Infosys Ltd (INFY) 2011 Q4 法說會逐字稿

Ladies and gentlemen, good day and welcome to the Infosys fourth quarter earnings conference call. As a reminder for the duration of this conference all participant 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 Ltd. Thank you and over to you, Mr. Mahindroo.

Thanks, Rochelle. Good morning, everyone, in the conference call to discuss Infosys earnings release for the quarter and year ended March 31, 2011. I'm Sandeep Mahindroo 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 Team.

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 June 30, 2011 and the year ending March 31, 2012. Subsequently we'll open up the call for questions.

Before I pass it onto the management team I would like to remind you that anything that we say with reference 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 to the SEC which can be found at www.sec.gov. I'd now like to pass it on to Mr. Kris Gopalakrishnan.

Thanks, Sandeep, and good morning, good afternoon, good evening to everyone. Thank you for participating in this call at quarter-end for financial year -- quarter four end for financial year 2011. We ended the quarter with the revenue of $1,602m. Our guidance was $1,601m to $1,617m so we are slightly above the lower end. The revenue grew sequentially by 1.1%. We crossed the $6b mark and we have added in the last one year about $1.2b in revenue so good growth for the year.

We have been able to sustain the operating margin within a narrow band. We ended the quarter with about 29% operating margin. Utilization was lower, utilization is about 75.7% excluding trainees and we recruited 8,930 employees during the quarter versus what we said, 5,800. So that had an impact and that's partly the reason.

We are investing for the future. For next year we are planning to hire 45,000 employees approximately. We expect the growth in the next year to be between 18% and 20%. We expect operating margin to be impacted by about 300 basis points, 100 basis points or 1% because of rupee appreciation, the balance again because we have assumed a lower utilization.

And the reason for this is simple. When we look at this year when utilization crossed 80% we saw that customer service levels came down and we had some issues in staffing, some projects were not taken up and things like that. And so we wanted to make sure that we truly are ahead of the growth curve and we are investing for the future. And that's reflected in the way we look at our investments into the future.

We added 34 new clients so client additions are good, large projects have come in, Shibulal will talk about them. We are recruiting people. We are getting recognition in the market in terms of how we are positioned, how we are perceived. We are also investing in aligning ourselves better to the clients from an industry perspective as well as where the clients are spending money. Traditionally, if you look at 10 years back, we have been primarily in the corporate side of the business. Today more and more we are doing a lot of transformational projects for our clients and in the future we also want to look at innovations and how we can help them in their innovation cycle and things like that.

So we are broadening our capability to serve our clients and that's the transformation that we are making as part of Infosys 3.0 which we believe again will serve us well in the future which will allow us to serve our clients better in the future.

So these changes are in play already and we believe that we are ready to respond to market demands and respond to growth opportunities that we see in the market. As I said, our revenue guidance is 18% to 20% for next year and Bala will, of course, give you details of how we look at the margin next year and how we look at the EPS next year.

With this I will hand over to my colleague, S. D. Shibulal, who will talk about the various segments and how we are doing in the market.

This is Shibu. Actually, Let me started the employee addition part which is in front of me we have added 8,900 gross employees in Q4. This is above the guidance we gave in the beginning of the Q4. We had guided to a 5,800 people addition in the beginning of Q4 and the net addition in Q4 has been 3,041. We are 130,000 people today. Next year hiring we are planning to hire 45,000 people next year.

Now looking at clients, we added 34 new clients this quarter. The most important thing is that seven of the new clients we added are Fortune 500. We have 154 clients out of the Fortune 500 list as of today. So we have a very, very strong client base. Total number of clients has reached 620 and that also has gone up. $1m clients last quarter was 350, this quarter is 366. Improvement there. Our top 10 clients are giving us 24.9% of our revenue. Our repeat business as of Q4 is 97% which is a very, very strong repeat business with our existing clients.

From a vertical perspective manufacturing has gone up quarter on quarter but the more important thing is to look at year on year numbers. Year on year BFSI has done very well, it has gone up from 34% last year to 35.9% this year. And manufacturing has remained stable. Retail has gone up; retail has gone up from 13.3% last year to 14.2% this year.

