Infosys Ltd (INFY) 2011 Q1 法說會逐字稿

Ladies and gentlemen, good day and welcome to the Infosys first quarter earnings conference call. As a reminder all participant lines will be in the listen-only mode for the duration of this presentation. There will be an opportunity for you to ask questions at the end of today's opening remarks. (Operator Instructions). Please note that this conference is being recorded.

I would now like to hand the conference over to Mr. Sandeep Mahindroo of Infosys Technologies Limited. Thank you and over to you, Mr. Mahindroo.

Thanks, Rochelle. Good morning, everyone, and welcome to this call to discuss Infosys' earnings release for the quarter ending June 30, 2010. I'm Sandeep from the Investor Relations team in New York.

Joining us today on this call is CEO & MD Mr. Gopalakrishnan, COO Mr. S.D. Shibulal and CFO Mr. V. Balakrishnan along with other members of the management team. We'll 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 September 30, 2010 and year ending March 31, 2011. Subsequently we will open up the discussion for Q&A.

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

I would now like to pass it on to the management team.

Good morning, good evening. This is Shibulal. We had an excellent quarter in Q1 for Infosys. We have exceeded the higher end of our guidance. Our guidance for the quarter was $1.3b to $1.34b. In constant currency terms the guidance was $1.32b to $1.33b. Our revenue for the quarter was [$1,358m].

The revenue increased sequentially by 4.8%. In constant currency terms the revenue increased sequentially by 6%.

Volume increase was 7.6% for the quarter. Onsite volume increased by 7% and offshore increased by 7.9%. Pricing declined by 1.6% in blended terms for the current quarter. Utilization for the quarter was 78.7%. It is up from 77.1% in Q4.

As I said, this was an excellent quarter. We have seen growth all around. The growth was led by BFSI, retail and energy and utilities. BFSI grew by 8.8% this quarter, energy and utilities 9.9% and retail by 6.4%.

We have seen as I said growth all around. Our top 10 clients grew by 6.6%. That is 7.9% in constant currency terms. And the remaining clients, the non-top 10 grew by 4.2%.

We added 38 new clients in this quarter. Our $1m clients today is 341. We have eight clients giving us more than $100m in LTM basis. Of the clients we added, five were Fortune 500 US and three were Fortune Global 500.

Our DSO this quarter was excellent. It was 60 days.

Our operating margin for the quarter was 28.3%. In Q4 it was 30.1%. That is a 1.8% drop in the quarter on the operating margin. Now this is against a 3% drop which we predicted in the beginning of the quarter. So while we predicted a 3% [growth] in the beginning of the quarter, the drop was 1.8%.

We added 8,800 gross employees in this quarter and a net of 1,000. For the year we have increased our employee additions to 36,000. The number which we gave last quarter was 30,000.

Our EPS, we have outperformed our guidance. Our EPS for the quarter was $0.57 compared with the guidance of $0.56.

So with that now let me hand over to Bala to give a color on the financials. Thank you.

Good morning, friends. Nice to talk to you again. We have done extremely well this quarter. In constant currency the revenue grew by 6% sequentially. Our reported revenue growth is 4.8% because we had lot of headwinds in terms of cross currency.

Our gross margin is 41.1% for the quarter. And the operating income was 28.3%, a decline of 1.8% from the previous quarter. In the beginning of the year, we said in the first quarter, the operating margin could decline by 300 basis points, mainly because of the wage increases. But net-net it declined only by 1.8%.

Currency was against us. The rupee average rate for the quarter was INR45.58 as compared to INR45.91 in the previous quarter. And also the cross currency impact was around $15m during the quarter. So net-net the currency impact is around 90 basis points on the operating margin.

Billed rates declined on a reported basis by around 1.6%. But on a constant currency basis, the blended revenue productivity declined by 0.6%. So that had an impact of something around 30 basis points on the operating margin.

And then the utilization went up. It was 69.3% including trainees last quarter. It's gone up to 73% this quarter. And that had a positive impact of 220 basis points on the operating margin. And of course the salary impact of 300 basis points came in. So net-net the operating margin went down by 1.8% during the quarter.

And on the tax front, the effective tax rate went up to 25.5%. It was 21% last year and this year it has gone up because more units came out of STP tax holidays.

