We have launched a broad comprehensive margin expansion program. The program will work across five areas pyramid efficiency, automation, improvements in critical portfolios, reducing indirect costs and communicating and deriving value across our portfolio.
We have an ambition to improve our operating margins in the future periods.
Operating margin guidance for this financial year remains unchanged at between 20% and 22%. With that let's open it up for questions. Rishi, thank you Salil. We will now open the floor for questions. Joining Salil is Mr. Nilanjan Roy, Chief Financial Officer in Forces.
With that we have the first question from Ritu Singh from CNBC TV18.
Hi, here. You know, the first question of course is on your guidance cut. It was a steady quarter for emphasis whether it's the constant currency growth, the mega deals that you've announced, coupled in the quarter and after the quarter close. And your TCV is also higher than the previous quarter. It has so drastically changed in the last three months.
for you to cut your guidance from 4 to 7 to 1 to 3.5 and given that top line you are expecting lower now for the year, how are you confident of maintaining margins at 20 to 22% for the year? That is the first question and also your commentary from clients in terms of when you see revival in your discretionary expense from whether it is BFSI, retail, high-tech, all these areas of concern that you have idle half.
growth guidance we have as you rightly pointed out had a good Q1 we've had good large and mega deals we've also seen some of these deals the signings and the start dates being delayed with that we see a lot of that revenue from that sort of large and mega deals
or slowing down decision making. So when we combine those two and we looked out for the full year, we saw that sort of a range in terms of the growth guidance and decided that we should change our growth guidance.
Thank you. We'll try to come back to you.
On the margin, we have an extremely strong discipline for our operating margin. We've put in place this expanded margin program that I was referring to. There are five elements of that program, each of them being driven by the same program.
to make sure we have efficiency. You've also seen utilization in Q1 go up, and we will continue to see that with all the focus we're putting into productivity. We're also looking at reducing within those five elements indirect expense and cuts of that nature. So we see –
comfortable with our operating margin guidance and our operating margin for Q1 at 20.8 was more towards the middle part of that range.
and will take self-production for the last couple of quarters.
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So we still have a target for recruiting for the year but we will see how that plays out with respect to what are the changes in terms of the demand environment and what we do in terms of the attrition numbers that we are seeing. The attrition that we saw in the quarter was stable.
versus last quarter are trailing last 12 month attrition is down to around 17 percent. So we see that driving some of the decisions on the recruitment. What did you say your target for hiring for the year was? We've not given that target. We said we will look at that based on what that demand environment looks like and how we see the rest of the year playing out.
Thanks, Ritu. The next question is from Haripriya Suryabhana from the Hindu Business Line.
Is it just for the transformational deals that you're seeing or has it translated to the cost take out kind of regular kind of deals as well? And given that AI you're mentioning you have many active projects do you think that will sort of help you with margins as well given that it is coming at a higher price point? So on the first the decision making we see…
has slowed down across large programs.
way a lot of the transformation programs that are running today, they are funded from cost efficiency that comes through that program itself. So overall the decision making sometimes is slowing down and we are seeing the start dates in terms of where some of these programs are likely to start more towards.
the back end of the year and that's the reason we're seeing the revenue impact through the year. On generative AI we are excited to be doing 80 projects. AI programs generally have a good margin, they have a lot of work which is focused on enhancing
up what the impact of margin is. Thank you. The next question is from Shilpa from the Times of India.
If you just look at your......on an annualized basis...
you could have grown at 4% and your guidance is subpar. So I just wanted to understand from you, are the deep client concerns that you know maiden forces scaled out the guidance significantly?
So the discussion on the guidance is sort of similar. We have seen many of these large and mega deal wins really give us much more confidence in the way clients are working with us especially on cost efficiency.
even with financial services when we announce on transformation and also consolidation.
However, there have been delays in the start of some of these programs and the decision-making in those. Coupled with that, we've also seen some of the volume during the quarter coming down because of clients in the industries that I mentioned. Triangular financial services…
asset management, payments, mortgages, telco, etc. in those specific industries reducing their volume over and those two things have combined for reducing the guidance.
I had one more question on your deal win. You spoke about the two billion dollar deal win. Would that qualify as Enforces biggest win that could potentially surpass Dimmler?
So first we are now sharing the deal value, making sure that that's aligned to the regulations that are there. For the past we've actually never shared the deal value. It will be difficult to compare that.