So strong verticals for us, BFSI, retail and manufacturing. The weak vertical at this point is telecom because it is going through an investment cycle and the spending in the industry is slow.

From a geographical split, North America has marginally decreased. India has gone up to 2.7%; it was 2.2% last quarter. Once again if we go to look at the yearly numbers, year on year India has gone from 1.2% to 2.2% this year in FY'11.

Service footprint. Consulting is 25.4%. Year on year it has improved by 1%. Last year it was 24.4%. That is FY'10 and FY'11 it is 25.5%. Also system integration work has also improved from 4.2% of our revenue last year to 5.4% of our revenue this year. Fixed price are materially stable. Year on year it has gone up again by approximately 1.8 percentage points. It reflects the kind of work which we do. More and more transformational work do come under fixed price. Onsite/offshore ratio is somewhat similar or marginally changed.

So with that let me now hand over to Bala for the financial update.

Good morning, everyone. This has been a reasonably good quarter. We have done well on the top line; we are within the range what we guided for. We have seen a decline in volume growth this quarter, volume declined by 1.4%. At the operating income level this quarter, the operating margins were 29% compared to 30.2% last quarter. It's mainly come down due to drop in utilization. Utilization came down by around 3 percentage points that has impacted the margin.

The non-operating income went up during the quarter as compared to last quarter and the taxes also proportionately went up. Today our effective tax rate is close to 27%. At the net income level we are at 25.1% as compared to 25% for last quarter.

For the full year, the operating margin has come down from 30.4% to 29.5%. It's again basically a function of rupee and utilization. At the net income level we closed the year with close to 25% of net margin.

We have a hedging cover of close to $620m at the end of the year. We continue to hedge our exposures for next two quarters at any point of time. We believe the currency market will continue to be volatile and we don't want to take a long-term view. For next year we have given a guidance of revenue growth between 18% to 20% and an EPS guidance of 8% to 10%. We are assuming the rupee/dollar rate at INR44.50, that is what it closed in March, to continue for next year which means the appreciation of close to 2%, 2.5% which will impact the operating margin by close to 100 basis points.

We are assuming that we'll add 45,000 more employees next year and that is on top of low utilization we have seen in the fourth quarter. So utilization next year could come down. That could impact the operating margins by close to 100 basis points.

And then we are increasing the wages in India by around 10% to 12% and to 2% to 3% outside India. That could have a larger impact in the first quarter of next fiscal but overall for the year it could impact the margin by close to 100 basis points. So net-net we are assuming a 300 basis point drop in operating margin next year for an 18% to 20% revenue growth. If the revenue growth comes better than what we expected probably some of this impact we could absorb.

We have seen a similar trend last year when initially we guided for 17% to 19% growth. We had assumed a decline in margin but when the growth came at 26% we were able to absorb most of this impact. So going forward next year if the environment continues to be stable and if the customer spending happens beyond what we expect probably we'll be able to absorb some of this impact.

We are going to spend close to INR2,000 crores on CapEx next year. We ended the year with DSO days of 63 days. I think next year we have given a good revenue guidance. We are assuming a certain impact on operating margins and if the growth comes much better than what we expect we'll be able to absorb some of this impact.

With this I'll conclude. Probably now we can open up the floor for questions.

Thank you very much sir. 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. I was wondering, could you first talk a little bit about your guidance. I know that it seems like it doesn't include pricing and it doesn't include any maybe large deals. Given where pricing was this quarter what was the decision in that including those and maybe you could just talk about some of the other assumptions in the guidance?

Traditionally we have assumed that the Q4 pricing to continue stable pricing and that's the same principle that we have used this year also in the model. Because it's not completely under our control and that's the reason why we don't assume any increase in the revenue productivity. We assume the Q4 number and that's how we do the modeling.

Then -- what was the second question please?

I just was wondering what other assumptions are in that guidance as far as the demand backdrop and utilization rates, etc.

So utilization is -- typically we assume 78%, 79%. We are adding a significant number of people, 45,000 in some sense ahead of the requirement. Currently the utilization is 75% excluding trainees. So you've assumed a slightly lower utilization going forward. We have said that we will continue to have excess capacity. And that impact is about 1.5 percentage, about 150 basis points on the operating margin drop.