Net-net on the EPS front we have done $0.01 better than what we have guided.

Going forward, for the full year we are increasing the guidance from 16% to 18% growth to 19% to 21% growth. This means a constant currency growth of 20% to 22%.

Operating margin for the full year could decline by something around 150 basis points because on the pricing front, we are assuming the prices as we saw in the first quarter continuing for the rest of the year, which could mean a decline in pricing which could impact the margins.

On the currency front, we are assuming rupee to be at INR46.45, which is the level we saw as of June 30, to continue for the rest of the year, which means a rupee appreciation of 2.5% from the previous year level, which could impact the margin by around 100 basis points.

And then of course the utilization could increase from fiscal '10 level. It was 68.1% in fiscal '10. It could maybe go up to 70.7%, so which will positively impact the margin.

So basically the operating margin could decline by 150 basis points. The main reason may be the currency. Otherwise the operating margin could be stable. And the taxation -- tax increase could impact the margin by around 1%. That will reflect at the net margin level.

So we have increased the guidance. We have increased the guidance for EPS also for the full year. Our balance sheet continues to be very strong. We have $3.4b of cash. Our account receivable days have slightly gone up by 1 day during the quarter. It's 60 days. Last quarter it was 59 days. But 83% of our receivables are less than 30 days.

So overall, a great quarter. We have guided for an increased revenue for the full year and we have a very strong cash position.

With this I conclude. Let me open it up for questions.

Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. (Operator Instructions).

Our first question is from the line of Joseph Foresi of Janney Montgomery Scott. Please go ahead.

Hi, guys. I was wondering if you could talk a little bit -- I guess we were a little bit surprised about the pricing commentary. Can you help us reconcile the fact that I think pricing has been reported as stable but now we're seeing it talked about as being down 2% for the year. And was this a surprise? And maybe you could just give us some commentary around that.

So pricing environment is currently stable. We are not seeing any unusual pricing activity. We are not seeing unusual pricing renegotiations. We are seeing some of the renegotiations but those are part of the normal business cycle.

What we saw this quarter was again a tail effect of what has happened last year. Last year there were pricing renegotiations and that is now flowing through the system. We are expecting that the pricing will continue to be stable for the year. And so what we saw this quarter is a residual impact of the pricing renegotiations we did in the last year.

And how long will it take for that to flow through the model?

I think it will take another couple of quarters. See in constant currency terms, last quarter in Q4, the pricing dropped by -- the revenue productivity dropped by 0.7%. This quarter it has dropped by 0.6% in constant currency terms. In reported currency terms we are seeing 1.6% but in constant currency terms it is actually 0.6%. So the impact is starting to come down but it may take couple of more quarters.

Okay. And then just moving on to the labor environment, attrition came up but you're going to hire more. I wonder if you could talk about that environment in general. And do you expect attrition rates to continue to creep up and do you expect any other wage increases?

We have completed the wage increase and there will be no further wage increase. The attrition result that you see is that of suppressed demand. People seeing an increase in growth and trying to hire and the fact that many companies did not have a bench at the end of the financial year and they scrambled to hire when they saw some growth coming up. Also for the last two years, the industry has been subdued so people have not moved out. And those people who wanted to move out saw an opportunity in the higher hiring and went out.

But hiring -- but attrition has come down in June, net of the attrition for people going to college. So I think going forward, July it could be the same level as June, but I think going forward, August, September should be lower. So we think we are past the hump. We increased the hiring number from 30,000 to 36,000, out of which 2,000 is for making good the increased attrition and 4,000 is for growth.

Overall, attrition has gone up, but we've taken all the steps and we see no more steps need to be taken. Communication has improved and we're quite comfortable.

Okay. And just one last question on my side. Have you seen -- we've heard a lot about Europe and potentially some of the macro things. But it sounds like you're still hiring and demand is strong. Maybe you can help us reconcile what's going on and maybe the macro environment from the speculative standpoint and what you're seeing on the ground. Has there been any change in Europe or discretionary projects and discretionary spending? Thanks.

This is B.G. Srinivas. With respect to Europe, the business on the ground, we are not seeing any significant change. The recovery process across sectors for our client organizations looks to be stable. The macro environment, yes, there are challenges around in terms of the debt crisis. But fundamentals for our client businesses, there is a slow recovery and that continues.

