Infosys Ltd (INFY) 2006 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. I am [Minali], the moderator for this conference. Welcome to the Infosys Fourth Quarter and Annual Earnings Call. For the duration of the presentation, all participants' lines will be in the listen-only mode. After the presentation the question and answer session will be conducted for participants connected to Singtel. After that, a question and answer session will be conducted for participants in India.

I would now like to hand over to the Infosys management. Thank you and over to you.

Thanks, Minali. Good afternoon, ladies and gentlemen. We are very sorry for the delay in the beginning of this conference. This is Shekar from the Investor Relations team in Bangalore. We thank you all for joining us today to discuss the financial results of the quarter and year ended March 31, 2007.

To take us through the earnings numbers and to answer your questions we have with us today CEO and Managing Director, Mr. Nandan Nilekami, President, CEO and Joint Managing Director Mr. Kris Gopalkrishnan, CFO Mr. V. Balakrishnan, along with other members of the senior management. We will start with a brief statement on the performance of the Company during the quarter ended March 31, 2007, outlook for the quarter ending June 30, 2007, year ending March 31, 2008. Then we'll open up the discussion for questions and answers.

Before I hand over to Infosys management, I would like to remind you that everything we say which refers to our outlook for the future is a forward-looking statement and must be read in conjunction with the risks that the Company faces. A full statement and explanation of these risks is available with our filings with the SEC, which can be found on www.sec.gov.

I will now [pass over] to the management.

Thank you, Shekar, and this is Nandan Nilekani here and I'd like to welcome all of you for this call on the Q4 of FY07 as well as annual results.

Before I go into the results, I just want to briefly announce a set of senior management changes that are going to come into effect from June 22, 2007. My colleague Kris Gopalkrishan will assume the role of CEO and MD effective June 22. He has been invited by the Board and he will do that from June. My colleague Mr. Shibulal will assume the role of Chief Operating Officer, also from the same date, and I will be Co-Chairman of the Board in an executive capacity. And these are the management changes that we wanted to announce and let you know.

Coming to the results, I think we have had another good quarter, a sequential growth of 5.1% in U.S. dollar terms and 3.2% in rupee terms. This has been high-quality organic growth with strong growth seen in consulting, engineering services, BPO and package implementation. A sector which has shown extremely strong growth is telecommunication, which has grown sequentially by 35.5%. And even the BFSI sector, which has been talked about as having a slowdown, has grown sequentially by 0.7%.

The IT environment; spending on our type of services continues to be strong. We are getting good feedback from our customers that they will be continuing to spend on services that we offer. And we believe that our model, and particularly the Infosys brand and its strength in the marketplace, makes it well-positioned to take advantage of this globalization of services that is going on.

Going forward, as you'll see, we have given a guidance for the year of 28 to 30% in dollar terms and we believe that this growth is possible. We expect to maintain our margins on this growth. However, we do see a slight effect of the EPS because of the dilution of shares. We have added 3m shares from employees exercising the ESOP and that has expanded the number of outstanding shares in the Company.

So I think we are doing well on the front. We believe that there is growth for us. We are committing to this growth right now. We understand the implications of rupee appreciation and employee costs going up but we think we can maintain the margins by getting better utilization and better efficiencies in our SG&A. So I think, overall, we are coming out with what we think are reasonable numbers.

With this I will now request my colleague, Kris Gopalkrishnan, Chief Operating Officer and incoming CEO, to give his comments on the business.

Thanks, Nandan, and good afternoon to everyone in India and anyone outside and good morning, good evening to all the people.

From a client perspective, the billing rate continues to be stable with an upward bias. In this quarter we saw a blended improvement of 1.7%. New clients are coming at higher price points, around 3 to 4%. One important data point is the top 10 customers have been growing sequentially by double digits for the past four quarters. This quarter the top 10 customers grew sequentially by 15.5%.

We've increased the number of million-dollar clients from 256 to 275. We had 34 client additions this quarter. Our number of $50m clients have gone up to 12 from 11. Number of $100m clients, more than $100m revenue is three and in fact one client is giving us $200m of revenue. So there is strong growth in our client segments.