This is where Bala said that if the growth is higher than 18% to 20% we should see improvement in margin as we have done this year.

Okay. And maybe you could just talk about it -- it looks like this quarterly numbers with the volumes being down and across the sectors things are a little bit light and I know that there's some seasonality with the budgets. But maybe you could talk about the short-term outlook versus the long-term outlook and maybe what gives you confidence that growth is going to accelerate here in the back half of the year?

In fact, in order to give you actually a better perspective I'm going to ask two of my colleagues, Ashok Vemuri who's handling the largest in the two vertical, BFSI and B. G. Srinivas who handles manufacturing. So two large verticals to give you actually proper perspectives on each of the sectors.

Thanks Kris. This is a shock. So essentially we are a lot more confident going into the year about our performance and that it will not be reflective of what we did in Q4 because from essentially the pipeline that we have the fact that some of our large transactions spilled over from Q4 into Q1. So those are the ones that we will mine in this fiscal year.

Also the fact that we in the last four or five months have opened accounts in geographies that we were not present in, especially Continental Europe. Those are the ones that we will continue to mine.

We have got very good traction on some of our solutions, specifically in regulatory compliance area, in business intelligence and analytics, etc. So from where we are sitting, coming off a couple of quarters that we had robust growth, Q4 was a little soft. I think that is actually something that we expected but our view is that going into the fiscal we will have, based on the opportunity pipeline, that it will be much better than where we are at this point of time.

Okay. I wonder, could you talk -- was there any large projects that rolled off this quarter, anything particularly in the insurance or financial services vertical?

So nothing in the BFSI vertical. We don't have any particular projects that have been canceled, etc. Insurance has been a bit of a laggard over the last couple of quarters but again from where we are seeing it today some of our large transactions that we hope to close very soon are in the insurance space. And we have had not such a large footprint in insurance as compared to the rest of BFS but hopefully we are in a place -- quite quickly actually in a place where we can correct that situation.

Thank you.

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

Hi, good evening. Can you talk a little bit about where attrition stands now and where you think employee attrition will go?

Attrition has come down. We lost 3,500 people in service in this quarter and I think the stability that's come into the place -- we have announced a compensation hike of 10% to 12% for India, 2% to 3% for overseas people and I think this year the attrition for the entire industry will be lower because last year the industry opened up, there was heavy growth, many people did not have enough people and they went and poached from others. This year they come to a new normal and in the new normal they have hired a lot more people last year. The (inaudible) have made a lot more offers, about 140,000 offers for the top five companies if I'm right. And overall people know that they're not going to poach as much because they have enough people. And I think attrition will be stabilized for the whole year, it could be between 12.5% to maybe 13.5%, 14% on a voluntary basis which is very good.

Bala, real quick, the tax rate assumption for F'12?

Well, the effective tax rate for the full fiscal of 2011 was 27%. I think it will continue to be within the range of 26%, 27% even for next year because all the incremental growth could be in (inaudible) that will give some benefit on the tax rate. So I think it will be at the same effective tax rate what we have seen in this fiscal.

On the earlier call there was some discussion about increasing hiring outside of India. I'm just curious how that was going, what the implications are for margins and what fallout you're having from the law suit in Alabama?

See, overall we had hired about 1,500, about 1,000 people in the US and 500 outside the US. This year also we are planning to hire a similar number or maybe up to 2,000 people outside India. The impact on the margin is limited because in many cases these are for high value-added services, the revenue productivity is higher. So we are doing this in such a way that the impact on margin is minimal. But that's something we have to calibrate as we go along. But the aim or the goal is to minimize the impact on margin. It's in line with our change that is happening in the service lines and things like that.

And any update on Alabama?

Can you repeat that?

Any update on the lawsuit in Alabama?

No, I cannot comment on it. We are taking it seriously and working on it. That's all I can say.

Last quick question. A lot of chatter in the press about changes at the senior management level. Can you update us on what the current status is?

