Infosys Ltd (INFY) 2005 Q2 法說會逐字稿

At this time I would like to welcome everyone to the Infosys Technologies second-quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question and answer period. (OPERATOR INSTRUCTIONS). Sandeep, you may begin your conference.

Good afternoon and thank you all for joining us today to discuss the financial results for the quarter ended September 30, 2005. I'm Sandeep on the Investor Relations team in Bangalore. Joining us today in this conference room is CEO (indiscernible) Mr. Nandan Nilekani and COO Mr. Gopalakrishnan along with other members of the senior management. Mr. Mohandas Pai will be joining us shortly.

We started the (indiscernible) on the performance of the Company during the quarter ended September 30, 2005, also for the quarter ending December 31, 2005 and the year ending March 31, 2006. After that we'll open up the discussion for Q&A.

Before I hand over to Mr. Nilekani I would like to remind you that anything that we say (indiscernible) the outlook for the future is a forward-looking statement and must be made in conjunction with the rest of the Company's business. A full statement and explanation of these risks and results (indiscernible) in our filings with the SEC which can be found on www.SEC.gov. I would now like to hand over to Mr. Nilekani, President and CEO of Infosys.

Thank you, Sandeep, and I'm indeed grateful to all of you to join this analyst call today. I think this has truly been a very good quarter for Infosys. As you know, our half-year revenue has crossed $1 billion and we expect -- based on this performance we have revised our guidance for the year. We now expect our revenue to grow by 34% in fiscal 2006. This quarter we had a sequential growth rate of 10.1% under U.S. GAAP and we had -- pricing was stable with a small upward buy.

This quarter also has been a record quarter in terms of our hiring of employees. We have hired 8,026 gross number of employees and on a net basis we have hired 6,390 (ph) employees and we expect for the year to hire about 20,200 gross employees of which we have already hired about 12,500 in the first half of the year. So clearly we are growing very rapidly.

Based on the performance of the year, this quarter our revenue was $524 million which is up 38.3% from the same quarter last year. Our earnings per share has gone up to $0.51 from $0.36 in the corresponding quarter last fiscal. This quarter we added 34 new clients and, based on the maturation of (indiscernible) employees, our employee strength as of September 30 is 46,196.

Now our outlook is as follows. We expect -- for the quarter ending December 31st we expect revenues between 556 million and 558 million which is a year-to-year growth of between 34.1 and 34.9%. And for the year ending March '06 we expect revenues of 2.14 billion which, as I mentioned earlier, is a year-to-year growth of 34.4%.

On the earnings side we expect consolidated earnings per ADS to be $0.53 for the quarter ending December 31st and we expect that the year-to-year growth of 26% -- and between $2.04 to $2.05 for the year ending March 31, '06 which is a growth rate of about 30%.

So as you can see, our focus in the last few quarters on building a scalable engine, our focus on adding new services, our focus on account management and broadening our client relationships, our focus on building a brand -- all these things have yielded us dividend which has enabled us to perform as we have done. This is to give you an overview and I now request my colleague, Kris Gopalakrishnan, to give you some more details of our performance this quarter. Kris?

Thanks, Nandan, and good afternoon, good evening, good morning to all of you. We have 450 active clients today; we added 34 new clients this quarter. Across the board our relationships with our clients have become better -- $191 million relationship, corresponding number last quarter was 172; 76 $5 million clients, corresponding number last quarter was 73. If I look at the top ten clients, they constitute 30.6% of revenues, the top ten clients have grown -- that is as a block it has grown, some have grown faster than others of course. Repeat business continues to be very strong, 96.5%. Our accounts receivable is 59 days, last quarter it was also 59 days so it is on track.

Amongst our industry verticals, this quarter banking and financial services has increased; on a last 12 months basis it is 26.7% of our revenues versus 24.5 September 30, 2004. (indiscernible) retail services segment have shown improvement. If I look at the services, this quarter development as well as packaging (indiscernible) has grown.

But again, looking at the last 12 months, stronger services have been testing or independent validation business process management, that's the Progeon related services, system integration and (indiscernible) management services. North America has grown to 65.4% of revenues, so it has shown some improvement. Europe has grown to 23.3% of revenues over the last 12 months versus 21.2 at September 30, 2004. So our investment in Europe continues to (indiscernible).

