Infosys Ltd (INFY) 2007 Q4 法說會逐字稿

Good morning. My name is Wanda, and I will be your conference operator today. At this time, I would like to welcome everyone to the Infosys Technologies fourth quarter and fiscal 2008 annual results 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 session. (OPERATOR INSTRUCTIONS). Mr. Mahindroo, you may begin your conference.

Thanks, Wanda. Good morning, everyone, and welcome to this call to discuss Infosys' financial results for the quarter and year ending March 31, 2008. I'm Sandeep from the Investor Relations team in New York. Joining us today on this conference call is CEO and MD, Mr. Kris Gopalakrishnan, COO, Mr. S.D. Shibulal and CFO, Mr. V. Balakrishnan, along with other members of the senior management.

We will start the proceedings with a brief statement on the performance of the Company for the recently concluded quarter, followed by the outlook for the quarter ending June 30, 2008 and year ending March 31, 2009. Subsequently, we'll open up the discussion for Q&A.

Before I pass it on to management, I would like to remind you that anything that 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 at our filings with the SEC which can be found on www.sec.gov. I will now pass it on to Mr. S. Gopalakrishnan.

Thank you, Sandeep, and good morning, good afternoon and good evening to every one of you wherever you are. Thank you very much for participating in this call.

Infosys had a good year. We crossed revenue of $4b. We grew revenue in terms of -- revenue by 35.2%. In the beginning of the year we had given a guidance of 28% to 30%, so we've ended the year with 35%. In a challenging environment with respect to rupee, the rupee appreciated by 11%. We have been able to sustain our margins. We added 33,000 employees last year in gross numbers, and net additions are about 19,000.

We continue to invest in the business. We have invested in infrastructure in terms of capital expenditure. We have invested in building out our China center. We have invested in opening Monterey. We have invested in further strengthening our service line.

We've started a new service, Learning Services. We've started SaaS as a separate service line, Software as a Service. We've created new solutions in BPO using the -- our platform-based model so that we can offer full service capabilities, full vertical services to our clients. So the Company continues to invest in growth and in creating new opportunities for growth.

So looking at the future, given the challenging environment we are seeing around us, we have given a guidance of 19% to 21% growth. We start with a flat quarter one, but we are projecting that we will end the year somewhere between 19% to 21%. We hope to maintain margins, sustain margins within a very narrow band. And we want to add 25,000 employees gross this year.

The reason why the number of employees is higher than the revenue growth is that we need to cover for attrition. We need to invest for the future, FY '10 and things like that.

In our discussions with our clients what is emerging is that, even if the budgets are flat or slightly down, their allocation to global delivery model based services would increase. So we expect that the growth story continues. We expect that the companies like Infosys would benefit from this.

We expect that our ability to create large relationships, have a very high repeat business, participate in large deals, participate in large transformation projects, participate in helping these companies look at new options, like Software as a Service, help them with some of the new technologies, like RFID and things like that, would continue and would help us sustain the growth momentum that we have had.

Now, I'm going to hand over to Mr. Shibulal to give you some more detail on how we achieved this revenue this year and what the market outlook is.

So, good morning, everyone. This is Shibulal. As Kris said, we had a very good year; we have grown 35.2%. I will talk about some of the other things. And I also want to talk about the strategies we have applied over the last few years and how they have played out.

Let me start with our strategy to reduce our dependency on U.S. Our revenue from U.S. this quarter is 60.7%. It is down from last quarter. Last quarter it was 62.3%. Year to year also, it has come down so we continue to focus on other parts of the world. European revenue has reached 29.3% of our revenue this quarter.

Now we are focusing on emerging markets. We see opportunities in emerging markets in Australia, Canada, Japan, Middle East and Latin America. We are investing into these markets and our expectation is that, over a period of time, they will become important and large markets for us.

From a service perspective, we continue to gain momentum with our new services which we introduced over the last six to seven years. Those services which we introduced in the last five to seven years, today, give us more than 50% of revenue. Consulting and Package Implementation has marginally grown. It is at 24.1% this quarter. Infrastructure has marginally grown. So, overall, our ability -- we are able to introduce new services and increase revenue from those services over a period of time.

This year we have introduced two new services. First one is Learning Service targeted at learning in enterprise. And the second one is Software as a Service. We have built a platform for social computing which is being rolled out. We have one client in each one of these services.

From a vertical perspective, banking and capital markets have come down marginally this quarter. Of course, that's a reflection on what is going on in the environment as well as -- at the same time, we feel it is not a secular trend. It's a quarter-to-quarter aberration. Manufacturing has grown ahead of the organization. From last quarter to this quarter the percentage of revenue from manufacturing has increased from 14.6% to 16.4%.