The business traction with our clients in Europe continues. Yes, it's a little muted. The decision making is a little slow. But there is nothing unduly to worry about. Of course, we are watching the situation closely in terms of any kind of -- the debt crisis could implode and then it could lead to a larger issue. But notwithstanding that the -- while the business continues as usual, the traction is there, we can't necessarily negate the currency impact. Last quarter the currency impact has been significant. If you knock off the currency impact, the Europe revenues were flat.

Thank you.

Thank you, Mr. Foresi. Our next question is from the line of Bhavan Suri of William Blair and Company. Please go ahead.

Hey, gentlemen. Just a quick question. We saw App Dev tick up nicely but some of the Systems Integration and Consulting business seems to have flattened out. And I was surprised because I expected some of the merger and integration sort of Systems Integration work to have continued. Can you provide a little color around that?

Nothing much to read. It's just a quarter issue. We see a good pipeline of transformation projects, a good pipeline of Consulting, System Integration projects. So it's just a quarterly phenomenon. This is Kris here.

Thanks, Kris. And then I guess, you've commented about discretionary spend still continuing and being -- that momentum continuing. What sort of projects are you seeing? Are people beginnings to engage in SAP and Oracle type of transformational projects?

Yes, there is one set of transformations built on top of SAP or Oracle. We're also seeing a lot of activity around digital marketing, digital consumers. We are seeing activity around simplification, creating a smarter organization, better collaboration, collaboration and integration with social networking, using the social networking technology to connect better with consumers, with customers, partners.

The third dimension is integration of mobile technology into business processes. This is actually going to be again a significant move. So we believe that things like commerce are moving to mobile platforms, new forms of credit cards or new ways of interacting with the consumer. So there are -- sustainability is another area of interest to our clients. So there are various themes we see emerging around which change and transformation will continue to happen.

And each of these changes has information technology as an integral element. That means the change happens because of information technology and this is something we have been working on, fine tuning, aligning our solutions. And one of the reasons I believe we have seen -- we are seeing good traction with our relationship with our clients is this is the -- this is actually playing out very well. This is seen as adding more value to the relationship we bring to the table and hence the higher growth numbers etc. So clearly we are seeing this as a great opportunity for the Company going forward.

Great. And I'll squeeze one last one in here. It's known that BP is a large client of yours. I guess could you talk a little bit about what you're seeing at BP given what they're facing with the challenges in the Gulf and the oil spill.

So let me be more focused on the industry rather than a particular client relationship. We are not seeing challenges in our energy and utilities space. In fact that sector is growing. We don't have any specific client issues at this point in that sector.

Okay, great. Thanks, guys.

The energy utilities space grew by almost 10% this quarter.

Great, thank you.

Thank you, Mr. Suri. Our next question is from the line of Trip Chowdhry of Global Equities Research. Please go ahead.

Thank you and congratulations on very good execution. Two questions here. First, regarding your Testing division, it did show a good sequential improvement. Do you think that is a leading indicator to tell that probably new projects are coming in and because of that Testing business is picking up and probably the overall economy is improving? Is that logic right and if you'd like to put some more color on that. And then I have another question.

See testing is becoming more and more relevant, important to companies because software is an integral part of our life. If software fails, lots and lots of implications on everything we do on a daily basis. As software becomes -- if you take an automobile, software is very important. If you take healthcare, if you take an ECG machine, again it's driven by software.

The software content in everything we touch in our lives is becoming more and more and hence the relevance of software and the importance of software and importance of testing. Failure in software can be catastrophic to our lives and the businesses and things like that. So that's the first point.

The second point is as software drives consumers' interaction, consumer experience, it's not just used by your own employees, but it's being exposed to the entire world. Again the importance of testing, making sure that you project the right experience and the right quality to your customers, consumers, etc.

The third aspect of software testing is the complexity of software. Again complexity is increasing. Systems are more interconnected or more interdependent and things like that. Events which never should have occurred occur as we saw in the financial crisis and things like that. Again testing becomes important and you have to test even the least likely scenarios and things like that.

So there are many, many reasons. I can go on and on, on the importance of testing. And that is the reason why it's one of the fastest growing services and very relevant to our clients. And this is a significant change that has happened as Internet became the primary vehicle for using systems and using software and as software becomes more and more integral to everything we do in our lives today.