One last thing on the headcounts, the sector itself is going through a lot of people's challenges, you know, deferments of hikes and increments. So if you can please clarify what is the kind of hikes that you plan to roll out this year, is it going to be deferred at all levels?
We are getting to hear that senior level hikes are getting deferred. Can you please throw some light on that? Yes, actually on the compensation we are actively under consideration as we speak. I am sure you will hear of it even before we finalize that but it is under active consideration.
Thank you. The next question is from Chandra Ranganathan and Haripriya Suresh from moneycontrol.com. Hi. Salil, you know on the guidance again I wanted to understand what has changed in one quarter 4 to 7%, or 1 to 3.5. Any specific ramp downs that you are seeing?
what exactly is happening. And when we spoke to other management, they say that even though transformative programs, discretionary has slowed down, clients are still going in for short term ROI projects. So, you know, is that something that you're looking at in the pipeline?
Secondly, Milanjan on the hikes, you said it's under consideration, by when do you expect to announce the hike? Hi, also wanted to get some perspective on your, you've seen some top level exits recently as well, is that a massive concern and what are you doing to sort of stem top level attrition? Just wanted to understand that.
So the first question on the guidance, I think the way we have seen it is what we saw at the start of the quarter. We had a certain view of where our large and mega deals were in terms of when they would close and when some of that work would start. Then we had a social watch.
What was the volume on the other programs, on the transformation programs, on the digital programs, on our overall volume of work across the portfolio?
What we saw is some of the start dates for the large deals, the mega deals were more later in the year and the decision making even as we announced two of them, we still have some in our pipeline and we will see those over the course of the year as the pipeline evolves.
and the volume which we saw the changes in for many disciplinary projects or some of the transformation work. Combining all of that is where we decided that this was the guidance in terms of the growth that we could see today in terms of the outlook. What we do see is as we look towards the back end of the year.
much more growth orientation because some of these deals will at that stage start to deliver the revenue as well.
growth orientation because some of these deals will at that stage start to deliver the revenue as well.
How do you think more the needs will be becoming short term ROR or take out?
the efficiency as opposed to transformation.
On the compensation, the money will come, I'll just go with the third one first. We have seen, we've announced and rolled out a new leadership structure within the company. We have the great fortune of having incredible leadership talent within the company.
and each of them, several of them are stepping up into new roles driving the growth of this business. As you can see from these two mega deals and other large deals, overall strength of the business, those people have stepped in and my sense is, Infosys will continue to produce those sort of leaders.
So I think like I said this is under consideration so we will come back on the timing etc. but as of now we are looking at it.
We are looking at it as we speak.
Hello gentlemen, so Salil you were talking about the fall in volumes across the portfolio right so what exactly is the reason for this fall in volume our clients are fearing of you know the recession fears and tightening their spends and also I just wanted to ask about the you know 100 million dollar plus clients is falling by two sequentially so is that because the ramp down or is it because of
of these sorts of actions for example in mortgages and financial services or we see that in telecom or we see that in investment banking or we see that in high tech. Those are the sorts of projects that typically get less attention, have got less attention in Q1. On the…
Have you priced in, you said a lot of these start dates are baked in the second half of the year right. So the guidance now has baked in all that you know expected revenues or do we see any improvement in guidance.
What we have announced as our wins on large deals and mega deals, that is already in the guidance we have given. As we go through the year, as there are more events in terms of wins, we will see what impact that has. There could be impacts which are positive. There could be impacts.
depending on some of the things gets delayed or not. But as of what we see today is what we put into the guidance.
you know, projects fundamentally getting over, that's the general theme. So they shifted to one project lower? If you above 50, that's not changed.
Thank you Sai. The next question is from Ayushvan Baroa from the Business Standard. Hi. A lot has been spoken about AI. So, I came to know what percentage of deals are AI led.
Do you see a component of AI in majority of the deals is AI integrated in most of the deals
that you have. That's first. And secondly on the pricing, are you seeing any pricing pressure as such? Thank you.
On pricing, Nilaj will come back on that. On AI, first we don't disclose the percentage of AI within our portfolio. However, AI or generative AI is really transformative and it's something that's changing everything that's going on. For example, we're doing work which is related to software development, which is related to new code enhancements, migration maintenance.
that covers the spectrum of the work that we do. And it is also related to other areas, for example, voice, video, text. These are areas where we do work which is expanding the type of work we are doing. So my sense is generative AI is really going to transform everything that's happening within our portfolio. And two pairs that we have launched.
being the leading platform or set of capabilities for generative AI, I think will make a huge impact. Having 80 active projects is a massive step and it's moving with rapid speed.