Another focus area for us is to take up more and more fixed price projects. This quarter the fixed price projects have reached 35.4%. Year on year, it has gone from 28% to 32.9%, again, as a result of our continued focus in doing more and more fixed price.

Onsite revenue, onsite effort as a percentage of total has come down year on year by 1%. We continue to focus on moving more and more work to our offshore delivery locations. And this is a way for us to derive better value, better margin and provide higher value to our clients.

Client additions; we have added 40 new clients this quarter, five of them in Fortune 500. Today, our client base of 514 includes 113 Fortune 500 clients. Our number of clients giving us $1m, today, is 310 and number of clients giving us more than $50m is 18. So we continue to add clients, we continue to expand our client base with high-quality clients and we penetrate these clients over a period of time to give us good revenue.

Growth this year has been all around. The top 10 clients grew by 38.8% and the remaining clients grew by 33.6%. So, once again, our philosophy is to have growth all around. Top 10 as well as the remaining, they have both grown over -- year on year, from last year to this year.

Subsidiaries have done well; Infosys Consulting and Infosys China was in investment mode. Next year we expect Infosys Consulting to break even. Infosys China will continue to be in investment mode. Infosys BPO has done very well. Infosys BPO today has 16,000 employees.

So, with that, let me hand it over to Bala, our CFO.

Hello, I'm Bala here. Great talking to you again. When we started this quarter, we gave a guidance of $1.136b to $1.142b for the quarter. We achieved $1.142b, which is a 5.4% growth in dollar terms. In rupee terms, they have been higher because the rupee depreciated by around 1% during the quarter.

In terms of margin, we maintained our operating margin at 28.8% level. We had a positive benefit because of currency of around 50 basis points. And we had some 60 basis points positive impact on the margin because of the one-time California wage settlement last quarter. It is not there this quarter.

That is more than offset by the reduction in utilization, which came down to 75.7% from 77.4%. So, net-net, we maintained our operating margins for the quarter and also for the full year. For the full year our operating margin is around 27.5%.

The effective tax rate has slightly gone up this quarter, gone up to 16%, mainly due to non-operating income. But if you remove the one-time tax reversal, our effective tax rate for the full year is around 15%. We believe it will be within the range for the next year. Only in fiscal 2010 probably the effective tax rate could go up.

We had a positive impact because of currency on the operating margin of close to $5m. We had a negative impact on the non-operating income of close to $12m because we had a hedging position of $1.14b as at end of December quarter. Our current hedging position is around $760m. Net-net, our currency impact on the net margin is around $7m.

Our billing rate went up marginally this quarter. The blended billing rate went up by around 0.2%. It is flat on the onsite rate. On the offshore rate it went up by around 0.5%. Even if you look at the top 10 clients, they grew by around 12% this quarter sequentially. Overall for the year, they've shown decent growth.

If you remember, when we gave the guidance in the beginning of April last year, we said 28% to 30% growth in revenues which assumed around 2% growth because of pricing and around 28% growth because of volumes. When we ended the year the volume growth is 28%, but the pricing growth is around 5%, which clearly in line with our thinking of improving the revenue productivity and be very selective in taking the deals and make sure the margins are maintained.

Going forward for next year, we have given a guidance of 19% to 21% growth in the revenues and around 17% to 19% growth in the EPS. However, our guidance assumes the currency to be at the same level as at the March end. We have not assumed any big deals. We assume the pricing to be stable at the levels we have seen in the March quarter. We assumed the onsite/offshore mix to remain same. And we also assumed some 25,000 people addition in the next year.

We have given a wage increase of 11% to 13% offshore, around 4% to 5% onsite. That could impact our margin by around 2.3%. Of course, in the first quarter our margin could come down by around 3%, 4% because of wage increases and also the visa cost. The visa costs in the first quarter could be similar to what you have seen in the last year first quarter. So there is some lumpiness in the visa cost.

But for the full year we believe that we should be able to maintain our operating margins within a narrow band of 40, 50 basis points because of the scale efficiency and because of some improvements in the utilization rate. We are starting the year with a lower utilization rate. We are hiring 25,000 more people. We hired 2,300 people more in the fourth quarter of fiscal '08. All this clearly shows that we are creating enough flexibility in the system to take on any opportunities which may come on the way.

Our guidance reflects what we see in the market at this point of time. And if there is any incremental growth opportunity, we've prepared the model to take on that growth.

We have close to $2b of cash. We announced a one-time special dividend of something around $0.50 per share because we reached $1b in net profit this year. And also it is in line with our thinking of managing the return expectation of the business with that of cash required for running the business.

With this, I conclude the presentation. Now we can open up the floor for question/answers. Thank you.

(OPERATOR INSTRUCTIONS). Your first question comes from the line of Julio Quinteros with Goldman Sachs.