So there are two steps actually. One is today Dinesh, one of the founders has announced retirement. Second is Mohandas Pai has announced his desire to explore things outside in terms of education field and things like that, broaden his portfolio. And then of course we have Murthy's retirement which is coming up in August. So the Board is meeting on April 20 which is about 15 days from now and we'll announce the succession planning.

As in the past we have a bench, leadership bench and we're confident that we can manage these transitions well. There will be continuity. We have done it in the past and I'm very confident about the leadership that is there in the Company.

The second step is changes in management internally and things like that. But here it's more about aligning our portfolio so that we can serve our clients better. And we have moved in this direction seven, eight years back when we verticalized North America and included Europe also. And today we're saying we will be going to market as four large vertical industry groupings and one smaller one, the four being BFSI; retail, logistics and life sciences; manufacturing and energy, technology -- energy, telecom and services. And the fifth one which is smaller is public services and healthcare.

Many of the horizontal services like infrastructure management, IVS, etc. have reached a size of $300m plus, a critical mass, so that we can vertically align those also. So within those services we are creating industry groups, aligning them with the go-to-market industries and that's a transformation that is happening internally.

We are also creating new engines of growth over all the products and platforms in the innovation which [Subhash Dhar] will take responsibility. We hope to grow that significantly. We also have cloud, mobility and sustainability as three growth engines which we are creating as business units. So they will also contribute to growth over time.

So we'll continuously do these things as said, we create engines of growth, we align ourselves to serve our clients better, we look at scale efficiencies, we look at leadership development, we look at serving our clients better.

So this is an ongoing process. We hope to complete this part of the transformation also this quarter and we will be then well prepared to manage the growth or handle the growth. We have also launched what we call Building Tomorrow's Enterprise as a thought leadership as a solutions program for the Company. This is to again serve our clients better. We are looking at where the clients are investing in the future and making sure that all the things that we do, all the solutions that we create, every project that we execute in some sense are aligned to these themes. And we can articulate the value we deliver to the clients better, we can serve our clients better, we can create thought leadership solutions around these things.

So these are the changes. We believe that this makes Infosys stronger, this makes Infosys better in terms of the ability to serve our clients, value addition to clients and things like that.

Thank you very much.

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

Thanks. Looking at the revenue metrics by top one, top five and top 10 clients, it seems that the weakness was generated from at least maybe one of these top clients, maybe one or two. Would it be correct to attribute this potential weakness from some of your large clients to the unusually weak results that you did post in BFSI in North America?

So, Moshe, we know that this quarter has some seasonal impact. Some clients take much longer to start spending after the budgets are set. We knew that and that's why we had actually predicted a muted quarter. There is nothing surprising, there's nothing which is going to go forward. This is not truly a change in our client spending or anything like that, it is seasonal. Some clients have that seasonality built into their spending patterns so we had anticipated that, we knew about it and we had anticipated that.

Well, (technical difficulty) beyond that. We're talking about sequentially flat numbers in BFSI, sequentially flat numbers in North America. So again I think some more color on that, that would be helpful.

And then given Mohan's resignation, what is Infosys doing to retain top talent of the Company at this time? Thanks.

So Moshe, if you look at the annual numbers for North America for BFSI, these are very strong numbers. So there is a seasonality. We have had strong quarters in these segments. North America grew full year by 25%, BFSI grew 42% for the full year. So we have strong and we are confident about our -- sorry 32% actually, BFSI grew by 32% for the full year. So we're confident about these sectors and these will be our engines of growth in the future.

Now, your second part of the question was about ability to retain top talent. Our ability to retain top talent is pretty good. And if you look at the leadership pool that we have, many of them have spent long years now, 10, 12 years with the Company. If you look at our Executive Council, very -- long term within the Company. Bala is pointing to himself and he's saying he's there for 20 years now with the Company. So our ability to retain, and there is stability in the team.

Now Mohan has been there for 16, 17 years with the Company now. And as you know, he is a person who wants to contribute back to society. He's passionate about certain things in life, like education. His canvas is much larger. He's been significantly contributing to policy and things. And he wants to expand that. And that's the reason he's looking at it, and he's been there for 17 years.