As you know, we announced an ABN Amro deal this quarter and the key point here is that the deal was quick (ph) and we were bidding for the application development and maintenance piece and the Indian companies of course got that piece and included one of the vendors -- one of the two vendors selected for that application maintenance piece. It's the single largest order for us. And the reason we feel that it is important is that, one, they came out, talked about the deal; second, the deal was structured as per our vision of how such large deals should be structured in the future; and (indiscernible) I know this can have a positive effect on some of the new deals which are -- which will come in the future.

I talked about our top ten clients and the sequential growth in the top ten clients is 6.9%, top (indiscernible) clients is 9.5%. So we have seen growth in the top ten clients. Nandan talked about 8,026 employees being added of which 1,166 employees have prior experience in other organizations. Our (indiscernible) is 10%, this is compared to last quarter. It has gone up slightly; last quarter it was 9.8%, so this quarter it is 10%.

There is no change in our capital expenditure. We have predicted an expenditure of 260 to 290 million for the fiscal, in the first half 127 million is spent and there's no change in the CapEx. We have approximately 3.2 million square feet under construction which can house about 20,000 employees and Nandan also talked about our total target for this year being 20,200 employees. We have investments in physical infrastructure, we have an investment in employees and there is momentum behind us in terms of the key verticals, the key markets in which we operate. (indiscernible) has done well, consulting is on track and some of the new services are yielding results. Over to you, Mohan.

Thank you, Kris. Our margins in the second quarter have been similar to what we had in the previous quarter despite higher spending on Visa. We spent about $7.5 million on Visa this quarter as part of cost of revenues. This (indiscernible) has gone up 15.2% of revenues from 14.7 primarily because of two items. We had a provision for doubtful accounts receivable of 0.4% of revenues at $2.32 million and professional charges, that is fees paid for consultants outside on many initiatives, went up by 0.6%. If we discount these two factors SG&A has been similar to what it was in the previous quarter. We hope for this year to come down, but this quarter we had to spend more on certain initiatives.

Our income before income taxes is about 27.7% as against 28.1% the previous quarter. We had a provision of tax on 3% of revenues, at 10.2% of pretax income. The previous quarter we had 13.1%. In this quarter we had a $4.5 million write back for (indiscernible) tax, provisions that they made in previous quarters based upon the completion of (indiscernible) at an old location. They will not fight (ph) them and the (indiscernible) estimation of tax liabilities and the overall revenue has grown to -- overall net income has grown to 26.3% after minority interest.

Overall we do feel that the situation as it regards pricing has been stable (indiscernible). We do not see any more rate (ph) pressure for the rest of the year. The Rupee has depreciated against the dollar after the close of the quarter. For the entire quarter the average Rupee/dollar rate was not very much different and we had no negatives on exchange differences during this quarter. So on an overall basis we are quite comfortable.

As for the guidance for the third quarter we have (indiscernible) number of working days on-site in off shore; three days less on-site and three days less off short. And this is a major difference for the growth potential for the third quarter and the second quarter. Our guidance for the balance of the year is based upon the situation what we see today. There are no systemic issues about the guidance for the fourth quarter as you come closer to the fourth quarter we shall have a better picture. Our cash balances have gone up to $865 million in this quarter. Accounts Receivable is that 59 days and all parameters of the business are very, very encouraging. Thanks you, folks, and over to questions now.

(OPERATOR INSTRUCTIONS). Julio Quinteros, Goldman Sachs.

Mohan, this question is for you. Can you maybe just walk us back through a couple of things with regards to the margin levers for the remainder of the year? The investment initiatives -- if maybe you can walk us through that first and then kind of help us understand what the components are that will drive margins for the remainder of the year. It sounded like you said that there was about 100 basis points of drag related to higher provision for doubtfuls as well as higher expenses associated with consultant fees. What are the other components that we also need to consider as we go forward here on the margin side, please?

We had this higher (indiscernible) fees this quarter because we had some initiative which has started ahead of time. As we go forward we should factor in the fact that we have hired more than what we thought we would hire at the beginning of the quarter because we see good prospects for the business. We also feel that as the year goes by we need to build up an adequate number of plain people within the workforce to meet the requirements of growth for the next year.