Quickly, one thing I wanted to understand, one of you guys, could you just help us understand the difference in just the way that you're looking at BFSI as you go forward. You're looking at your clients based on the conversations that you guys have in your banking and financial services sub-segment. Is all the trouble behind them, relative to the expectations that you guys are setting up, or is there still some possibility for some fluidity in terms of the way that they're spending relative to the projections with you guys?

Yes, hello, this is Ashok Vemuri.

Hello, Ashok. How are you?

Well, everybody did think that Q1 for our clients would be the "throw the kitchen sink out of the" kind of a quarter, but that didn't really turn out to be that way, is what we're hearing. We do expect that -- we do believe from our clients in our conversations with them, as well as from the market commentary, that there could be some others that could come out.

But I think the good thing here is that it's a cleaning process. A lot of people, a lot of our clients are of the belief that they need to rebuild and put a lot of the stuff that's happened behind them. And the conversations that they are having with us are validating that point. So, not only are they looking at cost reduction, but also productivity and efficiency. They're also increasingly asking us to address some IT-related solutions and process-related solutions on the revenue side of the balance sheet.

So I don't think we can categorically say that all the trouble is behind us. But the fact that most people are coming clean, or have been coming clean if you will, gives us enough confidence, and so does it give our clients, that they want to go forward from where they are right now. And they're using, and they believe, that technology service partners like us who have deep relationships with them, and have a significant track record, and they believe that IT itself will be an important leverage that they have to dig themselves out of wherever they find themselves today.

Got it. And just one thing on the -- just to maybe go back to the guidance, the flat number for the quarter, what is assumed that actually isn't contributing in the June quarter? So we're going from a growth on a sequential basis to no growth. So, clearly, something is not going to be contributing in the June quarter. Can you guys provide a little more color on what parts of the business have actually decelerated, or will not contribute in the June quarter, so leaving us with the flat revenue growth?

It assumes that, because of the challenging environment in which we are, we are assuming flat growth. It's not deceleration. It's just we are assuming no growth for this quarter. The growth is not there. That's it.

But can you just provide more color on what parts those would be?

No. We are talking about short-term challenges because of the environment, but in the medium to long term we are seeing a lot of growth opportunities. That's why, if you look at the guidance, in the first quarter the revenue growth is assumed to be flat, but most of the growth is coming in the next few quarters. That is the indication our clients are also giving to us.

Okay. And the short-term challenges, would those be in BFSI vertical? Is it in the Application Development side? I'm just trying to get a sense for, either by vertical or by service line, where you guys are, what specifically you would reference as short-term challenges right now.

In terms of industries, BFSI, Retail, some client-specific challenges in certain clients, so it considers all that. It's not services-specific. It's basically industry-specific or maybe particular client. And that is what is factored in with the flat guidance.

Okay, great. Thank you, guys.

Your next question comes from the line of Andrew Steinerman with Bear Stearns.

Hello, Kris. Maybe I could ask one more question on sequential growth going after the June quarter. Is this based on specific project starts scheduled during this quarter, the June quarter, that would enable sequential growth into the September quarter? Or is the back-end loading more based on more general conversations with clients?

It is both, actually. We have had specific projects and initiatives which we have seen started last quarter, expected to start this quarter. And then our repeat revenue, as you know, is 95%. It's been 95% for many quarters. So we have deep relationship with our clients.

In this period we are in touch with our clients much more than other times. We have to be continuously talking to them, understanding what are the challenges faced, what is the impact on their business and, hence, what is the impact on us, and make sure that we are on top of things. So it's based on actual project starts as well as indications given by our clients' conversations we're having on specific projects which could start this quarter. So it's a combination of all of these.

Excellent. Thanks for all your time.

Your next question comes from the line of Joseph Foresi with Janney Montgomery.

Hello, guys. I wonder if you could just elaborate on your answer to the last question. I know that, obviously, the numbers are implying that growth is going to be back-end loaded. Are you expecting the economy to rebound? And, on the client perspective, you're expecting the client spend to increase. What gives you confidence that that's going to actually happen?

I will give you one perspective and I'll ask my colleague, Ashok, to also add specifically with respect to BFSI space. It is not necessary that the economy would rebound, because we don't know when it will rebound. What indications we're getting is, one, companies get a grip on the situation.

They need to continue to run their business, operate. They need to invest in future growth. You can't stop the business or stop investing in the future. And they're giving us indications that, yes, we will take control of the situation and then we will want to start things with you, continue the dialogue, etc., etc. So that is what we have factored in into our guidance. So, temporarily, we expect a slower first quarter, a flat first quarter, and then growth to pick up.

But we're pleasantly surprised that we see growth in the first quarter also. We're ready for it. That is why our utilization today is only 76%. So we have slack in the system to grow faster if need be. Ashok, do you want to add something?