Dinesh is there for 30 years, actually. And he's one of the co-founders of the Company. And he's run the marathon with us. We've grown the Company together with him. And he's expressed his desire to retire. I don't think these are normal events or which, no, we can treat them as our inability to retain our leadership talent. Murthy retiring is about age, which we accept and things to that. This we knew for quite some time. So these are unique, very, very unique events.

It's not about retaining talent, leadership talent. It is about changes that we have to prepare ourselves and we have to plan ahead and things like that. Four, five years from now, another set of changes would happen in terms of other people retiring. So these are things we have to plan ahead. We are confident that we have the leadership within the Company, this leadership is very experienced, this leadership is well known in the industry, this leadership has been meeting you people, having -- meeting clients. The clients are confident. They are running very large portfolios today. I'm very confident that the Company will be in very, very good hands as we proceed forward.

Thanks, Kris.

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

Thanks. Kris, I guess what stands out, and I know you're the first to report here, but your momentum in the business seems to stand in contrast to many of your peers and to be fair, historically you've been able to manage the various headwinds that the business has faced, whether that be wages increases, FX, attrition, etc. So with that as a backdrop, can you help us understand the headcount constraints and the impact on growth in the fourth quarter as well as your sequential growth in the first quarter, and I guess as well as the impact on margins. And then specifically with the lack of capacity, the primary issue impacting growth on margin and do you expect to see a more normal sequential pattern of growth and level of profitability as the year progresses and you start adjusting your capacity?

So, David, a very interesting question. I'll share our thoughts here. At the beginning of the year we said that 25,000 people, 17% to 19% growth for the year. And we started the year; we had very good two quarters. And utilization crossed 82% actually; the peak was around 82%. And at 82% we knew, and we've shared this in the past with you, that with all of you actually, that it will start impacting customer service, our ability to start projects. We also were not able to take on some of the projects and things like that. So things started slowing down. And it takes actually a couple of quarters to gain, regain momentum, because you don't overnight get back to deals or replace those deals.

That's a learning. And so that is why we said this year let's be ahead. And the numbers are very large. We are now talking about recruiting 10,000 people in a quarter and to bump up 10,000, 11,000, that 1,000 is actually a pretty steep target. So you have to plan ahead. You have to prepare the pipeline. To hire 10,000 people typically we have to get 100,000 applications and things like that, one is to 10 ratio minimum. And so that is why we said let's shoot for recruiting about 45,000. This year we recruited 43,000 , so we are confident that we can recruit 45,000. This quarter also we said 8,500 people were recruited, instead of 5,800. Again, it is because we believe that the year is normal and we can grow.

What is the result of that? There's a slight impact on margins. It's an investment we are making. We are creating capacity, and hoping that when the growth is there, when the growth comes our way, we can accelerate growth and we can prepare ourselves better and that will offset -- or that will actually improve margins at that point. So that's the dynamics of this, and I hope that explains

Well, I guess what I'm thinking is, if you get to a more steady state, I guess model, if you will, should we expect the growth to go back to a mid-single digit type of sequential growth profile but at a lower margin? Or would in fact you see both the margins and the sequential growth rates return to more historical levels?

So if -- so for example if this year we only recruit for the 18% to 20% actually the margins will be better except for the rupee impact. Rupee impact is a structural thing and that will have an impact. We've actually taken care of the impact of tax rate and things like that. We're now at the 27% effective tax rate. So the rupee is the only structural impact. We are investing ahead.

So our ability to sustain margins has been demonstrated consistently year after year even this year. If you actually exclude the rupee impact but look at the impact on margins, it would have been actually better, the margin would have improved, if it were not for the slight drop in utilization and things like that. But that's how it is. So if we stop recruiting or reduce the pace of recruiting, actually our margin would improve. That's one of the levers now that we have, that we can use if need be.

Okay, and just one last thing, the local hiring and the investment spending. You didn't talk as much about that. I know you mentioned that you made double the local hiring. But you're only at 1,000 people, it sounds like, a year. So can you again help us at least better understand what's going on structurally in the industry and how that may change the requirement or the acceleration of those investments over the next several quarters?