So as we said, we'll hire 7,000, we have hired 8,000. For the remainder of the year too we have increased our hiring. We have said that for the three quarters we will hire 13,500 people. If you take the first quarter hiring of 8,000 people (indiscernible) and the balance for the next two quarters of 7,700 it will be 15,700 as against 13,000 (indiscernible). So we increased the number of people that we're going to hire as of date and the costs have been built-in and this will impact the margins.

But we feel that we have margin leeway to make sure that at the end of the year we close with a good margin in tune with whatever we want to do without compromising on investment. We're increasing our investment (indiscernible) by hiring more consultants because we see acceleration of business there. We're also looking at adding to our sales force on the French end to make sure that we have adequate number of people who can handle large accounts.

So we have taken two or three initiatives at the beginning of the third quarter which will bear us fruit as we go along. We have seen a small uptick in the top ten clients for the issues that we face at the beginning of the year and the beginning of the second quarter in terms of the large clients not growing in terms of seven-seven (ph) are behind us and whatever margin leverage we have in the third and fourth quarter we are flowing back into the business so that we could have a robust opening position for the next year.

These are the two big initiatives that I think we're going to see in quarter three and quarter four. In quarter three the Visa cost will come down from $7.5 billion to maybe $2.5 to $3 million and we are balancing that with an increased investment in people, consulting and a few other initiatives in creating solutions for the radius groups.

If you wash all that out and try to get to the bottom line in terms of margin expectations, at this point with the reinvestments it sounds like that you're doing in the business we're looking at what I would consider to be sort of a flattish margin scenario in Q3 and Q4 versus what we just finished or do you actually think that margins will go up?

Well, if you remove (indiscernible) margins would have gone up by about 150 basis points compared to the second quarter. And 150 basis points would imply on $1 billion (indiscernible) maybe about $15 million. So we'll be investing in many initiatives in these areas because the increase in the people cost will add about $3.5 to $5 million depending upon the timing and the balance will be spending on various initiatives.

And just a point of clarification, what is the net hire plan for the rest of the year on a net basis? I think you're giving us gross numbers, can you give us net numbers?

We ended the year with about 46,000 odd (ph) people and we ended the second quarter with 46,000 odd people and we're going to hire 7,700 people gross for the balance due quarter for the year. And we had an addition of about 10% in the services area and that (indiscernible) approximately about 1,100 people in the services area. In the (indiscernible) we had a higher (indiscernible). So I think that net could be anywhere between 5,000 to about 5,400 people.

For the remainder of the year?

For the remainder of the year.

Great. Thank you.

Moshe Katri, SG Cowen.

Congratulations for a very good quarter. Just to follow up on Julio's question, I'm curious. The 150 basis point impact that Mohan mentioned, does that also include the ongoing investment initiatives in China, Australia and also the fact that you're building the North American consulting business?

We had a certain level of investment in China and the consulting business in North America. What we're talking of for the $50 million is a (indiscernible) investment that we're going to make in various initiatives. Like I said, we're investing in hiring more people; we are estimating the hiring of (indiscernible) over and above the investment we (indiscernible) at the beginning of the year and certain other initiatives in creating solutions so that we will hire (indiscernible) solutions when we open up the new year.

So that's 150 -- 150 basis points includes the impact of all these? It's not more than that basically?

Yes, yes.

Okay. And then, I'm curious; was there a specific benefit to the gross margins from the recent currency fluctuations during the quarter?

Well in the third quarter we did not assume any benefit to the gross margin because we have a sale forward of $305 million as of the second-quarter end at 43.95 whereas (indiscernible) today is 44.7 and odd (ph). And we have market-to-market, we could have some benefits of this in the fourth quarter which we have not factored in because we don't know at this point in time and we'll see what happens as we come close to it. In the third quarter we have not factored in any benefit because we are effectively hedged for the third quarter.

Okay, and then the final question. You've had some very significant sequential revenue growth upticks in retail, manufacturing, your North American business, your application development business. Is there anything specific that's taking place here that you can talk very briefly about some of the trends you're seeing in some of these key metric areas?

This is Kris here. In the services space, really the point here is package implementation, testing or independent validation infrastructure management, system integration -- these are smaller services and these are really engines of growth for us. The base is small, this is new. We are introducing these services with some innovation which means that they have global delivery model embedded in them and it is starting to resonate with our clients and that's the story there.