Yes, Kris. I think one is of course the point that Kris made about the fact that these are large going concerns who will need to continue to invest in technology. The other is that, even when we're having conversations with our clients where the overall IT allocations, the budgets, have come down, the percentage of spend that they are predicting to do on offshoring has gone up significantly.

And secondly, the kind of deals that they are inviting us to the table to do now are vastly different, to a certain extent, from the ones that we have been invited to in the past.

The other is -- so this is, as I said earlier, it's also on the revenue side, these are larger transactions, more structured transactions. It's a combination of multiple services where there's system integration, infrastructure, independent validation and process outsourcing. So we're seeing transactions of that nature.

And the last point I would say is that we are also seeing interest from our U.S.-based clients to use us in their international operations. So, whether it's in Asia or whether it's in Europe, we are seeing significant traction from that perspective as well.

I guess, just sticking with the same theme, is there any incentive for a client who has delayed the starting of a project in June to start it in September? Is there an incentive there? Or is this based on the surveys and the questions that you've been putting forward to your client base?

It's based on our discussions and based on the surveys we have done etc. It's based on our understanding of the situation. As Ashok and I have been saying, one of the ways in which companies can recover and go forward is to look at where the revenue opportunities are.

For example, most of the companies today have initiatives to increase their revenues from developing markets. So how do they do that? By looking at specific products and solutions, services targeted towards emerging markets. They will have to invest in growing this side of the business and the faster they do this, the better off they are. Those are some of the things.

Then there are initiatives to consolidate the number of vendors they have. There's a lot of other things which are happening which could come our way. These are some of the things we have factored in our guidance and in our forecasts for this fiscal.

And just one last question, real quickly. It seems like the models are naturally adjusting for the slowdown. Obviously, wage increases are coming in on an annual basis but attrition is holding steady, which seems to imply that maybe the labor supply is cooling in the short term. It also seems like maybe pricing is not as up as it was last year. I wonder if you guys could comment on whether the models are adjusting to the slowdown than anything you're doing specifically. And, thank you.

Well, there is some truth in the statement that the models seem to be adjusting to some degree. But I think the labor market in India is more suited to the local economic environment. The economy is still supposed to grow at 8% in India. It's grown 9% a year for the last four years. The labor pool is the same. And people coming into the labor market have more choices. So you need to make sure that you pay reasonably well for them to come in.

At the same time, attrition is down in the fourth quarter. It is less than the attrition in the first quarter this year. In the last three years, for the first time the attrition in the fourth quarter is less than the first quarter of any year. And that means that in the local ecosystem, amongst all companies, there are lesser opportunities. People hope to stay on.

So there is some semblance of balance coming, but we have to wait and see how that pans out. Many companies are talking about giving a wage increase of only 6% to 8%. So we have to see in the next one, two months how all this comes together. But I do think, at this point of time, there is a great degree of truth that the total [opportunities] in offshore is coming down.

I just have a question (inaudible) -- thank you.

Your next question comes from the line of Moshe Katri with Cowen and Company.

This is Moshe Katri. Nice execution, guys. So, a couple of things. One, your top client had another strong quarter. I think it was up 60% year over year, 14% sequentially. Maybe you can talk a bit about the outlook for this client in fiscal '09, comment on what's driving this exceptional growth.

And then, are we talking about incremental spend or market share gains?

Moshe, we have a good relationship with our top five clients, top 10 clients. Top 10 clients grew by 11.7% sequentially this quarter and, for the year, the top 10 clients grew 38%, 38.8%. And top -- the remaining clients grew by 33.6%. So we have achieved balanced growth. I don't want to be very specific about one particular client and give you projected growth rates because they will get upset with me if I start discussing their spending publicly with people.

Okay, that's fair enough. And then, going back to all the questions about BFSI, should we expect this vertical to grow in fiscal '09?

And then, since the end of the March quarter, did we see any pick-up in project ramp so far? Thanks.

Moshe, thanks for that question. I expect this sector to grow. I'm going to ask Ashok how.

Thanks, both of you, for this. Clearly, we believe that Financial Services is going to continue to be one of the important, and one that will lay a strong foundation for our growth in the years to come. This is a sector that is extremely mature in its use of global delivery model. It is a sector that spends, across the board, billions of dollars in terms of -- if not trillions of dollars in terms of IT.

We are expanding our footprint. We believe that Europe is beginning to show a significant amount of maturity in its use of companies such as ours. And we are getting -- we are seeing a resurgence, if you will, in Japan, in Australia. We are getting a lot more interest from clients in all part of the world, for example, South Africa etc.

Our product, Pinnacle, which we've just released the version 10 is finding significant traction, not only in their usual markets of Asia and Africa, but also increasingly in Europe, as well as interest in the North American market.

