Infosys Ltd (INFY) 2011 Q2 法說會逐字稿

Ladies and gentlemen, good day and welcome to the Infosys second quarter earnings conference call. As a reminder, for the duration of this conference all participants' lines will be in the listen-only mode and 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, sir.

Thanks, Melissa. Good morning, everyone, and welcome to this call to discuss Infosys earnings release for the quarter ending September 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 senior management.

We'll start the call with a brief statement on the performance of the Company for the recently concluded quarter, followed by the outlook for the quarter ending December 31, 2010 and the year ending March 31, 2011. Subsequently we will open up the call for Q&A.

Before I pass it on to the management team, I would like to remind you that anything that 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 explanation of these risks is available in our filings with the SEC which can be found on www.sec.gov.

I will now pass it on to Mr. S. Gopalakrishnan.

Thanks, Sandeep, and welcome to everyone on this call. Good morning, good afternoon, good evening wherever you are.

Infosys had an excellent quarter. After three years we're seeing a sequential growth of 10.2% or double-digit sequential growth. The last time we had a growth of this nature was in the financial year 2008. That is three years back. And this is the first quarter where the incremental revenue has crossed $100m. So clearly a very good quarter.

We have seen volumes increase by 7.2%. We have seen highest number of employee additions. We have improved our margins by -- operating margin by 1.9%. We revised our guidance for revenue to 24% to 25%. So all in all a good quarter.

We believe that our customers are investing in technology, investing in outsourcing, investing in building a better tomorrow, building tomorrow's enterprise. They are looking at where growth can come from. They're looking at, of course, efficiency also. But they are actually looking at investing for the future.

Infosys over the last few years has been looking at value-added services, both in terms of understanding our clients better, understanding industry trends better, business better, proactively investing in intellectual property, solutions. Infosys has been investing in building deeper client relationships. And we believe that all of that are paying off now. And as the recovery takes shape, we are able to grow faster.

Second, we believe that the global business environment is more confident. Yes, there are still challenges, but they've been able to adjust to the environment. They're able to look at strengthening their margin position, balance sheet, cash position, etc., and hence they're willing to invest.

At the same time, of course, there are significant uncertainties in the environment. Companies continue to remain cautious. The focus on costs will continue. Pricing is stable at this point. We will not see rate increases soon. And then, of course, the currency volatility, regulatory changes, all these things are going to pose challenges for businesses.

What this quarter has done is given us confidence about our strategy of looking at a cautious approach to the future, a cautiously optimistic approach to the future so that we can maintain our costs, control our costs. If the worst happens, our costs don't go out of whack. And invest in capacity, invest in capability, scale up as and when we see growth opportunities. And make sure that we take advantage of these growth opportunities and grow faster, which is what we have done in this quarter.

I think this strategy seems to be working. We have had four quarters of sequential volume growth greater than 5%. Our attrition has come down, and others will talk about it more. We have now two cycles of promotions every year. I think it's just making sure that we can address more employees as and when they're due for promotion rather than wait for, sometimes, 11 months. So that the cycle is twice. And we have factored all these costs into our model.

Bala will, of course, talk more about the composition of margin and things like that. All in all an excellent quarter. We have revised our guidance. We've done well.

And now let me pass it on to Balakrishnan to talk about more details about the composition of the revenue, which sectors grew, which sectors did well, and talk about margins and things like that. Over to you, Bala.

Good morning, folks. It has been a great quarter. We have seen revenues growing by 10.2% sequentially. In constant currency terms it was 9.3%. We have seen the earnings growing by 14%. As you all remember, we gave a guidance of $0.60 at the upper end. We have reached $0.65. So overall it has been a great quarter. We have seen a double-digit growth after three years. The last one we saw was in Q2 of fiscal '08.

We have seen all around growth across all customers and verticals. The top 10 grew by 12.1% during the quarter. Out of top 10, at least five customers grew double-digit during the quarter.

If you look at the segmentation, Europe grew well. Europe is 21.8% of revenues. It went up from 20.3% last quarter. In terms of services we have seen Consulting and Package Implementation doing well. There was a nice uptake in Consulting and Package Implementation. In terms of industry verticals we have seen growth in retail and manufacturing and also energy and utilities.

Our gross margin went up by around 1.7% during the quarter. Our operating margin went up by 1.9%. We have seen the currency moving in our favor.