In vertical industries really the story is banking and financial services after declining a little bit is picking up steam and that is good news. Retail -- yes, retail is one of the areas in which we had invested earlier than all of the verticals in terms of building solutions, so that's starting to yield some results.

Services as a vertical industry is also starting to yield results in terms of picking up steam. About two years back, November of 2003 we had created industry specific business units and now they're starting to make sure and creating solutions, differentiating themselves and starting to become independent engines of growth.

Geographically we've been investing in Europe, Europe is today 23.3% of revenues. They consider it a small decline, but in the last 12 on basis Europe has shown growth and that continues to be a positive signal. (indiscernible) itself is a good signal for Europe because the best advertisement we can have is a client talking about a deal in the market and in that sense that's good for us.

That's great, thank you very much. Great quarter.

Joseph Vafi, Jefferies & Co.

Good evening and great results here this quarter. I was wondering if we could first of all talk about the telecom vertical which bounced back pretty nicely this quarter. I know there were a couple of clients there that had maybe paused on some of their work, and any color you might be able to provide there would be helpful.

Actually the telecom vertical has gone down a little bit; in the last quarter it's 17.2, this quarter 16.7. It is a strong vertical for us but this is a vertical where the spending follows certain ups and downs. And it is an area of spend for us, but right now it's flat. Other verticals are growing faster than telecom. Partly this is because some of these telecom companies are going through some consolidation looking at mergers and things like that that are -- things happening in the marketplace with a delay in IP (ph) TV, there is an issue about Voice-over-IP. We are also involved in Voice-over-IP projects. So there is an opportunity in this, but right now it's flat.

Okay, but it was up sequentially in terms of dollar terms, that's I think what I was trying to focus on.

Yes, it is sequentially up in dollar terms. You are right.

Maybe a little bit more color on the ABN deal. Obviously it's something that's going to ramp over time. There's been a lot of speculation as to what that might be and this might be a good forum to talk about that a little bit more.

ABN we believe is a (indiscernible) deal. It is a deal where we have influenced the customer to take a (indiscernible) and make it up and give to multiple vendors based on best of breed selection. So in that sense we also believe that this deal will have some influence going forward in other deals.

This is the largest multi-million dollar multiyear contract Infosys has ever won. ABN has chosen five vendors, but ABN work has been awarded to (indiscernible). Our area of operation will be retail business unit in North America, asset management business unit in Europe and more broad area business unit in Asia-Pacific. And revenue will start in Q4. The margin of the deal overall is expected to be in line with Infosys' margin; even though there could be a small, slight reduction in margins during the transition phase. All this has been factored into our guidance.

Okay, so --

All of this has been factored into our guidance -- in our margin guidance.

So really it's Q4 of this year and then next year is really where we would see some of the growth?

Yes.

Okay. Mohan, I missed a little bit of your discussion on the tax rate. What should we be assuming here for the tax rate for the rest of the fiscal year?

A tax rate of between 13 to 13.5%, that's what we assume. I'm saying 13 to 13.5% because the 0.5% will depend upon the other income component. The core business is about 13.1% and the balance will be for other income. The other income we are not able to estimate primarily because it consists of exchange fluctuations; it could go up and down and that is taxable and that is what causes (ph) the disconnect. They were 13.1% in the core and maybe up to 0.4% depending on how the exchange fluctuations come in.

Okay. And then maybe just one other question on BPO in the quarter. Any kind of significant customer wins there and are you happy with the margins now in the BPO business relative to the rest of the business?

This is (indiscernible), I'll talk about the BPO update for the quarter. We reported revenues of $20.5 million and net margin of 5.3 million, so that's a margin of 25.7%. We reported 19 clients, a number of $10 million clients grew from one to ten and we had 14 out of 19 clients making $1 million or more. Total employee count was 5,293, a net addition of 544 people.

Very good. Good results on growing that business. Thank you very much.

Trip Chowdhry, FTN Midwest Security.

Congratulations again on a very fabulous quarter and very good execution. A few things here. First, definitely the ABN Amro deal is a landmark deal; I was wondering if you can put some color in terms of duration and when does this deal come for renewal? Then also from (indiscernible) point of view, any issues with their labor force unions or anything like that? And since you also have a very good hiring need moving forward, I would speculate you have probably seen at least another ABN kind of deal within this fiscal year. Any thoughts on those questions?