From an industry perspective, Nandan talked about BFSI and telecom. Manufacturing grew by 5.7% sequentially, retailing by [0.0%]. So we're seeing broader growth in various sectors. Development projects have gone up from 20.1% to 21.3%, so clearly the discretionary spend is happening. Package implementation continues to be very strong. Package implementation has grown sequentially by 8.1%; package implementation is 18.4% of revenues. Consulting is 4.3% of revenues, testing is 7.3%. So we are seeing that, again from a services perspective, there is -- there are multiple engines of growth.

From an employee perspective, we have added about 5,900 employees gross. Going forward we are expecting to hire 24,500 employees for the next fiscal at a gross level. And for the quarter, June quarter, we are expecting 6,200 employees to be added at a gross level. Attrition is slightly higher, from 13.5% to 13.7%, but if you exclude involuntary attrition then it's stable at 12.2%. We are giving a compensation increase of about 13 to 15% in India and about 3 to 6% outside India. And outside India for certain segments it's higher this year because we are looking at a one-time correction because our business mix changed and in order to attract the right set of talent, etc., for the new business mix we need to make a one-time correction.

With this I'm going to pass on to Bala to give you more details about the financials.

Thank you, Kris. Good morning, everybody. Our revenues in the fourth quarter, that is quarter ending March 31, 2007, was INR3,772 crores, which is a sequential growth of some 3.2%. Our [gross margin] for the quarter was 46.4%. In Q3 it was 47%. The difference is mainly due to the rupee. The rupee appreciated by 1.5% during the quarter. That had an impact on the operating margin. The SG&A cost is similar to what it was in the previous quarter. In Q3 it was 14.3. In Q4 it slightly went up to 14.7.

The [PPIGP], that is our operating profit, came down from 32.7% in Q3 to 31.7% in Q4, mainly due to the rupee impact. And our non-operating income went up slightly because we had higher disposable surplus but also the effective yield has gone up. [The expected] yield on our [investible] surplus of 7% in the third quarter went up to 10% in the fourth quarter. So net/net our margins remained for the quarter despite the rupee.

We had one extraordinary tax reversal during the quarter, [fluctuations] of 124 crores. It relates to taxes we provided for our income from some of the world's jurisdictions, the reversal taxes on completion of our assessment and also in certain jurisdictions where the limitation period was exhausted. Excluding that, our net income for the quarter would have been [1,020] crores. So we are seeing the top line and bottom line growing at the same pace. For the full year our revenue was INR13,893 crores with a net income of INR3,850 crores. So we were able to maintain the margins despite the rupee impact.

During the fourth quarter we are seeing that the dilution has increased because most of the employees have exercised their options. We have seen employees exercising options in excess of 13m in the fourth quarter. Overall for the full year the employees exercised around 20m shares. So going forward we have around 2.1m of options outstanding under our 1998 area plan and 1.9m outstanding under the 1999 rupee plan. That [exceptional] impact was not much in the fourth quarter because most of the dilution happened towards the end of the quarter. It could be more [reasonable] in the next year.

Going forward, for next year we have given a guidance of 23 to 25% growth in revenues and that's between INR17,038 crores to INR17,308 crores, with a net income growth of 20 to 28% excluding the tax reversals we made in the fourth quarter. We are assuming that the margins will be stable in the next year.

We have increased the salaries, offshore salaries, by somewhere between 13 to 15%, onsite salaries between 5 to 6%. So overall impact on the margins due to these increases for next year is around 300 basis points.

We assume that rupee will be at [INR43.10] because the closing rate for March for our next full year guidance the average rupee/dollar rate was [INR43] in fiscal '07. So the rupee/dollar impact for next year's margin could be somewhere between 150/160 basis points. We believe that we can offset both this impact through a better utilization. At the end of the year, the end of fiscal 2007, we had a utilization rate of 74%. We always said we are comfortable with the high 70s.

So we'll try to reduce the impact due to wages and also rupee by better utilization, a higher efficiency on the SG&A costs and also some better management of costs in the subsidiaries. Some of the subsidiaries could break even in fiscal '08. Some of them will reduce losses. So overall net/net our guidance assumes that margins will be stable, that top line and bottom line growth are similar except for the dilution impact of 3%.

I think with that I will conclude my presentation. Now we can throw open the floor for questions.

At this moment I would like to hand over the proceedings to a Singtel moderator to conduct the Q&A for participants connected to Singtel. After this we will have a question and answer session for participants at India Bridge. Thank you and over to [Zarina]. Thank you, Minali. We will now begin the question and answer for participants connected to Singtel Bridge. [OPERATOR INSTRUCTIONS]. First question is from Mr. Anthony Miller from the U.K. Over to you, sir.