The cross currencies had an impact of close to $10m on revenues. The rupee has depreciated by 2% on average rate basis. It was INR45.58 last quarter. It was INR46.48 in Q2. So that impacted the margin positively by close to 80 basis points. Then we have seen uptick in the revenue productivity of around 3.2% and also improvement in utilization. Both of that contributed close to 110 basis points on the margin. So net-net we have seen the operating margin go up by 1.9% during the quarter.

We have seen the tax rate slightly going up this quarter. The effective tax rate is 26.5% for the quarter because we have seen greater realization of profits in our operations onsite, that is outside India.

Net-net we had a net margin of 25% for the quarter which resulted in an EPS of $0.65 which is much higher than what we expected.

The DSO days are 63 days for the quarter. It was 60 days last quarter. And most of the accounts receivable, close to 80%, is less than 30 days. So we have healthy accounts receivable.

We are ending the quarter with $3.9b of cash. Our return on capital employed is still 35%. It is extremely good.

We had earlier given a guidance of 19% to 21% growth in revenues for fiscal 2011. We increased that guidance to 24% to 25%. We are assuming the pricing to remain constant from the level we saw in Q2, in Q3 and Q4 which means a flat revenue productivity for the full year.

We are assuming the dollar/rupee rate to be at INR44.50 for the rest of the year which means an appreciation in the rupee/dollar rate of close to 4.5% for the full year, which could impact the margin by close to 2 percentage points, but in our guidance we're assuming the operating margin to decline by 1.3%, mainly because of the rupee/dollar rate.

We are assuming the tax rate to be closer to 26%, 26.5% for the full year which means the tax impact could be close to 1.3% on the margin. So net-net the net margin for fiscal 2011 as compared to fiscal 2010 could decline by 2.6% mainly because of currency and tax. And that is why the growth in the earnings per share is going to be 11.4% to 13.2%.

The challenge for us today is there are uncertainties in the economy that is going to have larger impact on the client spending. There are uncertainty in the currency market. All the currencies are volatile which is going to impact our margins. There are uncertainty in respect to regulations which are coming out in the countries we operate. So we have to manage all the uncertainty. So we are very optimistic about the short term. We are seeing greater growth coming in. But we are cautious about the medium to long term.

With this I will conclude. Probably now we can take on question and answers. Thank you.

Thank you. Ladies and gentlemen, we will now begin with the question and answer session for international as well as participants in India. (Operator Instructions). The first question is from the line of Rod Bourgeois from Bernstein. Please go ahead.

Great. I wanted to ask a question about demand and then a follow up question about currency/margin.

On the demand front I wanted to enquire as to whether you think the current level of discretionary spending on IT services is an above normal level of discretionary spending due to the possibility that deals were pushed out of 2009 into 2010. Or do you think the current level of discretionary spending is about a normal level for your client base.

So let me ask Ashok, who handles the largest industry vertical for us, banking and capital markets, to give his view of his clients. And then I'll ask B.G., who handles manufacturing, to give his view. Thanks.

Thanks, Kris. So, Rod, essentially I would say -- it's difficult to categorize whether it's above normal or below normal, the normal itself has changed so dramatically. But what I would say is that we've seen, for example if you look at financial services we've grown about 8% this quarter over previous quarter. A significant number of the transactions this quarter have been fairly similar to the kind of transactions or programs that we have done in the past.

But to that we've also added some significantly new -- newer service lines. So we're getting invited to transactions which we were not invited to in the past. The clients are actually buying a much more expansive set of services from us. So our service footprint has actually increased. We're getting invited to these earlier in the game. So that is also the reason why our Consulting business, especially in the financial services sector has grown. And there are newer kind of transactions that we are doing today. So we're doing a lot more on the risk management, on the compliance side. We're of course still focused on operational efficiency and productivity side of the house. We're doing a lot more on data management, essentially things like making our client organizations smarter. We're catering to the changing clients of our customers. That is, as they become more digital, in terms of providing them a different set of services to cater to that particular aspect.

So I think what has happened to us in this particular quarter is that there has been an increase in services demand for us, but the nature and complexion of some of the transactions that we're getting, predominantly in the US market, has changed. In the European market there is still a significant amount of push that's coming through post the end of summer essentially.