So in our case, it's tied to the service lines in which we are investing, consulting, system integration, the services that are closer to the client and things like that. And they are growing. So as they grow, we need to recruit a lot more people locally. But the revenue productivity is higher and it also generates downstream revenue. So that's how we're hoping that -- and we have demonstrated this here. We have added one of the largest numbers in our history in terms of hiring outside India. So we are able to do this hiring and maintain margins reasonably well. Of course, this is an execution game, and we have to continuously execute these things properly so that this can go on. And that's what we are striving to do at this point.

Okay, great. Thank you.

Thank you, Mr. Grossman. Our next question is from the line of Sanil Daptardar of Sentinel Investments. Please go ahead.

Yes, thanks. In your guidance, what are you assuming in terms of the pricing?

Excuse me, this is the Operator. Sir, are you on a speaker phone?

No, I'm not.

Okay, thank you. Please go ahead.

For the purpose of the guidance we have assumed stable pricing. So the revenue production in Q4 is what we have assumed for our guidance.

So although guidance for fiscal '12 is basically based on the volume growth that you're assuming, and where is that volume growth are you seeing? In which verticals you are seeing the strain that you mentioned right there in the conference call? Are those manufacturing, BFSI and retail are going to continue with the strain going forward for the next year, you think so?

So it's all volume growth which we have factored in our guidance because that is our standard process. And the revenue productivity improvement is not entirely in our hands. So we don't factor it in for guidance and future planning at this stage. It goes quarter after quarter. Number one.

Number two, there are verticals which we are seeing where we are seeing traction. Of course BFSI will continue to be an important vertical and we believe that this will grow. Manufacturing, retail. Energy and utilities is growing faster for us.

And healthcare and life sciences are areas where we are investing. We believe that they will also pick up momentum. So other than telecom, telecom is only segment where we are seeing weakness. And we believe that is because of the investment cycle. So other than telecom also other verticals will do very well for us.

Okay. Just do me a color on what you -- when you compare 2010 and I think 2010 was a cyclical recovery year, there was aggressive growth out there, people had projects that were spent and the enterprises were spending money. When you look into next two years, this year I think you saw a more normal environment and that's what you have commented in your press release. And you say it's a stable environment. When you compare and contrast that with what happened before the financial crisis, is the environment what it is now before the financial crisis? And going forward, do you think that most of the projects are over and the rate of growth is going to slow into fiscal 2013 with the decline of part-time you think?

So to answer the question on the environment. The environment is definitely not exactly same as what it was before the financial crisis. It is not the same as what was in the financial crisis, nor is it same as what was before the financial crisis. That kind of stability I don't think we can hope for at this point in time because of various reasons. You have economic uncertainty, you have currency volatility, you have regulatory volatility going on. And clients are dealing with various macroeconomic events. So what is happening is that the decisions are getting delayed. Also when they take them, they are taken on a hurry-up basis. And so we are getting used to that new normal, which is different from what is well in the past. That's part of life. We need to get used to that new normal.

Now as growth is concerned, we have given a guidance of 18% to 20%. At the same time we are prepared, completely prepared to take advantage of any other opportunities which will come during the year. That is where the investment for recruitment and the dipping of utilization is planned, at the second part.

Thirdly, when we look at the future, what we are going to focus on is on the client, and on the areas in which the clients are trying to achieve certain things, right? So it's all focused on the client. Kris talked about it. We have traditionally been very strong in operations, business operations part, and optimizing that piece. That means what we have done in the past is to deliver a lot of value due through optimization in the business operations piece.

Our ability to transform their business has consistently improved. Today our revenue from consulting system integration kind of work is approximately 25%, which has considerably gone up over the last, let's say, five to six years. So that is the second piece where we are investing, where we are expanding our addressable market. And that is also very relevant to the client.

The third part is the business innovation piece, where the clients want to innovate to take advantage of some of these global trends like digital consumer, sustainability, emerging markets or smarter organizations. So what we are seeing is the very good traction with those things. Our actual results, our ability to procreate, our ability to transform, are allowing us to address more and more of those markets.

So if you look at it in total, we are extremely relevant to the client in all the three areas where they spend, or where they are -- their action is. Operations and optimization. Second is transformation and third is business innovation.

So we believe that expands our addressable market space; that gives us an ability to add value to our clients in all the three areas, and drive growth for ourselves.