Yes. Good afternoon, gentlemen. A couple of questions, please, firstly on the compensation awards which are obviously pretty much in line and maybe a tiny bit higher than last year. But I am interested to know, firstly, are you expecting to have to raise fresher starting salaries for next year's intake?

My second question relates to your consulting business which, although on paper the top line number looks like it's going in the right direction, overall it looks like the business, the wheels have somewhat fallen off. The losses, as I understand it, have increased massively in this past quarter, your headcount growth has been minimal, which is suggesting to me that not only are you having trouble hiring staff but you're also losing staff in consulting. You don't appear to be anywhere near your target headcount and profitability. So I wonder if you could just take us through what's gone wrong and what remedial action you're taking. Thank you very much.

Hi. This is Kris Gopalkrishan. At entry level we are increasing salaries. Entry-level salary is going from [2.7%], 2.3 lakhs. We are increasing the entry-level salary this year also and going forward we will be increasing the entry-level salary.

Now, the question is about consulting. The consulting business is still in an investment mode. We have said that we will have about 500 people in the consulting subsidiary. When you look at people who have -- who do work which is similar to consulting, we have about 2,000 people across the organization. Among them is our solutions group, among our solutions group within each business unit as the business consulting subsidiary. We have about 2,000 consultants. It is driving our downstream revenue. It is winning significant assignments against the global consulting companies and we are scaling this up on an ongoing basis. But it is in line with our plans, maybe slightly slower but it is in line with our overall plans.

[Multiple speakers] answer, then you can ask it again, please.

Yes, I will, just on both points. Firstly, on the fresher salaries, just to clarify, I was aware that the fresher salaries had gone up for this year to 2.7 lakhs. Can I just confirm you're saying that you also expect to raise fresher salaries again for next year's intake and if so it will go up from 2.7 to what value?

Last year we increased our fresher salary by about 11%. We have a 6% inflation in India. And for next year also, if we increase the salary it will be in a particular range, around the same range. People often ask the question are you destroying your competitiveness because you're increasing fresher salary.

Our answer to that question is if you look at our salary structure we have steep increases after one year and a steeper increase after two years. So the fresher salary will not in any way hurt our competitiveness like you imagine because the steepness of the curve after one year and two years could become slightly flatter. This is on account of the fact that in India there's a great demand for people now, the economy is growing at 8 or 9% and there's demand for people and you want to make sure the best people get inside the door. So the fresher salary potentially could go up in the same range next year.

Okay, that's fine, another 11% then. And then, just lastly, just on the consulting, when do you expect your consulting business unit to break even?

Consolidated our consulting business is already positive. You're really looking at a standalone basis it has adjustments due to transfer pricing and things like that. So that is why on a standalone basis it is showing negative but on a consolidated basis it is already positive.

Okay, gentlemen. I'll take my other questions offline. Thank you very much.

Thank you, sir. Next on line we have Mr. Andrew Steinerman from Bear Stearns U.S.A.

Hi, good morning. When you look at your intended hiring this spring on college campuses, roughly what percentages do you think you'll target outside of the traditional engineering work on graduation class? And how do you expect to train, I'm assuming, a larger percentage of math and science majors as opposed to strictly engineering majors?

Well, I think we think that 10% of the total hiring in the services space will be outside the engineering stream, and this is for parts of the service that we have. And the difference between them and the engineering stream is that this source possibly requires a couple of months of extra training. So they will go through six months of training instead of four months. And also the compensation will be lower because they've not put in that one additional year of education. So it is a way to expand the pool, a way to tap into what we call right skilling, getting the right kind of people to do the right kind of job. And I think that's a very important thing to do as you go along and we've done that tremendously in the BPO space.

When you look at just the IT services space, I think you said overall 10% outside of engineering. But what percentage just in IT services when you hire this spring, spring '07, for the people that are to come in a year from now, what percentage for IT services will be outside engineering? Will that also be about 10%?

10%.

And what has it been historically?

Well, historically it's been around 3 to 4%. Now it's going up to 10%.

Okay. Thank you very much.

Thank you. Next on line we have Mr. [Alex Cope] from Neskey U.K. Over to you, sir.

Hi, good afternoon. Just a few quick questions. The first one is in terms of your net additions for the coming year and whether you could give some guidance there?