Thank you.

Hi, this is B.G. I'll talk about the manufacturing sector. Again in the last quarter we've seen an uptick in demand. If you look at the sector per se, again within sectors we have the high tech sector, the semiconductor sector leading the growth. And again, specifically in these sectors we've seen investments both on discretionary as well as run the business-as-usual, spends on both sides. The discretionary spend however has been on those areas which clients are looking at closer simplification internally and driving efficiencies. And in that context we have won certain transformation deals which are ramping up.

The other part of discretionary spend is more on the client side. We have CRM applications and order management applications. And some of it is being again addressed to what we call the digital consumer. And here again our own investments in building solutions is paying dividends because we are able to differentiate and win these opportunities in the marketplace.

The manufacturing sector, again in terms of uptake, the other sectors which have shown growth is automotive and aerospace where we have seen business demand for automotive sector marginally going up. And in that context clients are willing to spend. This is happening both in the US as well as in the Continent Europe.

Other sectors which we have seen growth is discrete manufacturing. This again in the last six months we have seen a fair degree of stability return to the sector. And in that context clients are more confident to spend money. The resources sector has remained a little muted relative to the other subsectors within manufacturing.

In Europe the growth has been across retail, manufacturing, energy utilities, and services. So it's been a pretty broad-based growth across Europe. And a significant part of the growth last quarter in Europe has come from the Continent.

Okay, great. And then on the currency front, can you specify what margin impairment you're expecting from currency as you move from the September quarter to the December quarter? And the reason I ask that is that it seems that given the movement in currency, the margin impairment in your full fiscal year could be even more substantial than what you've guided to or what you've assumed in your guidance and so you must be doing some other things to offset the impact of the currency which is a tribute to your margin focus. But if you could quantify the margin impairment you expect from currency in the December quarter and then what you might be doing to try to counteract that for the rest of the fiscal year.

See, our average rupee/dollar rate is INR46.48 for the second quarter. We are assuming INR44.50 for the third quarter, that is December quarter, which means around 4%, 4.5% appreciation in the rupee which could impact our margin by close to 200 basis points. But in the guidance we're assuming the margin to decline only by 130, 140 basis points, because we are looking at a growth of 3.5% to 4.5% in revenues in the fourth quarter and also some efficiency on the cost side which will reduce the impact.

There are multiple things here. One is the cross currency movement. The other is the rupee/dollar movement. The cross currency movement is right now favorable to us because dollar is weakening against all the currencies. The rupee/dollar is against us because rupee is appreciating against the US dollar. If both of it moves in the same direction, probably we can have some offset there. But it doesn't look like, so we may have an impact. We are seeing rupee already moving to close to INR44 today and a lot of money coming into the country. Very difficult to predict. At INR44.50 the impact on the operating margin could be closer to 200 basis points, but we have minimized by using some of the levers. And the guidance assumes some 130, 140 basis points.

Great. Well explained. Thank you very much.

Thank you. The next question is from the line of Joseph Foresi from Janney Montgomery Scott. Please go ahead.

Hello. It sounded like you guys are basically saying that discretionary spending is continuing to take place. Maybe you can help us reconcile that with your development part of the business whose growth rate seems to sort of lag some of the other segments. What's the reconciliation there?

So I'm going to ask Steve Pratt, Head of Consulting to talk about the discretionary spend. He is saying we're seeing a lot of traction in transformational projects. We're doing some very significant projects. And let him talk about it.

Great.

Okay, thanks, Kris. So I think when you look at discretionary spend, maybe you have to look at it as there's cyclical changes and then there's secular changes. And certainly from a cyclical change, discretionary spend is certainly up from where it was last year where things were really rotten. And so we expect it's sort of back to approximately where it was before and it seems to be holding steady. Our pipeline, especially in Consulting and Package Implementation, is extraordinarily strong right now.

But we are seeing also a secular change in what clients are asking for. And I think the market is moving towards our model. Our model of really combining the best of through high value management consulting onsite with a global delivery model is clearly the winning model. And we're seeing us take market share very aggressively, with the consulting market maybe growing 5%, 6%, 7%, depending on who you ask, and our Consulting and Package Implementation business growing 40% year over year, so this quarter versus this quarter last year. Clearly, we've got the right model and are executing. So that's the way we see it.