The second question I have is on your mobile apps marketplace called Flypp. And we just discovered that you have won a deal with a very major US hardware OEM. I won't name it, but that's what we discovered a few weeks back. I have three questions.

Number one, how many applications are there on Flypp?

Number two, I understand it's white box environment. But is it an on-deck application or off-deck? I mean is it on base on the handset or is it through the cloud you deliver?

And number three, who has created those applications? Is it ISVs or Infosys specific consultants? And do we have any categories of applications in this space?

I can repeat my questions but I would like to get some more color about that.

This is Subhash Dhar and I'll take that. Flypp is an off-net or off-deck app store meant for operators. And it is delivered over the net to the consumers of operators. It is -- it has got some of the applications which are core, or called featured applications which we normally develop specifically for the operator. But it has got several more applications which are developed by the larger ecosystem of developers in the world.

So it is a white label app store off-net for operators. And it has got applications built both by Infosys and the larger community of developers in the world. Does that answer your question?

How many applications do we have?

Right now we have 3,500 applications ready to be used or adopted by the operator. But we expect operators to typically take a fraction of those based on their marketing strategy.

So if it is off-deck then I would assume that whether you're BlackBerry, Android or iPhone, it should be able to render, right?

That's right. It's device independent.

Okay, thank you very much.

Thank you, Mr. Chowdhry. Our next question is from the line of Ed Caso of Wells Fargo. Please go ahead.

Hi, good evening. Thank you for taking my call. A year ago or so you talked about extending training periods so you could hang on to your freshers. Have you changed your approach now to the length of training? Are you accelerating it now that demand is picking up?

No. We're keeping up training. We're taking the pain because we think that the training better prepares people and makes them much more competitive. Last year we extended training from between 16 to 18 weeks to 21 to 24 weeks with an optional five weeks extra for a second technology. The five weeks is not being done now, but the 21 to 24 weeks is still going on. So we have the enhanced training level.

And I guess my other question is, relative to three months ago on your last call, are you more positive, less positive, no change for both Europe and for North America?

We are more positive. We have had three quarters of growth. We have had one of the best volume growth this quarter. We feel that in spite of slowdown in a particular economy we have actually delivered good growth. So we have multiple growth engines within the Company. So we are actually more positive and that's the reason why we have revised our guidance upwards from 16% to 18% to 19% to 21%.

We are also in this quarter and this year absorbing one of the highest compensation increases. We are recruiting the highest number of employees ever in the history of Infosys, 36,000 people. We are preparing ourselves to a higher growth environment, so that if we find the opportunity we can grow by investing in things like visas, etc. So we're doing many things today which is where the confidence is coming from at this point.

Of course there are concerns. Of course we need to be careful about what is happening around us and things like that. And then if we see an opportunity we need to take advantage of that.

Can I just be really quick? Your view towards business, the tone of business in Europe is -- how has that changed versus three months ago?

It's probably same. It's not too different from three months to now. We were seeing signs of the sovereign debt and things like that before also. Actually with time probably there is a feeling that yes, you will have muted growth or no growth for many years but Europe is not going to end up into a disaster.

Thank you.

Thank you, Mr. Caso. Our next question is from the line of Rod Bourgeois of Bernstein. Please go ahead.

Mr. Rod Bourgeois, your line has been unmuted. If you have a question please go ahead now.

Yes. I wanted to inquire again on the pricing front. I know we spoke about this on the earlier call and some on this one as well. But just to clarify, I got the impression from the earlier conference call that you're assuming in your guidance that pricing will be flat in absolute terms for the rest of the fiscal year. The commentary that we talked about on this conference call seems to imply that there could be incremental pricing pressure over the next couple of quarters due to the impact of last year's price concessions. So I just want to clarify what's being assumed in the guidance. Is the guidance assuming flat to sequential pricing trends for the rest of the year?

So what we said was that pricing environment is stable. We are not seeing renegotiations happening in a big way other than what we see normally in any year, because contracts come up for renewal and we will have discussions with clients. Some of them will go up, some of them may go down based on volumes and things like that, which is normal in any given year. So that is what we said when we said -- or that is what we meant when we said the pricing environment is stable.