So, overall, we may not see the kind of things that we saw in the past. But I think the kind of growth that we are projecting for this sector and the kind of investments that we are making, both on the front-end of our business in terms of solutions, in terms of building capability on the back-end etc., are in line with the guidance that we've actually given out there.

So, BFSI should grow roughly 19% to 21% in fiscal '09?

Well, we are not putting a number on that just yet. It's a significantly large portion of our overall business. And the growth that we have put out there from a guidance perspective for the Company, would, given its size, reflect that.

And then, sequentially, should we -- when you are beyond June, do you think that BFSI is going to be -- let's say, the September quarter, do you think it's going to sequentially down? Or we are going to see some sort of a pick-up when you get to September?

Well, we are definitely hoping that it will not be down. We are hoping it will pick up. We see it -- collectively our clients have taken a bit of a pause. They are in the stage where they are recouping from what has happened. They are re-strategizing, re-prioritizing to some extent, and rebuilding.

So, given what we see in the pipeline, the kind of conversations that we are having with our clients and the various discussions worldwide that we are having with our financial services clients, we do definitely hope that it would not be down.

Okay. And then, finally, can you talk a bit about the investments that you had -- or you are actually expecting to have in fiscal '09 in U.S. consulting in China and Mexico? Can you give us -- quantify the dollar number in terms of investment?

I think Infosys BPO and Infosys Australia are making profits. Consulting have made a loss of around $12m this year. They are expected to break even next year. So the losses could actually come down in consulting.

China, they could be making a $3m loss next year also because, still, they are in the investment phase. Mexico, they will be making losses because there is -- it was started last year and we are making a lot of initial investments. So, overall, I think only China and Consulting will be in losses. All of the subsidiaries will be breaking even --

China and Mexico.

Sorry, China and Mexico will be in losses. All of the subsidiaries will be profitable, and Consulting will be breaking even.

Thanks.

Thanks.

Your next question comes from the line of Karl Keirstead with Kaufman Brothers.

Hello, good morning. A couple of questions. First of all, in the U.S. Financial Services vertical, I am wondering if you are changing the proposed deal structures at all as you attempt to incent the banks to move forward on funding allocation. Are you adjusting the proposed payments terms, the revenue recognition model, the deferral, if there is any, of upfront costs? Any change to the typical deal structure that you are pitching to the large banks at all?

Most of our price negotiation which are contractual in nature happen in the fall/winter part of the year, and those are all behind us. And I think we have seen some -- we've made some commentary on that in our last quarter. We are not looking to grow our top line at the expense of reducing our price point. We have not yet been even asked by most of our major clients to do that.

Obviously, there are some structures that we are looking at because of the size and the tenor of some of these deals. But we are not looking to discount upfront, or front-end discount, or back-load the revenue, or any of those innovative financial engineering models with any of our clients.

And, interestingly, we have not had any of our clients come and ask us beyond just a preliminary conversation. And we still believe that we are seeing the pipeline. We are still winning transactions, maybe not at the same velocity as we were doing earlier, but we are definitely seeing more transactions that have come. We are winning them based on our track record, based on our performance and based on the relationships that we have with our clients.

Great. That's helpful. And then, a couple of data points. Can you provide the operating cash flow and free cash flow numbers for the quarter?

And secondly, now that your largest client is over 10%, could you identify that client? Thanks.

Well, free cash flow is around 15% of our revenues. We spent around $373m on CapEx this year and next year we expect to spend somewhere between $250m to $300m on CapEx. But I think the free cash flow will continue to be somewhere between 14% and 15% of our revenues going forward.

And, I am sorry, the operating cash flow number for the March quarter?

That is there in the financials. It's put on the Web. You can have a look.

Okay. And the larger -- the largest client?

Pardon, can you repeat your question?

Given that your largest client is over 10%, could you identify that client, or do we have to wait for the K or Q?

We cannot identify the largest client. We don't want to be specific about a particular relationship we have.

Okay. Thank you so much.

Your next question comes from the line of James Friedman with Susquehanna.

Hello, thanks, it's Jamie Friedman at SIG. My questions are mostly for Balakrishnan. I wanted to ask a couple of questions about the balance sheet, Bala. You had a nice reduction in the unbilled revenue in the quarter. However, at the same time fixed price contracts, as a percentage of the total, increased. Could you help us understand what's in unbilled revenue, and its relationship to fixed price contracts?

Well, I think more than percentage of revenues, what you have to look for is when the milestones are getting completed, because different projects will be at different stages of completion. At any point of time we'll be running around 8,000, 10,000 projects. Even if you assume 25% of them as fixed, it is around 3,500 projects. So it is -- there is no direct correlation between percentage of revenue from fixed price and the unearned/unbilled revenues.