The second question is on your IT utilization, which was the 66.9 number in Q4. It seems like on an average basis we've seen quite a pronounced long-term decline in that utilization number now, I think for the last four years. So I'd be interested to hear your comments on that number going forward.

And the last thing is just on the fact that it's been -- it seems to have been quite a tough quarter, especially in terms of your U.S. GAAP guidance in Q3, which I believe was $859, at the bottom of the range. And it seems like you've narrowly missed this number if you take into account the changing FX rate, which was, I think, 43.75 for the Q4 result. So in that context we've also been hearing that there was perhaps a structured working weekend or something along those lines in the last quarter. So I'd just like you to confirm whether that was the case and whether that's part and parcel of the fact that this has been a tough quarter.

So, this is Shibulal. I will just answer on the utilization trend. The more important number to look on the utilization is the utilization excluding trainees, because when you include trainees there is always seasonality to it. As and when you have large batches of trainees joining, if you include them in the utilization it's going to drop. Now, on the one excluding trainees, we had about 73% plus. We are very comfortable with the high 70s. Again, there is -- so what you are seeing is an opportunity for us to actually take our utilization to the next -- to a higher level, which we expect to happen over the next couple of quarters. And we have toned down or adjusted our next year recruitment numbers to reflect this and to plan for this.

Now, regarding your question about an additional working day, we do this as required, not often but periodically. This is primarily stemming from the need to catch up and finish some work on certain projects and things like that. Sometimes an extra working day is lost during the quarter and we may have to make up. It's of that nature and has [direct] relative to achieve the revenue this quarter.

Okay. And in terms of any sort of guidance on net additions for the coming year?

Next year we are looking at 24,500 gross for the year and for the quarter 6,700. We don't give a net number because attrition is something which we have to see. And based on attrition, these get [tested]. So we don't have net numbers, we have gross numbers.

Okay. That's very helpful. Thank you.

Thank you, sir. I would like to hand over the proceedings back to Minali. Thank you, Zarina. We will now begin the Q&A interactive session for India participants. [OPERATOR INSTRUCTIONS]. First in line we have Mr. Sandeep Shah from Motilal Oswal.

Yes. If we just [concentrated on] rupees [inaudible] the higher end of the sales and EPS, both for the fourth quarter and for the full year, do you need to grow at 6.7% on the sales point from the second quarter to the fourth quarter and 9% on the EPS from second quarter to the fourth quarter? So do you see largely a back-ended growth or can we link this with the current lower growth rates in the BSSI vertical?

I don't think there is any relation to BSSI [or something]. What we are saying is in the first quarter normally the wage impact kicks in and we also spend a lot of money on visas. So normally the first quarter the impact on the margins are higher. It happened last year also. Over the years the wage impact to some extent gets neutralized because of the pyramid factor and visa costs are one-time effects which come in the first quarter. Last year we had liberty of spending it over two quarters. This year the first visa quota is lower, so we had to spend all the money in the first quarter. It's a regulatory number, nothing to do with the markets.

And on the revenue front we are giving guidances on what we see in the marketplace today. Generally, the third and fourth quarters tend to be a tough quarter but the first and second continues to be a strong quarter. We have given guidances on what we see in the market and we are talking about some 6, 6.5% sequential growth for the next three quarters, which looks at this point of time achievable.

Okay. And if you can quantify these different margin positives which you are looking to compensate the pressure of close to around 450 to 460 basis points, if you can, which you have explained earlier, if you can quantify the different margin levers in terms of how each of the levers will [save] the margin?

Sure. I don't want to get into the decimals but the overall basis the rupee/dollar rate we are assuming for guidance for next year is INR43.10. The average rate for full fiscal '07 was INR45. So the rupee could impact around 150, 160 basis points on the margins. The salary impact, as we said earlier, could impact the margins by 300 basis points.

Our utilization at the end of March was 74%. As we said earlier, we are taking a strategic bench to make sure that our growth engine is not impacted. We are always comfortable with the high 70s in terms of utilization. So the utilization could neutralize some of this wage and rupee impact. We also believe that we'll continue to get the scale benefit from the SG&A and of course the subsidiaries will make less losses for next year. Consulting has made a loss of $25m. Next year they are projected to make a loss of $4m. That could give around 50 basis points.