In terms of absolute revenue per employee, we may see a slight dip or even maybe an uptick because it is a function of which service is growing, which customer is growing. So it is actually a lot more complex. And that is why we said we may see the tail effect of some of the renegotiations which happened last year, based on which customer grew.

So if you look at this quarter, our top 10 and top 25 customers have grown faster than the Company average and we saw in constant currency terms an impact of 0.6% in this quarter. And that tailwind may be seen one or two quarters more is what we're saying. I hope it clarifies that question.

So in terms of the math in your guidance, are you assuming that the pricing on a sequential basis will be maybe slightly lower or slightly better but on average flat? Is that what you're assuming in your numbers?

It's actually too complex actually. So we have assumed at this point, flat -- in absolute terms.

Got it, that helps. And then on the seasonality of demand can you comment on whether the seasonality in your demand pattern in the September quarter, relative to the June quarter, will be substantially different this year than in a normal year? You normally have a better seasonality of demand in the September quarter, and I'm wondering if there is any reason this year that things could be different.

Unless something really bad happens, and we believe that this year will be a normal year, which means that our Q1 and Q2 typically are better than our Q2 and Q3. That's the seasonality you are talking about. So we expect a normal year this year, but of course we will have to wait and see, but we expect a normal year at this point.

Excellent, thanks.

Thank you, Mr. Bourgeois. Our next question is from the line of David Grossman of Stifel Nicolaus. Please go ahead.

Thank you. Kris, maybe I could just follow up Rod's question just you look at the [comp] structure, the revenue dynamic and you had close to 8% sequential volume growth, which is probably the strongest you've had since fiscal '08, yet the offshore -- and also the attrition rates are up which support very strong demand trends. And then conversely the offshore revenue productivity was down I think over 300 basis points. So I think you mentioned mix as perhaps being an issue whether that be customers or services, but those numbers seem pretty large both ways.

So is there anything else you can help tell us that would maybe perhaps help us better understand the dynamic, particularly since I think we were suppose to anniversary out many of the price renegotiations by the end of last fiscal year.

See, David, the tail effect of those will be felt possibly maybe one or two quarters, depending on which customers close. And that difficulty you have or we have in projecting this out at this point, because we assume a certain growth rate and things there and if something else happens, different customers grow faster, etc.

It's also possible that, let's say, that consulting or package implementation service grows faster next quarter. This quarter that service line was actually flat. And that is part of the reason why you saw the continuing effect of that in -- of revenue productivity going down -- revenue per employee going down.

So this is a tail effect, we don't believe that -- and you know we are not seeing actually, we are not seeing large-scale renegotiations or anything like that happening today, which will have to be factored in.

Okay, so is there anything else though in terms of the -- what you are seeing on the volume side? Like I said that 8% sequential growth was perhaps the largest we've seen for over two years. So is there anything in the marketplace that would better help us understand what's going on other than straight cyclical issues and renewed demand.

So given the environment in which we are all operating where short-term visibility is good, long-term there are a lot of uncertainties on the horizon, I said there are clouds on the horizon. We don't know whether it's going to result in a nice rain, which we all enjoy or it's going to be a cyclone.

So what we are doing is actually projecting based on the data we have, forecast we have, preparing ourselves to grow faster if the demand is strong, having a higher bench, having -- recruiting as many people as we can, preparing ourselves. We have factored those into our models now. Those expenses are factored in.

And preparing ourselves to take advantage of growth, as you said one of the highest volume growth, three quarters of 5%, 6%, almost 5% growth. Actually in constant currency terms this quarter is also 6% growth. So we have seen good growth. We have seen our own guidance exceeded in the last three quarters.

And it is because we are prepared to take advantage of opportunities we see in the market, and that is how we will operate in the near future, because of the inability to forecast for the medium to long term at this point.

I see that's helpful thank you. And just a macro comment on, I'm sure you say GE and some of the noise that they've been making or it's been leaked about their intent to diversify outside of India.

Do you have any high level thoughts on a broader trend within large global companies? GE is perhaps one of the most experienced in outsourcing to India, and I'm just wondering whether or not you're seeing that with any other large clients, and any general thoughts on whether the diversification will happen with existing vendors or whether they are looking to diversify vendors as well.