Yes, it's a five-year contract. We're not taking over any employees; it's a deal which has been sectored based on our view of the world, how (indiscernible). And so we don't expect any of the issues you're talking about really to have an impact here.

Another question I had was the little information that I got from ABN Amro. They put a number as 125 million for you and probably $250 million for TCS. Since I don't want you to have a really easy time here, I was wondering why wasn't it the other way around? You should be winning $250 million and TCS $125 million. What were the dynamics being played out there?

We wanted to pick and choose areas of our strength. Brazil really is not an area of strength for us so we really wanted to leverage -- we wanted to take really (indiscernible).

And last question I had was --.

Let's be very clear, we have got in the ABN Amro deal exactly what we wanted. We are very happy with the segments we have. We believe that not only we have a coveted business, we have a very good play on the development side and we're confident that the (indiscernible) business development will give us $250 million over five years.

Beautiful. Last question I had was in terms of future IP services. We have been hearing some rumbling like probably pharmaceutical, drug discovery may be another area where Infosys would like to provide services to (indiscernible) companies across the globe. Any products you would like to share with us at this time?

There are new verticals which we always look at. Pharma is a vertical we have been focused on -- Pharma, life sciences, etc. -- and we have been investing. We have got some plans and we will continue to grow in this area.

Congratulations, very good quarter. Thank you.

David Grossman, Thomas Weisel Partners.

Good morning. Nandan, if I (indiscernible) to all the comments you've made in terms of the investment that you're making and the headcount plans you have for the year vis-a-vis your revenue guidance it would appear that you're kind of amassing the forces at the front line here. Can you help us better understand specifically what you're seeing in the marketplace and why you're making such substantial investments, and what type of opportunity you're seeing here, specifically looking out over the next 12 to 18 months?

I will talk about one by one. We had good growth this quarter, we had sequential growth, double-digit growth. We had a large client addition in Europe. It's in some sense important that this can influence other deals. It's a committed deal for five years, in that sense it's different. We saw growth in the top ten accounts. We saw growth in the Infosys (indiscernible) which is a (indiscernible) for Infosys. In Europe itself we saw growth. Our consulting is doing very well, Progeon is doing very well.

So all the things we have invested we have seen good growth. Now we have a certain plan for the balance of the year; you know that we have revised the projections and things. And we have a view of what we see, though we have not (indiscernible) numbers except for what we see going forward and this recruitment is based on, this investment is based on our view of the world in terms of where we see it going, the opportunities are there, the momentum is there and we want to capitalize on that. Our philosophy is always be prepared, take advantage and go forward.

That was Kris talking, right?

Yes, this is Kris.

Kris, I guess specifically does the ABN Amro deal give you more confidence in your pipeline or do you have specific deals in the pipeline that suggest there are other deals of that magnitude and scale and duration, if you will, and that this is only the tip of the iceberg of large deals being this aggregated and have the offshore players having a new role?

It is too early to say. So we are nonassuming still that there will be significant impact of such deals. We have never done that until we are able to get production dates -- we are able to put that into a forecast. It still is 0 or 1. The current plan is based on our business as usual. Our existing relationships and some of the things we are doing investing and starting to (indiscernible).

For example, we are investing in our client facing people so that they can handle larger relationships. So currently we saw some pick up in the growth in our existing accounts. The services footprint is much broader today. Testing, infrastructure management, system integration -- all these services are starting to yield us -- the package implementation itself gained strength along with consulting. Consulting is starting to yield (indiscernible). They've got the first $10 million project -- the consulting group has got the first $10 million project. So really is there a point you add up (indiscernible) and then you get a (indiscernible) as large as that they'd lose in pieces.

I see. A quick question maybe for you, Mohan. You talked about the number of working days being -- I guess there are -- third-quarter there are three less working days versus the second quarter. Are you flat sequentially then in the fourth quarter?

Yes, in our forecast there are three less working days on site and four less working days off shore, and you can take the current per capita (indiscernible), that's about 3.9% of sequential growth. If you factor in all that -- I'm sorry, 3.2% -- if you factor in all that you'll get about 9.9% growth (indiscernible) in the 6.7% that we have right here which we have forecast for this year, for this quarter.