So what we are saying is on a year-on-year basis we'll be able to maintain the operating margin between a narrow band, of 50/60 basis points. The rupee is something we have to watch out but I think at this point of time we are comfortable with this.

And can you clearly quantify for the utilization rate improvement and SG&A, how it can improve your margins?

No, utilization [inaudible] percentage same utilization could have some 40 basis points impact on the margins. So if we are able to improve the utilization from, say, 74 to, say, maybe 77, 78, it could give us some [150] basis points.

Okay. Thanks very much. All the best.

Thank you very much, sir. Next in line we have Mr. [Inaudible] from Principal Asset Management.

Thank you. Just one question I had, on the pricing, why we are hearing of flat pricing when even this year we had about 4% improvement on a full-year basis and also we have also seen clients coming at your higher price?

If we look at what are the factors which impact revenue per employee, the number you gave about 4.9% blended increase annually, is impacted by service mix, it's impacted by which customer is growing because different customers come in at different times and different price points. It is impacted by onsite/offshore. It's impacted of course by prices. So we have been seeing that pricing is on an upward bias, pricing is increasing, your contracts are coming in at 3, 4% higher. Also one more factor is the repeat business. 93% is repeat business and mostly the price increase takes some time to flow into all the business. So, that is why we have said we have not factored in. And it could -- it also is a positive, right, in that sense, if it happens then it's a good result.

Sure. Another question that I have is that now we are already sitting on close to $1.5b cash as per my calculation. And still the total dividend payout is only INR6.5. Why is that so and what is the management thinking on that? And thank you very much, sir.

We always said we want to maintain the cash to meet our next one year's expenses. We always said our dividend policy is to pay up to 20% of net profit. We also have set some expectation on the results. We collected around INR800 crores in the last quarter, because the employees exercised options. It takes some time to count the cash, and this is what [threw] that. At the end of the year we have close to $1.4b in cash. We have paid dividend up to 20% of net profit. So that's in tune with what we have set as a guideline earlier. And still we are seeing a lot of growth opportunity. We are spending around $420m in CapEx next year. Right?

So we want to keep a certain amount of cash as long as it does not hurt the returns. If we believe that -- if we don't find a use of cash, and if we don't have any strategic need to [invest the] cash, we are willing to look at returning to our shareholders. We've already done it twice. At this point of time we believe that we need the strategic cash.

Okay. All the best. Thank you, sir.

Thank you very much, sir. Next in line we have Mr. Anantha Narayan from Morgan Stanley

Thank you and good afternoon, everyone. The modern environment of the fee is starting to look pretty tight, and in that context you're also picking up your utilization to what has been close to peak levels historically for you. Is that a [function] of too little slack in the system over the next 12 months?

No. Our utilization business is 74% right now, which means that there is flexibility in the system to grow faster if the business is there. And, of course, we can always hire also. So, there is flexibility in the system. We believe that there is, and that's why we are saying this is a strategic match.

And just a one-time follow-up on the same issue, your additions could be a bit lower next year compared to this year. Will that be lower for both entry-level employees as well as lateral employees, or will the mix change next year?

No, this is based on what -- where we are. In our assessment, the utilization is 74% and based on that we have come up with the numbers required. And as I said, we can hire if required and these numbers can be revised upwards if need be.

Okay, thank you.

Thank you very much, sir. Next in line we have Miss Divya Nagarajan from Motilal Oswal.

Hi. My question relates to the spending pattern within this line [security thing]. What are the kind of services that you are seeing attraction in? Could you break that up into the [specialties] on the [specialist] expenditure, please?

This is Shibulal. Actually, the spending pattern is very flat in our revenue mix. If you look at our revenue mix, you can see that the package implementation has gone to 18.4% this quarter, which means that we are getting larger projects in the package implementation space. That is an area of spend. Independent validation services has gone to 7.3% from 7% last quarter, another area of spend. Development and maintenance seem to be stable. Our revenues in consulting have gone up. As Kris was mentioning, we have about 2,000 consultants within [inaudible] at various levels and the revenue from consulting has gone up over the last couple of quarters. Thank you.

Okay. Gentlemen, one more question. Could you just give us the profitability of each of the subsidiaries for this year, and what will be expected for the next year [submitted] on the subsidiaries?