If you look at the unbilled revenues, it has come down from $136m to $120m in the fourth quarter. At the same time, unearned revenues have come down from $94m to $71m. So if you take the net, it has just come down from $42m to $49m, which is normal in any quarter.

Okay. And then, a related subject is the DSO. It did trend up in the quarter. Could you elaborate as to what might have occurred there?

DSO is around 72 days for the quarter, but we received close to $50m in the first week of April. So if you factor in that, it could be around 67 days, which is normal. Around 80% of our receivables is less than 60 days. In fact, 50% is less than 30 days. The quality of receivable is extremely good and we don't have any concerns there.

Okay. And then, finally, with regard to the manufacturing vertical, it seemed that that showed a significant acceleration, both sequentially and year over year. I guess my question is, is that a function of the market, or did Infosys potentially take share? Thank you very much.

The manufacturing vertical added 12 new clients in the Q4, so they are seeing some traction. And -- so we also had some wins and completion of projects impacting implementation, which falls in the manufacturing vertical. So that's why we see an acceleration in the manufacturing vertical. It's about 12 new clients, some project completions and things like that.

Thanks, Kris.

Your next question comes from the line of Rod Bourgeois from Bernstein.

Yes, Rod Bourgeois here. Guys, have you had existing deals disrupted due to the short-term economic challenges that you guys have cited?

It's not material at all. We had -- out of the thousands of projects we do, we had about three or four projects cancelled; nothing very significant at all. And not in the BFSI segment also, so nothing very significant.

Got it. So, most of the deceleration, or the below-normal growth that you are experiencing is because of new projects that are having more trouble signing right now. Is that an accurate way to look at it?

Yes. So it is the delays in kicking off projects, or customers taking more time to decide, more people involved in the diligence process, larger deals taking more time to close, things like that.

Got it, all right. Does your guidance embed some conservatism to account for the possibility that more disruption could occur in deals getting kicked off, and more time for deals to actually get closed? Does the guidance assume some conservatism to account for more of that disruption happening?

We give our guidance based on the facts we have currently, and one of the factors we have to consider is the challenging environment. So we have reasonable confidence with the numbers, but we are cautious also. We are reasonably confident about the numbers, but cautious also.

In other words, if there were another downdraft in the economy, you'd have to revisit this guidance potentially later in the year. Is that a possibility?

Yes. If it is a material impact on the industry, on our business, yes, we will have to revisit. So anything is possible today.

Got it. And then, the pricing has been positive over the last, almost two years and -- but when you look at it on a sequential basis it started to slow. So the positive pricing effect has started to move towards a -- more of a flattish state.

What is causing pricing to move from positive to being flat? Can you talk about the dynamics that are causing that to happen right now?

The revenue productivity -- the revenue per employee numbers we give is a function of price increase, function of -- sorry, a rate increase, function of business mix and things like that, so it is a complex thing. We have said that, probably a couple of quarters back, pricing is flat with an upward bias, slight upward trend. But right now we are seeing that pricing is just flat.

If we get some improvements and we do get -- but, given the environment in which we are, it is better for us to assume flat pricing and that's what we have considered in the model. We are seeing that this quarter our blended rate went up only by 0.2%.

So we are not seeing downward pressure, but we are not proactively pushing for higher price as aggressively, higher rates as aggressively, we would have done in the past quarters.

Is it conceivable that pricing could still be somewhat positive in the next year, based on what you are seeing? I know you are not accounting for that in your guidance, but is it still conceivable that pricing could be modestly positive in the next year?

Yes, because as a Company we have not competed on price. We have been choosy about the projects we would take on, and the margins we would accept from the work we do and things like that. So in that sense, yes, it is possible that we could see still rate increases, and that's definitely there.

Great, thank you, guys.

Your next question comes from the line of Trip Chowdhry with Global Equity (sic).

Thank you. Two questions, first, regarding the interest rates or activity levels with requests for proposals or requests for information. How are you seeing this evolving so far this year versus last year?

So, I'll talk about large deals, deals of $100m, around $100m or higher. Typically, we pursue about 12 to 15 deals. And currently also our pipeline has about 12, 13 deals -- about 15 deals, actually. And so, in that sense, it's just the same.

What we are saying is that the position on those deals may get delayed. The pipeline still looks very healthy but the decision on those deals may get delayed. So there is slight uncertainty on when they will close. But the pipeline still looks healthy, and looks similar to before.

The other question is more of a [thought for working] question and I would like you to hear your comments on it. Historically, the emerging countries will also suffer what U.S. and Europe is suffering. And I was wondering, you are putting more efforts to go into emerging nations. And I think that may hit you maybe six months, eight months down the road.