The pricing environment remains quite stable. We have seen in some places we are able to get some increases from cola etc. Some cases isolated again you get some discounts. But by and large it is a very stable environment.
Thank you. The next question is from Uma Kannan from the New Indian Express.
Good evening gentlemen. You said there are some softness in verticals like BFSI, high-tech. So will this continue or will it be better going forward in H2? And I also want to know like where are the headwinds coming from and is it really paradoxical times for the IT industry and such?
So there on the first part, what we look at is what we see within our portfolio on a daily, weekly, monthly basis.
from our perspective not something we look at as to when something will stop or not stop. We have within our portfolio work that we can do on digital transformation, cloud, generative AI which are really growth drivers in the market when clients or industries are looking at that. We are ready with that and we have that.
as one of our growth engines.
On the other hand, when clients are looking at cost, efficiency, consolidation, we also have deep capability in that and that's some of these wins that you've seen that we've announced are reflective of that. So that's what will kick in in the other side. We don't have a specific view on when something will change in that.
Thank you. The next question is from Sameer Bakshi from the Financial Express. Hello sir. So in these times do you see challenges in winning smaller deals when there is a cut in discretionary fund and the second one is like when your peers are like focusing on Europe why are you not able to consolidate European market.
is an area we have a lot of attention and focus on and in many of those markets we are expanding quite well.
On the smaller projects we don't see a difference. We are comfortable to win larger programs and smaller programs. It's just that there are some which are more not smaller but more discretionary from the perspective of a client which is where we see some of the volume impact. On the larger mega deals actually we are seeing...
Very good traction in the two winds but also a good pipeline of large and mega teams.
Thank you. The next question is from Varun Ziyas from Reuters News.
So I was wondering if you could tell me if the results missed the company's own expectations and when you might see some recovery. And I was also wondering if you could like explain how you classify large and mega deals. Like is that a
certain threshold above which a deal is considered that.
threshold above which a deal is considered that.
When we look at things like generative AI or if you look at the mega deals or the large deals we see very good traction and momentum. When we see volumes on discretionary projects we see some of those slowing down. So in that sense it's not one sort of size that fits all we are seeing really good traction on the former.
In terms of classification, it's 50 million or larger is classified within our system as large deal and 500 million or larger is a mega deal.
I was wondering if you could tell me what kind of variable pay you guys are paying.
So we don't comment on that externally. Thanks, everyone.
The next question is from Shraddha Gholit from The Mint.
generative AI apps tools are being used internally for any of the operations or functions.
So on the training we are working with clients on both open source generative AI platforms and proprietary generative AI platforms.
Our training internally is on many of these different platforms plus
We have built some tools on an open source generative AI platform that we are using internally for areas where we do software development for example in our product business, in some other areas of services we are doing new code development, enhancements or migrations.
So for all of those we have built some tools on open source platforms. So the training is on those elements of those platforms. We have in fact rolled out what we call AI assistance.
for our employees when the employees are focused on delivery work which is in the software development area, on the sales work, on training, on knowledge management, on different components of the work. So for us really we are becoming.
AI first company driving through the change internally as well as externally. Yes, absolutely. So, those are the ones which we are using internally as well. Thanks Fatah.
Hi gentlemen, we have seen utilization going up by two basis points and attrition coming down what stopped us from reaching the upper end of the margin guidance.
So I think guidance of 20 to 22, I mean we ended the year as you know at 21 for the full year and for the quarter. So at 20.8 it's about a 20 basis points reduction. We know we have levers available, like utilization is definitely one of them. And the program which we have put into place, it's got actually five pillars. The first is
automation through generative AI. The second is a much more beneficial hierarchy index. The third is through more critical portfolio of projects. Fourth is value-based selling, the pricing. The fifth is the whole indirect cost initiative. So this is a five pillar holistic approach we are taking. It's got about 20 tracks and it's being led by Jaish. So it's all the leaders, we have 30 leaders.
Before we conclude
Please note that the archived webcast of this press conference will be available on the Infosys website and on our YouTube channel later today. We request our friends from media to join us for high tea outside. Thank you once again, have a lovely evening.
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