Yes. Infosys BPO [are not] profitable. It probably [returned] a revenue of [INR67] crores with a net income of INR151 crores. Australia [INR45] crores revenue, INR71 crores net profit, 16% net margin. Consulting INR213 crores revenues, INR110 crores net loss [inaudible]. [Inaudible] INR60 crores revenue, and INR30 crores net loss. For the next year we believe that Infosys BPO will grow up to INR934 crores in revenues, while maintaining the margins. Australia will have a normal growth of 30, 40%, and consulting and technical will do [inaudible] what we seen last year.

Thank you.

Thank you very much, ma'am. Next we have Miss Mitali Ghosh from DSP Merrill Lynch.

Hi, good afternoon, everyone. Could you comment on the macro environment that you are seeing the U.S. currently, and also what your assumption is regarding that at the time of your full-year guidance [inaudible] guidance for FY08?

Mitali, can you repeat that again?

Yes. I was wondering if you could comment on the macro environment that you see in the U.S., and what your assumption is regarding that in your FY08 guidance?

Yes. I think the macro environment is totally factored into our guidance. Having [derived from] different people with different points of view on the future next 12 months, there are many people who are predicting a slowdown and so forth. But net/net we have gone up. We have talked to our clients. We have talked to our macroeconomic friends. And we believe that, while all those things are all plausible, what is important is that we think that the pressures on global companies to flatten themselves and become more efficient, more competitive, for them to reorganize and leverage globalization, create standard platforms, drive it offshore, we think those trends are very, very present and very strong.

And so the fact that the interest in offshoring -- really, it's not an offshoring, it's really redesigning [platforms] to become much flatter. Even that this strength seems to continue to have enough momentum behind it, we have the confidence overall to be able to estimate that we will grow at 28 to 30%.

Right. So in terms of -- that was the kind of growth assumption, the idea is probably that it's going to slow a little. But do you think this could change at all if this becomes a worse recession kind of situation?

Well, I think we have looked at what is happening and we have come to this guidance looking at all possible scenarios. It also does not include acquisitions; it does not include large deals. It's really the business that we can see with the customers that we have and will have.

Okay. That's very helpful. And just one other question at this point is, in terms of the telecom vertical which has really grown very well for you this quarter, if you could give us a sense as to what you are seeing in terms of the kind of project spending that's happening? And has the growth been somewhat concentrated in a couple of accounts or are you seeing more broad-based spending there?

Telecom is getting concentrated, because internationally there is consolidation. Having said that, we have broad penetration for the entire supply chain. We work with the OEMs of the product companies and that's where we [brought the] service cover and we work with the user organizations.

So we have broad penetration. We have geographical penetration. We have service providers in Australia, in Japan, in Europe and in North America some clients. We have cable companies, pure telecom companies. We have the new age telecom companies who run on Voice over IP and the Internet and the [Intranet]. So we believe we have broad exposure to this. But it is an industry which is consolidation -- consolidating.

From a services perspective, everything from BPO infrastructure management, development, maintenance, consulting, all the services are being offered to this industry as the relationships grow larger, definitely. All the services are being used or are being sold to these companies.

Thanks.

Thank you very much, ma'am. Participants are requested to limit to one question. Next in line we have Mr. Hitesh Zaveri from Edelweiss.

Yes, hi. My question is pertaining to [the broadcast] services, an initiative that Infosys had at [inaudible] at one time. I am hearing again that companies are looking at investing further in creating solutions, creating frameworks as an approach to services. Could you elaborate how large is the initiative and what kind of impact could it have on your realizations of your selling process?

So the last two years we have been investing in solutions. We have built a number of solutions in various verticals. For example, in many industrial markets we have a compliance solution, in retail we have [another] solution. So we have solutions in each of the verticals. We also have horizontal solutions. For example, the [inaudible] has an application porting solution in place. These solutions are -- do have frameworks and reusable components. They do give us higher margins, because the pricing in many of these situations are non-effort-based.

Sure, that's helpful. I also had a question about the growth in the telecom vertical, insurance, and you did receive the telecom part. For the past eight quarters the insurance growth has been pretty weak, excepting the last two where year-on-year growth was [50%]. So that is one point, if you could comment there? And then Europe continues to be -- sustained more than 50% year-on-year growth. Do you see this continuing?

So, if you look at Europe, the insurance revenue, I have the numbers here. [It has been 7.9%], 7.4% over the last seven quarters. So as a percentage basis, it has not moved much. But at the same time it has kept pace with the Company growth. And we are actually seeing a good future in the insurance segment.