So I do expect the global footprint of delivery centers growing. We ourselves have a center in Philippines, we have a center in China, we have in Eastern Europe two centers. We have a center in Mexico. We have a center in Brazil, a very small center in Mauritius. So we do believe that the footprint will keep growing, because companies for various reasons will require delivery capabilities in different parts of the world.

Sometimes it's because they want support from different time zones, sometimes it's because they want support in the same time zone. Sometimes they want multiple language support certain capabilities are easily available in certain geographies. For example, Philippines is very good for American clients, because accent is actually better from Philippines for VoIP and things like that.

So for multiple reasons you will see that there will be a distribution of delivery capabilities around the world. Also some large companies would actually buy some insurance by again diversifying.

Having said all this India will continue to be the number one preferred location, highest growth location. It has all the characteristics in terms of supply, in terms of lower cost, higher quality government support. All those things will continue in India. And hence, I believe India will be probably the number one location. And for Infosys, India will continue to be the largest delivery center by far amongst all of the centers, even though we are diversifying into many other countries.

Right. Thanks, Kris. Just follow with one quick financial question on the tax rate, are we still expecting 25% for the year?

Yes.

Okay, guys, thanks very much.

Thank you, Mr. Grossman. Our next question is from the line of Nabil Elsheshai of Pacific Crest Securities. Please go ahead.

Hi, guys, thanks for taking my question. I was wondering if you could talk a little bit about the telecom vertical that maybe lagged a little bit as far as the verticals you call out. How much of that is due to wind-down of a single customer? If you were to separate that out what would the results have been? And then looking forward do you see an improved spending environment in that vertical?

This is Subhash again. We haven't seen any specific customer impacting our numbers this quarter. It has been one single big effect and that's been the currency.

Telecom is one of the very few verticals at Infosys where we have business outside of the US, which is a majority of our business coming from outside of the US. So in our reporting currency we end up looking at the impact of euro and pounds and other currency as well.

Having said that I think quarter-to-quarter comparisons in Telecom are not that important or relevant because the investment cycles run into several quarters. We are now seeing an investment cycle in the networks happening in the United States and some of the other countries coming out of the downturn. The network investment normally leads to system investment and product development in about two or three quarters, and we are hoping to see that in the coming quarters.

So that's the way I look at it. And we are very confident about on the secular trend of the cycles of network investments and system investments. So there is no one customer issue. If there is one issue which affected us most in the last quarter it was the currency.

Okay. And then just circling back to Europe real quick, do you see a difference right now in the type of projects, discretionary versus discretionary and maintenance deals in Europe versus in the US? And are there things in Europe that might indicate that they are still on a two to three quarter lag or has the macro thing just kind of disconnected Europe from the recovery (technical difficulty) the US.

See, Europe has always been slightly different from the US in that sense. There is no difference today from what it was before. Because of the difference in the labor laws and the difference of operational freedom European companies have, there has always been a difference between how European companies would outsource versus how US companies would outsource.

Yes, Europe is actually recovering slower or we will see muted growth for several quarters. But that is not changing the way we do work for European companies or the type of projects we execute and things like that. Europe also has been more package centric rather than bespoke or custom development. So there have been some differences in Europe, and that continues.

Okay, thanks for taking my question.

Thank you. Our next question is from the line of Mark Skitovich of Piper Jaffray. Please go ahead.

Hi, it's Mark Skitovich of Piper Jaffray. Just maybe one last follow-up on the pricing front, I'm curious you mentioned contract renegotiations last year, I'm just curious when you saw the majority of those contract renegotiations and how many would you attribute to just renewals?

So the last year there were a few negotiations which were not attributable to periodic renewals. These are cases where the downturn happened, the client got into serious financial situation.

And we believe in relationships, right, most of our clients are relationship-based clients, so when they are in serious trouble we have a responsibility towards them, and they have asked for certain price changes. And we did respond in multiple ways. Some of them we had to do.

Okay that's fair. And just given the continued muted economic environment, what gives you the confidence that you won't see a similar trend at the end of this year?

So a couple of things, I don't think it was anything towards the end of last year it happened when the serious downturn happened, and that was in the beginning of last year in fact. We planned it close through the year.