Okay. If I can ask one last question on the deal sizes. What are you seeing in the marketplace in terms of the deal sizes? I think during last few quarters there had been some mega deals but has those mega deals gone away or been still continuing? And how you can do -- gain more market share from those deals.

So in the last quarter we have closed four transformation deals, and six large outsourcing deals. And so a pleasant surprise actually, the deals which we won were actually larger than the deals which we lost, which means that our average size of the deals which we win are going up, which is good news for us. At this point we are chasing deals, about 12 deals, anywhere between $50m to $250m. And our win rate is usually about one-third, approximately one-third. We would like it to be the higher and we are working on it. But otherwise it is one-third.

And our transformation deal size they have definitely gone up. It used to be somewhere between $30m to $50m. Today we are easily winning $80m to $100m.

Good, thanks a lot.

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

Hi, thank you. Just maybe a clarification from a prior question, I was hoping you could be a little more specific about customer service issues that you encountered last year that directed the hiring levels you're expecting this year. I'm just curious, how much of that was volume or attrition-related versus just shortage of skill sets and also maybe shortages geographically. And how the hires you plan for this year will alleviate those issues. Thanks.

So regarding the utilization we talked about, our philosophy of operation is that during the planning stages we do optimize planning, which means we will plan for 78% utilization, let's say, so we have given a guidance of 20%, we will plan for 78% at 20%. And during execution we maximize. So as and when we find opportunities we will actually take them up, even if our utilization goes above 78%. It is not -- we have done it many, many times in the past.

The challenge happens if it goes above, let's say, about 81% and it remains there for a couple of quarters. One quarter, 81%, 82% it goes back, we are fine. But if it remains there for a longer period of time, our ability to take up programs definitely comes down, because if you have 78% utilization on 100,000 people base, you have 22,000 people on bench. But if you have -- of course, please remember a lot of it is leave and travel and training and things like that. But still, at a gross level, if you go to 82%, you have 18,000 people on the bench. And out of that, about 10%, almost 10% is about all the leave, travel, training, sabbatical, all kinds of other things.

So your number of people who are available to start new projects come down. You don't see an immediate impact, because impact of project starts are seen over two quarters down the line. And that was what Kris was talking about.

That is answer to one question. The second was about hiring. We are planning to hire 45,000 people next year, 6,500 in Q1. However, lateral hiring is about 20% of that, approximately. And let's say we are planning to hire about 2,000 people outside India? 2,000-plus people.

Okay, thanks very much, appreciate it.

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

Yes, guys, thanks for letting me ask another question here. So over the last couple of quarters, the volume growth in particular has been softer than what we've come to expect, particularly in a more normal market environment, from Infosys. So I guess I'm wondering, over the last couple of quarters, the December quarter and the March quarter, do you think you've been keeping pace with the offshore markets' overall growth rate, particularly in the March quarter, where your sequential volume growth was actually slightly negative?

So we cannot at this point speculate, because we were one of the first to announce the results. But having said that, 26% for the year seems to be actually ahead of the overall industry. The industry is expected to grow, or was expected to grow, at 18%. So we are ahead of the industry for the annual growth rate.

Right, but the run rate for the last couple of quarters has dropped. So if you -- to the extent that you had some issues in the March quarter related to -- you might have lost a week of work as budgets transitioned from one year to the next, or some yields that were delayed, do you expect those to be similar issues that we'll hear from other offshore players in the upcoming weeks as they release earnings? Or do you think you might have experienced some client-specific issues on your own part that contributed to that?

So we have a seasonality which we had guided also. I do not know about others, because others have not as far as I know declared their results, I don't know.

Okay. But would you be surprised if the other players have sequential volume growth that's flat or slightly negative? Or would you expect that other players would have more positive growth trends? Because it does seem that the offshore market is still on a growth trajectory that's in the low 20s range, from what we can tell. And so either you've been through a lull here, or the offshore market is experienced some problems. And it looks more like you've been through a lull here rather than that the offshore market is experiencing some problems. So can you give us any perspective on that?