Okay. And then on the attrition and pricing front, maybe you could talk about the trajectories of both of those metrics going forward or your expectations for that. And just what is happening within each individual one, just a little commentary on what the attrition is and then, of course, pricing side.

Well, the attrition came down in quarter two compared to quarter one. We had 5,400 in quarter one and we had 4,200 odd in quarter two for the services part of the business. It has come down. And we think the trend is it will come down this quarter too compared to quarter two. Now on the LTM basis it's 17.1%. It's gone up from something like 15%. But that's because one low quarter, the first low quarter, the fourth quarter is gone and a high quarter has been substituted.

Attrition has come down for many reasons. The frenzy that you saw in the marketplace for hiring is getting over because many companies who want to hire in the market have done so. They've gone to a next level. And now the normal hiring is beginning to take place.

Two, we have demonstrated to our people that staying in the Company makes good sense because we've given them a very good salary hike. We opened up a lot of promotions in the first quarter this year. Now in the third quarter there's going to be a lot more promotion slots available. So they see themselves as having greater career growth in the Company than outside.

Three, we opened up the process for lateral movements across career streams and are seeing a very positive response. So people know they can go from career to career, career stream to career stream.

And lastly, there's been a deeper connect over the last two quarters between various levels of management and people at the bottom because many of the project managers, many of the senior delivery managers and delivery managers and unit heads have gone around, met people, communicated with them. So they feel much more connected than earlier. And that gives us confidence that attrition is going to come down.

In the market it remains more at the same pace. It may come down in the marketplace the next two quarters. Right now we're seeing a declining trend for us.

Okay. And just a commentary on the pricing side?

Subhash, you want to talk about pricing?

Hi. This is Subhash. We have -- the pricing -- we have just seen an improvement in pricing this quarter, but that has been mostly because of the business mix. Services with higher revenue productivity have picked up for us and that's what is showing in our price improvement.

On the rates, we are seeing a relatively flat picture at this point in time on pricing pretty much across the business. There are some accounts where we have opportunities to increase prices, but then there are also requests for discounts which come on individual products -- individual projects. And that kind of negates some of these opportunities for a price increase. So relatively flat.

Have the reductions cycled through?

Yes, they have.

Thank you.

Thank you. The next question is from the line of Moshe Katri from Cowen and Company. Please go ahead.

Thanks. Nice quarter, by the way. Do you have any preliminary thoughts on calendar year 2011 IT budgets, or even the budget cycle at this point? Thanks.

Ashok, do you want to talk about it?

Yes, thanks, Kris. So I think it's a little too early to completely call what the budgets would be like. Of course the commentary that we're hearing, and the predictions from analysts, industry analysts, is that IT budgets would be up by 2% odd. But typical budget cycles for our clients start around Thanksgiving time, and we really get a sense of where we are by Christmas or early January. But the commentary that we're hearing is that it's trending slightly higher, maybe 2% to 3%. But definitely the commentary that we're hearing is that the percentage of business that will go to companies in the global delivery model will be -- will probably be a little higher than it was maybe this year.

Okay. And then retail was up significantly on a sequential basis. And you've seen some sort of a recovery on the telecom side as well. Maybe you can talk about both verticals.

Yes. This is B.G. I'll talk about retail. Retail, again we work with several top retailers in the US as well as in the UK. But more importantly, and in terms of spend, we are seeing again a significant portion of spend focused on the front-end applications which include the digital consumer. And there we have specific applications, specific solution sets which we have been able to position and sell.

On the CPG front we are seeing investments which are more focused on simplification of process which, typically, are package enabled transformation. And that's an area where again we have had significant large deal wins in the last six months. And these programs have ramped up and we have seen a spike in terms of the growth rate last quarter.

We continue to see traction across retail CPG going forward in the near term to medium term. And the reason again is existing client base within the retail sector we are seeing traction growth with cross-selling services. At the same time the transformation programs are ramping up both in Europe as well as in the US.

Subhash on telecom?

Thanks, B.G. On telecom we've seen a flat quarter -- one more flat quarter, really, in a series of a few. But I think we're now seeing signs of spend in the IT space which is largely driven through investments in products and services, which usually comes right after the investments in networks which have been going on for the last four to six quarters. That's the story in wireline.