So currently the situation is different, US companies have definitely become more confident in spending. They are -- their decision making is much more faster today. Budgets for the most part are closed, flat to marginally up. There is confidence that this time around the budgets will be spent. Last year, even though budgets were closed they were not being spent. So the budgets are being spent, the decisions are being made.

You have more from a demand constraint than supply constraint environment. So you can see our utilization is 79.3% which means the overall industry utilization also should have gone up. So we are in a completely different environment and we are not seeing those kinds of demands. We are not seeing unusual pricing activity at this point.

Okay, that's helpful. Then on the utilization front can you -- how much did the roughly 8,000 exits that you saw in the quarter contribute to utilization?

And then could you reiterate what you -- I think you had indicated earlier on the call what you are seeing on the attrition front in July.

So on the utilization, utilization is -- can you just repeat the first question please?

Sure, just I'm curious to what the gross exits that you saw in the quarter how much of that may have contributed to the uptick in utilization. I think you had roughly 8,000 gross exits.

The utilization went up from -- by 3.7% quarter-on-quarter. And the utilization reflects the growth, the volume growth. And I will request Mohan to give you color on the -- question on attrition.

Like I explained earlier the attrition is a function of many things. One is the function of suppressed demand because the industry has seen demand, so I guess others are growing too and they are trying to get people. They did not have a bench, industry, everybody else has scaled down at a very low bench whereas we have kept people with us so we could meet the growth requirements, and they had to scramble for people.

Two, for two years people had not moved around, there was a suppressed ambition on one side, so I guess when the market opened up they also -- people also thought that they should go around.

And three, a very important trend has happened in the marketplace for attrition is that people see the slower growth of the future from what -- the world they know as an indication that (inaudible) gets promoted fast. So people believe that it is only by shifting jobs they could get promoted.

All three trends have led to enhanced attrition for us. But the good news is that in June attrition has come down. And we expect that this quarter attrition overall to be lower than the previous quarter for voluntary attrition, net of people leaving us to go to MBA colleges or M.Tech colleges.

Okay, great. And then just a final question, actually two observations that I was hoping you could provide a little color on. And that's your top client revenues were up about 12% sequentially. I'm just curious if that's a sustainable baseline that you're at now for the rest of the year.

And then on the onsite mix I notice that picked up a couple of 100 bps, which is -- and looking back as far as '08 looks like the highest level we've seen since then. Could you also comment on whether that's a new baseline as well? Thanks.

For the top client quarter-upon-quarter there will be some variation, but a better measure would be to look at our $100m relationships, $50m relationships, $10m relationships, $1m relationships. All these numbers are going up as the company grows. There is a lot more confidence. The clients have in building larger relationship with Infosys, multiyear relationship with Infosys, etc. Our -- as a percentage of revenue our top 10 client is about 4.6% of revenue. And so it's actually a healthy percentage.

Regarding your second question about -- Mark, can you just repeat the second question for me?

Sure, onsite mix it's up about 200 bps.

Yes. So whenever there is higher growth, onsite actually picks up because typically the project starts with the requirement definition on site. So we have seen higher growth, volume growth this quarter and there is a pickup because of that on the onsite side.

Okay, that makes sense. Thanks very much.

Thank you. Our next question is from the line of Karl Keirstead of Kaufman Brothers. Please go ahead.

Yes, hi. I've just got a question about Europe and the States. If we assume that Europe revenues stay relatively flat at the level recorded in June, your North American or rest of world part of the business will have to grow by about 25% to 30% for you to hit your full-year guidance. So, Kris, I just wanted to ask you do you feel comfortable hitting your 19% to 21% growth rate even if Europe stays flat.

This (inaudible) -- Europe is likely to stay flat, what you've seen in the quarter a significant part is to do with the currency. But Europe could grow slower as compared to the US markets, so that is what we have factored in the guidance.

Okay so just to be clear you are assuming some sequential growth in Europe to get to your full-year guidance?

Yes, that is true.

Okay. And then secondly, just on currency you've raised your fill-year EPS guide by $0.02, but obviously you've absorbed some currency hits and I'm wondering what the -- I'm trying to get at is what the EPS raise would have been without those currency hits. And if I were to suggest that maybe you had to absorb about $0.05 of currency hits would that be about right?

Well, it's like this, if you look at our guidance given at the beginning of the year and what we have given now there is an increase in revenues of something around $140m. And 55% of the increase would go towards wages, so the net could be around $63m.