So if you look at our guidance of 18% to 20% for the next four quarters, we believe that the growth is there for this model, growth is there. So there is some seasonality and that's what is reflected. This is our perspective.

Okay, great. Thanks, guys.

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

Thank you. There are a couple of questions here. If I look at the (technical difficulty) industry structure over the last I would say four months or so, we have seen some changes. It may not be so significant, but it's definitely pointing to something. We saw MindTree having some issues. We also saw (technical difficulty). We also saw tightening at (technical difficulty). When I look at all these things, it gives me a sense that probably the industry of offshoring, outsourcing is getting mature and probably the industry growth of about 18% to 20% that we may have assumed will not be right. Probably it is more around, 11% and 13% of the ICs.

Based on -- let's say (technical difficulty) right. All the industry growth is not 18% to 20% and industry growth is more towards say for 10% to 12% or maybe 13%. In that situation, what can Infosys do to outgrow the market.

Number two, if the growth rate of that industry is really 10% or 12%, then definitely acquisition should be your top priority and acquiring customers and revenues not (technical difficulty) technology. So suppose I am right, how does this change your equation and then I have a follow-up question.

Very interesting question. So again, let me give you my perspective. Actually I would say many of you are probably better positioned to answer this question. If you look at NASCOM's position this year with 18%, we are doing 26%. And NASCOM's prediction for next year is about 16%, 17%. We've given a guidance of 18% to 20%. NASCOM's guidance or projection for the next 10 years through 2020, is that the industry would grow at around 11% to 13%. So that's the range of numbers you're talking about.

For this year, NASCOM says 16%, 17%. We are saying 18%, 20%. Last year NASCOM said 18%, we are saying 26%. We have delivered 26%. So those are some of the numbers.

The question I had as (technical difficulty)

Excuse me, this is the Operator, sorry to interrupt, Mr. Chowdhry, your line is not very clear. If you are on a speakerphone please use your handset. Mr. Chowdhry?

Hello?

Yes, please go ahead.

Thank you. The final question I had was regarding -- hello, can you hear me? I guess not, so I'll just pass my second question. Go ahead.

This is the Operator. Mr. Chowdhry, please go ahead.

(multiple speakers)

-- move to the next question.

Yes, probably that will do it.

So should we move on to the next question?

Yes, Rochelle, thank you.

Thank you. Our next question is from the line of [Rahul Acharia] of the Everest Group. Please go ahead.

Hello, thanks. Last time around we mentioned about investments made around -- in the BFSI about mobile banking, rural banking and investment around that area. So I wanted to get an update of how's that coming along in this particular quarter? And any outlook on the next year?

Yes, in fact, mobile banking we launched in November in (inaudible) in RDS, and we have already signed up three customers globally. And we are seeing very good traction on that. And on top of it we have also been able to do the POC on the mobile commerce as well, which is another offshoot of the whole mobile initiative. This quarter we have made investments in launching Finacle on cloud for segment called Corporative and Community Banks. So this is something which we are following through.

Okay, and on the energy and utilities vertical investment around smart meters, smart grid technology?

Pardon?

In the energy and utilities vertical, any investments around (technical difficulty) and smart meter solutions?

As in another industry verticals, we do invest in creating point of view, creating solutions and things like that. The whole area's sustainability is a very interesting area, and we believe that there will be an area of growth for the Company. So we have created a center of excellence around sustainability. And Energy and Utilities is a growth engine for us, and we will continue to invest. We're looking at smart metering or automated metering. We're looking at smart grids, we're looking at sustainability. So there are a lot of opportunities in the area of energy and utilities.

Okay, thanks [from my side].

Thank you, Mr. Acharia. Ladies and gentlemen, due to time constraints, that was the last question. I now hand the conference over to the Infosys management team to add closing comments.

Thanks again, (multiple speakers)

Thank you, everyone, for participating in this call, really appreciate all the questions. Our Investment Relationship managers are available; and you know them. So if you have any further questions, they'll be able to answer or if you need to talk to any one of us, we are also available. Looking forward to interacting with you during the quarter or at the end of next quarter. Thank you again.

Thank you very much.

Thanks, everyone, have a good day.

Ladies and gentlemen, on behalf of Infosys Technologies Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.