On the wireless side we have started seeing interest in the global delivery model. In fact, one of the large deals that we did sign last quarter comes from this segment. And this is a sign of some maturing wireless operators gunning for more efficiency and operations consolidation. So starting calendar year '11, I'm seeing a more optimistic picture on the telecom spend.

Okay, great. And then I think you've announced I think you had nine large deals during the quarter. If you were to kind of break it down by vertical, where did you get the most deals signed this quarter? And then if you could just give us some sort of more break down.

Hello? Sorry, can you please repeat the question?

Yes. You announced about nine -- I think nine large deals during the quarter. Can you break it down by the verticals from which verticals kind of -- where do you see these deals coming from by verticals?

Yes. So that's nine large deals in the half, that's not in the quarter. We've had deals --- the closing deals in this quarter are six. And they're distributed across the verticals as well as geographies. So they're fairly evenly distributed across our major verticals, that's retail, manufacturing, financial services and telecom and are fairly evenly distributed across the geography, both Europe and US.

All right, thanks.

Thank you. The next question is from the line of Edward Caso from Wells Fargo. Please go ahead.

Hi, good evening. My question is around vendor consolidation, which has happened the last year or two, and with the market now getting better and your clients starting to feel a little better, are they starting to reverse that trend or are you still gaining share relative to maybe some of the more plain vanilla offshore providers?

Ed, we believe we are gaining share, but having said that I will qualify that by saying it is actually maybe too early to say this. This is based on some of the wins we have had where we did actually gain in the consolidation. What we're seeing is that as they consolidate, as they look at fewer vendors, they want to go to vendors who have broad capabilities, who have the ability to scale, who have the ability to support them globally, who have the ability to give them the confidence in terms of systems, processes, security, because they are that much more dependent on these suppliers. So none of those things change with an improvement in economy, but we are still too early to say that the economy has truly improved and now there's an opportunity for everyone.

My other question is any update you can offer us on protectionism and in the US and in the UK and what actions the firm Infosys may be taking?

So the immediate impact is the slight increase in visa cost, we're not seeing any other impact yet. Definitely we are tracking these. We are putting forward our views through industry associations, to governments and continue to watch the situation. If you look at the behavior for clients, if you look at the numbers, etc., there's no impact, outsourcing continues to grow and the global delivery model is benefiting from that outsourcing.

Right, thank you. Congratulations.

Thank you. The next question is from the line of David Grossman from Stifel Nicolaus. Please go ahead.

Good evening and thank you. The first question I have is for Steve. Steve, can you perhaps break out the scale or the size in dollars of the Consulting business versus the Package Implementation business?

Sure, hi, David. So the -- if you look at the combined business right now it's at just shy of $390m for the quarter, it's about 25.8% of revenue, that's up from 23.8% a year ago, with the total number of people in that is about 16,000. If you look at Consulting versus the more Package Implementation part of it, I'd say that the transformation projects is over $0.5b at this point for the year and so you can do the percentages there.

But the way we think about it is one combined thing, the way we go to market is combined with Consulting and generally the technology part for the implementation, because we think clients are buying business results now not just advice. And so when we go in we want to go from strategy all the way through implementation. And the model's working incredibly well, for instance, I think we can claim to be the number one consulting firm in the world when it comes to digital marketing and multi-channel commerce, especially in retail. If you look at the top retailers around the world, we're doing or have already done most of the digital marketing and multi-channel commerce deals for those clients.

And can you just remind us what that $500m, what it comps to in fiscal '10?

So, in fiscal '10 I don't have that number right in front of me, but it's grown or it's at a quarter over quarter -- I'm sorry, year over year at about 40% growth, so whatever 40% less than that.

Got it, thank you. And actually a question for Bala, as Europe becomes a larger percent of the mix what impact, if any, does that have on the financial model, whether it be the ratio of effort, onsite/offshore tax rate, etc.?

I think if today the realizations in Europe are much better, but again when you become a larger part of the portfolio it could reflect the world basket. The margins we relayed today are better because the currencies in Europe are moving in the direction which is right for us.

On the tax rate I don't think it will make much difference because we had an onsite/offshore model and the tax rates outside India are much higher but the margins are lower. Most of our profitability comes from offshore, because anyway 82% of the offshore revenues are getting taxed today. So I don't think it will have any material impact on the financial asset.