Currency, we assume at a higher level because the cross currencies have moved against us. For example, euro we assumed at $1.35 for in the beginning of the year has come down to $1.23. So the currency itself could impact the margin by around [$37m] for the full year. And then, of course, you apply the tax and other investment at the net level that's flown down only by around [$10m to $15m].

Okay, that's very helpful thank you.

Thank you. Our next question is from the line of James Friedman of Susquehanna. Please go ahead.

Hi, thanks. I wanted to ask if you might have seen any of the impact of the Chinese IT vendors in the market. I think we have the third IPO coming this week. And if so have they had any impact yet on pricing?

See we come across Chinese IT companies in the Chinese market. Most of those companies are focused on China. Their service line is also mostly system integration, driven -- of course some package implementation, system integration kind of revenues. We don't come across them in the European or US market at this point, restricted to primarily China. So we are not coming across them outside China.

Okay, Kris, thanks for taking my question.

Thank you. The next question is from the line of Glenn Greene of Oppenheimer. Please go ahead.

Thank you. Just a quick question, just some color on the BFSI growth, it's been real strong the last three questions kind of a 9.7% constant currency. Just a little bit of color on the drivers, what's really driving it and is it sort of moving into the discretionary services? And do you think this is a sustainable growth path at this level?

So I'm going to give Ashok the last word, so this will be the last question, Ashok will answer that.

Thanks, Kris. Hi, this is Ashok. So I think on the BFSI front we have seen this quarter a continuation of sorts of the momentum that we saw last two quarters. Clearly the spend areas continue to be operational efficiency, that is simplification and standardization. We are seeing a lot of enhanced traction in the area of M&A business. We are seeing a lot more traction in the risk and compliance area, especially in the area of preparation for expected regulatory changes.

We are also breaking new -- essentially we work in three areas. We work in the operation side which is running the bank. We work in the transformation space which is changing the bank. And we work in the innovation part, which is making the bank a better bank. So we have seen a lot of traction in the operations side and the transformation side. We are also breaking new ground in terms of customer experience.

And I think this, just like we did M&A business about a year and a half ago, we broke new ground, we are breaking new ground in the customer experience whether it's the mobility or its social commerce, and essentially the area where we are converging at the trifecta, if you will, between retail, telecom and financial services capabilities. So that's essentially where we are seeing the growth.

Of the 32 accounts that opened this quarter 13 of them are from the financial services spread evenly across the US and Europe.

That's a great segue because I was going to ask the composition of the client adds this quarter, so it sounded like 13 were financial services. Could we get the balance across verticals and also just a sense for which ones are -- how many of these might be transformational or very large deals over time?

So I think there were 12 in manufacturing -- there are 10 in manufacturing, and we don't have the breakup for the others. That's about -- and the rest are across various verticals.

One thing, and let me actually just pull out a bit, one thing -- actually we do have the data on the client. So 13 in the BSFI space, 10 in manufacturing, one in retail, seven in services, two in telecom and two in utilities.

And any idea how many of these might be what you'd call large or transformational deals?

So from a large deal perspective at this point we have some transactions in the works. Obviously they will not kick in from a revenue perspective immediately in the quarter that they open because there will be some lead time in ramping them up.

And from a transformational perspective I'll ask B.G. to respond to that.

In the business transformation area we have eight deals in the pipeline, last quarter we closed three, two were in the manufacturing sector, one in retail.

The spread across the new client acquisitions across the verticals it's a combination of sourcing deals, transformation deals and again some deals in the application development area.

In retail we are seeing investments in building applications around the B2B commerce, business analytics as well as rationalization of the back-end operations, which typically is on ERP both in retail and CPG that's the entry point.

All right. Terrific thank you.

So thank you all very much, I really appreciate you participating in this call. I know that many of you have actually been in both the calls, so thank you, thank you very much.

Our investment relationship managers are available to interact with you. We are also available to interact with you during the quarter. And I'm looking forward to similar interactions in the next -- end of next quarter. Thank you very much.

Thank you, gentlemen on the management team. Ladies and gentlemen, on behalf of Infosys Technologies Ltd that concludes this conference call. Thank you for joining us on the Chorus Conferencing service and you may now disconnect your lines. Thank you.