What I was thinking, wouldn't it be a little prudent instead of just chasing very large deals in the U.S. whose sales cycles are also very long, why don't you chase smaller deals, say, $1m, $2m deals, many of those deals, and probably that bet may be more profitable down the road.

Or, say, trying to capture the emerging nations who, by default -- I mean, by -- historically, they will also see the effects that U.S. market is seeing, but probably the effect will be eight months down the road. Any thoughts about how do you balance the two?

So, we have to look at the long term. Some of the things we do will have a positive impact, maybe three years, five years, down the line. So if you listen to economists, if you listen to people who understand the global economy etc., they all say that the growth is going to be coming from India, China, emerging markets, BRIC countries. They will become 50% of the global economy -- already become 50% of global economy in terms of growth and things like that.

So we want to have options in these markets. These markets are also maturing and are willing to pay for services. So there are many factors we have considered and we want to look at all opportunities for growth. It's our way of broadening our footprint, our way of de-risking our business, our way of reducing our exposure to the U.S.

There are multiple objectives to these things. If we had not invested in Europe in 1999, when we were -- Europe was about 7% of our revenues, Europe would not have gone to 30% of our revenues today. It should have not happened, right? So all these things are with the long-term perspective.

Thanks. All the best.

Thank you very much.

Your next question comes from the line of Rama Rao with RR Capital Management.

Thank you for taking the call, guys. I will ask you a bigger picture question as a shareholder point of view. Historically, you have grown at least 30% to 40% EPS, but now we begin to see recently coming down to 20% rate. Probably this is because the U.S. economy is slowing down. If -- suppose the U.S. economy stays slow for some time, what strategy the Company will adopt to maintain the present growth rate? Or, if U.S. economy slows down, invariably Infosys will also slow down?

In dollar terms, the EPS growth is still 30% plus. So the Indian EPS is down because rupee appreciated by 11% in the last 12 months. So that is the thing.

Now in terms of guidance, of course, you are right. We have given a guidance of 17% to 19% EPS growth. That's because of the challenging environment in which we are. Medium to long term, we are still optimistic about the growth prospects for the industry.

Now, would we get to 30% in the future? So let's wait for the economy to improve and then, at that point, we can have a longer discussion. Bala, you want to add?

(Inaudible), we want to have a balanced mix of geographies. Currently, 29% of our revenue comes from euro. Of course, the revenues are more skewed towards the U.S. But we are trying to diversify, getting into to other markets, we are opening in Mexico, we opened in China, so the -- Australia is a great market for us. So we are trying to diversify and it's yielding gains. Europe is already 29% of our revenue.

Of course, always some economies will have some trouble, but you have to build a model which will take care of this and still grow. If you look at the globalizing market it's $800b, and India's share is only 5%. There is enough opportunities for us to grow even if the U.S. slows down. Of course, there could be some short-term impact but, medium to long term, this is still a great growth story. There is enough market potential for us to grow.

In terms of IT industry, the NASSCOM is still projecting that the Indian IT industry will continue to grow 20%, or 25% annually, to $60b by 2010. Do you share this broad viewpoint? And do you think Infosys will participate in this kind of a growth on a long-term basis?

Yes, I subscribe to NASSCOM's view about the long-term growth prospects for this industry. As Bala said, the market share is small. Even dependence on the U.S. is not bad, because U.S. is the largest spender on technology; it is the largest economy. Even if it grows to 3% on 17 trillion, that is a significant growth drive for the global economy.

So, India is a trillion-dollar economy, so there is an order of magnitude with differences in the economy. So I subscribe to NASSCOM's views etc. And NASSCOM also said that this year the growth would be 20% to 22%, so they are in line.

As for the Infosys participating in industry growth, come on! We are one of the largest players in the industry and, if the industry grows, we are to grow.

That's exactly right, exactly right, yes. Not only we believe that you can grow with the industry growth rate, but you are historically taking that market share, so long-term growth can be much more higher than what you are suffering on a short-term basis. Am I correct in my assessment?

So, thank you for your confidence. You are setting a target for us. We will see how we can achieve that. Thank you.

I appreciate that. Goodbye.

Your next question comes from the line of Anthony Miller with Arete Research.

I'd like to continue the conversation on mega deals. You mentioned that you have 12 to 15 bubbling away at any one time. And I think you said this morning that you actually signed four mega deals. Firstly, was that just in the quarter or was that across the year?

The four deals we talked about is in Q4 in the last quarter. We won four deals in the last quarter. These are deals of $50m to $100m. In fact, one of the deals is actually $200m -- more than $250m. It's one of the largest deals Infosys has won in the last few quarters.

In that case, what contribution do mega deals typically make in a year? If you look at the year just gone, what percentage of the growth actually came from these mega deals?