So you think the ratio of onsite/offshore work in Europe will pretty much parallel what you've experienced in the US?

I think so, yes.

Okay and perhaps a question for Mohandas, could you give us a quick update on what your gross headcount plans are for the year? And I'm sorry if you mentioned that earlier, I may have missed that, but if you could just give us a quick update on what you plan to hire gross for the year?

We are planning to hire 40,000 employees for the full year. Earlier we have given a guidance of 26,000 but looking at the growth in the second quarter we have increased the number to 40,000.

Right, okay, congratulations. Thanks very much.

Thank you. The next question is from the line of Shashi Bhushan from Prabhudas Liladhar. Please go ahead.

Good afternoon, sir. Congratulations on an excellent result. In this quarter we added only 27 clients, which is one of the lowest since I think Q1 FY04, barring Q1 FY10 when we added the same number of clients. Is there any specific reason because this is considered to be the seasonally strongest quarter?

Well, I think the number of clients actually keeps fluctuating over quarters, we don't read too much into that. I think the important thing is the quality of those new account openings have been extremely high, we have about eight of these clients in what we call the Must Have category and starting last year we have changed our incentive structure for our sales people to focus on a certain set of prospects. So we are less bothered about the total number of clients opened but we are more excited about the number of Must Have accounts that get opened in any given quarter and this quarter has been excellent from that perspective.

And also the net new client addition was only 592 net clients when compared to 590 last quarter despite (inaudible). So is the client addition bothering us at this point of time or we will keep winning clients and let go of some of the less profitable clients?

Yes, so we don't really look at letting go of clients but we do have a focus on our clients which are growing faster with us and we do give incentives within the Company for all the operating units to help grow -- the growing accounts. I think we are really after the wallet share of the accounts which want to grow. Once again there is no deliberate attempt here to have attrition on accounts, but if that happens then so be it.

And so last from my side, we believe that most of the M&A related work would be getting over or the peak is behind us. So what are the other opportunities that we are supporting in the SSI space that would deliver the same kind of growth that we witnessed in FY10 and 11?

I'm sorry, I missed the first part; did you say we were tapering off on the M&A work?

Yes.

Yes, well, which is actually -- it's not fully tapered off as yet, but the interesting thing with the M&A work, as we realized getting into it, was that it has multiple derivatives of what you can do from there, because if you are doing M&A work you are sitting at the center of multiple opportunities, it's not just about migration or integration, you actually get into a lot of consulting work. You're in a position where you define documentation, you define process changes and you do a lot of change management.

So we are actually very satisfied with the traction that we are getting. Yes, new M&A opportunities are not coming up but, interestingly, in Europe for example we are seeing a lot of opportunities on the reverse of the M&A, if you could call it that, essentially divestments that are happening.

But the newer areas that are coming up, I think if you look at what we are doing for banks, with the banking and capital market spaces, we are working with running the bank, we are working in changing the bank and we are working in making the bank a better place. So in the operations side of it, which is running the bank, we continue to do work on the operational efficiency and the productivity part of it.

On the transformations space, if you look at some of the large deals that we have done, they are not just plain vanilla large deals but they have a significant component of transformation, there's a significant component of multiple service lines that we bring in, it's led by Consulting. So we are actually seeing significant traction, whether it's in the area of customer experience and loyalty, which we call more and more of our clients, customers become digital.

We're working in making our client organization smarter, so we are working in the area of data management and reporting. We're seeing a significant amount of traction in mobile banking. We're seeing a lot of traction in risk management and regulatory compliance, which is today fast becoming one of our biggest subsectors in which we are working.

So in terms of opportunities for us, we are seeing a shift towards more transformation and towards more on the revenue side in terms of product rollout, etc. As well as given the ubiquitousness and pervasiveness of technology, newer opportunities are opening up for us whether in terms of getting our clients cloud ready or mobile or providing services through mobile banking or whether it is just about integrating services across multiple channels.

So the nature of the opportunities is changing and, given our investments that we have made in the last year and some of our solution and consulting capabilities are really coming to -- basically bearing fruit now.

Yes, if I could ask just one more question. In our Product business segment, does it include only Finacle or it includes other IP business as well?