Europe has remained [low] again. Over the last seven or eight quarters, it has gone up from 23.7% in Q2 of '06 to 26.6% Q4 '07. That means that the contribution from Europe has gone up over the last few quarters. Probably now the growth will continue, but the percentage shift will come down, because even the rest of Europe, which is the rest of the world and North America, are showing good growth.

Thank you.

Thank you very much, sir. Next we have Mr. [Surinder Goyal] from Citigroup.

Good afternoon, everyone. A few question on demand again. First, multi-nationals are ramping up in India. Has that changed demand dynamics in any way?

And secondly, is there an inclination among clients to incrementally grow through captives?

Which demand are you talking about, demand for people or demand in the business?

No, I am talking about demand for business side, not the supply side.

No, I think -- let me be very clear. There is absolutely no impact on demand because of legacy firms coming to India. You must understand that it's not that the customer is waiting for the legacy firms to develop offshore because they have a fantastic relationship. The fact of the matter is that the historical record, operating high-quality services on time and providing genuine value, has really been missed in the whole equation.

And so I don't think this has had any impact on our business. In fact, our business continues to grow. We are getting enormous attention. We are getting mind share. We are getting access to the [insurance] suite. So I think -- I don't think it's anything to be concerned about.

Thanks a lot. And on the captive side, is there any change, more clients moving to a [base] in the captive group? Any kind of change of that?

No. There are some clients who are developing captives. But I think most clients are maturing into understanding what is it that the captives should do, what is that partners like us can do. And I think the fact that we can bring a global intellectual property to the table, the fact that we want to find the customer and develop benchmarks and best practices, the fact that we can be flexible in ramping up and ramping down, and the fact that because of our brand we attract very good people. All these things help our customers to realize that they can either go with us completely or a combination of captive and going with us.

Thanks. And just one more question, just wanted to get some idea on third party [advising] firms. How much of your incremental business, maybe on a consulting basis, would be advice by such peers?

Not very much.

That's very helpful. Thanks a lot.

Thank you very much, sir. Next we have Mr. Pankaj from ABN Amro.

Yes, hi. My question is on the contracts. We have seen the rupee appreciation almost 6 to 7% in the last 17 to 18 months. And I was wondering if there have been any instances during the quarter, or in the recent past, where you have seen some older contracts with expiration costs related to currency appreciation getting triggered. And if you have, what was the percentage of such contracts of [inaudible]? And do you see increasing number of such instances going forward, even though the currency has been [inaudible]?

We see typically the way these things work is that when we cannot agree then we can go the automatic [wrap around]. Typically in long-term relationships you don't unilaterally go ahead and raise the rate; you always negotiate with the client, you bring it to their notice, then discuss and then increase if both parties agree. If both parties don't agree, then these clauses in the contract will get applied. So that's the process. We have been saying that in contract renewals as well as in new customer instances. We have seen increase in rates, and which is in the range of 2 to 3% existing contracts, 3 to 4% new customers.

So in some contracts we have got the same clause, or do we have this kind of increase coming in during [inaudible] also, and not during the scheduled renewal or scheduled negotiations, but even during the [inaudible] because of this -- specially [inaudible]?

So we talk to the clients. When you go to the client and ask for an increase, you have to have some reason. So one of the reasons we do ask is compensations going up, and appreciation of rupee is also one of the reasons, but basically it's driven from increased costs. That's what it is.

Okay. And just one point of clarification on the utilization changes. What led to the [inaudible] decline quarter on quarter, if you can explain that, please?

There are two factors. One is remember that there are some seasonalities now towards the September/October quarter. September/October months is when a significant number of people join and it takes some time to wind that down. And then we are coming from higher growth to a slightly slower growth in this Q4 quarter. Right? So within a strategic band. We have been modeling this, saying that we need to have some strategic band. So all these factors.

Okay. Thank you.

Thank you very much, sir. Next in line we have Mr. [Sumit Arora] from the [Everest Group].

Yes, hi. Just a couple of quick comments I wanted, so could you just comment on the growth of the IT infrastructure outsourcing business? And could you share the overall last 12 months attrition figure for Infosys BPO?

So this is Shibulal, and I will comment on the infrastructure business. We had good growth in the infrastructure business last year, 50% up. We are also expecting good growth in the [inaudible] weight from the infrastructure business.