So this quarter we're going to see lower growth basically because the number of working days. The number of working days impacts our monthly revenue on time and material. 70% of revenue comes from time and material. If we had less working days, if you bill on an hourly basis on a daily basis you'll get lesser revenue. If you're in the per capital revenue that you calculate for every quarter depends on the number of working days. So these are the two factors that we have taken into account while giving the guidance; if you brought it up the sequential growth rate will be very good.

And what is the number of working days in the fourth quarter versus the third quarter, is it flat?

The fourth quarter with the third quarter will be flat. It will be flat -- I mean second quarter was pretty good, the fourth quarter versus the third quarter will again be flat.

Okay. And one just last question here. Is the dilution to take (technical difficulty) fully diluted, is it still about 2.5%?

I didn't catch your question, David.

Is the factor of dilution to take the basic earnings per share calculation and fully dilute it, it's still about 2.5%?

Yes, it's still 02.5%, yes.

Very good. Thank you.

Ashish Thadhani, Gilford Securities.

Good evening, great quarter. A couple of questions. Could you elaborate on the quarter-over-quarter decline in off shore revenue as a percent of the total?

Well it is very marginal. It's very marginal. I think the key thing is that onsite has grown faster because of higher project starts. So offshore has grown at about 9.9% and onsite has grown higher than at. But it's very marginal. There's nothing to differentiate between the two.

Okay. And in the June quarter I think three of the top ten clients posted lower quarter-over-quarter revenue, if I recall correctly. Broadly speaking, how did such large clients perform in the September quarter? Isn't safe to assume that you witnessed a broad-based rebound in your large clients?

Yes, the top ten clients grew sequentially and I think if you look at the top ten client revenue you'll see that sequentially they've grown an absolute number so the decline as a percentage -- the decline as a percentage has been there for some time. That's because the rest of the business is growing larger and we did have issues the previous quarter. All the issues are behind us.

In the last quarter there were two issues that (indiscernible) us. One was the flat revenues from North America in the financial sector and second was very specific client issues which manifested in the drop in the telecom revenue (indiscernible). Most of the issues are behind us. Financial services has grown in tune with the revenues, North America has grown faster at 13% as against the revenue growth of 10.1% under U.S. GAAP. So the top ten customers also have grown, so their growth is less than the growth in the overall revenues.

That's helpful. And one clarification, Mohan. The difference in the guidance, (indiscernible) guidance from last quarter, is it correct to assume what you said which is there is no impact that you've built-in for the depreciating (indiscernible) thus far into the guidance?

Absolutely. We have taken the guidance at 43.94 for the remainder of the year for the two quarters. We have $305 million of forward sales outstanding mark to market at 43.94. We have about $80 million of options sold forward -- this will cover one quarter. So the repeat (ph) stays at the same level it is today in the fourth quarter there will be a positive impact on the margins.

Great, nice quarter. Thank you very much.

Anthony Miller, Arit (ph) Research.

Just a couple of questions. One on margins and one on the Indian domestic market. First one, margins. You mentioned the margin expansion, 150 basis points. Can you give us an idea, please, where you saw most of that margin improvement, whether it was a regional thing or whether it was a service line or a vertical thing?

I think the margins improved primarily because the fact that margin improvement would have come primarily because of the reduction in expenses. In the second quarter we had $7.5 million of Visas, in the third and fourth quarter we could have 2.5 million to $3 million of Visa cost. That would give us approximately about $8 to $10 million and the balance has come because of economies of scale and the pricing in the second quarter overall is up by 1% on site and 0.3% offshore. If you factor that in you get the traditional margin. But we are flowing back this margin into the business to feed the need for growth.

As far margin expansion in radius verticals or horizontals, we are not seeing a trend in any of the verticals and horizontals because you would need to get better prices for new clients -- for the new clients who come in this quarter to make an impact is going to take some time. It's not an immediate impact, it takes quite a bit of time for it to make an impact.

Okay, thank you. And the second question on the Indian domestic market. I know it's only a tiny part of your business, but it was noticeable this quarter and that it's had quite a dramatic reduction in growth. Is there anything we should read into that?