We have factored in the deals which we have already won, because they are already in execution and those are factored in. When it comes to -- when we talk about we are pursuing about 15 to -- 12 to 15 deals today, deals of $100m and so, there, mostly we have not factored in because there could be delays in when the decisions are made, we don't know how many of those we will win etc.

All we want to say is that our pipeline is still very strong. We are active in large deals. We are willing to take over employees and things like that. So there is not much difference in the environment and our credibility in terms of pursuit of large deals, and that is not factored into our guidance unless we have already won them.

Okay. And what has been your win rate, then, in those large deals?

Can you repeat that, please? Your voice is very feeble.

Yes. Can you tell me what has been your win rate in mega deals? What percentage do you actually win?

It is about 35%. 33% to 35% is the -- we win about one in three deals we participate in.

Okay. And that's been a fairly constant win rate, has it, over the past few quarters?

Yes. We are very, very selective in the deals we pursue. Many more deals come our way but we have been very, very selective in going after large deals. We want to make sure that those fit into our business model. We want to make sure that they meet our margin requirements. We want to make sure that the clients -- we have a good relationship with those clients, good connect with those clients, so there are several things we look for when we want to pursue large deals. And that is why the win ratio is one into three.

Sure. And those mega deals, are they exclusively with existing clients, or do you actually win new clients through mega deals?

Both.

Okay. And just one other -- a different topic. You mentioned previously that building of the second phase of the Mysore campus had been behind schedule, but you were hoping it was going to be completed by July. Are you still on schedule for that? Will you be able to accept trainees into the campus?

Yes, the Mysore campus is quite comfortable now and I think we don't see any problem like last year. So it's quite comfortable.

When you say quite comfortable, is the building complete?

Well, the building is substantially complete. By, I think, June end it will be fully complete so we can, right now, start using it.

Great, thank you very much.

Thank you.

Your next question comes from the line of SanilDaptardar from Sentinel Asset Management.

Thanks. I just wanted to know, get a sense, what is the percentage of the repeat business in each quarter?

95%.

Okay, thanks. When you look into the June quarter guidance, it's sequentially flat. I think Ashok said that there is a good demand. Basically, percentage of the spend on the outsourcing is increasing at the clients. Now, when you look on that, basically Infosys has good credibility. Would it not be reasonable to think that the June quarter guidance should be sequentially up if the percentage of dollar spend is increasing on outsourcing?

Short term, we are not seeing any cancellations, but we are seeing some delays in decision making. So we want to be cautious, and that's why we are projecting a flat growth. We are -- because our clients are in a challenging environment. And we have been saying that there are some delays etc. And that's what we have factored in, in giving this guidance.

Okay. So, put it the other way, If I had to look at the pipeline going into the June quarter, when you compare on a year-to-year basis or a quarter-to-quarter basis from March to June quarter, and when you compare that with the pipeline going in to the March quarter on a year-to-year end sequentially, is the pipeline better in the June quarter, or it is weaker compared to what it was going into the March quarter?

Traditionally, Q1 and Q2, which is the current quarter in which we are and the next quarter, are the strongest quarters for us, traditionally. In that sense, this year we are starting slower than previous years.

Q1 and Q2 of your fiscal basically, you mean to say? Not the calendar, right?

Yes, fiscal. Q1, Q2, fiscal.

Okay. So the -- which says that the pipeline going into the June quarter is weaker than what it was going into the March quarter, then?

Okay, this is why I want to qualify that. The pipeline is still strong, our discussions with our plants are strong, but there are some delays. It is not a function of the pipeline. It's a function of decision making and things like that, and our confidence in clients deciding to start new projects this quarter.

Okay. There was a recent paper clippings out here that there is a backlash on the H-1B visas, Infosys, TATA, [Cognition] and all these companies are being reviewed by the Congress on the allocation of the H-1B visas. Do you think any impact from the election backlash and on the reviewing of the H-1B visas by the Congress is going to have an impact on your business?

We have seen this happening in the last run-up to the presidential elections, especially in the Democratic primary. We have to wait and see. We don't know. Right now, we are not seeing any impact.

There is also positive support from many people in the industry in terms of increasing the number of visas and things like that. So we will have to wait and see. For the time being, we have enough number of visas to sustain our growth and to manage our business. So, right now, it should not have any impact.

So, we have run out of time. I want to thank everyone for participating in this call. We hope to be in touch with you. Shekar in India, Sandeep in the U.S, are there available for you to connect and you can even connect with us also. We look forward to meeting you during the quarter or for the next call like this. Thank you very much. Back to you, Sandeep.

Thank you for [assisting] us to the end of this conference call. If you have any further queries, please feel free to call us or email us. We look forward to talking to you again next quarter. Thank you again for joining us.

This concludes today's Infosys Technologies fourth quarter and fiscal 2008 annual results conference call. You may now disconnect.