Okay. And the attrition for Infosys BPO?

Well, our year-to-year attrition Infosys BPO is 37.5% in comparison to 43% last year. So we have made a substantial improvement but we've still got some way to go. And this attrition number does not exclude anything. So this attrition number is based on someone joining today and leaving in one hour, so this is the number. So we made some improvement but we have got a long way to go and we are still working at it.

Okay, thanks a lot.

Thank you very much, sir. Next in line we have Miss [Jen] from [Tower Capital].

Hi, yes. I just wanted to know the impact of this [one time] you are giving correction in salaries. Hello?

What we have said for salaries is that normally we pay 3% more for people overseas compared to the previous year. This year overall cost is 5 to 6%. [But they start] 2 to 3% or 3% is going to be paid to a set of people, and a particular band or a role, so that we can make some corrections in relation to market salaries. The correction has come about because of many reasons.

One, we are going up the value chain and 23% of revenues come from consulting and enterprise solutions. It means the kind of people who we hire and the compensation we need to pay for them is qualitatively different from what we did earlier. Two, we're finding the complexity of the projects required people of a different kind of skill and experience, and those people need to be compensated on a comparable basis. So we need to make sure we make some corrections. Three, because of the change in the salary structure over the last several years, some distortions have crept in and we need to correct the distortion, and that's why this correction is taking place. This correction is a one-time correction. It has been factored into the guidance by Bala. So I think this will make us much more competitive.

Okay. [Inaudible] revenue figures [per country]? Hello?

Yes. Infosys had a revenue of [INR45] crores, and a net income of INR71 crores.

Yes, thank you.

Thank you very much, ma'am. [OPERATOR INSTRUCTIONS]. Next in line we have Mr. [Tore] from Kotak Securities.

Yes, this is [Dean] here. Most of the questions have been answered, just wanted to know what can be the effective tax rate for the next year, for '08?

I think it could be in the same range of 11.5 to 12. We recorded a slight increase because of the non-operating income. Excluding that for the next year the tax rate should be in the same range.

Okay. And the second thing was when I looked at the P&L account I just saw that the number of shares has not increased as much as [1.13m] in the last quarter. So has anything happened, some of the dilution has happened post the quarter that is in the current quarter, [April 1]?

No, no, it happened in the last quarter. But for reckoning number of shares we have taken the number of days of shares outstanding. So you don't see much of the dilution reflected in the numbers in the fourth quarter. Most of the dilution impact we will have in the next year, because most of the exercise happened in the last two weeks of March.

Okay. So currently what could be the total number of outstanding shares?

We have round 3.9m options outstanding, around 2.1m under the 1998 plan, another 1.9m under the 1999 plan. We got around 20m shares exercised in fiscal '07, 16m just happening in the March quarter.

Are you through with your questions, sir?

Yes, I am. Thank you very much.

Thank you very much, sir. Next in line we have Mr. [Shelingham] from [inaudible].

Hi, [inaudible] you have mentioned. My question is connected with the [inaudible] business. If you are [excluding interest] 1%, does the Company not see that as a good enough or a big enough market? Or does it have enough products in that space?

It is a market, but we look at the various options we have with the plans we have. We are just seeing that currently our share -- the share of business [mortgage] industry, in the top prime space, is 1%.

Would you like to increase that in the future?

We have to wait and see. It certainly is [an important] area for us. But insurance is very, very broad and kind of condensed; many types of insurance products and things like that. So we'll have to see. Right now it is 1%, that's all.

Okay, thank you very much.

Thank you very much, sir. At this moment I would like to hand over the floor back to the Infosys management for final remarks.

Well, I think we have come to the end of this analysts' call. I am extremely grateful to all of you for participating today. As we said, we have closed here on a good note; we are opening the new year on a good note. We also put in the senior management changes to the future. And I believe Kris and Shibulal [can do the] job taking this Company forward.

And the important thing is to realize that what everybody has been saying is happening, the -- we have been saying for a long time that this is a mega trend, that there is a particular opportunity that we will be able to utilize. I think our investments in the long term have been paying off. We have found no impact of global legacy players coming here. And I think we are well poised to take advantage of all opportunities that we have. Thank you very much and talk to you again next quarter.

Ladies and gentlemen, thank you for choosing WebEx conferencing service. That concludes this conference call. Thank you for your participation. You may now disconnect your lines. Thank you and have a nice day.