It is just the volatility in the Finacle business, because the Finacle business is a product business where you sell a core banking product to various banks in Indiana. And it is volatile depending upon the number of deals signed, the deals delivered, etc. So there's no spend in that.

Just to make sure I understand then. The revenues you show under India, it in effect reflects Finacle business only?

No, it is not the core business. The Finacle business, which is a product business, we don't have a service portfolio in India as yet.

Right, okay. Thanks very much.

Rishad Biyani (ph), Oswald (ph) Securities.

This is (indiscernible) in for (indiscernible). I just want a clarification. You had said on site building improvement is 1.3% and offshore 3.4%, am I right?

No, no, I didn't say that. I said on site the price is up by 1% and offshore by 0.3%

Oh, 0.3%

Yes, (multiple speakers).

Right. And another question is that (indiscernible) your newer service lines including testing and validation and consulting and BPO, the speed at which they've been (indiscernible) growing in the past few quarters, it seems to have slowed down this quarter. Is that an aberration this quarter? How do you see this going forward?

The growth rates are different, the smaller services are growing faster as a percentage of revenue. So for example, testing has grown to 6.2% of revenues, Progeon has grown to 3.9% of revenues, last quarter 3.8. No, growth rate is not slowing down. Having said that, package implementation also has done well. So there is some balancing.

Thank you very much.

(OPERATOR INSTRUCTIONS). Adida Simani (ph), Digital Century Capital.

Good evening, gentlemen, and congratulations for a great quarter. My questions are regarding the fixed-price projects. As the European business is growing we see a slight decline in the fixed-price component of the projects. Just wanted to ask if there is a company policy or a percentage of projects which companies come to people when it comes to fixed-price projects? And just to follow, do you see a difference in client tendencies -- within clients when it comes to U.S. and European clients and the comfort level of fixed-price projects?

(indiscernible) we are seeing in the fixed-price projects there is (indiscernible) there is no secular trend. (indiscernible) fixed-price projects (indiscernible) is in fact -- it depends on multiple factors. We need to see a clear definition of (indiscernible) when we take a fixed-price project. The customer needs to have (indiscernible) and we also should have a clear visibility in (indiscernible).

In many material (ph) relationships where there is a big trust between Infosys and the customer and there is (indiscernible) within the project, the customer (indiscernible) time and material and that gives them more flexibility and that they press Infosys to behave almost in the same manner (indiscernible) the financial arrangement.

Now in Europe, yes, there is a slight better chance the customers slightly prefer fixed-price compared with U.S. But again, in overall percentage (indiscernible) quarter-to-quarter fluctuation.

Thank you so much.

(OPERATOR INSTRUCTIONS). At this time there are no further questions. Do you have any closing remarks, sir?

Yes, I think I just want to first of all thank everybody for being on this call and for being so patient with all your questions. We do believe that this quarter has been excellent. Also I think there a couple of things (indiscernible). One is that our investment in building new geographies, our investment in building new verticals, our investment in building new service offerings over the last three to four years is all coming together.

The second I believe is that we have demonstrated very clearly that we have delivered in our models. The very fact that we hired 8,026 people in one quarter shows how scalable we are. And here again, our investment in building our global education center, our training, our recruitment -- I think all that is proving to be very, very productive.

We also believe we will continue to invest on the one side and in doing (indiscernible) introducing our (indiscernible) to doing business in making sure that our people spend their time on customer issues and essentially getting our team to work in a (indiscernible) way so that the customer gets the full benefit of Infosys' capabilities and knowledge capital.

At the same time we think that our story -- our point of view that the global delivery model is the model of tomorrow is becoming increasingly accepted. We think companies across the world are going to try to become leaner and meaner and (indiscernible) in the years to come. And we think that Infosys, as one of the prime proponents of this model, is in a position to advise our customers on how to get there.

And therefore I think we have instruments at our disposal to provide the kind of transformation that customers are expecting and therefore we think that as long as we execute well we have plenty of room to grow our business. So with that I'd like to thank everybody for being on this call. I'd like to thank everybody for listening to our answers. A lot of the material that we have talked about is on our website and you can also talk to our Investor Relations team if required for any further clarification. Thank you very much.

Thank you, ladies and gentlemen. This concludes today's conference call. You may now disconnect.