The major product, or the largest product we have is Finacle, the small solutions which we are starting to license now supply chain visibility, iEngage, which we are licensing now. But the large product is the universal banking product we have, Finacle, which is today considered as one of the top -- by several analysts actually, one of the top banking products in the world today.

Right, so we are seeing good growth in (inaudible) and iEngage and all the new IP that we have developed, then why the growth in the product business, again I talk about the quarterly thing only, but the last two quarters has not picked up although the demand for I think the new business, the new services that we developed is very good?

Well, I think the company growing by 30% this year, if you look at the figures here, and the scope for the future is pretty good, they won a large number of deals, which are significant deals, which have a rollout of about two to four years. And it's not easy business, because the rollout is long, it is a complete transformation for the enterprise and it will take time, but right now, if you look at the last four years, they've grown at more than 35% (inaudible) which is extremely good. And this year too they're looking at very, very, very, very good growth.

Also, they're investing very heavily into the product, this year we'll probably invest about $62m, around $62m, which is going to be extremely significant. They have 2,500 people doing R&D for Finacle, which is one of the largest R&D groups for any product anywhere in the world of a similar nature. So I think you're going to see growth in future.

Thanks, that's all from my side.

Thank you. The next question is from the line of Nabil Elsheshai from Pacific Crest Securities. Please go ahead.

Hey, guys, thanks for taking my question. I just wanted to clarify -- excuse me, I think on the earlier call you had mentioned financial services regulation in the US causing some level of uncertainty, and then just to the answer on the last question you said that compliance was a big driver. So when you look at the uncertainty with the regulations that were passed in the US, do you see that as a risk to budgets for you guys next year in that vertical or do you see that as an opportunity and a revenue driver?

So financial services regulation is an opportunity because it creates investment in technology as companies change business processes, companies change systems, etc. When we talked about regulatory concerns we're talking about issues related to visas, immigration, protectionism, etc., which are causing concern for the IT services in this training.

Okay, then I might have misunderstood the earlier one, great. And then on the pricing front you have a situation where utilization across the board, not just with you guys, is running pretty high, volumes are growing nicely. If those conditions continue into next year would you expect that to manifest itself into increasing prices given the constraints on supply?

Well, at this time our core markets, where our clients are, they are not showing any signs of accommodating price improvements, so from where we see this we're not really looking at any significant price improvements on that front. But I do understand your question on the supply side, but yes, this is a discontinuity that we are living through where supply is getting constrained but the demand is not necessarily coming at a higher price.

Okay and then I guess last question on the Package Implementation strength. Is there any -- is it mainly upgrades and then when you look at in particular Oracle with Fusion coming out next year, is that going to continue to be a major driver for that sector or is that product a little too immature at this point to really anticipate significant upgrades in demand there?

Yes, hi, Nabil. If you look at the growth in Package Implementations it has been all around, whether you slice it by vertical or packages or by geography, so in the last quarter. So having said that, revenue is coming from the (inaudible) transformation programs like Steve talked about earlier and part of it from the upgrades also. PeopleSoft has seen a lot of upgrades happening.

And to answer your question about Fusion, yes, we are a partner with Oracle very well in the Fusion journey, so we have developed Fusion migration in [case] and all that for that journey; we are very well prepared for that. So that could open up an opportunity for us as clients are showing interest, as you might have seen observed from Oracle OpenWorld and subsequent dates. So that could be an opportunity and we are very we are very well prepared for that. Thank you.

And do you think that's something that could hit next year or do you think it'll take a while to play out on the Fusion cycle?

It will take a longer journey because they have got to first get some beta customers and then show it and prove it and then it will take quite a few years, two or three years, before it becomes really mainstream revenue earner for us.

Great, thank you very much for taking my questions.

Thank you. The next question is from the line of Jamie Friedman from Susquehanna. Please go ahead.

Hi, I just wanted to revisit a question that was asked earlier. Although you added 27 gross customer additions, it only yielded two net customers. I know the Company doesn't focus so much on the total customer account, but I'm wondering were there any regions where the net customer account may have declined?

No, it is not in any specific area. This is because we have a very stringent criteria for qualified clients, so we see this all the time. We are looking for a threshold number for the last 12 months, so it is quite possible that a few customers will get dropped off every quarter.

In this dealing -- out of the 27 clients we added this quarter, three of them are Fortune 500 US and three of them are global Fortune 500, so these are very, very good clients and these are Must Have clients for us.

So of the two net, Shibulal, does that mean there was one in North America and one in Europe or did you lose clients?

No, not really, I don't have that -- no, I can't say that, I don't have that information and I don't believe it is that way, it is just net. Because our criteria is so stringent, even if the client is continuing with us sometimes it will get dropped off because of the LTM revenue will drop before a threshold which we have kept. (multiple speakers).

Thank you. My next question is for Balakrishnan. So you're up to 40% fixed price which, although some of your competitors have stopped disclosing that, I think is at least comparable to Accenture. So that's up 1,000 basis points in the cycle. At what level are you comfortable with such high fixed price contracts? What do you see as the risks in going in that direction and when do you see it reaching a peak?

No, I think there is no level. Fixed price is better because the revenue productivity benefit comes to us, but we have to always make a tradeoff, the client is very specific about their requirements and they are very clear, we give him the fixed price. As long as we get the scope right, as long as we get the productivity benefit I think we are not looking at any level spread, we are -- it has gone up to 40%, we are comfortable with that, if it goes slightly higher as long as we get the benefit we are comfortable.

Okay, thank you for taking my questions.

Thank you. The next question is from the line of Trip Chowdhry from Global Equity Research. Please go ahead.

Thank you and again a very good execution. One quick question I had is regarding the ABN Amro deal. If you may recall, four years back that was what I would consider the industry changing deal because that was the first $1b outsourcing deal that was split between six players, and that deal is up for renewal and so far we know IBM has won a portion of it and probably Patni has lost it and probably another player. I was wondering what is, number one, Infosys role in the renewal?

What has changed four years back and, say, today in terms of engagement maybe, the kind of projects you are doing, the number of people you are deploying?

And also, from ABN Amro's perspective as a deal perspective, what has matured or changed from an overall outsourcing model? That's all from me.

You know ABN Amro itself has gone through so many changes that it's a little difficult to track which ABN Amro one is talking about, but we have -- we work with ABN Amro in Amsterdam, which is a Dutch bank, and we have significant traction with them. We are a service provider, preferred service provider for them. Parts of the bank that were given away to some of the other banks also happen to be our clients where we continue to engage with them on the erstwhile program that we signed four years ago.

Some of our competitors are not in some of the newer clients that this program has devolved to, whether on the European side, on the continental European side or in the parts of the deal that went to a bank in the UK. Having said that, the nature of the business that we are doing with the Dutch entity, as well as with the banks that have taken portions of that deal, has obviously evolved from the kind of transaction that we had earlier signed on to.

The parts of that deal, some of them are not up for rebid, which they're actually being driven directly through the service providers such as ourselves. And the parts of the bid that are up for -- the parts of the deal, excuse me, that are up for rebid have actually --- we are in process and we think that we will have as good a chance as anybody else.

Some of the competitors who had been part of that deal at that time are not part of the rebid as we understand for the Dutch entity.

Perfect, thank you very much.

Last question please.

Thank you. The last question is from Mridul Gupta from Everest Group. Please go ahead.

Thank you and congratulations for a great quarter. I want to ask for the Financial Services vertical, which are the geographies which are driving growth in this segment?

So we are actually seeing traction in the US market, we are seeing traction in the European market. We saw a little bit of a slowdown, if you can call it that, in the UK market but that's actually picked up post the summer. We are seeing traction in continental Europe as well; we are seeing traction in Australia, as well as in our deals in Latin America.

I think the interesting thing is apart from the Services part, where we are seeing not only the kind of deals that we used to see earlier, we are seeing a completely different set of transactions, a different set of buyers, etc., for our services. We are also seeing some significant traction for Finacle, our core banking platform, in Western Europe and in the United States and I think over a period of time, as we see the transformation of core banking platforms, which is very much delayed in the US market, we will see actually traction build from a core banking platform perspective, which itself will lend to a higher degree of Services business for us.

I see, thank you.

Thank you.

So, thank you all very much, really appreciate all the good questions. Please connect with our Investment Relationship managers to ask any other questions during the quarter, we're available and thanks again.

Thank you, gentlemen of the management. Thank you, Mr. Mahindroo. Ladies and gentlemen, on behalf of Infosys Technologies Ltd that concludes this conference call. Thank you for joining us and you may now disconnect your line.